US Money Supply refers to the amount of money present in the U.S. economy to buy goods or services. Money supply in the US can be categorized into four types and they are termed as M0, M1, M2 and M3.
Depending upon liquidity of the available currency, types of money supply in the U.S. increase in size in an ascending order. The Federal Reserve has the principal responsibility of regulating the money supply. The United States Mint mints the coins of the United States and this is a division of the U.S. Treasury Department, which does not fall within the discretion of the Federal Reserve. The Bureau of Engraving and Printing prints the currency notes on behalf of the Federal Reserve.
M0 Money Supply: It represents base money such as bills, coins, as well as central bank deposits. M0 money supply also refers to that type of money supply, which can meet the reserve necessities of private banks.
The M1 money supply refers to M0 along with the whole balance of deposits (coin or nonpaper) free from any restrictions on withdrawals. The next level of money supply is the M2 money supply, which refers to the type of accounts on which checks cannot be drawn.
The M0 money supply and M1 money supply relationship is termed as the money multiplier. This is a ratio between the amount of cash and coins available with people and ATMs and bank vaults to the total balance of their financial accounts. The difference between M0 and M1 takes place due to the fractional reserve banking system.
M3 Money Supply:
M3 represents all types of money not excluding credit money.
The Federal Reserve defines the US money supply categories in the following manner:
M0:
The total amount of physical currencies along with central bank accounts, which can be converted into physical currency.
M1:
M0 minus the components of M0 which are held as vault cash or reserves + the amount deposited in checking or current accounts also known as demand accounts.
M2:
It refers to M1+ the majority of savings accounts, time deposits with small denominations (including CDs less than $100,000), and money market accounts.
M3:
It refers to M2+ every other type of certificates of deposit (CDs), repurchase agreements, and Eurodollar deposits.