MEASURES OF MONEY SUPPLY Money supply refers to the stock of money in circulation in the economy at any given point of time. Types of money supply can be given as: 1. M0 (M zero) – It is also called Reserve Money. M0 (M zero)= Currency in Circulation + Bankers' Deposits with RBI + Other deposits with RBI. money supply 2. M1 (M one) – It is also called Narrow Money. M1 (M one) = Currency with public + Demand deposits with the Banking system + other deposits with RBI. M1 (M one) = Currency with the Public + Current Deposits with the Banking System + Demand Liabilities Portion of Savings Deposits with the Banking System + 'Other' Deposits with The RBI. 3. M2 (M two) M2 (M two) = M1 + Time Liabilities Portion of Savings Deposits with the Banking System + Certificates of Deposit issued by Banks + Term Deposits of residents with a contractual Maturity of up to and including one year with the Banking System (excluding CDs). M2 (M two) = Currency with the Public + Current Deposits with the Banking System + Savings Deposits with the Banking System + Certificates of Deposit issued by Banks + Term Deposits of residents with a contractual maturity up to and including one year with the Banking System (excluding CDs) + 'Other' Deposits with the RBI. 4. M3 (M three) – It is also called as Broad Money. M3 (M three) = M2 + Term Deposits of residents with a contractual maturity of over one year with the Banking System + Call/Term borrowings from 'Non-depository' Financial Corporations by the Banking System. 5. M4 (M four) M4 (M four) = M3 + All deposits with post office savings banks excluding National Saving Certificates (NSCs). Noteworthy: 'Other' deposits with RBI mainly comprise: (i) Deposits of quasi-government and other financial Institutions including primary dealers, (ii) Balances in the accounts of foreign Central banks and Governments, (iii) Accounts of international agencies such as International Monetary Fund (IMF), etc. While M0, M1 and M3 are widely used in India, M2 and M4 are rarely used. The RBI introduced a new set of monetary and liquidity aggregates as per the recommendations of the Working Group on Money Supply: Analytics and Methodology of Compilation. After the submission of its report in June 1998, no changes were made in the definition of M0 and M1, new monetary aggregates NM2 and NM3 as well as liquidity aggregates L1, L2, and L3 were introduced, which are explained as follows. NM1 = Currency with Public + Demand Deposits with Banking System + 'Other' Deposits with RBI. NM2 = NM1 + Short Term Time Deposits of Residents (including and up to the contractual maturity of one year). NM3 = NM2 + Long-term Time Deposits of Residents + Call/Term Funding from FIs. L1 = NM3 + All Deposits with Post Office Savings Banks (after excluding National Savings Certificates). L2 = L1 +Term deposits with Term Lending Institutions and Refinancing Institutions + Term Borrowing by FIs + Certificates of Deposit issued by FIs. L3= L2 + Public Deposits of Non-banking Financial Companies (NBFCs). Data on M0 are published by the RBI weekly. Data for M1 and M3 are available on fortnightly basis. Among liquidity aggregates, data on L1 and L2 are published on monthly basis, while for L3 data is published once in a quarter.
