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Monetary base

Monetary base is a macroeconomic indicator that reflects the entire amount of cash in circulation and the required reserves that credit institutions keep at the central bank. It should be noted that the monetary base does not include demand deposits and time deposits. All of the above elements of the monetary base are the most liquid assets in the country’s economy.

The monetary base, as a rule, is calculated by the state central bank with the aim of controlling the cash circulation in the economy. In other words, the monetary base allows you to estimate how much cash is in circulation outside of credit institutions. In contrast to the money supply, the monetary base is a narrower concept since the money supply covers all cash and non-cash money in the economy of the state.

Approaches to determining the monetary base may differ in different countries. For example, in Russia, there are 2 approaches to determining the monetary base.

The monetary base in a broad definition includes cash in circulation, including balances in the cash desks of credit institutions, correspondent accounts of banks with the Central Bank of the Russian Federation, required reserves, bank deposits with the Central Bank of the Russian Federation, bonds of the Bank of Russia with credit institutions, obligations of the Bank of Russia to repurchase securities, and reserve funds for foreign exchange transactions contributed to the Bank of Russia. This index is calculated by the Bank of Russia on a monthly basis.

The monetary base, in a narrow definition, takes into account cash issued by the Bank of Russia into circulation, including balances in the cash desks of banks and the required reserves of credit institutions with the central bank. This indicator is published by the Bank of Russia on a weekly and monthly basis.

The monetary base is one of the tools for influencing the money supply in the economies of modern countries. In practice, such an indicator as the money (bank) multiplier is used, which is calculated as the ratio of the money supply (M2 aggregate) to the monetary base and allows one to assess the growth in the amount of money in circulation due to credit and deposit operations.
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