Which of the following are included in the definition of Narrow Money

Which of the following are included in the definition of Narrow Money ?

  • 1. Currency with the public
  • 2. Demand deposits
  • 3. ‘Other’ deposits with Reserve Bank of India
  • 4. Banker’s deposits with Reserve Bank of India

Select the correct answer using the code given below :

1, 2 and 4
1 and 2 only
1, 2 and 3
3 and 4 only
This question was previously asked in
UPSC CDS-2 – 2023
In India, Narrow Money (M1) is defined by the Reserve Bank of India as the sum of Currency with the Public, Demand Deposits with the Banking System, and ‘Other’ Deposits with the Reserve Bank of India. The components listed in options 1, 2, and 3 align with this definition.
1. **Currency with the public:** Notes and coins held by the public.
2. **Demand deposits:** Deposits held by the public with commercial banks and co-operative banks that are withdrawable on demand (e.g., savings accounts, current accounts).
3. **’Other’ deposits with Reserve Bank of India:** Demand deposits with RBI of entities other than banks and the government (e.g., deposits of quasi-government institutions, international financial institutions like IMF).
4. **Banker’s deposits with Reserve Bank of India:** Deposits of commercial banks with the RBI, which form a part of the reserves maintained by banks. These are included in the definition of M0 (Reserve Money) but not M1 in the standard Indian monetary aggregates.
The different measures of money supply (M0, M1, M2, M3, M4) represent different degrees of liquidity. M1 and M2 are considered Narrow Money, while M3 and M4 are considered Broad Money. M0 (Reserve Money) is the monetary base, representing the most liquid form of money.