The Amount of M1, M2, M3 and the Measures of the U.S. Money Supply

Economists define the money supply as the total amount of money available within a given economy.  Here, money is defined as the amount of currency in actual circulation as well as on deposit at financial institutions (where the money is often held in a more or less virtual form, since usually the bank never physically holds 100% of the money on deposit). (Once money is deposited into a bank, it is not considered “in circulation.”)

In the U.S., there are three measures of the total money supply known as the monetary aggregates of M1, M2, and M3.  “M” stands for money; the numbers represent increasing levels of liquidity.  For example, “M1″ is considered the most liquid amount (cash available).  The data on M1, M2 and M3 are gathered on a weekly basis by the Fed.  But keep in mind that even these measures are rough – economists have many ways of defining the money supply, what counts as money, and hence, how it is measured.

Explanation of What M1, M2, and M3 Measure

M1 is considered to be the total currency held by people outside of banking institutions plus checking accounts from which money is easily withdrawn (eg., writing a check, using debit cards; traveler’s checks are also counted here).  In other words, M1 measures cash in hand and cash easily obtainable and immediately exchangeable for goods. From this total, the amount of money at the Federal Reserve is subtracted. In January 2005, the value of M1 was measured at $1.35 billion USD – or about 10% of US GDP at that time.¹

M2 represents M1 plus: assets slightly less liquid: savings deposits such as general or retail money market funds (except those in IRAs and Keough accounts) and retirement accounts and deposits below $100,000.

M3 represents M2 plus: assets even less liquid: deposits above $100,000, money held at U.S. banks abroad, and institutional money market funds (including pension fund deposits) and deposits with non-bank institutions.  M3 represents almost 90% of U.S. GDP. It does not include, however, money held by the US government.

Notice that these definitions do not only not include the amount of money available and created at the Federal Reserve, but in fact, the money at the Fed float is used to numerically offset the amount in actual circulation and market use.  Thus, M3 can’t be said to be the total money supply, strictly speaking, but it is as close as we can get.

UK Measures Of Money Supply

Other countries may measure money supply differently.  For example, in the UK, “M0” (M-zero) is similar to the United States’ “M1″ and is also known as “narrow money,” including all pounds in circulation but not held at the Bank of England (the UK’s central bank, the equivalent of the Federal Reserve).  They also measure M4, which is M0 plus all monetary deposits in other types of financial institutions.  M4 is known as the “broad money” supply.

Do They Publish Data on M3 or the Total Money Supply?

Due to concerns about the inflation of the US dollar, more people are beginning to teach themselves about the money supply and how it is calculated.  The obvious question to ask is how much US money is actually in existence.  As mentioned above, this can be difficult to calculate because of the various ways of defining money and the various ways of measuring it.

A few years ago, perhaps in 2003 or 2004, the Federal Reserve stopped making data on M3 public.  As you can see for yourself from these monthly releases published on the Federal Reserve site itself, it looks to be the case that that is still true.  On this page you can find all measures of M1 and M2, but not M3.

¹According to Steven M. Suranovic, “Finance: Chapter 40-4,” Feb. 2005, International Finance Theory and Policy, 1997-2009.

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Tagged as: economics, explanation of M3, hyperinflation, inflation, M3, money aggregates, money supply, number of US dollars, UK money supply, US money supply