Reserve money is the central bank issued money that function as the monetary base of an economy and it mostly includes all of the currency (currency notes, coin and e₹) in circulation, in addition to bank’s deposits with the central bank. It depicts the stock of monetary liabilities in the central bank’s balance sheet.
Read more: What is Reserve Money? Why it is important for the RBI’s monetary policy?
Reserve money is the most important form of money supply. It is also called as high-powered money, base money and central bank money. All these names suggest that reserve money represents the base level for money supply or it is the high-powered component of money supply.
Components of Reserve Money
Reserve money (M0) = Currency in Circulation + Bankers’ Deposits with RBI + ‘Other’ Deposits with RBI.
Among these components, the most important one is currency in circulation. It includes notes in circulation, rupee coins and small coins.
(i) Currency in circulation’ includes notes in circulation, rupee coins and small coins. Rupee coins and small coins in the balance sheet of the Reserve Bank of India include ten-rupee coins issued since October 1969, two rupee-coins issued since November 1982 and five-rupee coins issued since November 1985.
(ii) ‘Bankers’ deposits with the Reserve Bank’: comprises of balances maintained by banks in the current account with the Reserve Bank mainly for maintaining Cash Reserve Ratio (CRR) and as working funds for clearing adjustments.
(iii) Other Deposits with the RBI: ‘Other’ Deposits with RBI comprise mainly: (i) deposits of quasi-government and other financial institutions including primary dealers, (ii) balances in the accounts of foreign Central banks and Governments, (iii) accounts of international agencies such as the International Monetary Fund, etc.
