What is M-0 money supply?

M-0 money supply refers to the most liquid measure of the money supply, which includes physical currency and coin in circulation as well as commercial bank deposits held by the central bank. It is also known as "narrow money" or "base money." M-0 money supply is considered the most basic form of money and is the foundation for the money supply pyramid, which includes more illiquid forms of money such as M-1, M-2, and M-3.

M-0 money supply is important because it is the base from which other forms of money are created. The central bank can influence the money supply by increasing or decreasing the amount of M-0 money in circulation. For example, the central bank can increase the money supply by printing more currency or by making loans to commercial banks, which in turn can lend the money to individuals and businesses. On the other hand, the central bank can decrease the money supply by removing currency from circulation or by raising interest rates, which can discourage borrowing and spending.



It's important to note that M-0 is not the only measure of money supply and other measures like M1, M2, M3 and M4 are used to measure the money supply. These measures add other types of assets to the definition of money, such as checking deposits and savings deposits. These broader measures of money supply tend to be more relevant for the general public as they include the types of money that people use in their day-to-day transactions.

History OF M-0 money supply

The concept of M-0 money supply, or base money, has been used by central banks for centuries to track and control the money supply. The concept of base money was first developed in the late 19th century by the German economist Friedrich von Wieser, who defined it as "the sum of cash and bank deposits that are immediately available for spending." In the United States, the Federal Reserve began publishing data on M-0 money supply in 1959. The use of M-0 as a measure of money supply became more widespread in the 1970s, when economists and central bankers began to realize that other measures of money supply, such as M-1 and M-2, were not accurate indicators of monetary policy effectiveness. Since then, central banks around the world have used M-0 money supply as a key measure of the money supply and as a tool for monetary policy.

Liquidity

M-0 money supply is the most liquid form of money, meaning it is easily accessible and can be quickly converted into cash. This makes it an important tool for central banks to manage the money supply and ensure that there is enough cash available for transactions.

Control inflation

M-0 money supply can be used as a tool to control inflation by central banks, by increasing or decreasing the amount of M-0 money in circulation, central bank can influence the overall money supply and control the rate of inflation.

Basis of measure

M-0 money supply is the foundation for other measures of the money supply, such as M-1, M-2, and M-3, which include more illiquid forms of money such as checking deposits and savings deposits. By having a good understanding of M-0 money supply, central banks can make better decisions about the broader money supply and its impact on the economy.

Policy tool

M-0 money supply is an important indicator of the overall money supply and is used by central banks to guide monetary policy decisions. Central banks can use the M-0 money supply to influence economic growth and stability by adjusting the money supply.