monetary base

(noun)

The monetary base s a term relating to (but not being equivalent to) the money supply; the amount of money in the economy. The monetary base is highly liquid money that consists of coins, paper money (both as bank vault cash and as currency circulating in the public), and commercial banks' reserves with the central bank.

Related Terms

Examples of monetary base in the following topics:

  • Control of the Money Supply

    • By purchasing government bonds (especially Treasury Bills), this bids up their prices, so that interest rates fall at the same time that the monetary base increases.
    • The value of the money supply is determined by themoney multiplier and the monetary base.
    • The monetary base consists of the total quantity of government-produced money and includes all currency held by the public and reserves held by commercial banks.
    • While purchases of government securities prove to expand the total monetary base, the selling of government securities will ultimately contract a nation's monetary base.
    • An increase in reserve requirements would decrease the monetary base; a decrease in the requirements would increase the monetary base.

  • Measuring the Money Supply

    • In economics, the monetary base (also base money, money base, high-powered money, reserve money, or, in the UK, narrow money) is a term relating to (but not being equivalent to) the money supply (or money stock) or the amount of money in the economy.
    • The monetary base is highly liquid money that consists of coins, paper money (both as bank vault cash and as currency circulating in the public), and commercial banks' reserves with the central bank.
    • Measures of money are typically classified as levels of M, where the monetary base is the smallest and lowest M-level: M0.
    • M0: In some countries, such as the United Kingdom, M0 includes bank reserves, so M0 is referred to as the monetary base, or narrow money.
    • MB: This is referred to as the monetary base or total currency.

  • Growth Through Monetary Policy

    • Monetary policy seeks to further economic policy goals through influencing interest rates.
    • By adjusting monetary policy in favor of low interest rates and a large monetary base, the Fed is taking expansionary actions designed to help the United States recover from the recession.
    • There are several monetary policy tools available to achieve these ends:
    • The primary tool of monetary policy is open market operations.
    • All of these purchases or sales result in more or less base currency entering or leaving market circulation.

  • Open Market Operations

    • They can achieve this through expansionary monetary policy, buying government bonds and increasing the money supply.
    • A central bank uses them as the primary means of implementing monetary policy.
    • The usual aim of open market operations is to control the short term interest rate and the supply of base money in an economy, and thus indirectly control the total money supply.
    • This involves meeting the demand of base money at the target interest rate by buying and selling government securities, or other financial instruments.
    • Monetary targets, such as inflation, interest rates, or exchange rates, are used to guide this implementation.

  • Benefits and non-monetary compensation

    • "Compensation is becoming more variable as companies base a greater proportion of it on stock options and bonuses and a smaller proportion on base salary, not only for executives but also for people further and further down the hierarchy" (Pfeffer, Six Dangerous Myths About Pay, 2000).
    • Benefits and other forms of non-monetary compensation are becoming more appropriate forms of compensation for employees in today's workplace.
    • If a company offers employees extremely high wages compared to other businesses in the industry in addition to non-monetary compensation, costs may increase at a faster rate than profit.

  • The International Monetary Fund (IMF)

    • The International Monetary Fund (IMF) is an international organization that was created on July 22, 1944 at the Bretton Woods Conference and came into existence on December 27, 1945 when 29 countries signed the IMF Articles of Agreement.
    • Voting power in the IMF is based on a quota system.
    • It is based on a basket of key international currencies.
    • The IMF is mandated to oversee the international monetary and financial system and monitor the economic and financial policies of its 188 member countries.
    • Explain how the International Monetary Fund (IMF) aids its 188 member countries

  • International Exchange of Money

    • For several centuries the developed world operated under a fixed exchange rate system based on the gold standard.
    • This was called the Bretton Woods system and included the creation of the IMF (International Monetary Fund).
    • The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.
    • It also supports direct speculation in the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies.

  • The Benefits of Socialism

    • Socialism has a number of theoretical benefits, based on the idea of social equality and justice.
    • The insurance typically includes monetary provisions for retirement pensions and survivor benefits, permanent and temporary disabilities, unemployment and parental leave.
    • Unlike private insurance, governmental schemes are based on public statutes rather than contracts; therefore, contributions and benefits may change in time, and are based on solidarity among participants.
    • In theory, based on public benefits, socialism has the greatest goal of common wealth;

  • The World Bank

    • The International Bank for Reconstruction and Development (IBRD) has 188 member countries, while the International Development Association (IDA) has 172 members.Each member state of IBRD should be also a member of the International Monetary Fund (IMF), and only members of IBRD are allowed to join other institutions within the Bank (such as IDA).
    • For the poorest developing countries in the world, the bank's assistance plans are based on poverty reduction strategies; by combining a cross-section of local groups with an extensive analysis of the country's financial and economic situation, the World Bank develops a strategy pertaining uniquely to the country in question.

  • Introduction to the Federal Reserve

    • The Federal Reserve System is the central banking system of the United States, which conducts the nation's monetary policy.
    • Congress established three key objectives for monetary policy—maximum employment, stable prices, and moderate long-term interest rates—in the Federal Reserve Act.
    • Its duties have expanded over the years, and today, according to official Federal Reserve documentation, include conducting the nation's monetary policy, supervising and regulating banking institutions, maintaining the stability of the financial system, and providing financial services to depository institutions, the U.S. government, and foreign official institutions.
    • The Fed is independent within government in that "its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government. " Its authority is derived from statutes enacted by the U.S.
    • Since the inflation of the 1970s, Federal Reserve monetary policy has emphasized preventing rapid escalation of general price levels.