In which Sense Can M1 be Off-Ledger?

1. Classical definition of M1

M1 is the narrow monetary aggregate consisting exclusively of immediately spendable money. It includes: 

• Currency in circulation:
   Physical banknotes and coins issued by the central bank and held outside commercial bank customer ledgers. This explicitly includes cash withdrawn, i.e. bearer money no longer recorded against an individual account.
• Demand deposits:
   Sight liabilities of commercial banks that are redeemable at par, on demand, into cash or payment settlement.

Clarification: 

• M1 is defined by liquidity and legal form, not by continuous ledger traceability.
• The statistical measure of M1 is always on-ledger in aggregate, but its components may be off-ledger at the operational level.
• Cash withdrawn does not cease to be M1 when it leaves bank ledgers; it merely changes representation from account-based to bearer-based money.

2. Off-ledger relative to specific actors 

2.1 Cash withdrawn 

• Commercial banks:
   Once withdrawn, cash is no longer a bank liability and therefore fully off the bank’s customer and payment ledgers.
• Central bank:
   Cash remains on-ledger as “currency in circulation”, a standing liability without counterparty attribution.
• Economic system:
   Cash circulates without transaction-level recording, rendering it functionally off-ledger despite being legally outstanding.

Clarification: 

• “Off-ledger” here does not mean unaccounted in aggregate.
• It means no bilateral ledger relationship exists between holder and financial intermediary.

2.2 Demand deposits 

• Account-holding bank:
   Fully on-ledger, continuously reconciled.
• Other banks and private actors:
   Off-ledger, except via settlement aggregates.
• Central bank and statisticians:
   Visible only in consolidated form, not per counterparty.

Clarification: 

• Demand deposits are institutionally on-ledger but systemically fragmented.
• They are never bearer instruments; off-ledger status is relative, not absolute.

Final consolidation 

M1 is statistically ledgered, institutionally fragmented, and partly bearer-based. 

“Off-ledger” in the context of M1 is therefore actor-relative and operational, not a denial of monetary existence.