#MONIES DEFINITION PLUS#

M3 includes Currency in Circulation and Checkable Bank’s Deposits. Mo includes Currency in Circulation and Bank’s Reserves.Įven though the money supply can be denoted either as M1 or M3, usually when we speak of money supply, we intend M3. As mentioned earlier, it denotes the money of RBI. Reserve Money (Mo) is also called the monetary base. When Reserve Ratio is 1/4 (25%) or when Money Multiplier is 4, that would generate only Rs. For example, from Rs.100 can be multiplied by 5 to generate Rs.500 money supply if Reserve Ratio is 1/5 (20%) or when Money Multiplier is 5. This number is multiplied by the amount of reserves to estimate the maximum potential amount of the money supply. So then the money multiplier, m, will be calculated as:.For example, with the reserve ratio of 20 per cent, this reserve ratio, R, can also be expressed as a fraction:.The money multiplier, m, is the inverse of the reserve requirement, R:.=M3 + All deposits with post office savings banks (excluding National Savings Certificates).Ī money multiplier is an approach used to demonstrate the maximum amount of broad money that could be created by commercial banks for a given fixed amount of base money and reserve ratio.= Net bank credit to the Government + Bank credit to the commercial sector + Net foreign exchange assets of the banking sector + Government’s currency liabilities to the public – Net non-monetary liabilities of the banking sector (Other than Time Deposits).= M1+ Time deposits with the banking system.=M1 + Savings deposits with Post office savings banks.=Currency with the public + Deposit money of the public (Demand deposits with the banking system + ‘Other’ deposits with the RBI).= Net RBI credit to the Government + RBI credit to the commercial sector + RBI’s claims on banks + RBI’s net foreign assets + Government’s currency liabilities to the public – RBI’s net non-monetary liabilities.= Currency in circulation + Bankers’ deposits with the RBI + ‘Other’ deposits with the RBI.

#MONIES DEFINITION PLUS#

In the most simple language, Reserve Money is Currency in Circulation plus Deposits of Commercial Banks with RBI. It is the base level for the money supply or the high-powered component of the money supply. Reserve money is also called central bank money, monetary base, base money, or high-powered money.

This is covered in detail in the ClearIAS article on the new monetary aggregates. In the new convention, aggregates are represented as NM1, NM2, and NM3. Note: In this article, we cover the Monetary Aggregates as per the old convention (M1, M2, M3, and M4). M3 is the largest of all money aggregates (M1-M3). Generally, the types of commercial bank money that tend to be valued at lower amounts are classified in the narrow category of M1 while the types of commercial bank money that tend to exist in larger amounts are categorized in M2 and M3. M2 and M4 components also include Post-Office deposits as well. In the money supply statistics, central bank money is M0 while the commercial bank money is divided up into the M1 and M3 components. Commercial bank money (M1 and M3) – obligations of commercial banks, including current accounts and savings accounts.Central bank money (M0) – obligations of a central bank, including currency and central bank depository accounts.Money Aggregates: Standard Measures of Money Supply

It is a major liability component of a central bank’s balance sheet.

currency notes and coins with the public.

It is the total value of the currency (coins and paper currency) that has ever been issued by the Reserve Bank of India minus the amount that has been withdrawn by it.Ĭurrency in circulation (currency with the public) comprises of: What is meant by ‘currency in circulation’? Money supply includes deposits generated in the banking system resulting from a multiplier effect of movement of currency in the banking system as well as other forms of liquid assets.

the non-bank deposits with a commercial bank.

total currency circulating in the public plus.

Monies definition