Saturday, July 20, 2024


In this article, We learn about “M2”.Let’s Go!

M2 is a measure of the money supply, including cash, checking deposits, and easily convertible quasi-money.

Economists use M followed by a number to designate certain parts of the money supply.

There are two definitions of money: M1 and M2Money supply.

M2 is a broader measure of the money supply than M1 and includes only cash and checking deposits.

M2 is closely watched as a indicator of the money supply and future inflation , as well as the target of central bank monetary policy.

The specific use of this money supply indicator varies from economy to economy.

In the United States, M1 is the total of cash and checking account balances.

M1 Money supply includes coins and currency in circulation—that is, coins and notes circulating in an economy that are not held by the U.S. Treasury in Federal Reserve banks or bank vaults.

Closely related to money are checking deposits, also known as demand deposits. These are the amounts held in a checking account.

They are called demand deposits or checking deposits because when you write a check or use your debit card, the banking institution must provide the funds to the deposit holder “on demand .”

Together these items: Currency and Bank Checking Accounts: Make up the definition of the currency known as M1, which is measured every day by the Federal Reserve System.

M2 is a broader definition of money that includes everything in M1 but also adds other types of deposits.

M2 includes a wider range of financial assets held primarily by households.

M2 consists of M1 plus:

  1. Savings Deposits (including money market deposit accounts, or MMDAs).
  2. Small Denomination Time Deposits (time deposits under $100,000).
  3. Retail Money Market Mutual Fund Balances (MMMF).

Broadly speaking, the scope of M2 broadens to include currencies that are not fully liquid but can be quickly converted into cash or back to a current account.

This can usually be called “Close to Money“.

The Federal Reserve is responsible for tracking the amounts of M1 and M2 and prepares to release information on the money supply on a weekly basis.

In the UK M2 is not usually used, M4 is the key indicator.

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