Money stock

(Also sometimes loosely referred to as the money supply, a term that, strictly speaking, should be reserved for the entire supply schedule of associated interest rates and the quantities of money that would be created at those rates.) The money stock is the total amount of money available in a particular economy at a particular point in time. Since many different things may serve more or less well as money (or close money substitutes), and since several different sorts of things may be serving as money at the same time in any particular economy, precise definition and measurement of the money stock presents some serious practical problems for the policy maker who wishes to use manipulation of the growth (or contraction) of the money stock as a tool of economic policy.

The narrowest definition of the money stock in common use by the advanced industrial countries today ("M1") includes only the paper currency and coinage in circulation among the public plus the total balances instantly available to depositors in privately held checking accounts ("demand deposits" or "sight deposits") in the country's commercial banks and similar depository institutions (like savings and loans, credit unions, etc.). (A very large proportion of checking account money, of course, is simply created by the banks themselves as they extend loans to borrowers by simply crediting their borrowers' checking account balances with the amounts loaned). Travelers' checks are also included in M1 in some countries, including the US.

"M2," the next broadest measure of the money stock, adds on to the totals included in M1 the total amount of deposits in short-term savings accounts and small certificates of deposit. There are a number of still broader definitions of the money stock ("M3," "M4," "L," etc.) that go on to add in such only slightly less liquid money-like assets as checkable money market mutual funds, larger denomination bank certificates of deposit, credit card credit limits, pre-approved lines of credit, and so on.

[See also: money, monetary policy, banking]