Monetary Base

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DEFINITION

The total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. This measure of the money supply typically only includes the most liquid currencies.

Also known as the "money base".

INVESTOPEDIA EXPLAINS

For example, suppose country Z has 600 million currency units circulating in the public and its central bank has 10 billion currency units in reserve as part of deposits from many commercial banks. In this case, the monetary base for country Z is 10.6 billion currency units.

For many countries, the government can maintain a measure of control over the monetary base by buying and selling government bonds in the open market.


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