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On August 13, the central bank released financial statistics at the end of July. The balance of broad money (M2) was 303.31 trillion yuan, a year-on-year increase of 6.3%. The balance of narrow money (M1) was 63.23 trillion yuan, a year-on-year decrease of 6.6%, at a historical low, and the decline widened by 1.6 percentage points from the end of last month. The growth rate of M1 was 12.9 percentage points lower than that of M2, an increase of 1.7 percentage points from May, and the negative scissors gap was at a historical high. The balance of currency in circulation (M0) was 11.88 trillion yuan, a year-on-year increase of 12%. How to understand the phenomenon of the widening negative scissors gap between M1 and M2 growth rates is the main issue of this article.

Changes in the growth rates of M1 and M2 and their theoretical explanations

Since the beginning of this year, the growth rate of M1 has declined significantly faster than that of M2, and the gap has gradually widened. At the end of May, June and July, the growth rate differences of M1-M2 were -11.2, -11.2 and -12.9 percentage points, respectively, which were the third and second highest in absolute value since 2011 (the other two times were -13.2% in January 2014 and -11.7% in January 2022). It is worth noting that the growth rate of M1 is at a low level in recent years.

my country's money supply is divided into three levels: the first is cash in circulation M0, that is, currency, which is equal to the amount of money issued by the central bank minus the amount of money retained by banks; the second is the narrow money supply M1, which is equal to the sum of M0 and the demand deposits of various units in banks. Specifically, M1=M0+corporate demand deposits+organization and group deposits+rural deposits+credit card deposits held by individuals; the third is the broad money supply M2, which is equal to the sum of M1 and the time deposits of various units in banks. Specifically, M2=M1+urban and rural residents' savings deposits+time deposits of corporate deposits+trust deposits+other deposits.