5 ms·
There are technicalities that affect the interpretation of the numbers. In particular, the "base money supply" was normally considered to be physical cash plus
by radford-neal 4y ago
There are technicalities that affect the interpretation of the numbers. In particular, the "base money supply" was normally considered to be physical cash plus deposits of banks in their accounts at central bank, neither of which traditionally paid interest. But the US Federal Reserve started paying interest on these deposits by banks starting in 2008 (see https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm https://www.federalreserve.gov/monetarypolicy/reserve-balanc...), which means such deposits are not that much different from a short-term government treasury bill, depending on the relative interest rates. So the Federal reserve can now change the effective money supply by changing this rate, not just by creating or destroying base money. There are probably further complications - I'm not an expert on this.