What is money supply?

A nation’s money supply refers to all cash, currency, and all other liquid instruments circulating in an economy at a specific point in time. This includes balances in bank accounts. According to the Federal Reserve, it is commonly “defined to be a group of safe assets that households and businesses can use to make payments or to hold as short-term investments”. 

These groups of assets are usually government issued paper currency and coin through a combination of treasuries and central banks. Regulators (banks), then influence the money supply through the specific requirements placed on banks to hold reversed, how to extend credit, and other matters. The money supply data is recorded and published by the government of the given nation, or the central bank (ie Federal Reserve). Public and private sector analysts then monitor any given changes in the money supply as it impacts on price levels, inflation, and the business cycle. 

Per the Federal Reserve, there are several standard measures of the money supply, including the monetary base, M1, and M2:

The monetary base: the sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the Federal Reserve).

M1: the sum of currency held by the public and transaction deposits at depository institutions (which are financial institutions that obtain their funds mainly through deposits from the public, such as commercial banks, savings and loan associations, savings banks, and credit unions).

M2: M1 plus savings deposits, small-denomination time deposits (those issued in amounts of less than $100,000), and retail money market mutual fund shares. Data on monetary aggregates are reported in the Federal Reserve’s H.3 statistical release (“Aggregate Reserves of Depository Institutions and the Monetary Base”) and H.6 statistical release (“Money Stock Measures”).