Money Supply Measures: M0 to M4

By Ryan O'Connell, CFA, FRM Published October 22, 2026
Table of Contents

    Money supply measures help you interpret headlines about cash, bank deposits, inflation, and central-bank policy. But a chart labeled M1, M2, M3, or M4 is meaningful only when you know its country and definition. U.S. M1 includes savings deposits, euro-area M1 has a different boundary, and the Federal Reserve no longer publishes M3. This guide explains what the labels count and how to compare them without mistaking a statistical change for newly created money.

    What Are Money Supply Measures?

    Monetary aggregates group money and selected money-like assets according to rules about liquidity, issuers, and holders. Narrow measures emphasize balances readily available for payments. Broader measures include additional deposits or financial instruments that can serve as substitutes for money.

    Read the Country and Definition First

    M0 through M4 are not a universal five-step ladder. Within a particular system, a broader aggregate often builds on a narrower one. Across countries, the same number can count different assets. The monetary base also contains bank reserves that are not part of the public’s M1 deposits.

    For the lending and balance-sheet mechanics behind these balances, see our overview of the money supply and money creation. Here, the focus is how the measures differ.

    Money supply labels: the jurisdiction and publication status matter
    Label Context Main distinction
    M0 Usage varies May mean currency alone or a monetary-base concept; inspect the components.
    M1 Current U.S. measure Currency held outside banks plus eligible demand and other liquid deposits, including savings.
    M2 Current U.S. measure M1 plus small time deposits and retail money market funds, with a retirement-account deduction.
    M3 Historical U.S.; current euro area Both broaden money coverage, but use different definitions; U.S. publication ended in 2006.
    M4 U.K., India, and other publisher-specific contexts Different broad-money concepts; no current official Federal Reserve H.6 M4 series.

    The comparisons below use definitions checked in October 2026, with historical changes labeled explicitly.[1][9][11][12][15]

    M0 vs. the Monetary Base

    M0 needs a definition, not an assumption. A 2024 FRED Blog explanation uses M0 for the currency component of M1. A Richmond Fed explanation uses it for currency plus commercial-bank reserve balances. These differing educational conventions explain why two M0 charts may measure different things.[6][7]

    For U.S. data, the formal series name Monetary Base: Total is clearer:

    U.S. Monetary Base
    Monetary base = Currency in circulation + Reserve balances
    The Federal Reserve’s published base definition, rather than an assumed meaning of M0

    Here, currency in circulation includes cash in bank vaults; M1’s currency component excludes it. Reserve balances are deposits held by depository institutions at Federal Reserve Banks. Those balances are distinct from customers’ checking accounts. Consequently, the base is not simply the first box inside M1.[1][5]

    The U.K. offers a further historical caution: its former M0 included currency and banks’ operational deposits at the Bank of England. Publication ended in May 2006, with currency and reserve balances subsequently published separately.[8] Our Federal Reserve system article explains the U.S. institution behind reserve accounts.

    Current U.S. M1 and M2

    M1 combines currency outside the Treasury, Federal Reserve Banks, and depository institutions’ vaults; eligible demand deposits; and other liquid deposits. The last category includes savings deposits and money market deposit accounts. Official calculations also exclude specified institutional and government holdings and make collection-related adjustments.[1]

    M2 adds small-denomination time deposits, issued in amounts below $100,000, and retail money market fund balances. Its full calculation also deducts IRA and Keogh account balances at depository institutions and money market funds:

    Current U.S. M2 Construction
    M2 = M1 + Small time deposits + Retail MMFs − IRA/Keogh adjustment
    MMFs are money market funds; the retirement adjustment is part of the aggregate calculation

    A money market deposit account is a bank deposit included in M1; a retail money market fund is a fund balance added in constructing M2. Similar names do not make them the same instrument. Our money market instruments guide explains the underlying short-term securities.

    A Household Example: Count Each Balance Once

    Hypothetical Ordinary U.S. Accounts

    Suppose you hold $100 in cash, $900 in checking, and $2,000 in savings. Their contribution to M1 is $100 + $900 + $2,000 = $3,000.

    Add a $1,000 CD and $1,000 in a retail money market fund. Assuming all accounts are eligible and outside retirement arrangements, the contribution to M2 is $3,000 + $1,000 + $1,000 = $5,000.

    Move $500 from checking to savings: checking becomes $900 − $500 = $400, and savings becomes $2,000 + $500 = $2,500. Cash plus deposits still equals $100 + $400 + $2,500 = $3,000. Neither contribution changes.

