Monetary Base

The monetary base refers to the total amount of a currency’s physical supply in circulation and available to the public. Governments or central banks can boost the monetary base by introducing more currency—often through printing new bills or coins, or by purchasing financial assets from the market. Conversely, they can reduce the monetary base by selling assets, withdrawing money from circulation.

When the monetary base grows, inflation generally follows, meaning the currency’s value decreases as more money chases the same amount of goods. Reducing the monetary base typically leads to deflation, increasing the currency’s value due to less money in circulation.

Also known as M0, the monetary base is the narrowest definition of money supply, covering only actual physical currency and coins in circulation plus commercial banks’ reserves held at the central bank. Broader measures include M1, which adds easy-to-access deposits like checking accounts, and M2, which includes savings accounts and other near-cash assets.

For cryptocurrencies like Bitcoin, the monetary base is determined by code rather than by government policy, and Bitcoin’s total supply is strictly limited to 21 million coins.