In January of this year, the currency supply increased by more than 20 trillion won, pushing the amount of money circulating in the market to over 4203 trillion won. The currency supply has been on the rise for 20 months. The increase was substantial in demand deposits as investment waiting funds grew due to interest rate cuts.

According to the 'January 2025 currency and liquidity' statistics announced by the Bank of Korea on the 17th, the average broad currency supply (M2 basis - average) in January of this year was 4203.8 trillion won, an increase of 0.5% (20.1 trillion won) from the previous month. M2 has shown an upward trend for 19 months since June 2023 (+0.3%).

On the 19th, an employee organizes 50,000 won bills at the Hana Bank Counterfeit Response Center in Jung-gu, Seoul. /Courtesy of News1
On the 19th, an employee organizes 50,000 won bills at the Hana Bank Counterfeit Response Center in Jung-gu, Seoul. /Courtesy of News1

M2 is a broad currency measure that includes cash, demand deposits, and savings deposits with frequent withdrawals, alongside money market funds (MMF), term deposits under two years, revenue securities, and repurchase agreements (RPs), generally indicating the amount of currency circulating in the market.

By financial product, demand deposits increased by 5.5 trillion won and money trusts grew by 4.7 trillion won over the month. Conversely, time deposits decreased by 5.9 trillion won.

Demand deposits rose as investment waiting funds increased due to a drop in time deposit rates. Money trusts grew as corporations' demand for short-term financial products expanded at the beginning of the year. In contrast, time deposits decreased as the increase in loans slowed, weakening banks' funding incentives, and withdrawals for fiscal execution by local governments increased.

By economic entity, liquidity increased in households and non-profit organizations (+3.9 trillion won), corporations (+21.2 trillion won), and other financial institutions (+7.8 trillion won). Meanwhile, the other sector saw a decrease of 1.8 trillion won.

The average narrow currency supply (M1), which includes only cash, demand deposits, and savings deposits with frequent withdrawals, was recorded at 1277.5 trillion won, a 0.6% increase from the previous month. Financial institution liquidity (Lf, average) rose by 0.4% from the previous month to 5717.1 trillion won, while broad liquidity (L, end of month) increased by 0.8% compared to the end of the previous month to 7175.3 trillion won.