Measures of Money Supply!

Measures of Money Supply!

Measure of money must note in the following two things-

First- The supply of money refers to its stock at any point of time. Money is stock variable in contrast with a flow variable. It is the change in the stock of money per year which is a flow.

Second- The stock of money always refers to the stock of money held by the public. This is always smaller than the total stock of money in existence. The term public is defined to include all economic units (households, firms and institutions) except the producers of money (such as the government and the banking system).

The methods used to measure the supply of money are called M1and M2.

M1: Narrow Money- M1 is a money transaction in which the money is called is directly used for transactions. M1 consists of the following-

M1 = Currency Outside banks+ Deposits of Financial Institutions with Bangladesh Bank (except DMBs) + Checkable deposits (Demand Deposits with DMBs)

Where,

Currency is coins and paper money in circulation and

Checkable deposits are demand deposit which is also defined as checking account balance kept in commercial banks, which is convertible cash on demand by writing cheques.

DMBs is deposit money banks

M2: Board Money (Near Money plus M1)- Near monies are items that are highly liquid financial assets. M2 consist of the following-

M2 = M1 + Time Deposits with DMBs

M3 : Board Money– M3 consist of the following-

M3 =M2 + Deposits liabilities of nonbank depository corporations plus national savings scheme deposits.

Source : Statistics Department, Bangladesh Bank

Note: * Excludes Inter bank Deposits and Government Deposits.

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