Some Recent Numbers

• First, in early 2004 M1 was running at just over $1.3 trillion. This was approximately $4,500 for every man, woman, and child in the United States. A great deal of spendable money is in circulation around the economy.


• Second, this M1 total was divided almost equally between currency and checkable deposits. This has not always been the case. A few decades back, currency was only about one-fourth of M1 and checkable deposits were three-fourths.


• Third, the currency part of M1 suggests that every man, woman, and child in the country has an average of $2,300 of cash and coins. Because most people are likely to have significantly less than this average, some folks clearly have significantly more. While this reflects legal activities, including retain stores that handle large amounts of cash, it also reflects a host of illegal activities, such the drug trade.

Currency

Currency has taken many forms over the years and has been issued or authorized by different entities. The present manifestation of currency includes Federal Reserve notes issued by the Federal Reserve System and metal coins issued by the U.S. Department of the Treasury. In the not too distant past, currency also included gold and silver certificates issued by the U.S. Department of the Treasury and bank notes issued by commercial banks.

• Federal Reserve Notes: These are issued under the authority of the Federal Reserve System. They come in denominations of $1, $5, $10, $20, $50, and $100. A few bills carrying a $2 are encountered from time to time, but they have largely vanished from circulation. Denominations larger than $100 ($500, $1,000, $5,000, and $10,000) were also available once upon a time, but they too are seldom seen beyond the collections of numismatics. In a never ending effort to thwart counterfeiters, Federal Reserve notes underwent a major redesign beginning in the 1990s.


• Treasury Coins: These are issued under the authority of the U.S. Department of the Treasury. They come in denominations of one cent, five cents, ten cents, twenty-five cents, fifty cents, and one dollar. The coins were once made from pure metal (copper, nickel, and silver), with relative sizes reflecting the value of the metal content. However, pure metals gave way to less expensive metal alloys as coins made the transition from commodity money to fiat money.

Checkable Deposits

An assortment of different types of checking accounts are included in this M1 category.

• Demand Deposits: These are standard checking accounts maintained by commercial banks. They pay not interest on balances and as the name indicates, the funds can be withdrawn "on demand," which is accomplished by writing a check. This category also includes any travelers checks issued by commercial banks.


• Other Checkable Deposits at Banks: These are nonstandard "checking" accounts maintained by commercial banks, including NOW (negotiable orders of withdrawal) accounts or ATS (automatic transfer service) accounts. These accounts may or may not pay and interest and they may or may not be accessed by using paper checks, but they are used to make payments.


• Other Checkable Deposits at Thrifts: These are similar NOW and ATS accounts maintained by thrift institutions (credit unions, savings and loan associations, and mutual savings banks). Like those maintained by banks, they may or may not pay and interest and they may or may not be accessed by using paper checks, but they are used to make payments.

Travelers Checks

The Other Two

• Medium-Range Money: M2: This is M1 plus the addition of highly liquid, savings-type near monies. The near monies added to M1 to obtain M2 include savings deposits, certificates of deposit, money market deposits, repurchase agreements, and Eurodollars. Some folks consider M2 a better overall measure of the economy's money supply than M1.


• Board-Range Money: M3: This is M2 plus the addition of several slightly less liquid, investment-type near monies. The near monies added to M2 to obtain M3 include larger denomination certificates of deposit, larger money market deposits, longer-term repurchase agreements, and longer-term Eurodollars.