Healthy Money Healthy Planet - library.uniteddiversity.coop

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Currency in circulation At June 2003 this was approximately NZ$2.9 billion. Some of
the currency in circulation is in the hands of the public and some is in the possession of
the various national banks.
M1 This is the sum of the notes and coins put into circulation by the Reserve Bank,
plus the transaction balances (or cheques), less the total of all the other funding, less
the inter­institutional transaction balances. In June 2003, the total M1 stood at NZ$19.1
billion.
M3 This is the sum of the notes and coins in circulation, plus NZ$ funding, less New
Zealand institutional claims, less government deposits. As of August 2003, M3 was
NZ$131.4 billion. This is the broadest measure of money supply commonly used and
examined, and is approximately equivalent to the sum that New Zealand residents
have available to them to use as a means of exchange with each other, be it in EFTPOS,
cash or cheques.
M3R This is the money supply of residents, which is the M3 minus the NZ$ funding
from non­residents. In June 2003 it stood at NZ$104.5 billion.
When I talk about ‘money supply’ or ‘money’, I am talking about the M3. The notes
and coins in circulation are only a tiny fraction of the M3, and a great many
transactions are by direct debit, EFTPOS or cheque. As mentioned above, in August
2003 New Zealand had a money supply (M3) of NZ$131.4 billion, but of this only
NZ$2.4 billion was in the form of notes and coins in the hands of the public. This
means that only 1.8 per cent of the money in use by the public was legal tender, money
created by the Reserve Bank of New Zealand. So where did the rest come from? The
answer is that more than 98 per cent of the country’s money supply is created by