eco TV Week

The extra deposits created will not evaporate

9/24/2021

In the wake of the Covid-19 crisis, bank deposits, which represent the main component of broad money, have seen extremely rapid growth in both the eurozone and the USA. The extra money created will not evaporate suddenly once the health protection measures are over or nonconventional monetary policies come to an end.

Céline CHOULET

TRANSCRIPT // The extra deposits created will not evaporate : September 2021

For over a year now, broad money and more specifically bank deposits from households or companies have recorded exceptional growth both in the Eurozone and in the United States.

In the past months, their pace of growth has slowed down but has remained historically high.

The ECB's strategy to identify the counterparts to the money supply allows to understand the reasons behind this momentous growth of deposits and also to discern the potential causes of their destruction.

It shows that this exceptional money creation can be explained, at the macroeconomic level, by the expansion of asset purchase programmes led by central banks and by national guarantee schemes to support companies. In other terms, the wait-and-see coerced behaviours of savers facing economic risks or health restrictions due to the pandemic

have triggered a rise in households' deposits and have contributed to an increase in savings rates. But it did not increase the overall mass deposits in the economy. At the very most, it slowed down the circulation of deposits and altered their allocation.

The growth of households' deposits has been very dynamic at the aggregate level but also very irregular due to income losses or job losses. And likewise, the fact that companies have cancelled some spendings or investments restrained the transfer of resources between companies.

The differentiated impact of the pandemic from one sector to another and the uneven use by companies of treasury support could have altered the allocation of deposits.

However, reduced spendings and deferred investments were not synonymous with money creation. Likewise, a recovery in spendings and investments is not synonymous with the destruction of deposits.

On the contrary, these spendings support economy activity, credit demand and therefore the creation of new deposits. Part of the money created over the past year will be progressively destructed as companies repay their guaranteed loans.

However, the asset purchase programmes led by central banks and a sustainable and positive growth rate of outstanding loans will continue to support growth of deposit rates.

View more videos Eco TV Week

On the Same Theme

Supply schocks, inflation and monetary policy 11/26/2021
The world economy is experiencing multiple supply shocks: oil, gas, semiconductors, other materials, labour shortages. Some of these should be transitory because rooted in supply chain disruption, others will probably be permanent. 
International trade: disruptions remain high 10/29/2021
International trade is under great strain, as a result of a sharp rebound in global demand in 2021. These disturbances will take time to dissipate with consequences that are already visible on the functioning of value chains and on the price of some goods or raw materials.
About the surge in energy prices 10/22/2021
The actual rise is energy prices is larger than generally expected. While its inflationary nature is debated, the shock highlights the still high carbon dependency of our economies and the imperative need of energy transition.
Unease about the distribution of riks 10/15/2021
Although the forecasts from the IMF’s latest World Economic Outlook paint a quite favourable picture, there is unease about the distribution of risks. Risks to real GDP growth are tilted to the downside, a key factor being new Covid-19 variants that could hit countries with low vaccination levels particularly hard. Growth would also suffer if the increase in energy prices were to continue. Inflation risks on the other hand are skewed to the upside. Supply-demand mismatches may last longer than expected and the energy shock could cause second round effects. As a consequence, there is great uncertainty about the inflation outlook. Central banks will need to be patient, waiting for inflation to trend down, but also vigilant and ready to act if necessary. Their messages will be followed closely by financial markets, which, until now, have reacted in a calm way to the increase in inflation.
Covid-19: new cases’ fall around the world 9/13/2021
Global Covid-19 case numbers have started to decline again after a rising trend lasting nearly two months. Some 4.2 million new cases were recorded between 2 and 8 September, a reduction of 6.3% on the previous week. This development was shared between all regions: Africa -25%; South America -16.2%; Asia -7.8%; Europe -2.3%; and North America -2.3%. The total number of deaths also fell over the same period. Meanwhile vaccination campaigns continue to gain ground, with 5.6 billion vaccine doses given by 8 September.
Outlook for the second half of the year: it’s not over 7/23/2021
A combination of positive developments has led in the first half of the year to a broad-based improvement in business and consumer sentiment in advanced economies: successful vaccination campaigns, a declining number of new infections, ongoing policy support and positive international spillover effects. Gradually, the ‘mechanical’ recovery in sectors which previously had suffered from restrictions is expected to lose steam. Supply bottlenecks and certain price increases may end up acting as a headwind. The growth cycle, despite a gradual slowdown, is far from over but neither is the fight against Covid-19. There is increasing concern that new variants would lead to precautionary behaviour, thereby weighing on certain spending categories. This concern has already triggered a significant decline in bond yields, despite concerns that in the US inflation might stay higher for longer. It also means that central bank policy guidance will be a key point of attention in the second half of the year.
Is there a risk of stagflation? 6/25/2021
The 1970s have gone down in history as an era of stagflation, defined as a period of slow or even negative output growth and inflation that is high by historical standards. Two supply shocks in the oil market are considered as a key cause but other factors also played a role. In the course of this year, the lifting of restrictions related to Covid-19 has caused an imbalance between supply and demand, leading to a significant pickup in inflation. There is concern that growth, after being particularly strong, will slow, whereas inflation might stay elevated for longer. This has given rise to comments that stagflation, albeit in a lighter version, could make a comeback. However, this risk seems limited.
Central bank digital currency: what are we talking about ? 6/10/2021
While central banks are considering whether (or not) to launch their own digital currencies so as to counter private crypto-assets, the design of these central bank digital currencies will be of the utmost importance with regard to their consequences on the financing of the economy and the monetary policy transmission.
PMI: price pressures continue to build, reaching very high levels 6/7/2021
The global manufacturing hardly moved in May, which shouldn’t come as a surprise, given its already high level. There was little change in the new export orders at the global level. 
Economic outlook: spring is in the air 4/9/2021
Economic statistics for the first part of this year are better than expected, including in Japan and the euro area. Moreover, this development is broadening in terms of sectors. Looking at business surveys, there is a growing feeling of beginning to “see the light at the end of the tunnel”.

ABOUT US Three teams of economists (OECD countries research, emerging economies and country risk, banking economics) make up BNP Paribas Economic Research Department.
This website presents their analyses.
The website contains 1614 articles and 292 videos