M0 - Monetary Base
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M0, in terms of the money supply, refers to the narrowest measure of the money stock in an economy. It represents the total supply of physical currency in circulation, including coins and paper money, that is held by the public and non-bank financial institutions. M0 is often referred to as "MB" (Monetary Base) or "narrow money."
Key characteristics of M0 include:
Physical Currency: M0 includes the physical forms of money that people use for everyday transactions. This includes coins of various denominations and paper currency issued by the central bank (in the United States, the Federal Reserve).
Held by the Public: M0 encompasses the currency that is held outside of the banking system. It includes cash held by individuals, businesses, and non-bank financial institutions like money service businesses.
Immediate Liquidity: The components of M0 are highly liquid and can be used for transactions without the need for additional conversion or processing.
Central Bank Control: The central bank has direct control over the amount of M0 in circulation. It can influence M0 through actions such as printing or withdrawing currency from circulation and regulating the distribution of coins and currency to banks.
M0 serves as the foundation for broader measures of the money supply, such as and , which include not only physical currency but also various forms of deposit accounts and other liquid assets. M0 is typically used by central banks and economists as a monetary policy tool to monitor the amount of currency in circulation and its potential impact on inflation and economic conditions.
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