What factors affect the money supply

Money supply

Money supply, central bank money supply


Money supply. The various monetary terms used by the European Central Bank
the stock of money (cash and money in bank accounts) in the hands of non-banks (e.g. private individuals, companies). In order to avoid double counting, the cash holdings of the banks are not counted as part of the money supply, since no goods are demanded with the cash holdings of the banks, but only money in accounts (book money) is exchanged for cash.

In practice, the amount of money is determined according to different points of view, so that different amounts of money are differentiated. The most common way of determining the amount of money is to distinguish between the amount of money from the central bank and the amounts of money M 1, M 2 and M 3, where M is derived from the English word "money" for money. The Central bank money supply includes all cash in circulation (banknotes and coins), but not including the credit institutions 'cash on hand, but plus the credit institutions' minimum reserve at the central bank. The money supply M 1 includes the cash in circulation (excluding the cash on hand of credit institutions) as well as the daily credit balances of private individuals and companies on current accounts at banks (sight deposits). The amount of money M 2 includes the amount of money M 1 and additional time deposits with a term of up to two years and savings deposits with a notice period of up to three months. The amount of money M 3 is made up of the amount of money M 2 and certain money market papers (e.g. money market fund shares) and bonds with short terms of two years. The most important role in monetary policy for the European Central Bank (ECB) is played by the money supply M 3.

The regulation and control of the money supply is of considerable importance for the smooth functioning of all economic processes in the economy. The money supply and the supply of goods must be in the right relationship in the economy. A strong increase in the money supply triggers inflationary developments, i. H. Price increases, while an undersupply of the economy with money leads to deflation. The control and monitoring of the money supply with the aim of ensuring the stability of the euro and preventing inflation or deflation in the euro area is the most important task of the ECB.

Duden Wirtschaft from A to Z: Basic knowledge for school and study, work and everyday life. 6th edition. Mannheim: Bibliographisches Institut 2016. Licensed edition Bonn: Federal Agency for Civic Education 2016.