Money Supply Definitions
Economists use shorthand to distinguish between the different types of money in circulation.
The total of all physical currency (coins and Federal Reserve Notes) plus accounts at the Federal Reserve Bank that can be exchanged for physical currency. The FED can ask the Treasury to print as much money as it needs anytime it needs to match the accounts it has on hand with physical currency.
This is M0 plus the amount of "money" in demand accounts which are "checking" or "current" accounts.
This is M1 plus most saving accounts, money market accounts and certificates of deposit (CD) accounts of under $100,000.
This is M2 plus all other CDs, deposits of Eurodollars and repurchase agreements.
So that's as clear as mud. Really what's the difference?
The best way to understand the difference in the types of money supply measurements is to look at some actual figures. For example in the 2004 / 2005 fiscal year;
- M0 - $688 billion
- M1 - $1,400 billion
- M2 - $6,500 billion
- M3 - $9,700 billion
By contrast the deposits at Citigroup were $328 billion.
As of March 2006 M3 is no logner reported by the FED.
Coins in the US are minted by the United States Mint, which is part of the Department of the Treasury a part of the United States government.
Federal Reserve Notes
Banknotes or more formally Federal Reserve Notes (FRNs) are printed by the Bureau of Engraving and Printing which is part of the Department of the Treasury. They are sold to the Federal Reserve at the full printing cost of $22.60 per hundred notes (price in 2004). The cost of printing is the same regardless of wether the note is a one dollar note or a hundred dollar note.
The FRNs are used as tokens for credit-based money that has already been issued (created) by private banks.