M1

M1 is one of the narrow measures of money supply.

The UK definition of M1 is: notes and coins in circulation plus sterling sight deposits by the UK private sector in banks and building societies in the UK.

Sight deposits are sterling deposits that can be withdrawn on demand or have been deposited overnight.

Notes and coins in circulation excludes those held by non-residents, financial institutions and the public sector.

The most important types of money excluded from M1 are: time deposits, foreign currency deposits, non-residents money, public sector holdings and financial institutions' holdings.

The government cannot control M1 as directly and easily as it does the monetary base (through the central bank's open market operations, for example). However there is a relationship between the monetary base and M1 and broader measures of the money supply, the money multiplier.

This means that through control of the monetary base, the reserve requirement (in countries where one is imposed) and other regulation of banks and money markets, governments can control the money supply at all levels to some extent. Although governments can easily restrict lending (and therefore creation of money), increasing banks propensity to lend is harder — as falls in lending and money multiples during the credit crunch have made apparent.

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