1.3 Measures of money

Over the long term inflation and the increase in the amount of money circulating in the economy should be related. Central banks therefore monitor growth in money volumes in order to cross-check identified risks to price stability. To this end, the Eurosystem has defined different measures of money – known as monetary aggregates. These aggregates are derived from the balance sheet of entities that the Eurosystem calls “monetary financial institutions”, or MFIs, which consist of central banks, commercial banks and other financial institutions and funds that receive deposits, such as money market funds.

1.3.1 Monetary aggregates

Monetary aggregates are defined in terms of the liquidity of assets – i.e. how quickly and easily an asset can be converted into cash or used to make payments.

The narrowest and most liquid measure of money is M1, which comprises banknotes and coins in circulation and overnight deposits.

The broader aggregate M2 contains M1 as well as deposits with an agreed maturity of up to two years, or those redeemable at notice with a notice period of up to three months.

The broadest monetary aggregate is M3. In addition to M1 and M2, it includes financial instruments that closely resemble deposits, such as repurchase agreements, shares issued by money market funds and short-term debt securities (such as bonds) issued by banks.

As a general rule, government deposits held at banks are excluded from monetary aggregates as the government sector is not considered to be a money-holding sector.

Analysing developments in monetary aggregates is an integral part of the monetary analysis that – alongside analysis of economic developments – supports the monetary policy decisions of the ECB’s Governing Council. Similarly, analysis of credits granted by banks to the private sector can also be useful for monetary policy decisions.

1.3.2 Monetary statistics

The data on M1, M2 and M3 are available in the ECB’s Statistical Data Warehouse. They are published at a monthly frequency for the euro area as a whole – no country-level data are calculated.

Looking at the latest developments in euro area monetary aggregates, the annual growth rate of M3 was [Value 1]% in [Date 1]. The components of M3 showed the following developments: the annual growth rate of the narrowest aggregate (M1) was [Value 2]%, the annual growth rate of short-term deposits other than overnight deposits (M2 minus M1) was [Value 3]%, and the annual growth rate of marketable instruments (M3 minus M2) was [Value 4]%.

Monetary aggregates

Click to enlarge and for breakdowns

Monetary aggregates

Click to enlarge and for breakdowns