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The recent Pandora Papers fuss has prompted me to ask a question that has been on my mind for a while.

Does money hidden in offshore trusts, nominee companies and the various other Moneyland arrangements get included in macro-economic statistics like M2, M3 and the Savings Ratio? How visible is this money to econometrics?

I'm not an economist so its possible I just don't know the right keywords, but Google isn't turning up anything on the macroeconomic impact of all this money. There don't seem to be any good estimates of just how much money is hidden this way, so the possibility that it also isn't visible to e.g. central bankers planning the next round of QE is distinctly worrying.

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Speaking from a US centric view, there is either physical currency in a vault, or on an account with a US bank. These are called correspondent accounts or nostro / vostro accounts. Therefore, nothing is hidden.

What is hidden is who the ultimate beneficiary may be but that doesn't matter for macroeconomic policies. It matters for tax purposes.

The Fed is not trying to control the money supply either (M1, M2,...), it mainly tries to control interest rates. QE helps reduce rates on a broader scale, with the side effect of increasing money supply. However, it may not (immediately) increase money supply, if held as excess reserves (the FED is buying financial assets from commercial banks and other financial institutions).

Even if if it were hidden and outside of any use within the economy, it also wouldn't have an impact on domestic economic activity and not be of interest for central bank policies. Insofar, there would also not be anything worrying about it in terms of effectiveness of monetary policy (of whatever kind).

Edit:
Speaking of money multipliers in the US is somewhat outdated. The reserve requirements are zero and the FED uses a so called ample-reserve regime. It's best to forget what we learnt about money aggregates in undergrad Econ.

Céline Choulet from BNP Paribas Group Economic research published and interesting article. US resident banks mainly participated in QE as intermediaries on behalf of their customers and even expanded their portfolios of securities. All other things being equal, the Fed’s QE therefore tended to increase the size of the resident banks’ balance sheets, by increasing their deposits with the central bank and their debts to customers.

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  • $\begingroup$ Friedman published at least one paper describing the so-called "money multiplier" model for offshore dollars or eurodollars (ED) files.stlouisfed.org/files/htdocs/publications/review/71/07/…. If true that means there is a small pool of ED liabilities in the domestic bank sector compared to a larger volume of dollar liabilities in the offshore markets. If Fed buys a security from a non-bank the aggregate bank sector clears payment. This increases excess reserves and deposits in the aggregate bank (for a bank counter-party it would just increase excess reserves). $\endgroup$ Oct 8 at 15:08

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