# Do reserves at Bank of Canada count as money?

I read the following three statements concerning M1 and M2 in Canada:

a) "M1 consists of currency held outside the banks and chequable deposits of individuals and businesses."

b) "M1 does not include currency held by banks, and it does not include currency and bank deposits owned by the government of Canada."

c) "M2 consists of M1 plus all other deposits."

My questions about these quotes are:

1) Does "currency and bank deposits owned by the government of Canada" in (b) mean currency and deposits at the Bank of Canada? If not, are these deposits just deposits by the Canadian government at some other bank? And where does the government of Canada keep its currency?

2) If the above ^^ is correct that these are currency and deposits at the Bank of Canada, does "M2 consists of M1 plus all other deposits" in (c) imply that while deposits at the Bank of Canada are part of M2, currency held by Bank of Canada (ie its reserves) are not part of M2, ie Bank of Canada's reserves are not money?

1) Does "currency and bank deposits owned by the government of Canada" in (b) mean currency and deposits at the Bank of Canada? If not, are these deposits just deposits by the Canadian government at some other bank? And where does the government of Canada keep its currency?

Yes. The Canadian Federal Government consolidates its deposits in a single account (managed by the Receiver General) at the Bank of Canada. It does not bank elsewhere.

"Currency" in this context refers to Canadian bills and coins (and not foreign currency reserves). These are liabilities of the Canadian Federal government itself. Normal accounting practice is to net to zero any liabilities "owned" by the issuer on its own balance sheet.

2) If the above ^^ is correct that these are currency and deposits at the Bank of Canada, does "M2 consists of M1 plus all other deposits" in (c) imply that while deposits at the Bank of Canada are part of M2, currency held by Bank of Canada (ie its reserves) are not part of M2, ie Bank of Canada's reserves are not money?

Once again. "currency" here means Canadian dollar bills, and they are liabilities directly issued by the Bank of Canada. This currency represents bills and coins that have been minted, and not distributed to private banks (or returned by banks). These are not considered "reserves" under any definition of "reserves." These notes/coins only enter the money supply when they are shipped to private banks.

(Note that Canada abolished bank reserve requirements -- the requirement for private banks to hold deposits at the central bank based on a percentage of their deposits. As such, "reserves" is no longer a meaningful term, you would need to be more specific - e.g., foreign currency reserves. If that is what you mean, foreign currency reserves are not normally considered part of the domestic money supply, except perhaps in cases where the country is "dollarised.")

I have not done any research on the Bank of Canada but since you haven't gotten an answer in 5 days, let me pitch in my interpretation but take this with a grain of salt.

it does not include currency and bank deposits owned by the government of Canada

Many entities (banks) hold deposits at the central bank (Bank of Canada). One of those entities is the government of Canada. Currency and deposits at the Bank of Canada do not count under M1 because they aren't really circulating in the same sense that currency in your wallet or the credit in your bank account is. I don't think the government of Canada has any deposits outside of the Bank of Canada but even if it did, I don't think it wouldn't count under M1 as that would only add unnecessary noise to the metric for most of its uses.

M2 consists of M1 plus all other deposits

I think this is just mainly referring to things like savings accounts. Currency and deposits at the Bank of Canada still do not count.