Monetary Base

The monetary base, also called base money or M0 in some countries, is the foundation of the money supply. Commercial banks create most of the money people use, in the form of deposits, but they do so on top of this base.

Central banks control the monetary base. They expand it by buying assets, such as government bonds, and paying for them by crediting banks' reserve accounts. They shrink it by selling assets or letting them mature.

For example, during quantitative easing after the 2008 financial crisis, the monetary base in the United States, the United Kingdom and the euro area grew enormously as central banks bought large amounts of bonds.

A large increase in the monetary base does not automatically lead to the same increase in broad money or inflation. After 2008, much of the new base money stayed as reserves at central banks rather than flowing into lending. The link between the monetary base and broader money depends on banks' willingness to lend and the public's demand for credit.