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Money Supply Definition of the term Money Supply Components of Money Supply (M1) Broad Money (M2) Factors affecting Money Supply Expansionary Factors Claims on public enterprises Net Foreign Assets (NFA) Domestic Credit (DC)

The main reason for collecting monetary and financial data through the Returns is to generate information necessary for formulation of financial and economic policies, in addition monitoring the macro-economic developments in Oman . Money Supply In most economies, the money stock plays an important role in determining the price level, and could also influence output and the balance of payments. The determination of money supply is a process which results from the complex interaction of the behaviour of various economic agents such as the Central Bank which determines the amount of the monetary

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base i.e., currency plus bank reserves, the commercial banks that determine the volume of lending and other investments, and the public that allocates the financial wealth among currency, demand, savings and time deposits as well as other financial assets. The money supply process largely emerges from these behavioral inter-relationships and decisions. Definition of the term Money Supply The term 'money' is variously defined both in theory and in practice. Traditionally money is defined in two senses, the narrow measure and the broad measure. In the narrow measure MI, money includes currency with the public and local currency demand deposits held by the private sector and public enterprises. Broad money supply M2, in turn, is defined as narrow money plus time and savings deposits, foreign currency deposits and import-related deposits of the private sector and public enterprises. Components of Money Supply (M1) Currency with the public (i.e., currency issued by the CBO minus cash in the vaults of commercial banks plus Resident Rial Omani demand deposits of the private sector and public enterprises).

Top Broad Money (M2) M2 = MI + Quasi-money Quasi money includes; a) Resident Rial Omani saving and time deposits (including certificate of deposits issued by commercial banks) of private sector and public enterprises. b) Resident foreign currency deposits of the private sector and public enterprises c) Resident import related deposits, i.e. commercial prepayments also known as margins, are deposits that importers are required to place in special accounts as a prerequisite to opening letters of credit. Note: Deposit holdings of Central Government are usually excluded from either money or

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quasi-money because they do not represent liquidity in the sense that they do not constrain government expenditure policies, and are thus different in character from private sector deposits. In other words, the Government's decisions concerning expenditure do not usually depend on the amount of deposits it has but on wider measures, since it is not bound by liquidity considerations like those which apply to other sectors.

Factors affecting Money Supply The factors affecting money supply are given in the table on Monetary Survey (Depository Corporation Survey). The monetary survey (DCS) is structured to facilitate macroeconomic analysis that makes use of the linkages between monetary statistics and other

macroeconomic aggregates. To this end, the balance sheet data of all commercial banks and the Central bank are consolidated into a few categories of major interest linking depository corporations broad money liabilities to their foreign assets and liabilities to their claims on, and liabilities to Central Government, thereby linking monetary statistics to BOP and fiscal statistics. Money Supply (M2)= NFA +DC - OIN Where NFA = net foreign assets of monetary authority and commercial banks DC = domestic assets of the banking system (net claims on Central Government and claims on other sectors) OIN = other items net denote a residual category for other liabilities less other assets, when other liabilities includes all liabilities not included in broad money.

Top Expansionary Factors Increase in. net foreign assets claims on Government claims on private sector

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Claims on public enterprises Contractionary Factors Increase in.Government deposits Other items net Money Supply is analysed based on changes that occur in the above items. For example, an increase in net foreign assets of the banking system with other things remaining equal will lead to an increase in money supply while a decline in net foreign assets acts as a contractionary force to growth in money supply. Item-wise break down of the factors affecting money supply as shown in the Table on Monetary Survey

Net Foreign Assets (NFA) Foreign assets of CBO plus foreign assets of commercial banks less (-) foreign liabilities of CBO and foreign liabilities of commercial banks. Top Domestic Credit (DC) 1. Claims on Government (net) Government borrowings from CBO Plus Government borrowings from commercial banks including in the form of TB's, Development bonds and other Government paper. less(-) Deposits of the Government held with CBO and deposits of Government held with commercial banks. Note: In the monetary survey, claims on Government are entered as net, i.e., the figures against this item include all credit granted to the Government by the banking system minus all deposits of the Government with the banking system. This treatment facilitates measurement of the impact of Government operations on the liquidity of the economy.

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2. Claims on Public Enterprises Borrowings by public enterprises from Commercial Banks ie. claims on public enterprises are shown separately because of their importance and because of the special needs of these entities, especially in under developed countries. Claims are entered on gross basis, because the amount of deposits and cash that they possess (their liquidity) is expected to influence their expenditure, unlike the government. 3. Claims on Private Sector Claims on the private sector includes all domestic (Resident) credit granted to individuals and private enterprises, including investments made by banks in domestic shares and securities and are entered on gross basis because of the considerations pointed out above as for claims on public enterprises. Other items (net) Other items net is a residual account which includes all items not classified elsewhere and applies to the accounts of the Monetary Authority and commercial banks. It comprises the excess of other liabilities over other assets, when other liabilities include all liabilities excluded from broad money. Top

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