- Narrow money
- Narrow money is the notes and coins in circulation together with the reserves commercial banks hold at the central bank.
- Broad money
- Broad money is the notes and coins held by households and firms plus their deposits at banks and building societies, including savings.
What the two measures count
Can you name the four kinds of asset that make up narrow and broad money?
Cash counts in both measures, reserves in narrow money only, and deposits in broad money only.
Notes and coins are cash, the most liquid money there is, and they count in both narrow and broad money.
Can you think of an example?
A £20 note in a wallet or a £1 coin in a café's till: either can be spent at once, with nobody's permission.
Bank reserves are the balances commercial banks hold in their own accounts at the central bank, and they count in narrow money only.
Can you think of an example?
Two high-street banks settle the day's payments between their customers by moving reserves between their accounts at the Bank of England.
Sight deposits are current-account balances that can be spent or withdrawn on demand, by debit card or transfer, and they count in broad money.
Can you think of an example?
Wages paid into a current account on Friday and spent by debit card at a supermarket the same evening.
Time deposits are savings left for an agreed period, or behind a notice period, in return for higher interest, and they count in broad money.
Can you think of an example?
£5,000 in a building society account that needs 90 days' notice before any of it can be withdrawn.