What is Money Stock?

Emma G.
Emma G.
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Businessman giving a thumbs-up

Money stock is the total amount of money available in the economy of a particular country or region at a given point in time. Monitoring the level of the money stock is important for economic policy makers and financiers because it can indicate upcoming changes in the economy. The money stock is not just the government-issued paper and coin money. It can also include money substitutes such as bills of credit, travelers checks, and precious metals.

Several accepted ways of measuring money stock exist in the modern financial sector. These are known as monetary aggregates. Each has a different set of parameters defining what should and what should not be counted as part of the money stock. M0, pronounced M zero, is the narrowest definition. It includes only the physical cash and coinage available in the economy. With so much of the world's banking system digitized, M0 is an impractical definition that is rarely used except in theoretical cases.

The more commonly used monetary aggregates are M1 and M2. M1 includes cash and coinage and adds any money that is stored in such a way as to be easily accessible, for example, in checking accounts or travelers checks. A slightly broader definition, M2 includes everything in M1 and adds the money stored in short-term savings accounts, certificates of deposit, and money market shares.

Data on changes in the M1 and M2 monetary aggregates are published every week by the major monetary institutes of various national economies. The United States Federal Reserve published its first statistics on money aggregates in 1943. Many countries had been publishing statistics for decades before the first international standards for calculating and publishing monetary aggregates were released in 2000 by the International Monetary Fund (IMF). The IMF is an organization made up of 187 countries that work together to create cooperation and stability among world economies.

Professionals in the financial sector monitor money stock as a way to predict changes in the economy. Shifts in the money supply of a country may affect inflation and price levels. For example, many economists agree that a rapid spike in the money supply is often accompanied by swift inflation. A well-known example of this occurred in Germany after World War II. The central bank of Germany issued huge quantities of money, partly to help fund the war reparations demanded of the country. Prices skyrocketed, and the economy became unstable.

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