Types of Money - Monetary Aggregates

In economics money supply or money stock is the total quantity of money obtainable in a financial system at a particular point in time. There are some ways to define money, but standard actions usually include currency in circulation and demand deposits. Money supply information is record and published usually by the government or the central bank of the country. Public and private-sector analysts have long monitored changes in money supply because of its possible effects on the price level inflation and the business cycle. That relation between money and prices is historically connected with the quantity theory of money. There is strong empirical confirmation of a direct experimental relation between long-term price inflation and money-supply growth. These motivate the current dependence on monetary policy as a means of controlling inflation.

Money is used in last settlement of a debt and as a ready store of value. Its different functions are connected with different experiential events of the money supply. Since most modern financial systems are regulated by governments through monetary policy, the supply of money is broken down into types of money based on how much of an effect financial policy can have on each. Narrow actions include those more directly affected by monetary policy, whereas broader actions are less closely connected to monetary-policy actions. Each measure can be classified by placing it along a range between narrow and broad monetary aggregates. The different types of money are typically classified as M’s. The number of M’s usually range from M0 (narrowest) to M3 (broadest) but which M’s are really used depends on the system. The usual explain for each of the M’s is as follows

In short, there are two types of money in a fractional-reserve banking system :

In the money supply statistics, central bank money is M0 although the commercial bank money is divided up into the M1-M3 components. Normally the types of commercial bank money that tend to be valued at lower amounts are classified in the narrow category of M1 though the types of commercial bank money that tend to exist in larger amounts are categorized in M2, M3 and M4 with M4 having the largest.

Types of money in other Countries