M3

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DEFINITION of 'M3'

A measure of money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets. The M3 measurement includes assets that are less liquid than other components of the money supply, and are more closely related to the finances of larger financial institutions and corporations than to those of businesses and individuals. These types of assets are referred to as “near, near money.”

BREAKING DOWN 'M3'

The M3 classification is the broadest measure of an economy's money supply. It emphasizes money as a store-of-value more so than money as a medium of exchange – hence the inclusion of less-liquid assets in M3. It is used by economists to estimate the entire money supply within an economy, and by governments to direct policy and control inflation over medium and long-term time periods.

Each M3 component is given equal weight during calculation. This means, for example, that M2 and large time deposits are treated the same and aggregated without any adjustments. While this does create a simplified calculation, it assumes that each component of M3 impacts the economy the same way. This can be considered a shortcoming of this measurement of the money supply.

Since 2006, M3 is no longer tracked by the U.S. central bank.

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