The monetary base (also called high-powered money or M0) is the total amount of money directly created and controlled by a country's central bank. It is the most liquid money in the economy and serves as the foundation upon which commercial banks build the broader money supply (M2) through the money multiplier process.
The monetary base has two main components: Currency in circulation (all paper notes and coins held by the public and in bank vaults) and commercial bank reserves (money deposited at the central bank by commercial banks).
Central banks control the monetary base through open market operations. When the central bank buys government securities, bank reserves increase and the monetary base expands. When it sells securities, the monetary base contracts. This is how central banks ultimately influence the total money supply in the economy.
In Bangladesh, the monetary base grew by approximately 7.78% in 2024 compared to the previous year. This serves as an indicator of Bangladesh Bank's efforts to maintain financial stability and control inflation.