    These are contributions to national monetary aggregates, not measures of your net wealth. Do not add M1 to M2: the $3,000 is already counted in the broader total.

    Why Older M1 Definitions Differ

    Before May 2020, U.S. savings deposits belonged in M2 but not M1. The Fed’s February 23, 2021 release incorporated savings into M1 retroactively from May 2020 observations. This reclassification raised reported M1 without creating new balances in those accounts; it left M2 unchanged. A growth calculation crossing that break needs special care.[3]

    The July 2026 M2 Adjustment

    Retirement Balances Are Still Deducted

    On July 28, 2026, the Fed moved IRA/Keogh netting from the small-time-deposit and retail-MMF components to a separate deduction from the aggregate. It did not remove the deduction from M2. The component histories were revised retrospectively; total unadjusted M2 was unchanged, while seasonally adjusted M2 received minor revisions.[2][4]

    Watch: What Is the Money Supply? M1 and M2 Explained

    This supplementary video explains U.S. M1/M2 using ordinary nonretirement accounts. The international aggregates and detailed retirement adjustment are covered in this article.

    M3: Historical U.S. Measure vs. Current Euro-Area Measure

    The Fed ceased publishing U.S. M3 on March 23, 2006. Historical M3 combined M2 with institutional money market funds, large time deposits, specified repurchase-agreement liabilities, and certain Eurodollar deposits. It captured additional wholesale instruments, subject to detailed eligibility rules.[9][10] See repurchase agreements for how repos work.

    The ECB still publishes euro-area M3, using its own framework:

    ECB monetary aggregates: additions within the euro-area framework
    Aggregate What it includes
    M1 Currency in circulation and overnight deposits.
    M2 M1 plus deposits with agreed maturity up to two years and deposits redeemable at notice up to three months.
    M3 M2 plus repos, money market fund shares/units, and debt securities issued by monetary financial institutions with maturity up to two years.

    The relevant money holders are euro-area residents other than monetary financial institutions and central government. Issuer and holder coverage matter alongside instrument type.[11] A savings product’s marketing name alone therefore cannot establish whether it belongs in euro-area M1 or M2.

    M4: U.K., Indian, and Research Definitions

    U.K. M4 measures specified sterling holdings of the U.K. private sector outside monetary financial institutions. Its coverage includes notes and coins, deposits and CDs, repo claims, and certain instruments issued by U.K. monetary financial institutions with original maturity up to five years.[12] It is not U.S. M3 with one extra universal asset category.

    M4ex excludes deposits of specified intermediate other financial corporations, such as certain securitization vehicles and financial-group intermediaries. It retains households, private nonfinancial companies, and non-intermediate financial companies. The Bank of England identifies M4ex as its preferred broad-money measure.[13][14] The adjustment aims to focus on holdings more relevant to spending, rather than some financial-intermediation activity.

    India’s published definitions differ again. The RBI defines M3 as M1 plus time deposits with the banking system. Its M4 adds all post-office savings-bank deposits except National Savings Certificates.[15] An Indian M4 question therefore calls for the RBI definition, not a U.K. deposit list.

    You may also encounter U.S. Divisia M4 from the Center for Financial Stability. This is a research index that weights monetary assets differently from simply adding dollar balances; its coverage includes instruments such as commercial paper and Treasury bills. It is distinct from both Bank of England M4 and official Federal Reserve H.6 measures. Check whether a chart reports dollars, an index level, or a growth rate before comparing it.[16]

    Narrow Money vs. Broad Money

    Narrow Money

    • Emphasizes currency and readily available deposits.
    • Helps describe balances close to everyday payments.
    • Its boundary still depends on the country and date.

    Broad Money

    • Adds selected deposits or other money-like instruments.
    • Captures a wider range of liquid financial holdings.
    • Does not include every asset or measure total wealth.

    Neither is automatically the best measure for every question. Use the aggregate specified by the analysis or policy discussion. A broader definition can capture substitution between financial products; it can also include balances further removed from immediate household spending. An interest-rate or monetary policy decision needs more context than the aggregate’s label.

    How to Analyze Monetary-Aggregate Data

    1. Identify the publisher and jurisdiction. U.S. M2, euro-area M3, and U.K. M4 are different statistical objects.
    2. Read the components and exclusions. Check maturity limits, holder sectors, currency coverage, and retirement adjustments.
    3. Match units and timing. Distinguish monthly averages from end-period balances, seasonally adjusted from unadjusted data, and levels from growth rates.
    4. Check the vintage. Record the release date and any definition break. ALFRED helps recover earlier releases when studying what was known at the time.[17]
    Reading an Actual H.6 Calculation

    For August 2026 in the September 22, 2026 release, the unadjusted figures, in billions of dollars, were M1 of 19,955.9, small time deposits of 1,524.6, retail MMFs of 3,031.7, and an estimated IRA/Keogh deduction of 1,227.9.

