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, 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).

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[edit]

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

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).

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]

United States[edit]

As of 25 June 2014, the monetary base in the United States was USD 3,950,798,000,000.[2]

See also[edit]

External links[edit]

References[edit]

  1. ^ Mankiw, N. Gregory (2002), "Chapter 18: Money Supply and Money Demand", Macroeconomics (5th ed.), Worth, pp. 482–489 
  2. ^ "Aggregate Reserves of Depository Institutions and the Monetary Base--Current Release"