What is Money Supply?

Money supply in an economy is the total volume of currency in circulation at a particular point in time. It
can include cash and its equivalents like currency notes, coins, and bank deposits. It is a critical concept
that greatly impacts a country’s financial and economic situation.

The supply of money is closely related to inflation and consumption. Therefore, the government,
especially a country’s central bank, controls the circulation of money through its monetary policy. The
supply of money measurement includes M0, M1, M2, M3, and M4 types, based on its liquidity.

 The money supply denotes the total amount of cash and cash equivalents in a country.
 The central bank in a country monitors the supply situation through monetary policies, which
can be expansionary or contractionary, based on its objectives.
 Important determinants of money circulation and supply are high-powered money, level of
commercial bank reserves, reserve ratio, and liquid cash held by the public.
 The monetary base is a highly liquid form of money, which includes currency notes, coins, and
commercial bank reserves.

Measurement

Since the supply of money is an important economic parameter, governments constantly monitor and
regulate it. Therefore, they measure the amount of money frequently to keep it in check. Standard
measures of money supply include M1, M2, M3, and M4.

The measurement of the supply begins with the M0 or monetary base. It denotes the amount of
currency in circulation, i.e., currency bills, coins, and bank reserves.
  M1 money supply: Also called the ‘narrow money,’ it includes M0 and other highly liquid
deposits in the bank.
 M2 money supply: It is perhaps the most commonly accepted measure because it consists of
M1 in addition to marketable securities and less liquid deposits.
 M3 money supply: Known as ‘broad money,’ it constitutes M2 and money market funds like
mutual funds, repurchase agreements, commercial papers, etc.
 M4 money supply: It comprises M3 and all other least liquid assets, usually outside commercial
banks.

The above types of money supply measurements and their formulas can be summarized as follows:

M0 = Currency notes + coins + bank reserves

M1 = M0 + demand deposits

M2 = M1 + marketable securities + other less liquid bank deposits

M3 = M2 + money market funds

M4 = M3 + least liquid assets

These measures of money supply usually vary depending on the country. For example, the Federal
Reserve usually focuses on M1 and M2 types to monitor the U.S. money supply, whereas the Bank of
England measures M4 types too.

Bangladesh money supply

Indicator Last Previous Unit Reference

Interest Rate 6.00 5.75 percent Jan 2023

Interbank Rate 5.80 5.80 percent Dec 2022

Money Supply M1 4,331,623 4,150,380 BDT Million Nov 2022

Money Supply M0 2,746 2,580 BDT Billion Nov 2022

Money Supply M2 17,404 17,267 BDT Billion Nov 2022

Money Supply M3 21,279 21,148 BDT Million Nov 2022

Foreign Exchange Reserves 33,747 33,789 USD Million Dec 2022

Loans to Private Sector 13,423 13,249 BDT Billion Nov 2022

Bangladesh Bank regularly publishes Reserve money(M0) and M2statistics in its quarterly publications.

Reserve money (M0) = Currency in Circulation + Bankers’ Deposits with BB + ‘Other’ Deposits with BB.
Among these components, the most important one is currency in circulation. It includes notes in
circulation, rupee coins and small coins. ‘Bankers’ deposits BB comprises of balances maintained by
banks in the current account with the Bangladesh Bank mainly for maintaining Cash Reserve Ratio (CRR)
and as working funds for clearing adjustments. Other Deposits with BB comprise mainly: (i) deposits of
quasi-government and other financial institutions including primary dealers, (ii) balances in the accounts
of foreign Central banks and Governments, (iii) accounts of international agencies such as the
International Monetary Fund, etc.

Bangladesh Reserve money M0 (BDT bn)

Bangladesh M2 (BDT mn)

Source:

1. https://www.wallstreetmojo.com/money-
supply/#:~:text=Standard%20measures%20of%20money%20supply,%2C%20coins%2C%20and%
20bank%20reserves.
2. https://tradingeconomics.com/bangladesh/money-supply-
m1#:~:text=Money%20Supply%20M1%20in%20Bangladesh%20averaged%20660074.43%20BDT
%20Million%20from,Million%20in%20April%20of%201975.
3. https://thefinancialexpress.com.bd/views/understanding-money-creation-process-rm-to-ms-
1596726955