The term “narrow money” typically covers the most liquid forms of money, i.e. currency (banknotes and coins) as well as bank-account balances that can immediately be converted into currency or used for cashless payments (overnight deposits, checking accounts, etc). Broad Money is M3
M0 is the sum of Currency in Circulation, Bankers’ Deposits with RBI, and ‘Other’ Deposits with RBI
Components of M0:
Currency in Circulation
Bankers’ Deposits with RBI
‘Other’ Deposits with RBI
Note: ‘Other’ deposits with RBI 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.
M1 (Narrow Money)
M1 is the sum of Currency with the Public, Demand Deposits with the Banking System, and ‘Other’ Deposits with RBI.
Components of M1:
Currency with the Public
Current Deposits with the Banking System
Demand Liabilities Portion of Savings Deposits with the Banking System
‘Other’ Deposits with RBI
In other words, M1 = Currency with the Public + Demand Deposits with the Banking System + ‘Other’ Deposits with RBI
Significance of M1: M1 includes currency with the public and non-interest bearing deposits with the banking sector including that of RBI.
M2
M2 is the sum of Currency with the Public, Current Deposits with the Banking System, Savings Deposits with the Banking System, Certificates of Deposits issued by Banks, Term Deposits of residents with a contractual maturity up to and including one year with the Banking System, and ‘Other’ Deposits with RBI.
Components of M2:
Currency with the Public
Current Deposits with the Banking System
Demand Liabilities of Savings Deposits with the Banking System
‘Other’ Deposits with RBI
Term Deposits of residents with a contractual maturity up to and including one year with the Banking System
Certificates of Deposits issued by Banks
In other words, M2=M1+ Time Liabilities Portion of Savings Deposits with the Banking System + Certificates of Deposit issued by Banks + Term Deposits of residents with a contractual maturity of up to and including one year with the Banking System.
M3 (Broad Money)
M3 is the sum of Currency with the Public, Current Deposits with the Banking System, Savings Deposits with the Banking System, Certificates of Deposits issued by Banks, Term Deposits of residents with the Banking System, Call/Term borrowings from ‘Non-depository’ financial corporations by the Banking System, and ‘Other’ Deposits with RBI.
Components of M3:
Currency with the Public
Current Deposits with the Banking System
Savings Deposits with the Banking System
Certificates of Deposits issued by Banks
Term Deposits of residents with a contractual maturity up to and including one year with the Banking System
‘Other’ Deposits with RBI
Term Deposits of residents with a contractual maturity of over one year with the Banking System
Call/Term borrowings from ‘Non-depository’ financial corporations by the Banking System.
M3=M2+ Term Deposits of residents with a contractual maturity of over one year with the Banking System + Call/Term borrowings from ‘Non-depository’ financial corporations by the Banking System.
Significance of M3: M3 captures the complete balance sheet of the banking sector.
