To understand exactly the meaning of monetary base First, we must analyze each of the terms that make up the expression. Is called base to the support, the foundation or the foundation of something, whether physical or symbolic. Monetary , meanwhile, is that linked to the currency (legal tender money).
From these definitions, it is easier to understand what is the monetary base . This is called the sum of the money that is in circulation among people and of the reserves that the banking entities maintain in the central bank of a country.
It can be said that the monetary base is formed by the legal money that issues the central bank , which is divided between the bank's cash and the circulating cash. The control of the monetary base depends on the central bank itself, which through its interventions can regulate the nation's money supply.
The central bank, which has a monopoly on currency printing, manages the monetary base by acquiring and selling public debt securities. You can also modify the interest rates and the bank reserve coefficients so that there is more or less money in circulation.
Exactly we can establish that the monetary base can be increased by undertaking the Central Bank actions such as acquiring public debt securities, increasing credit to private banks or through what exports are.
It is known as monetary politics to the set of decisions and measures that alter the monetary base and other elements that are directly linked to the stability of the economy . If the objective is for the monetary base to grow, a expansive monetary policy . When the intention is to reduce said monetary base, a restrictive monetary policy .
In addition to what has been indicated, we have to state that the monetary policy of a country will be established as a goal to achieve economic stability in it. Specifically, the objectives of the aforementioned will be the following:
-The economic growth.
-To avoid that imbalances can occur as far as the balance of payments is concerned.
-Of course, you will also bet on achieving a remarkable stability of what the value of money is.
-Also, it should not be overlooked that monetary policy will also aim to reach the highest possible level of employment.
On numerous occasions, what is a monetary base with a money supply is often confused. And that should not occur because they are two different things. Thus, in order to understand what makes them different we can establish the following:
-The money supply, on the one hand, is the amount of money available that exists in an economy. We are referring exactly to the money that comes from bank deposits, to cash in the hands of the public ...
-The monetary base, on the other hand, is the figure that come to control what the economic authorities are. As we have mentioned, it is the sum of the amount of cash that is in the hands of the public plus what bank reserves are.