The narrowest definition, the M1 money supply , consists of currency, travelers' checks, demand deposits, and other checkable deposits. M2 adds money market deposit accounts, savings and small-denomination time deposits, and retail money market mutual fund balances. M3 equals M2 plus large time deposits, repurchase agreements, Eurodollar deposits, and institution-only money market mutual fund balances. Countries use the foreign exchange market to convert national currencies to pay for trade. They also use international reserve assets , like gold, or international reserve currencies , like the dollar.
Banks act as middlemen between savers and borrowers.
They accept deposits from savers and use those deposits to make loans to borrowers. Domestic banking is heavily regulated, whereas international banking is not. Because they are not restricted by regulations, international banks can usually offer depositors and borrowers better terms than can domestic banks. Banks create money by making loans up to the amount of their excess reserves. The banking system can increase the money supply by the deposit expansion multiplier times the excess reserves in the system.