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The Monetary Base (also known as high-powered money, or M0) is made up of coins, currency, and bank reserves. The Monetary Base is considered the most liquid form of money for final payment in bank transactions.

In a Nation-state that has Monetary Sovereignty, the Central Bank is the monopoly issuer of the monetary base, although in the US, the Treasury is the issuer of coins and the Central Bank issues the Physical Notes and bank reserves.

As we learned in our post, What are bank reserves?, bank reserves are an IOU of the Central Bank to the commercial banking system. Bank Reserves do not circulate among the public, they are simply an electric entry in the Central Bank’s accounts which can be swapped for physical currency.

The currency in the monetary base consists of both currency is circulation and in bank vaults.

In other posts, we will learn about other measures of money, typically measured by levels of M, such as M1, M2, etc.

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