Key takeaways
– Narrow money (the most liquid money) consists of physical currency plus immediately accessible deposits—typically captured by M0 and M1 measures. (Board of Governors of the Federal Reserve System; OECD)
– In the United States, narrow money is represented by M1; as of December 2024, U.S. M1 was about $18.45 trillion and M2 was about $21.53 trillion. (Board of Governors of the Federal Reserve System, H.6 Release)
– Central banks track narrow and broad money but, in modern practice, implement policy mainly through interest-rate tools rather than by directly targeting money aggregates. (Federal Reserve Bank of New York; Board of Governors of the Federal Reserve System)
– Definitions and the exact components of “narrow” vs “broad” money differ across countries; for example, the U.K.’s narrowest measure may be notes and coins in circulation. (Bank of England; OECD)
What is “narrow money”?
Narrow money is the portion of the money supply that is most liquid and immediately usable for transactions. It generally includes:
– physical currency (notes and coins) in circulation, and
– demand deposit balances and other checking-account–type funds that are payable on demand.
Depending on the country and statistical convention, narrow money is reported as M0 and/or M1:
– M0: often refers to the monetary base or currency in circulation (definitions vary by country).
– M1: usually equals currency in circulation plus demand deposits and other checkable deposits—this is the standard “narrow money” measure in many reporting systems. (OECD; Board of Governors of the Federal Reserve System)
Why the distinction matters
Narrow money reflects the amount of funds immediately available for everyday transactions. Changes in narrow money can affect spending, liquidity conditions, and short-run price behavior, but the relationship is influenced by financial innovation, payment technologies, and central-bank operating frameworks.
Qualifying accounts and instruments
Typical elements included in narrow money (M1) are:
– Notes and coins held by the public (currency in circulation)
– Demand (checking) deposits at banks and other depository institutions
– Other deposits that are immediately accessible (e.g., some payment-account balances)
Excluded from narrow money:
– Savings accounts with withdrawal restrictions, time deposits, and longer-term instruments (these are part of broader measures such as M2, M3, M4). (OECD)
Narrow money versus broad money
– Narrow money (M0, M1): most liquid, used for payments and transactions.
– Broad money (M2, M3, M4 in some countries): includes narrow money plus less liquid deposit instruments (savings deposits, time deposits, money market instruments). For example:
– M2 = M1 + small-denomination time deposits, savings deposits, certain money-market deposit accounts.
– M3 = M2 + larger time deposits and other longer-term institutional deposits.
– M4 (where used) can include still longer-dated deposits and liquid securities. Definitions vary across jurisdictions. (OECD)
How narrow money relates to monetary policy
– Many central banks continue to monitor money aggregates to understand liquidity and inflation signals. However, in practice most modern central banks implement policy through interest-rate targeting and balance-sheet operations rather than by directly controlling M1 or M2. (Federal Reserve Bank of New York; Board of Governors of the Federal Reserve System)
How much M1 is there? (example point-in-time)
– U.S. M1 was about $18.45 trillion as of December 2024; U.S. M2 was about $21.53 trillion as of the same date. (Board of Governors of the Federal Reserve System, H.6 Release)
Is M1 the narrowest money?
– Generally, yes: in many reporting frameworks M1 is the narrowest broadly published money aggregate since it captures currency + demand deposits. Some countries refer to currency-only measures (notes and coins) as the narrowest form (for instance, the Bank of England publishes notes and coin in circulation separately). Definitions vary by jurisdiction. (Bank of England; OECD)
Practical steps — how to use, monitor, and interpret narrow money
For analysts and researchers
1. Download official series:
– For U.S. data: download the Fed’s H.6 Money Stock Measures (csv or Excel) and H.3/H.4 for related aggregates and base. (Board of Governors of the Federal Reserve System, H.6 Release)
– For other countries: use national central banks’ statistical pages or the OECD aggregated series for cross-country comparisons. (OECD)
2. Compute growth rates:
– YoY growth (%) = (M1_t / M1_{t-12} − 1) × 100.
– Monthly growth: (M1_t / M1_{t-1} − 1) × 100.
3. Adjust for inflation:
– Real M1 = nominal M1 / Price Index (e.g., CPI). Compare real M1 to real GDP growth to assess real liquidity changes.
4. Compute velocity (a simple gauge of how fast money circulates):
– Velocity (M1) = Nominal GDP / M1. Declining velocity can mute the inflationary impact of rising money stocks.
