Money supply M1, M2, M3

Release Date: Usually released weekly, every Thursday
Release Time: At 4.30pm US Eastern Time
Released By: The US Federal Reserve bank

The Money Supply refers to the entire stock of currency and other liquid instruments in a country’s economy as of a particular time. The money supply includes notes, coins and balances that are kept in savings and checking accounts. There are various types of money supply and these are labeled as M0, M1, M2 and M3, according to the type and size of the account in which the instrument is kept. In the UK, there is also the M4 money supply classification. Different countries may use different classifications.

M1 is a measure of the money supply that includes all physical money, such as coins and notes, demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. In other words, M1 measures the most liquid components of the money supply. It contains money and assets that can quickly be converted to cash. M1 purely focuses on the role of money as a medium of exchange. The advent of ATMs and debit cards have meant that bank checking accounts can now be considered as M1 since it is easy to pull out spendable, liquid currency from them using ATMs and debit cards. M1 is used to quantify the amount of money in circulation. M1 does not include “near money”.

M2 is a measure of money supply that includes all the elements of as well as “near money”. “Near money” refers to savings deposits and other money market instruments such as fixed deposits which are less liquid. They can easily be converted to cash but are not as suitable as mediums of exchange mediums due to their less liquid nature. M2 is a broader money classification than M1. A consumer or business don’t pay for, or receive savings deposits during exchange of goods and services, but could convert M2 components to cash in a short time. M2 is important because modern economies use cash transfers between different types of accounts. For example, a business may transfer $10,000 from a money market account to its checking account. M1 and M2 are inter-related because a cash transfer can occur between accounts (M2), and this transfer can be cashed by the recipient in liquid form (M1).

M3 is a measure of money supply that includes all elements of M2 as well as large time deposits, institutional money market funds, and other larger liquid assets. The M3 measurement includes assets that are considerably less liquid than other components of the money supply. They tend to lean towards assets associated more with larger financial institutions and corporations than to the smaller business units and individuals. Such assets are known as “near, near money.” The M3 classification is therefore the broadest measure of an economy’s money supply, emphasizing the role of money more as a store of value and investment rather than as a medium of exchange. Thus a typical Money Supply report will encompass all aspects of M1, M2 and M3.

Time of Release

The Money Supply report is usually released weekly at 4.30pm US Eastern Time, every Thursday. The data is released on the website of the US Federal Reserve bank, and also on independent news feeds from Bloomberg and Thomas Reuters.

Interpreting the Data

The money supply is closely monitored by economists and central banks develop policies around it. Money supply data is collected, recorded and published by the central bank, who develop policies of increasing or decrease the supply of money so as to curb inflation or deflation. Money supply will also affect price level, inflation and the business cycle. Money supply is positively correlated with interest rates. An increase in the supply of money typically lowers interest rates, which in turns generates more investment and puts more money in the hands of consumers, thereby stimulating spending. This is a policy of quantitative easing already being used in the US, UK and a few other countries to stimulate their economies.

Businesses respond by increasing production when money supply (especially M3) increases. The increased business activity raises the demand for labor and pushes up employment.


Even though money supply is a low market impact event which is not directly tradable, it can be used as an indicator to predict policy direction of central banks.