Monetary base
Definition
The monetary base refers to the total amount of money in an economy that is held by the central bank. It includes both physical currency (coins and notes) and commercial bank reserves.
Analogy
Think of the monetary base as the "money toolbox" of the central bank. Just like a toolbox contains all the necessary tools for a job, the monetary base represents all the money resources that the central bank has at its disposal.
Related terms
Central Bank: A central bank is an institution responsible for managing a country's money supply, controlling interest rates, supervising commercial banks, and maintaining financial stability within an economy.
Money Supply: The money supply refers to the total amount of money available in an economy, including physical currency, demand deposits, and other liquid assets.
Commercial Bank Reserves: Commercial bank reserves are funds that banks hold with their respective central banks to meet regulatory requirements and facilitate daily transactions.
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