In finance, currency is divided into different levels. Although there are different opinions on the classification of currency levels at home and abroad, it is relatively clear to use currency liquidity as the basis for classification.

The so-called liquidity of currency refers to the liquidity of this currency or financial asset. In other words, whether this currency can be turned into cash immediately, and how easy it is to realize it. The currency level is divided according to the liquidity of the currency. The more liquid the currency, the lower the cost of converting it into cash, and the higher its currency level.

Governments of various countries have different classifications of currency levels. Here we mainly look at how the International Monetary Fund and the People's Bank of China divide currency levels.

The International Monetary Fund divides currency levels into the following three categories, namely M0, M1, and M2. The M here means Money in English.

This book believes that M0 here represents the highest-level currency, which can be turned into cash without conversion (0 conversions). Of course, this means that it is cash itself; M1 represents that it needs to be converted once It can be converted into cash, and its currency level is of course inferior to M0; M2 means that it needs to be converted twice before it can be converted into cash, and its currency level is of course inferior to M1. Understood in this way, readers can easily grasp the concept of high and low levels of currency.

Cash (M0)

Cash has the highest monetary level, because it is cash itself and does not need to be converted into cash.

It should be noted that the cash here does not include cash on hand in banks, but only refers to cash flowing outside the banking system. To be more specific, it refers to the cash in the hands of individual residents and the spare cash in enterprises and institutions. This part of the currency can be used as a means of circulation and payment anytime and anywhere, so it has the strongest purchasing power.

Narrow money (M1)

The monetary level of narrow money is inferior to cash, but higher than broad money.

The narrow currency here refers to the above-mentioned cash (M0) plus the demand deposits of commercial banks. Although demand deposits in banks are not equivalent to cash in the hands of individual residents and cash reserves in enterprises and institutions, they can be converted into cash by issuing cash checks at any time and at any time.

Narrow sense currency has a broad and direct impact on social and economic life, so the currency referred to in various statistical data mainly refers to narrow sense currency. For governments of various countries, the currency referred to in controlling the money supply mainly refers to narrow currency, which is the main object of government regulation of the currency market.

Broad money (M2)

Broad money includes a part that is not money in the true sense, so it has the lowest liquidity and the lowest currency level.

The broad money here refers to the two parts of narrow money plus quasi-money. The so-called quasi-currency, also called "sub-currency" or "approximate currency", refers to time deposits, savings deposits, foreign exchange deposits in bank deposits, and various short-term credit instruments, such as bank acceptance bills, short-term treasury bills, etc.

Although time deposits, savings deposits, foreign exchange deposits, bank acceptance bills, etc. in quasi-currency are not currencies in the true sense, they can be easily transformed into currencies in the true sense after going through certain procedures. currency, that is, narrow currency. From this point of view, broad money includes everything that has the potential to become a form of money with actual purchasing power.

The above is the classification of currency levels by the International Monetary Fund. According to the revision of the monetary and financial statistics system by the People's Bank of China in accordance with the "Monetary and Financial Statistics Manual" promulgated by the International Monetary Fund, starting from 2002, although the foreign exchange business data of financial institutions in China are still included in the relevant monetary statistical statements, they are still It is necessary to list foreign currency deposits separately, but it is not included in the statistical category of quasi-currency.

In this case, the currency levels divided by the People's Bank of China are specifically reflected in:

M0 = cash in circulation

M1 = M0 + demand deposits< /p>

M2＝M1+quasi-currency (term deposits, savings deposits, other deposits)

M3＝M2+other monetary short-term liquid assets (treasury bills, financial bonds, commercial papers, large transferable Certificates of deposit, etc.)

Among them, the concept of M3 first appeared in the "Interim Measures for the Statistics and Publication of Money Supply of the People's Bank of China" promulgated on December 28, 1994, which was based on the continuous innovation of China's financial instruments at that time. background set. Therefore, China's currency levels at that time were divided into several levels: M0, M1, M2, and M3. M3 adds some illiquid assets to M2, such as large transferable time deposit certificates (more than 100,000 US dollars), money market mutual funds (institutions), medium and long-term repurchase agreements and medium- and long-term existence USD from European non-U.S. banks, etc.

In the United States, there is also the term M4, which is based on the M3