Monetary base

In economics, the monetary base (also base money, money base, high-powered money, reserve money, outside money, central bank money or, in the UK, narrow money) in a country is defined as the portion of a commercial bank's reserves that consist of the commercial bank's accounts with its central bank plus the total currency circulating in the public, plus the currency, also known as vault cash, that is physically held in the bank's vault.

The monetary base should not be confused with the money supply which consists of the total currency circulating in the public plus the non-bank deposits with commercial banks.

Open market operations are monetary policy tools which directly expand or contract the monetary base.

The monetary base and monetary policy are typically controlled by the same national institution, usually either the finance ministry or the central bank. These institutions change the monetary base through open market transactions: the buying and selling of government bonds. Typically, they can also influence banking activities by manipulating interest rates and setting reserve requirements (how much money banks must keep on hand instead of loaning out to borrowers).

The monetary base (MB) is called high-powered because its increase will typically result in a much larger increase in the supply of demand deposits through banks' loan-making; a ratio called the money multiplier.

As of 8 June 2016, the monetary base in the United States was USD 3,869,723,000,000.

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