Glamor Economics

Chapter 104

Chapter 14, Section 5 Understanding Money in the Macroeconomy——Monetary Levels

Internationally, according to the level of currency liquidity, it is divided into different currency levels. As the liquidity decreases, the currency level shows an increasing trend.There are currency levels with different borders such as M0, M1, M2, M3, and M4.With regard to the division of money levels, different countries have different division methods, even the same country has different division methods in different periods.

The West usually divides the currency hierarchy into four levels:
M1 = cash in circulation + demand deposits in commercial banks

M2 = M1 + time deposits and savings deposits of commercial banks
M3 = M2 + time deposits and savings deposits of other financial institutions
M4 = M3 + other short-term current assets (such as treasury bills, bank and commercial acceptance bills, life insurance policies, etc.)

The International Monetary Fund generally divides currencies into three tiers:

M0 = circulation and cash currency outside the banking system
M1=M0+commercial bank current deposits+postal remittance funds+private current deposits accepted by the treasury

M2=M1+savings deposit+time deposit+government short-term bond
my country's currency hierarchy is divided into four levels:
M0=cash in circulation
M1=M0+Current deposits of corporate units+Rural deposits+Partial deposits of government agencies and organizations+Credit card deposits held by individuals
Among them: corporate current deposits = corporate deposits - unit time deposits - self-raised infrastructure deposits
M2=M1+ time deposits of corporate entities + savings deposits of urban and rural residents + foreign currency deposits + trust deposits + securities company customer protection funds

M3=M2+financial bonds+commercial papers+large negotiable certificate of deposit

The reason why our country classifies the cash in circulation as a separate level is that it is compared with Western countries.my country's credit system is not yet developed enough. Cash accounts for more than 1% of the narrow money supply M30. The amount of cash in circulation has a great impact on my country's consumer goods market and retail prices. Excessive issuance of cash will cause price increases.

[links to related words]

Money supply refers to the currency stock that serves the social and economic operation of a country in a certain period of time. It consists of deposit currency and cash currency supplied by financial institutions including the central bank.

Currency level Currency level refers to the level that central banks of various countries use the liquidity of financial assets as a standard when determining the statistical caliber of money supply, and divide currencies according to the characteristics and needs of their own policy purposes.Its rough classification is: M0 = cash flow; M1 = M0 + various demand deposits; M2 = M1 + various time deposits.The division of monetary levels is conducive to the central bank's monitoring of the macroeconomy and monetary policy operations.

(End of this chapter)