M3

M3 is a broad measure of the money supply.

M3 has been replaced by M4 in the UK as the main broad money measure. It is still calculated as part of certain European aggregates.

M3 consists of the following:

  • notes and coins in circulation (defined as for M1 and M2)
  • overnight deposits and sight deposits (as for M1)
  • other short term deposits (with a maturity of under two years, or withdrawal notice of under three months)
  • money market funds
  • debt securities with a maturity of under two years
  • repos.

Unlike M2, M3 includes public sector and foreign currency deposits.

Definitions in other countries are broadly similar.

The US has also stopped publishing M3 numbers. Unlike the UK, it has not replaced it with another broad money measure.

Governments have less direct control over broad money, but all demand and supply is still affected by interest rates, control of which is the main instrument of monetary policy in any case (see open market operations, M0, M1 and money multiplier).

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