From UPSC perspective, the following things are important :
Prelims level : What constitute M3
Mains level : Paper 3- Increase in currency with public
Increase in currency with the public
- During the fortnight ended April 9, currency with the public jumped by Rs 30,191 crore to hit a new high of Rs 27,87,941 crore.
- In the six-week period between February 27 and April 9, currency with the public rose by Rs 52,928 crore, show RBI data.
- Experts said the increase in currency with the public is on account of the fear of imposition of lockdowns by state or central governments.
How currency with public is arrived at
- According to the RBI, currency with the public is arrived at after deducting the cash with banks from the total currency in circulation.
- Currency in circulation, which includes notes in circulation, rupee coins, and small coins, refers to cash or currency within a country that is physically used to conduct transactions between consumers and businesses.
- It effectively means the currency that individuals across the country hold with themselves.
M3 has gone up
- Money supply in the economy – or M3 – has gone up over the last couple of months.
- M3, which includes currency with public, current deposits, savings deposits, and fixed deposits, has increased by 11.3 per cent, or Rs 19.17 lakh crore, to a new high of Rs 189.07 lakh crore as on April 9, 2021.
Measures of Money supply
- Reserve Money (M0): It is also known as High-Powered Money, monetary base, base money etc.
M0 = Currency in Circulation + Bankers’ Deposits with RBI + Other deposits with RBI
It is the monetary base of economy.
- Narrow Money (M1):
M1 = Currency with public + Demand deposits with the Banking system (current account, saving account) + Other deposits with RBI
- M2 = M1 + Savings deposits of post office savings banks
- Broad Money (M3)
M3 = M1 + Time deposits with the banking system
- M4 = M3 + All deposits with post office savings banks