Money supply

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Money supply is a way to measure currency in circulation. Its growth rate relative to inflation and GDP can indicate monetary inflation or deflation. According to the Austrian school of economics inflation is a result of a strongly rising monetary base as this process creates more money than the expansion of the economy would require.

Money Supply Definitions

Money supply is divided into different categories according to the size and maturity of deposits. There is no single international convention defining monetary aggregates from M0 to M4 which vary between countries. Empirical evidence has shown a strong correlation between the growth of money in circulation and rising prices.


  • M0: All physical curency, plus accounts at the central bank that can be exchanged for physical currency.
  • M1: M0 - those portions of M0 held as reserves or vault cash + the amount in demand accounts ("checking" or "current" accounts).
  • M2: M1 + most savings accounts, money market accounts, and small time deposits under $100,000.
  • M3: M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.

The Federal Reserve ceased to publish M3 figures in February 2006.[1] Chairman Ben Bernanke later told policymakers that the costs outweighed the benefits. The total savings effect of $1.5 million came to 0.00000699% of the Fed's annual net income in 2005.[2]


  • M1: Currency in circulation + overnight deposits
  • M2: M1 + Deposits with an agreed maturity of up to 2 years + deposits redeemable at a period of notice of up to 3 months
  • M3: M2 + Repurchase agreements + Money market fund deposits + debt securities with a maturity of up to 2 years

The ECB publishes a monthly report on the growth of money supply in the Eurozone.


  • M0: Cash outside Bank of England + Banks' operational deposits with Bank of England.
  • M4: Cash in circulation + private-sector retail bank and building society deposits + Private-sector wholesale bank and building society deposits and Certificate of Deposit.

In the UK M0 is referred as "narrow money" and M4 as "broad money" or simply "the money supply."


  • M1: currency in circulation + bank current deposits of the private non-bank sector
  • M3: M1 + all other bank deposits of the private non-bank sector
  • Broad Money: M3 + borrowings from the private sector by NBFIs, less the latter's holdings of currency and bank deposits
  • Money Base: holdings of notes and coins by the private sector plus deposits of banks with the Reserve Bank of Australia (RBA) and other RBA liabilities to the private non-bank sector.

As defined by the Reserve Bank of Australia.


  • M1: cash in circulation + deposit money
  • M2 + CDs: M1 + quasi-money + CDs
  • M3 + CDs: (M2 + CDs) + deposits of post offices + other savings and deposits with financial institutions + money trusts
  • Broadly-defined liquidity: (M3 + CDs) + pecuniary trusts other than money trusts + investment trusts + bank debentures + commercial paper issued by financial institutions + repurchase aggreements and securities lending with cash collateral + government bonds + foreign bonds

As defined by the Bank of Japan (BoJ.)

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