What is M0?

M0, also known as the monetary base or narrow money, represents the total amount of physical currency in circulation within an economy. This includes both Federal Reserve Notes, which are the paper currency issued by the Federal Reserve, and US Notes, an older form of paper currency no longer in active circulation.

Additionally, M0 encompasses the total value of coins in use. These coins are legal tender and can be used to make purchases or pay debts, just like paper currency.

The significance of M0 lies in its role as the foundation of the money supply. It is the most liquid form of money, as it is immediately available for spending or exchanging.

The amount of M0 is not influenced by whether the currency is held inside or outside of the private banking system as reserves. This means that whether banks hold currency as reserves or individuals possess it for daily transactions, it is all included in the calculation of M0.

The Federal Reserve, the central bank of the United States, is responsible for managing the money supply, including M0. Through various monetary policies, the Fed can influence the amount of currency in circulation, thereby affecting M0.