Money supply and monetary aggregates are interconnected and interdependent concepts.
Money supply is the sum of payment, purchasing, and accumulated funds owned by individuals as well as legal entities and the state proper, involved in the process of servicing economic relations. Money supply characterizes the movement of money by a quantitative indicator.
Under the mass of money understand both cash and non-cash funds. By structure, it is divided into the active part (those funds that serve the economy) and the passive part (accumulations and balances in bank accounts, which are potential settlement assets).
The mass of money is not simple and does not coincide with cash. In fact, the share of cash in the money is not so great, since all business entities make transactions with each other based on cashless payments through bank accounts.
The level of development of a country determines the stability of money circulation and the share of cash in the total mass of money. For example, in the USA this indicator does not exceed 5-10%, with the CIS countries - 30%. The more cash in the total mass of all the country's money, the less flexible the monetary system itself. Money supply and monetary aggregates must be in the right ratio to ensure the normal functioning of the monetary system.
As part of the mass of money, such components are allocated that it is directly impossible to use as payment and purchasing means. These are funds in term accounts, deposits, savings deposits, stocks, etc. They are called "quasi-money" (from lat. "Almost"). This part of the money in the overall structure of the money turnover is a very significant and significant part.
The structure of the mass of money and its composition is constantly changing. At different stages of the development of commodity exchange and payment relations, it was different. With gold circulation at the beginning of the last century, the structure of the mass of money in developed countries was approximately the following: 40% were gold coins, 40% banknotes, 10% account balances of various kinds of credit institutions. Immediately before the First World War, these indicators respectively changed as follows: 15%, 22%, 67%.
To analyze the movement of money and changes in this process for a certain period, money supply and money aggregates of various categories are used.
Monetary aggregates are indicators of the amount of money or financial assets that make up the bulk of money.
Money supply and monetary aggregates in this sense are mutually intertwined. The so-called aggregates represent a stepwise hierarchical structure in which each subsequent aggregate will include the previous ones. Each subsequent indicator in this case includes less liquid assets. They are expressed by such concepts as monetary aggregates m1 m2 m3, m4, and also m0.
Unit M0 - cash in circulation (coins, banknotes, treasury tickets).
The Ml unit includes the M0 unit and funds in current accounts used for cashless payments.
M2 aggregate includes Ml and deposits in commercial banks, short-term government securities, which may become cash or check accounts.
The MH unit includes M2 and savings deposits in credit institutions, as well as money market securities.
The M4 unit includes M3 and deposits with credit institutions.
The monetary aggregates in Russia are used for calculating the money supply in the following order: these are M0, Ml, M2 and MZ. The money supply in Russia is characterized by a high share of cash, and this trend is not going to decline. The money supply and monetary aggregates of Russia for a more promising development of the monetary system should go into the mainstream of greater weight of cashless payments.