Please help me understand these facts about the money supply: The FED posts that the total world coin/paper money are 1.39 trillion, but the M0 base aggregate post is billions. And also the M2...

Please help me understand these facts about the money supply:

The FED posts that the total world coin/paper money are 1.39 trillion, but the M0 base aggregate post is billions. And also the M2 Post is in billions. Can anyone help me read the money aggregate charts?

“How much U.S. currency is in circulation?
There was approximate $1.39 trillion in circulation as of September 30, 2015, of which $1.34 trillion was in Federal Reserve notes.”
http://www.federalreserve.gov/faqs/currency_12773.htm

and the base M0 is:
4,049.419 Billions of Dollars
https://research.stlouisfed.org/fred2/series/AMBSL

Asked on by joolyo

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

If I understand your question correctly, you are asking two things. First, you are asking how the amount of cash that is in circulation could be $1.39 trillion while the other forms money are reported in billions of dollars.  If that is what you are asking, the answer is that those numbers that are reported in billions of dollars can easily be translated into trillions of dollars. $1 trillion is simply $1,000 billion. That means that when the Fed reports that M0 is $4,049 billion, you can also state that as $4.049 trillion.

Second, I believe you are asking why the M0 figure is so much higher than the amount of cash that is in circulation.  The answer is that M0 is not simply made up of physical cash. Instead, it also includes such highly liquid assets as bank deposits.  Since much of our money exists only as entries in bank computers, M0 has to be much larger than the amount of cash in circulation.

Sources:

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