# Narrow Money: Definition, Qualifying Accounts, vs. Broad Money

## What Is Narrow Money?

Narrow money is a category of money supply that includes all physical money such as coins and currency, [demand deposits](https://www.investopedia.com/terms/d/demanddeposit.asp), and other [liquid assets](https://www.investopedia.com/terms/l/liquidasset.asp) held by a central bank.

In the United States, narrow money is classified as [M1](https://www.investopedia.com/terms/m/m1.asp) (M0 + demand accounts). In the United Kingdom, the narrowest measure of money is notes and coins in circulation.

### Key Takeaways

*   Also known as M1, narrow money refers to physical money, such as coins and currency, demand deposits, and other liquid assets, that are easily accessible to [central banks](https://www.investopedia.com/terms/c/centralbank.asp).
*   Narrow money is a subset of broad money that includes savings deposits and other deposit-based accounts, also known as M2 and M3 money.
*   All countries classify their [money supplies](https://www.investopedia.com/terms/m/moneysupply.asp) differently, but the classifications usually range from M0 to M4.

## Understanding Narrow Money

The name is derived from the fact that M0 and M1 are the narrowest or most restrictive forms of money that are the basis for the [medium of exchange](https://www.investopedia.com/terms/m/mediumofexchange.asp) within an economy. This category of money is considered to be the most readily available for transactions and commerce.

The narrow money supply only contains the most liquid financial assets. These funds must be accessible on demand, which limits the category to physical notes and coins and funds held in the most accessible deposit accounts. According to the [Organisation for Economic Co-operation and Development (OECD)](https://www.investopedia.com/terms/o/oecd.asp), as of 2024, the United States has the world’s largest stock of narrow money, followed by Chile, Hungary, Israel, and Poland.

Typically, the availability of liquid money supply—whether long-term or short-term—should have a direct impact on its economic health. However, changes in the [economy](https://www.investopedia.com/terms/e/economy.asp) coupled with changes in the finance industry have translated into an uncoupling of that direct relationship. The [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) does not implement its policy through changes in the money supply. It focuses on [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) instead. But it does track changes in narrow and broad money to formulate its response to the prevailing state of the economy.

## Qualifying Accounts

The most accessible accounts, such as savings and checking deposit accounts, qualify as narrow money. The funds in the accounts are seen as accessible on demand even if mechanisms other than physical currency are used for the transaction. This typically includes funds paid using either debit card transactions or a variety of checks.

## Narrow Money and Broad Money

While M0 and M1 are used to describe narrow money, M2, M3, and M4 qualify as broad money, and M4 represents the largest concept of the money supply. [Broad money](https://www.investopedia.com/terms/b/broad-money.asp) may include various deposit-based accounts that would take more than 24 hours to reach maturity and be considered accessible. These are often referred to as longer-term time deposits because their activity is restricted by a specific time requirement.

## Narrow Money and the Money Supply

M0 and M1 are only a portion of the money supply. The money supply includes items within all of the categories from M0 to M4. Therefore, it represents both the most liquid and the least liquid cash and deposit-based assets held within a nation. This includes funds in bonds or other securities as well as institutional money market accounts.

For M4, the broadest of the money supply definitions and the general outside limit for an investment to be considered part of the money supply are those scheduled to mature in five years or less. This duration, however, is not a strict definition. As with all levels of the money supply, countries may classify their funds differently—for example, excluding M0 or M4 as measures and considering the money supply as divided into the M1, M2, and M3 categories only.

## What Is M1, M2, and M3 Money Supply?

M1, M2, and M3 are the different categories of money in an economy. M1 is money in circulation plus demand deposits in banks. M2 is M1 plus [savings deposits](https://www.investopedia.com/terms/s/savingsaccount.asp), [money market deposits](https://www.investopedia.com/terms/m/moneymarketaccount.asp), and [time deposits](https://www.investopedia.com/terms/t/timedeposit.asp) of less than $100,000. M3 is M2 plus long-term time deposits at banks.

## How Much M1 Money Is There?

As of December 2024, the value of the M1 money supply in the U.S. is $18.45 trillion. The value of the M2 money supply is $21.53 trillion.

## Is M1 the Narrowest Money?

Yes, M1 is the narrowest money because it is the most liquid money and consists only of money in circulation and demand deposits in banks. M2 and M3 are considered broad money, as they include M1 and other forms of money, such as savings deposits and long-term time deposits, respectively.

## The Bottom Line

Narrow money, also known as M0 and M1, refers to the most liquid forms of money, including physical currency and demand deposits. It represents the basic medium of exchange in an economy, unlike other money categories, such as M2 and M3, that include less liquid assets, such as long-term deposits.

While narrow money’s availability is necessary for day-to-day transactions, central banks focus on interest rates rather than changes in the money supply to influence economic conditions.  

> **Article Sources**
>
> 1.  Board of Governors of the Federal Reserve System. “[What Is the Money Supply? Is It Important?](https://www.federalreserve.gov/faqs/money_12845.htm)”
>     
> 2.  Bank of England. “[Further Details About Notes and Coin and Reserves Balances Data](https://www.bankofengland.co.uk/statistics/details/further-details-about-notes-and-coin-and-reserves-balances-data).”
>     
> 3.  Organisation for Economic Co-operation and Development. “[Narrow Money (M1)](https://www.oecd.org/en/data/indicators/narrow-money-m1.html?oecdcontrol-df9123c98c-var3=2024).”
>     
> 4.  Federal Reserve Bank of New York. “[Monetary Policy Implementation](https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation).”
>     
> 5.  Board of Governors of the Federal Reserve System. “[Money Stock Measures—H.6 Release](https://www.federalreserve.gov/releases/h6/current/default.htm).”