The money supply is determined by the base money and the money multiplier, and is the product of these two factors. Both of them are influenced by many complicated factors.

1. base currency

The base currency is a currency that can expand or reduce the total money supply many times. It is manifested in the liabilities of the central bank, that is, the currency invested and directly controlled by the central bank, including the reserves of commercial banks and the currency held by the public.

In modern economy, the basic currency of every country comes from the monetary authorities. There are three main channels for monetary authorities to put in base money: one is to issue money directly; The second is to exchange gold and foreign exchange reserves; The third is to implement monetary policy. Specifically, there are the following 1 1 decisive factors, of which the first six are factors to increase the base currency and the last five are factors to decrease the base currency. 1 1 The factor is:

(1) The central bank purchases securities in the open market;

The central bank buys gold and foreign exchange;

(3) Re-lending or rediscounting of commercial banks by the central bank;

④ The Ministry of Finance issues currency;

⑤ Accounts receivable from the Central Bank;

⑥ Other assets of the Central Bank;

⑦ Currency held by the government;

8 government deposits;

Pet-name ruby foreign deposits;

Attending the central bank to sell securities in the open market;

1 1. Other liabilities of the central bank.

The base currency is the debt of the central bank and the basis for commercial banks and even the whole banking system to expand credit. The base money changes the money supply through the function of the money multiplier. When the money multiplier is fixed, the base money increases and the money supply increases; The base money decreases and the money supply decreases.

There are five main determinants of the currency multiplier, namely, the statutory reserve ratio of demand deposits, the statutory reserve ratio of fixed deposits, the fixed deposit ratio, the excess reserve ratio and the currency ratio. Among them, the statutory reserve ratio is completely determined by the central bank and has become an important policy tool of the central bank; The change of excess reserve ratio is mainly determined by the business decision-making behavior of commercial banks, and influenced by market interest rates, the difficulty of borrowing funds from commercial banks, the cost of funds, the asset preference of the public and other factors. The proportion of time deposits and currency is determined by the public's asset selection behavior, which is specifically affected by factors such as income changes, the yield of other financial assets, and the public's liquidity preference.

In a word, the money supply is determined by the actions of the central bank, commercial banks and the public.