Money supply

Under the money supply or monetary aggregate is understood in the economics of the entire stock of money in an economy, which is located in non-banks. The money supply can be increased by money creation and lowered by destruction of money.

In the economics and central banks of the various monetary concepts are considered that an "M" ( for English money), followed by a number indicate. Is always valid for M1 and the following monetary aggregates M2 and M3, that the monetary aggregate with a higher number includes a lower number. A lower number means a greater proximity of the observed quantity of money to immediate real economic transactions, that is, the smaller the number, the more important is the means of payment function of money. The demarcation of the individual units is conventional and not internationally uniform. The monetary base M0 ( monetary base also ) occupies a special position. It equals the sum of currency in circulation and central bank holdings of credit institutions ( excess reserves plus required reserves ).

Money supply definitions

For M1 to M3 defined by the European Central Bank:

  • M0/Geldbasis: Banknotes and coins in circulation outside the banking system ( with non-banks ) are located (ie excluding cash on hand of the commercial banks, but with banknotes in circulation abroad ) plus the central bank holdings of credit institutions;
  • M1: demand deposits of non-banks as well as the entire cash flow;
  • M2: M1 plus deposits with an agreed maturity up to two years and deposits at statutory notice up to three months;
  • M3: M2 plus shares in money market funds, Repoverbindlichkeiten, money market securities and bank debt securities with a maturity of up to two years.

Definitions of the Swiss National Bank:

  • M0: monetary base;
  • M1: currency in circulation and demand deposits;
  • M2: M1 plus savings deposits in Swiss francs;
  • M3: M2 plus time deposits in Swiss francs.

The U.S. Federal Reserve Fed defined:

  • M0/Geldbasis: All U.S. dollar cash balances in bank notes and coins,
  • M1: M0 plus U.S. dollar demand deposits,
  • M2: M1 plus the current U.S. dollar current accounts plus stocks all U.S. dollar certificates of deposit (eg U.S. dollar government bonds) and all U.S. dollar money market accounts stocks under $ 100,000,
  • M3: M2 plus all major credit worth U.S. $ 100,000, inter alia, the euro dollar reserves, larger transferable U.S. dollar holdings of securities and the U.S. dollar foreign exchange holdings of most non-European countries. This amount of money is not detected since 2006.
  • MZM: " money of zero maturity" consists of cash plus checking, savings accounts, money market accounts plus private institutional fixed deposit and money market accounts.

The German Bundesbank defined:

  • M1 (1998: DM 910.2 billion ): Currency in circulation ( excluding cash on hand of monetary financial institutions (MFIs )) plus overnight deposits, based in the area non- MFIs ( non-banks );
  • M2 ( 1998: 1302.7 billion DM): M1 plus deposits with an agreed maturity up to two years and deposits redeemable at notice up to three months;
  • M3 (1998: DM 2239.8 billion): M2 plus shares in money market funds, Repoverbindlichkeiten, money market securities and bank debt securities with a maturity of up to two years. This unit is in the monetary policy of the Eurosystem in the foreground.

Amounts of money the European Central Bank

Money supply growth and inflation

Real money supply refers to the price-adjusted nominal money supply. It is represented as the ratio of money supply and price level and is a variable quantity, as long as the central bank can control the nominal money supply:

According to the quantity theory of money, the real money supply is determined endogenously from the money demand. First, an increase in nominal money supply leads to an increase in real money supply. This implies a higher demand for goods, resulting in an increase in the price level results. Due to inflation ( rise in prices ) the real money supply is lowered again. This relationship is called the wealth effect.

Significantly the amount of money is also for determining the opportunities for growth and inflation risks in the economy. If there is insufficient liquidity exists ( " money gap " ), this reduces economic growth. If by strong monetary growth too much liquidity in the market, there is a danger of inflation.

Eurodollar Monetarism
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