The concept of Base Money, while it may seem like an esoteric 'so-what?' to many laymen, is actually pretty useful for purposes of carrying on precise discussion of monetary topics.
Base Money means Monetary Liabilities of an Issuer serving as the medium in which like-denominated Broad Money is payable.
For example, with USD, the Base Money component consists only of the USD that shows on the balance sheet of the Federal Reserve System where it is carried as a liability. The Fed publishes its consolidated balance sheet, the H.4.1 Release, each week. Their Monetary Liabilities (a term I define here) show up on two lines, "Currency in circulation" and "Reserve balances with Federal Reserve Banks".
The only form of USD Base Money you can possibly possess is "Currency in circulation", i.e., paper cash or coins. The other part, the "Reserve balances..." bits, I intend to explain when I describe the concept of "banker's banks" as the antecedent logic that led to the formation of the Federal Reserve System.
Most of the USD you have probably isn't the Base Money kind, it's more likely to be Broad Money.
Broad Money means Monetary Liabilities of an institution other than an Issuer.
Money you have in a bank account would be an example of Broad Money. Let's say you have $1,000 in a checking account. It doesn't show up as a liability on the Fed's balance sheet. Your Deposit is a liability of the bank. It represents an obligation on the part of the bank:
- to pay you in Base Money if you make a withdrawal such as drawing cash from the ATM, or,
- to settle an outbound payment, for which they use the other form of Base Money, the "Reserve balances..." bits (which exist only as electronic book entries representing deposits at Federal Reserve Banks).
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