ABSTRACT
The size of the money supply is jointly determined by the actions of the monetary authorities, the non-bank public and the commercial banks. The relationship between money supply and money base is conveniently represented by: M-mB where Mis the money supply, m is the money multiplier, B is the base. The non-bank public can allocate its holdings of M3 balances between currency and demand deposits, and its choice between these can be measured through the currency/deposit ratio (public/demand deposits). The monetary authorities can affect the size of the money supply by acting on the base, by making rules governing the reserve ratio, by indirectly influencing interest rates, and by various other means. The non-bank public's behaviour affects the distribution of the money supply between itself and the banking sector by deciding the manner in which it will hold money, and the form in which it will hold deposits.
