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Monetary base |
In economics, the monetary base, or the money base (often called narrow money in the UK) is a term relating to the volume of money in the economy, or money supply. The monetary base comprises only currency (banknotes and coins) and commercial banks' reserves with the central bank. As such, it is a narrow definition of money supply, consisting of only the most liquid forms of money. Wider definitions of the money supply include the public's bank deposits and are therefore larger in volume and encompass money of a lower liquidity.
These definitions of the different types of money are typically classified as levels of Ms, where the monetary base is the lowest M-level: M0 [1].
"Open market" operations are monetary policy tools that affect directly the monetary base [2]; the monetary base can be expanded or contracted using an expansionary policy or a contractionary policy, but not without risk.
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