What is money supply?
Money supply is a measure of assets used as money under a specified definition. Cash, transaction deposits and broader deposits enter different monetary aggregates.
Monetary aggregates
1. Narrow and broad money Narrow measures focus on currency and transferable deposits; broader measures add selected savings and time deposits. The exact M1, M2 and M3 definitions vary by statistical system and should be checked before comparison. 2. Creation Central banks influence currency and reserves. Commercial-bank lending and deposits can affect broader money measures, subject to capital, regulation, funding, demand and credit risk. 3. Stock versus flow Money supply is a stock at a point in time. Lending and spending during a month are flows. Moving the same balance between accounts does not necessarily increase the aggregate. 4. Inflation link Money growth can affect prices, but output, velocity, credit conditions and expectations matter. A one-month change is not a one-for-one forecast of inflation.
Interpreting the data
5. Currency valuation The domestic-currency value of foreign-currency deposits may rise when the exchange rate changes, even if the foreign-currency amount does not. Nominal growth is different from real purchasing-power growth. 6. Practical reading Check date, definition, exchange-rate effects and monthly versus annual change. Money supply is informative but cannot alone predict interest rates, exchange rates or asset prices.