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:
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.
It is also called Reserve Money.
M0 (M zero)=
Currency in Circulation + Bankers’ Deposits with RBI + Other deposits with RBI.
Currency in Circulation + Bankers’ Deposits with RBI + Other deposits with RBI.
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| money supply |
2. M1 (M one) –
It is also called Narrow Money.
It is also called Narrow Money.
M1 (M one) =
Currency with public + Demand deposits with the Banking system + other deposits
with RBI.
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.
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).
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.
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.
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.
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).
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.
‘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.
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.
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).
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.
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).
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.
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).
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.
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.
