Mortgage professionals use the term M3 a lot, but what exactly is it? Calculate M3 (M3 berekenen) is simply a broad measure of the money supply that includes all the physical currency in circulation (M0), plus all the deposits in banks (M1), plus all the ‘near money’ (M2). In this article, we’ll take a closer look at each of these measures and how they’re calculated. By understanding M3, you’ll have a better understanding of how the economy is performing and where interest rates are likely to head in the future.

What is M3? 

M3 is the broadest measure of money supply in circulation and includes all the components of M2. M2 includes all the elements of M1 plus savings deposits, time deposits, and non-bank investments in mutual funds. M1 includes physical currency, traveler’s checks, demand deposits, and other checkable deposits. 

How do you calculate M3? 

To calculate M3, you need to add up all the components of M2 plus large time deposits, institutional money market funds, short-term repurchase agreements, and other larger liquid assets. 

Why is it important to understand M3? 

By understanding M3, central banks can take steps to ensure that inflationary pressures don’t get out of hand. When demand for money is high, it can lead to inflationary pressures as people compete for a limited amount of money. By understanding how much money is actually in circulation, central banks can make sure that there isn’t too much or too little money chasing after goods and services.

M3 includes all of the following: 

M0 – Physical currency in circulation. This includes all notes and coins held by the public, as well as by businesses and banks. 

M1 – All deposits held in checking accounts and traveler’s checks. 

M2 – All deposits in savings accounts, money market accounts, and certificates of deposit (CDs) with maturities of less than one year. 

It also includes all currency held in foreign exchange reserves and Eurodollars. 

The key difference between M2 and M3 is that M3 includes longer-term deposits, such as those in CDs with maturities of one year or more. 

To calculate M3, simply add up all the components listed above. 

The current level of M3 in the United States is about $15 trillion. 

M3 growth is closely watched by economists because it can be an early indicator of inflationary pressures in the economy. When money supply growth is too high, it can lead to higher inflation down the road. The Federal Reserve typically responds to high inflation by raising interest rates. So, if you see M3 growth beginning to accelerate, it’s a good idea to start preparing for higher interest rates. 

Of course, there are other factors that affect inflation and interest rates besides money supply growth. But if you’re looking for a single number that encapsulates how easy or difficult it is for businesses and consumers to get their hands on cash, M3 is a good place to start. 

In summary, M3 is a broad measure of the money supply that includes physical currency, checking account deposits, savings account deposits, near-money assets, and foreign exchange reserves. It’s closely watched by economists because rapid growth can be an early indicator of inflationary pressures in the economy.