in the eurozone, European Central Bank (ECB) Defines three monetary aggregates. The narrow monetary aggregate, called M1, is made up of banknotes and coins in circulation and demand deposits. The intermediate monetary aggregate or M2 includes M1 plus fixed deposits of up to two years and deposits repayable at notice of up to three months.
Finally, the broad monetary aggregate, or M3, includes liabilities held in M2 plus repurchase agreements, shares in money market funds and money market instruments, and fixed-income securities of up to two years duration issued by monetary financial institutions.
Another commonly used monetary aggregate is M0, also called the monetary base, which is equal to bills and coins in circulation, plus bank reserves. It is usually the smallest set, which is the “narrowest”, and also the one over which the central bank has the most control, which is why it has historically played an important role in the conduct of monetary policy.
However, the real problem is what happens to M1 and M3. And the signs are worrying. According to the latest data published by the European Central Bank (ECB) M3 annual growth rate slowed to 2.5% in MarchThat compared to 2.9% in February and the lowest reading since 2014. meanwhile, annual growth rate of M1which includes cash in circulation and demand deposits, is in negative territory -4.2% in MarchCompared to -2.7% in February.
The fall in negative rates in M1 could be related to the outflow of deposits from banks in the current turmoil and given the low yields.