M4 is made up of specific liabilities of monetary financial institutions (MFIs) held by the non-MFI private sector.
The counterparts to M4 are formed from the MFI consolidated balance sheet.
The M4 balance sheet counterparts are as follows:
M4 = M4 lending + net foreign currency lending to private sector + net lending to public sector (including coin) + net lending to non-residents + net other assets.
This is sterling lending by monetary financial institutions (MFIs) to the M4 private sector, including advances, acceptances, reverse repos (from December 1995), investments and holdings of short-term paper.
Acceptances, though still reported off balance sheet by individual reporters, are treated on balance sheet for the purposes of the aggregate financial accounts and monetary statistics. This treatment was introduced in September 1997 and backdated. For further details see the Statistics article ‘Outcome of the review of banking statistics, including effects on monetary and other banking statistics’.
Reverse repos include sale and repurchase agreements against marketable securities of all kinds, and include any claims of the Bank of England on the M4 private sector resulting from official money market operations. A reverse repo is a type of secured loan.
Since September 2011, 35% of the sterling inter-MFI has been deducted from other financial corporation loans, within M4 lending. For further details see the Statistics article ‘Estimation and allocation methods within money and credit data’.
Net foreign currency lending to private sector
This is foreign currency lending by MFIs to the M4 private sector less deposits from the M4 private sector. Lending is the foreign currency equivalent of M4 lending above. Deposits includes sight and time deposits, repos and short-term paper held by the private sector.
Net lending to public sector (including coin)
This is lending by MFIs to the public sector less deposits from the public sector, in all currencies. Sterling lending to the public sector includes coins in circulation. Coin is a liability of central government and therefore outside of the MFIs' consolidated balance sheet. But coin is a component of M4 and is therefore included here in order to reconcile the counterparts. Aside from the inclusion of coin, lending and deposits are constructed similarly to the above counterparts.
Net lending to non-residents
This is constructed similarly to ‘net lending to the public sector’ above.
Net other assets
This is MFIs’ other assets less other liabilities. Other assets include holdings of commodities, investments in MFIs including equities and long-term debt (greater than five years’ original maturity), fixed assets and accrued receivables. Other liabilities include long-term paper issued (greater than five years’ original maturity), capital and other funds.
Counterparts to M4ex
Since May 2009, the aggregate M4 excluding intermediate other financial corporations (M4 – IOFCs or M4ex) has been our preferred measure of the broad money supply. More details about M4ex are available in the Statistics article ‘Measures of M4 and M4 lending excluding intermediate other financial corporations’.
M4 is replaced by M4 excluding intermediate other financial corporations (OFCs).
M4 lending is replaced by M4L excluding intermediate OFCs.
An extra counterpart, net lending to IOFCs (equal to M4 deposits from IOFCs less M4 lending to IOFCs), is included.
No other counterparts are affected. The aggregates required to construct such a table are available on the Database. The series codes for these aggregates are
Amounts outstanding (nsa)
RPM/RPQ B3DQ: M4 excluding intermediate OFCs
RPMRPQ B3DR: M4L excluding intermediate OFCs
RPM/RPQ BG2C: Net sterling lending to IOFCs
RPM/RPQ B3DS: M4 excluding intermediate OFCs
RPM/RPQ B3DT: M4L excluding intermediate OFCs
RPM/RPQ B9GX: Net sterling lending to IOFCs
Counterparts to Changes in M4: Alternative Presentation(Table A3.2)
The alternative presentation of counterparts to M4 is as follows.
M4 = Public sector net cash requirement + purchases of public sector net debt + external and foreign currency finance of public sector + M4 lending + external and foreign currency flows + net non-deposit sterling liabilities.
Public sector net cash requirement
This is the net balance between cash expenditure and cash receipts of the total public sector.
Purchases of public sector net debt
This is purchases by the M4 private sector of central government and other public sector debt. This includes gilts, treasury bills, tax instruments, National Savings and Investments, local government debt, public corporation debt and ‘other’ debt, which includes non-marketable debt and Northern Ireland government debt.
External and foreign currency finance of public sector
This includes non-residents’ purchases of gilts and treasury bills and other finance raised from non-residents, official reserves and changes in public sector foreign currency deposits with MFIs.
This is sterling lending by MFIs to the M4 private sector.
External and foreign currency flows
The total of external and foreign currency flows in the counterparts to M4 is due to the current account of the balance of payments, and to the M4 private sector’s capital account and foreign currency transactions. The impact of external and foreign currency factors on broad money is described in the Financial Statistics Explanatory Handbook (see Office for National Statistics) and, in more detail, in the Statistics articles ‘External and foreign currency flows and money supply’and ‘External flows and broad money' (Quarterly Bulletin 1983, pages 525-529).
Net non-deposit sterling liabilities
This is made up of:
- changes in the sterling component of capital and internal funds and reserves of all MFIs (i.e. essentially their retained profits and issues of securities of over five years original maturity) less MFIs’ sterling investments in UK MFIs and other non-financial sterling assets
- the difference between building societies’ sterling transactions with each other pre-September 1997 and pre-October 1986, between banks in the UK.
The balance sheet version of the counterparts can be reconciled to the alternative version of the counterparts. The Public Sector Net Cash Requirement (PSNCR) and its non-MFI sources of financing (‘public sector contribution’) are replaced by MFIs' net sterling lending to the public sector. M4 lending is shown in both versions of the counterparts. The external and foreign currency counterparts are more disaggregated in the MFIs' balance sheet version and show the lending and deposits breakdown within non-residents’ sterling and foreign currency business and the private and public sectors' foreign currency business. Net non-deposit sterling liabilities are replaced by sterling net other assets. Foreign currency net other assets, previously part of external and foreign currency finance, are also shown separately.
The Public Sector Net Cash Requirement is equal to the sum of the Central Government Net Cash Requirement (CGNCR), the Local Government Net Cash Requirement (LGNCR) and the Public Corporations Net Cash Requirement (PCNCR).
The Central Government Net Cash Requirement (CGNCR) was previously known as the Central Government Borrowing Requirement (CGBR). The Local Government Net Cash Requirement (LGNCR) was previously known as the Local Authorities Borrowing Requirement (LABR) and the Public Corporations Net Cash Requirement (PCNCR) was previously known as the Public Corporations Borrowing Requirement (PCBR). The Central Government Net Cash Requirement on own account excludes on-lending to local government and public corporations. The LGNCR and PCNCR include this borrowing.