Today, I would like to talk about M1 and M2. M1 and M2 are two words that we often hear, but many people do not understand the connotation of these two indicators, and how they have a significant impact on our lives.
M1: narrow sense of money supply, the sum of cash in circulation in the market, the sum of all demand deposits in the market, the sum of the sum of the two sums;
M2: Broad money supply, m1 plus the sum of all time deposits in the market, regardless of short or long term, as long as non-demand deposits.
So why is M2 so much bigger than M1? It has to do with the velocity of money, the faster money changes hands, the bigger M2 is, but there’s a limit to how big m2 is — the money multiplier.
M2 is capped at M1 times the money multiplier, which is the inverse of the central bank’s reserve requirement ratio.For example, the reserve ratio required by the central bank for commercial banks is 20%, so the money multiplier is 5, and the upper limit of M2 is 5M1.
M2 is actually a deleveraging after the m1, the lever is how to produce, mainly through the bank’s credit to accelerate currency, then the problem comes, in today’s deleveraging, at the beginning is how to accelerate the amplification of currency, is now speeding up the contract, which is at the beginning is several times the magnification of today will come back a few times, you realize the impact of to you?