Monetary base

The total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. This measure of the money supply typically only includes the most liquid currencies.

Also known as the "money base".

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For example, suppose country Z has 600 million currency units circulating in the public and its central bank has 10 billion currency units in reserve as part of deposits from many commercial banks. In this case, the monetary base for country Z is 10.6 billion currency units.

For many countries, the government can maintain a measure of control over the monetary base by buying and selling government bonds in the open market.

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Sum of reserve accounts of financial institutions at Federal Reserve Banks, currency in circulation (currency held by the public and in the vaults of depository institutions). The major source of the adjusted monetary base is Federal Reserve Credit. The monetary base, as the ultimate source of the nation's Money Supply, is controllable, at least to some degree, by Federal Reserve Monetary Policy. The adjusted monetary base data is compiled weekly by the Federal Reserve Board and the Federal Reserve Bank of St. Louis, and is adjusted seasonally.

It has been suggested that high-powered money be merged into this article or section. (Discuss)

It has been suggested that narrow money supply be merged into this article or section. (Discuss)

In economics, the monetary base (also base money, money base, high-powered money, reserve money, or, in the UK, narrow money) is a term relating to the money supply, the amount of money in the economy. The monetary base comprises only coins, paper money, and commercial banks' reserves with the central bank. Broader measures of the money supply include the public's bank deposits (checking, saving, etc.). These measures of money are typically classified as levels of M, where the monetary base is smallest and lowest M-level: M0. Base money can be described as the most acceptable (or liquid) form of final payment.

"Open market operations" are monetary policy tools that affect directly the monetary base; the monetary base can be expanded or contracted using an expansionary policy or a contractionary policy, but not without risk.

See also

• Money supply

References

• Karl Brunner (1987). "high-powered money and the monetary base," The New Palgrave: A Dictionary of Economics, v. 2, pp. 654-55. Reprinted in Eatwell et al. Money: New Palgrave, pp. 75-78.
• Phillip Cagan (1965). Determinants and Effects of Changes in the Stock of Money, 1875-1960. NBER. Chapter 3 (link), "High-Powered Money," pp. 45-117.
• Charles Goodhart (1987). "monetary base," The New Palgrave: A Dictionary of Economics, v. 2, pp. 654-55.

External links

• Aggregate Reserves Of Depository Institutions And The Monetary Base (H.3)

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