5. Interpret cautiously:
– Look at trend, not one-off movements. Consider payment-technology shifts (e.g., digital wallets) and regulatory changes that reclassify deposits.
For investors
– Watch fast, sustained M1 growth relative to nominal GDP as a potential early signal of excess liquidity that can feed into inflation—while remembering many factors affect inflation.
– Combine money-supply trends with central-bank communications (policy rate guidance) to form views on interest rates and inflation.
For businesses and treasurers
– Monitor M1/M2 trends to assess short-term liquidity conditions and funding-cost risks.
– Maintain contingency liquidity (cash buffers or lines of credit) if you see tightening liquidity or rapid withdrawals from deposit-like instruments.
For policymakers
– Use money-aggregate data as one input among many—alongside inflation, unemployment, credit conditions, and market-based indicators—when setting policy.
– Recognize that targeting money aggregates directly is rare in modern practice; interest-rate frameworks and balance-sheet tools are typically primary. (Federal Reserve Bank of New York)
For individuals/households
– Keep an emergency cash buffer and an accessible checking/savings account for transactional needs.
– Understand that narrow-money growth alone does not necessarily imply immediate inflation or spending shocks—monitor central-bank policy signals.
Step-by-step: how to check U.S. M1 in practice
1. Visit the Federal Reserve’s H.6 Money Stock Measures page: https://www.federalreserve.gov/releases/h6.htm
2. Download the CSV or Excel file for the series “M1” (or use the FRED series if you prefer an API).
3. Compute growth rates in your spreadsheet or statistical software.
4. Compare M1 growth vs nominal GDP growth and CPI inflation to assess liquidity vs spending and prices.
Simple calculation examples
– YoY growth example: if M1 was $16.5T in Dec 2023 and $18.45T in Dec 2024, YoY growth = (18.45 / 16.5 − 1) × 100 ≈ 11.8%.
– Velocity example: if nominal GDP is $30T and M1 = $18.45T, velocity = 30 / 18.45 ≈ 1.63 (units: times per year).
Caveats and country differences
– Money aggregate definitions are not uniform across countries. Some countries do not publish all M0–M4 series; others use different cutoff rules for what counts as “on demand” versus time deposits. Always check national-statistics metadata. (OECD; Bank of England)
– Correlations between money growth and inflation have weakened in many advanced economies because of financial innovation, balance-sheet strategies, and changing velocity. Use money aggregates as part of a broader toolkit, not in isolation. (Federal Reserve Bank of New York)
Frequently asked questions
Q: Can central banks control narrow money directly?
A: Not reliably in modern, market-based systems. Central banks influence liquidity and money creation through reserve operations and interest-rate policy, but they typically do not target M1 directly. (Federal Reserve Bank of New York)
Q: Is an increase in M1 always inflationary?
A: No. The inflationary impact depends on how fast money circulates (velocity), the economy’s output gap, and how banks and households use the funds. Structural changes in the financial system can attenuate or amplify the impact.
Bottom line
Narrow money (M0/M1) captures the most liquid forms of money—currency and demand deposits—that people and businesses use in everyday transactions. It is a useful gauge of transaction liquidity, but interpreting changes requires context: velocity, broader money aggregates, payment-technology changes, and central-bank policy frameworks. Policymakers and analysts monitor these series (e.g., the Fed’s H.6 release and comparable national statistics), but modern monetary policy leans primarily on interest-rate tools rather than direct control of money aggregates.
Sources and further reading
– Board of Governors of the Federal Reserve System. “What Is the Money Supply? Is It Important?” https://www.federalreserve.gov/faqs/money_12861.htm
– Board of Governors of the Federal Reserve System. “Money Stock Measures—H.6 Release.” https://www.federalreserve.gov/releases/h6.htm
– Federal Reserve Bank of New York. “Monetary Policy Implementation.” https://www.newyorkfed.org/monetarypolicy
– Bank of England. “Further Details About Notes and Coin and Reserves Balances Data.” https://www.bankofengland.co.uk/statistics
– Organisation for Economic Co-operation and Development. “Narrow Money (M1).” https://stats.oecd.org/Index.aspx?DataSetCode=MAINI
If you want, I can: (1) pull the latest M1 time series for a specified country and compute YoY growth and velocity, (2) produce charts of M1 vs inflation, or (3) give tailored practical steps for corporate treasury liquidity policy. Which would you like?