What is the difference between M1 M2 and M3 money?
M1: Currency in circulation plus overnight deposits. M2: M1 plus deposits with an agreed maturity up to two years plus deposits redeemable at a period of notice up to three months. M3: M2 plus repurchase agreements plus money market fund (MMF) shares/units, plus debt securities up to two years.
Broad money (M3) includes currency, deposits with an agreed maturity of up to two years, deposits redeemable at notice of up to three months and repurchase agreements, money market fund shares/units and debt securities up to two years.
Narrow money is also known as M1 and M2. Broad money means M3 and M4. The liquidity of these grades is decreasing. M1 is the most liquid and makes transactions the easiest, while M4 is the least liquid.
M2 is a measure of the money supply that includes cash, checking deposits, and other types of deposits that are readily convertible to cash such as CDs. M1 is an estimate of cash, checking, and savings account deposits only. The weekly M2 and M1 numbers are closely monitored as indicators of the overall money supply.
M1 and M2 money are the two mostly commonly used definitions of money. M1 = coins and currency in circulation + checkable (demand) deposit + traveler's checks + saving deposits. M2 = M1 + money market funds + certificates of deposit + other time deposits.
Broad money (M3) includes currency, deposits with an agreed maturity of up to two years, deposits redeemable at notice of up to three months and repurchase agreements, money market fund shares/units and debt securities up to two years.
M3 and M4 are known as broad money. These gradations are in decreasing order of liquidity. M1 is most liquid and easiest for transactions whereas M4 is least liquid of all. M3 is the most commonly used measure of money supply.
The money represented by M3 and M4 includes time deposits. It means they cannot be withdrawn or used by the people immediately like M1 and M2, which represent narrow money. Therefore, M3 and M4 are termed as broad money.
M1 and M2 money have several definitions, ranging from narrow to broad. M1 = coins and currency in circulation + checkable (demand) deposit + traveler's checks. M2 = M1 + savings deposits + money market funds + certificates of deposit + other time deposits.
The M1 money supply includes all physical currency, traveler's checks, demand deposits, and other checkable deposits (e.g. checking accounts).
Why is M2 declining?
The unprecedented decline in M2 is being fueled by the Fed's aggressive monetary policy tightening, including lifting interest rates from near zero to over 5% since March 2022, a decline in credit availability, turmoil in the banking sector and the end of COVID-19 government stimulus efforts.
Because Bitcoin can be used to purchase goods and services immediately, it would be included in M1 and would cause M1 to rise. Also, as discussed above, everything in M1 is included in M2, so if M1 rises, so will M2.
square meter (meter squared)
M3 is a collection of the money supply that includes M2 money as well as large time deposits, institutional money market funds, short-term repurchase agreements, and larger liquid funds. 1. M3 is closely associated with larger financial institutions and corporations than with small businesses and individuals.
The retail money funds component of M2 is constructed from weekly data collected by the Investment Company Institute (ICI), a trade association for the investment company industry. The retail money funds component of M2 excludes IRA and Keogh balances held at MMMFs, which are reported by ICI on a quarterly basis.
M4 was first introduced as an official monetary aggregate in 1987. Along with notes and coin, it includes the sterling deposit liabilities of all UK banks and building societies to other private sector UK residents.
A cubic metre is sometimes abbreviated to m^3, M3, m**3, cum, m3, CBM, cbm when superscript characters or markup cannot be used (e.g. in some typewritten documents and postings in Usenet newsgroups).
M3 for the United States was 20767400000000.00000 National Currency in November of 2023, according to the United States Federal Reserve. Historically, M3 for the United States reached a record high of 21703600000000.00000 in July of 2022 and a record low of 298200000000.00000 in January of 1960.
M2 is the measure of the money supply that includes M1, time deposits less than $100,000, and retail money market funds. M2 is less restrictive than M1 but does not include stocks, bonds, and other investment accounts that M3, the broadest measure of money, includes.
Key Takeaways
Fiat money is a government-issued currency that is not backed by a commodity such as gold. Fiat money gives central banks greater control over the economy because they can control how much money is printed. Most modern paper currencies, such as the U.S. dollar, are fiat currencies.
Why is M1 called narrow money?
The name is derived from the fact that M1/M0 are the narrowest or most restrictive forms of money that are the basis for the medium of exchange within an economy. This category of money is considered to be the most readily available for transactions and commerce.
Fiat money generally does not have intrinsic value and does not have use value. It has value only because the individuals who use it as a unit of account – or, in the case of currency, a medium of exchange – agree on its value.
M3 Measure Money Supply - Large Time Deposits
M3 is the broadest classification of money. It includes all components in M2 plus large time deposits, institutional money market funds, short-term repurchase agreements, and other larger liquid assets.
Commercial banks perform the function of credit creation in an economy. Therefore, the money that is created by commercial banks is known as credit money. This is achieved by the commercial banks in the form of purchasing securities and providing loans.
Although M1/M0 is used to characterise narrow money, M2/M3/M4 counts as broad money and M4 represents the biggest money supply term.
