In a sentence, monetary aggregates are the measures of the money supply in a country. The money supply is the total sum of money available in the economy at a given point in time.
In India, the Reserve Bank of India (RBI), measures the money supply and publishes it on a weekly or fortnight basis
There are different types of monetary aggregates that are used in the Economy.
From 1977 to 1998, RBI used four monetary aggregates – M1, M2, M3, and M4 – to measure money supply. The central bank also used the concept of Reserve Money.
However, measuring standards changed in 1998. Following the suggestions of the Working Group on Money Supply: Analytics and Methodology of Compilation (Chairman: Dr Y.V. Reddy), which delivered its report in June 1998, the RBI has begun publishing a set of new monetary aggregates.
Now, the nomenclature is M0, M1, M2, and M3. RBI sometimes refers to new aggregates as NM0, NM1, NM2, and NM3 to distinguish them from previous aggregates.
Monetary aggregates.
M0 (Reserve Money):
M0 is the sum of currency in circulation, bankers’ deposits with the RBI, and ‘other’ deposits with the RBI.
The components include:
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Currency in Circulation
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Bankers’ Deposits with RBI
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‘Other’ Deposits with RBI
M1 (Narrow Money)
M1 is a narrow measure of the money supply that includes currency, demand deposits, and other liquid deposits, such as savings accounts.
Components:
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Currency with the Public
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Current Deposits with the Banking System
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Demand Liabilities Portion of Savings Deposits with the Banking System
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‘Other’ Deposits with RBI
M2
M2 basically includes the M1 and certain other components. In other words, M2=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.
Components:
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Currency with the Public
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Current Deposits with the Banking System
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Demand Liabilities of Savings Deposits with the Banking System
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‘Other’ Deposits with RBI
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Term Deposits of residents with a contractual maturity up to and including one year with the Banking System
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Certificates of Deposits issued by Banks
M3 (Broad Money)
M3 is the sum of Currency with the Public, Current Deposits with the Banking System, Savings Deposits with the Banking System, Certificates of Deposits issued by Banks, Term Deposits of residents with the Banking System, Call/Term borrowings from ‘Non-depository’ financial corporations by the Banking System, and ‘Other’ Deposits with RBI.
Components of M3:
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Currency with the Public
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Current Deposits with the Banking System
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Savings Deposits with the Banking System
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Certificates of Deposits issued by Banks
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Term Deposits of residents with a contractual maturity up to and including one year with the Banking System
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‘Other’ Deposits with RBI
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Term Deposits of residents with a contractual maturity of over one year with the Banking System
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Call/Term borrowings from ‘Non-depository’ financial corporations by the Banking System
Stats:
Money Supply M3 in India increased to 200858.03 INR Billion in February from 199473.33 INR Billion in January of 2022.
| Related | Last | Previous | Unit | Reference |
|---|---|---|---|---|
| Interest Rate | 4.00 | 4.00 | percent | Feb 2022 |
| Cash Reserve Ratio | 4.00 | 4.00 | percent | Feb 2022 |
| Interbank Rate | 4.21 | 4.21 | percent | Mar 2022 |
| Money Supply M1 | 51382.13 | 48830.31 | INR Billion | Dec 2021 |
| Money Supply M2 | 51209.39 | 51011.58 | INR Billion | Jan 2022 |
| Money Supply M3 | 200858.03 | 199473.33 | INR Billion | Feb 2022 |
| Foreign Exchange Reserves | 632950.00 | 630190.00 | USD Million | Feb 2022 |
| Central Bank Balance Sheet | 32293.65 | 33049.98 | INR Billion | Jan 2022 |
| Loan Growth | 7.90 | 8.00 | percent | Feb 2022 |
| Reverse Repo Rate | 3.35 | 3.35 | percent | Feb 2022 |
Significance:
Money Aggregates are used to estimate the economy’s total money supply and by central banks to drive monetary policy in order to regulate inflation, consumption, growth, and liquidity over medium and long periods. It is extensively monitored as a measure of money supply and anticipated inflation, as well as a monetary policy aim. It is critical for managing liquidity and price levels (inflation).
Conclusion:
The money supply in the economy can be influenced by the central bank. The monetary policy can have an impact on increasing/reducing the money supply in the economy
Just an informative post. Would love the fellow mates to add on and have their views on the money supply and its importance.