    M2 = 19,955.9 + 1,524.6 + 3,031.7 − 1,227.9 = 23,284.3 billion dollars.

    Leaving out the deduction would overstate that published total. These are dated, revisable observations, not a claim about today’s balance.[1]

    Common Mistakes

    • Building one global M0-to-M4 diagram. Define the country first, and keep central-bank reserves distinct from public deposits.
    • Adding overlapping aggregates. Do not add U.S. M1 and M2 together or separately count a fund’s balance and all its underlying assets.
    • Using pre-2020 U.S. savings rules. Savings are already in current M1; adding them again when constructing M2 double-counts them.
    • Misreading the July 2026 notice. Component-level IRA/Keogh netting ended; the deduction from aggregate M2 remained.
    • Calling every M3 or M4 chart an official Fed series. Check whether it is historical, foreign, or constructed by a research publisher.
    • Equating liquidity with wealth. A higher monetary balance does not by itself establish greater net worth or stronger purchasing power.

    Limitations of Money Supply Measures

    A Monetary Aggregate Is One Piece of Evidence

    Definitions, product substitution, data revisions, and seasonal adjustment affect interpretation. More measured money does not establish how quickly it will be spent or how production will respond.

    Money growth alone therefore cannot deliver a mechanical, same-sized inflation forecast. The quantity theory of money explains the role of spending velocity and output; our inflation and Consumer Price Index guide explains how price changes are measured. Keep those questions separate from the accounting question of which balances an aggregate counts.

    Frequently Asked Questions


    No. M0 is used for different concepts, including currency alone and currency plus reserves. For U.S. data, use the formal monetary-base definition and named series rather than relying on M0 shorthand.


    Under current U.S. definitions, ordinary savings deposits are in M1 and therefore already enter the starting point for M2. The U.S. boundary changed with May 2020 observations. Other countries classify deposits under their own rules; retirement adjustments also require separate attention.


    The July 2026 change did not abolish the deduction. The Fed now subtracts IRA/Keogh balances at depository institutions and money market funds from the aggregate calculation, instead of netting them from two individual components. M2 does not measure all retirement wealth.


    A chart may show a foreign M3 series, historical U.S. observations, or a research estimate. The ECB continues to publish euro-area M3. None of those facts means the Federal Reserve resumed its former official U.S. M3 publication.


    In the U.K., M4ex removes deposits of specified intermediate financial corporations from the broader M4 framework. It does not remove every financial company. The Bank of England prefers M4ex for broad-money analysis; it is an adjusted measure rather than a higher-number aggregate.


    No. The numbering and available aggregates depend on the statistical system. U.K. M4, India’s M4, and U.S. Divisia M4 have different coverage or methods. Use the publisher’s actual definition rather than assuming that the highest familiar number captures every liquid asset.

    Sources and Definition Notes

    Official definitions and source-publisher methods were checked October 22, 2026. Historical sources below are used for their dated definitions or changes.

    1. Federal Reserve: H.6, September 22, 2026, definitions and August observations.
    2. Federal Reserve: July 28, 2026 netting-methodology notice.
    3. Federal Reserve: February 23, 2021 savings reclassification.
    4. Federal Reserve: H.6 technical Q&As, July 2026 netting explanations.
    5. FRED: Monetary Base: Total, series notes.
    6. FRED Blog: M stands for money, August 1, 2024.
    7. Richmond Fed: Money Supply, first quarter 2019.
    8. Bank of England: historical M0 definition and discontinuation.
    9. Federal Reserve: discontinuance of M3.
    10. Federal Reserve: March 16, 2006 H.6, historical M3 definition.
    11. ECB: monetary-aggregate definitions.
    12. Bank of England: M4 definition.
    13. Bank of England: M4ex definition.
    14. Bank of England: M4 counterparts and preferred M4ex measure.
    15. Reserve Bank of India: Notes on Tables, September 13, 2024.
    16. Center for Financial Stability: U.S. Divisia monetary aggregates and methodology.
    17. ALFRED: M2 release vintages.
    Disclaimer

    This article provides educational information, not personalized financial or investment advice. Monetary definitions and data can change. Verify the relevant publisher’s current methodology and release before using an aggregate in financial analysis.

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