Monetary base

In economics, the monetary base, or the money base (often called narrow money in the UK) is a term relating to the volume of money in the economy, or money supply. The monetary base comprises only currency (banknotes and coins) and commercial banks' reserves with the central bank. As such, it is a narrow definition of money supply, consisting of only the most liquid forms of money. Wider definitions of the money supply include the public's bank deposits and are therefore larger in volume and encompass money of a lower liquidity.

"Open market" operations are monetary policy tools that affect directly the Monetary Base [1].

Equation

Monetary Base = M0 ("M-zero")= Non Borrowed Monetary Base + Discount Loans

Monetary Base (MB) * Money base money multiplier (m) = M1

Monetary Base = "High-powered money" = Currency (C) + Reserves (R) = Currency (C) + (Deposits (D) * Required Reserve Ratio (r))

(Contrast with M1, which is Currency + Deposits)

See also

• Money supply

External links

• Aggregate Reserves Of Depository Institutions And The Monetary Base (H.3)
• M0 in "Investopedia"
• Monetary Base in "Investopedia"