Monetary base

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U.S. Monetary base
Euro monetary base

In economics, the monetary base (also base money, money base, high-powered money, reserve money, outside money, central bank money or, in the UK, narrow money) in a country is defined as the portion of the commercial banks' reserves that are maintained in accounts with their central bank plus the total currency circulating in the public (which includes the currency, also known as vault cash, that is physically held in the banks' vault).

Note: Commercial bank reserves held at the Federal Reserve are in assets, primarily Treasuries and Agency Mortgage-Backed Securities, not money.[1]

The monetary base should not be confused with the money supply which consists of the total currency circulating in the public plus the non-bank deposits with commercial banks.

Management

Open market operations are monetary policy tools which directly expand or contract the monetary base.

Note: The Fed's Open Market Operations affects interest rates and the credit markets, not the legal tender money supply.[2]

The monetary base and monetary policy are typically controlled by the same national institution, usually either the finance ministry or the central bank. These institutions change the monetary base through open market transactions: the buying and selling of government bonds. Typically, they can also influence banking activities by manipulating interest rates and setting reserve requirements (how much money banks must keep on hand instead of loaning out to borrowers).

Note: The Federal Reserve is prohibited by law[3] from using U.S. legal tender money in its Open Market Operations.

The monetary base (MB) is called high-powered because its increase will typically result in a much larger increase in the supply of demand deposits through banks' loan-making; a ratio called the money multiplier.[1]

Note: "high powered money" as well as the "money multiplier" are FICTIONS.

United States

As of 30 September 2015, the monetary base in the United States was USD 3,952,869,000,000.[2]

Note: As of 14 November 2018, the monetary base in the United States was USD 1,864,013,000,000 currency in circulation and 3,725,004,000,000 in pledgable assets.[4]

See also

External links

References

  1. Mankiw, N. Gregory (2002), "Chapter 18: Money Supply and Money Demand", Macroeconomics (5th ed.), Worth, pp. 482–489<templatestyles src="Module:Citation/CS1/styles.css"></templatestyles>
  2. "Aggregate Reserves of Depository Institutions and the Monetary Base--Current Release"