The International Monetary Fund calls it a "reserve currency".

The base currency is the sum of cash currency circulating outside the banking system and the deposit reserve of commercial banks.

It can be expressed by the formula: B=+CR, where B is the base currency (also known as high-energy currency, which can be expressed by H), R is the deposit reserve (reserve deposit and cash inventory) reserved by commercial banks, and C is the cash circulating outside the banking system.

From its source, the base currency is indebted, controllable and expandable.

The base money is a part of the money supply and has the ability to expand or contract the total amount of money.

There are three main ways for the central bank to put in the base money: one is to issue money directly, the other is to exchange gold and foreign exchange reserves, and the third is to implement monetary policy.

It is embodied in the following six aspects: 1. Changes of central bank's creditor's rights to commercial banks and other financial institutions.

If the central bank's creditor's rights to commercial banks and other financial institutions increase, then the central bank's money will enter the market through commercial banks, so the base money will increase, thus promoting the repeated expansion of the money supply; On the contrary, if the central bank's creditor's rights to commercial banks and other financial institutions decrease, the money supply of the central bank through commercial banks will decrease, so the base money will decrease.

Academics generally believe that the base currency is one of the powerful means to regulate economic operation under the condition of market economy.

2. Changes in foreign exchange reserves

Changes in foreign exchange reserves mainly involve changes in the balance of payments of the central bank and foreign exchange reserves.

If the country has a surplus in international payments, purchases foreign exchange assets and increases gold and foreign exchange reserves, the amount of base money will increase; On the contrary, if there is a deficit in the balance of payments and the central bank sells foreign exchange assets net and reduces foreign exchange reserves, then the base currency will be reduced.

3. Open market business affects the base currency

The central bank buys and sells securities in the open market, which directly affects the money supply.

The public sale of securities by the central bank means that the currency in circulation is reduced and the base currency is reduced; On the contrary, if the central bank buys securities in the open market, the currency in circulation will increase and the base currency will increase.

4. The influence of rediscount and refinancing by the central bank on the base currency.

Commercial banks will increase the base currency if they rediscount loans from the central bank.

Commercial banks apply to the central bank for discount with bills, or borrow money from the central bank, and the central bank will remit the loan to the bank's account in the central bank.

Refinancing and rediscounting have increased the reserves of commercial banks, and the base currency has also increased.

In order to achieve the central bank's monetary policy objectives, the central bank can adjust the rediscount rate and the refinancing rate.

5. The impact of changes in fiscal deposits absorbed by the central bank on the base currency.

Whether there is a surplus or a deficit in fiscal revenue and expenditure, it will have an impact on the base currency.

If there is a surplus in fiscal revenue and expenditure, fiscal deposits will increase and the base currency will decrease.

The reason is that fiscal revenue mainly comes from tax and bond income, investors will reduce deposits and buy bonds, and at the same time, the reduction of national debt holdings will reduce the base currency.

If there is a deficit in fiscal revenue and expenditure, fiscal revenue will decrease and the base money will increase, because excessive fiscal expenditure (such as defense expenditure and social security expenditure) will increase the cash held by various economic entities in financial institutions such as commercial banks, and the central bank will also increase its holdings of bonds, which will lead to an increase in the base money.

6. Other projects will also affect the base currency.

For example, the increase or decrease of fixed assets and the increase or decrease of accounts receivable and payable in the settlement of funds by the central bank will affect the supply of base money.

To sum up, the central bank's monetary policy directly affects the supply of base money, as if the base money is only controlled by the central bank.

However, the central bank's control over the base currency is neither absolute nor complete.

For example, fiscal revenue and expenditure and foreign exchange reserves are affected by many factors, not just the base currency.