भारत में मुद्रा आपूर्ति के उपाय क्या हैं ? (Measures of Money Supply)
Money is anything that is generally accepted as a medium of exchange, a store of value, a measure of value, and a means for the standard of deferred payment. Money considers everything that can be used for an accomplishment of a business transaction and
Money is anything that is generally accepted as a medium of exchange, a store of value, a measure of value, and a means for the standard of deferred payment. Money considers everything that can be used for an accomplishment of a business transaction and settlement of the business claims, like currency notes, coins, cheques, etc. There is not just one definition of money, instead, it can be defined legally, functionally, based on liquidity, and based on scope.
Currency Flow or Money Supply
The money supply is the sum of currency in circulation at any given time in a country. It includes both physical cash and accounts that can be accessed in the same way. A country’s economy is profoundly affected by its monetary policy. Interest rates and the cost of consumer goods tend to fall when there is an increase in the money supply of an economy. The opposite is true if the money supply in an economy shrinks, which will be reflected in higher interest rates, prices, and bank reserves.
Money Supply Characteristics
§ First, all of the currency in circulation is counted as part of the money supply. The term “public” refers to the economic sector of the country, which includes both private businesses and individuals. However, this definition does not account for a country’s money-creating sector since the quantity of cash or other liquid assets held by this group is not indicative of the volume of currency in circulation. The banking system and the government together make up the money-creating sector of a country.
§ The money supply is a stock market concept. What this means is that the monetary supply is time-bound.
§ “High-powered Money” refers to currency issued by the Reserve Bank of India (RBI) and the Indian government (H). Both bank reserves and money in circulation are counted. High-powered Money diers from Money (M) in that M only refers to currency and demand deposits, while HM also includes cash reserves at banks and currency in circulation. H is more potent than Money (M) because of the role that cash reserves play in providing a stable foundation for the creation of demand deposits in an economy.
Measure of Money Supply
The Reserve Bank of India only used a narrow measures of money supply until 1967–1968. However, four measures of money supply (M1, M2, M3, and M4) have emerged in the economy since 1977.
Money is anything that is generally accepted as a medium of exchange, a store of value, a measure of value, and a means for the standard of deferred payment. Money considers everything that can be used for an accomplishment of a business transaction and
1. M1 (measures of money supply)
M1, also referred to as transaction money, is the initial and most fundamental monetary aggregate. We refer to this unit of account as “transaction money” because it is useful in making purchases and payments. M1 is made up of three different types of money: currency in circulation, demand deposits from commercial banks, and other deposits held by the Reserve Bank of India. Because of how easily all of these things can be exchanged for one another, this measure of the money supply is the most liquid possible.
M1 = Public Currency + Commercial Bank Demand Deposits + Other Deposits at the Reserve Bank of India
M1 Substances
§ The Public’s Currency and Coins: Coins and paper currency held by the public are the first elements of transaction money. This means that the government and banking sector do not count coins and paper currency that they hold as part of the money supply used for transactions. Paper currency includes bills with face values of 10, 20, 100, 500, etc., and coins with values of 1, 2, 5, 10, 20, etc.
Currency money, also known as Fiat Money, is the money that is legally required to be accepted as payment for all debts. To put it another way, fiat money is currency that functions solely because of a government decree. Legal Tender Money is another name for currency and coins that make up the public M1 component of the money supply.This is due to the fact that the funds can be lawfully used to settle debts and fulfill other responsibilities.
§ The public’s demand for deposits at commercial banks makes up the second part of M1. Checks drawn on demand deposit accounts can be cashed at any time by the account holder. Demand deposits are considered currency because of how widely they are accepted as payment. M1 only accounts for net demand deposits. This means that deposits made between banks are not included in this measure. The deposits that one bank holds on behalf of another are known as interbank deposits. These deposits are not counted as part of the M2 because they are not held by the general public.
§ The third component of M1 consists of deposits held by the Reserve Bank of India on behalf of foreign governments and banks, the International Monetary Fund (IMF), the World Bank, public financial institutions, etc. This component does not, however, include the deposits of commercial banks and the Indian government with the Reserve Bank of India. Since it only accounts for a fraction of M1, other deposits with RBI do not have a major impact on the formation of India’s monetary policy.
2. M2 (measures of money supply)
Money is anything that is generally accepted as a medium of exchange, a store of value, a measure of value, and a means for the standard of deferred payment. Money considers everything that can be used for an accomplishment of a business transaction and
M2 is a broader measures of money supply than M1, the first. Money market funds and post oce savings bank deposits are included. Savings Deposits at Post Oce Savings Bank cannot be withdrawn via cheque, so they do not factor into the bank’s M2 measure of demand deposits.
M2 = M1 + Post Oce Savings Bank Deposits
3. M3 (measures of money supply)
M3, the third monetary aggregate, encompasses more than M1 and M2. Money Supply M1 and Bank Time Deposits Net are included.
M3 = M1 + Banks’ Net Time Deposits
4. M4 (measures of money supply)
In contrast to M1 and M3, M4 is a more general indicator of the size of the monetary system. Not included is the NSC, but it does include M3 and Total Deposits with Post Oce Savings Bank (National Savings Certificate).
M4 = M3 + Total Post Oce Savings Bank Deposits
Key Information About Measures of Money Supply
§ Each of the four measures of money supply indicates a unique degree or level of liquidity. The most liquid measure of supply is M1, while the least liquid is M4.
§ The aggregate monetary resources of a country (or simply M3) are a popular indicator of availability.
§ Unlike M3 and M4, which are considered part of the Broad Money Supply Concept, M1 and M2 are considered part of the Narrow Money Supply Concept.