Money Supply Determination and the Monetary Base

From the Paper:

"M1 includes currency "coinage and bank notes. Coinage is a very small part of M1" about 2 - 3 %. It's important to mention that coinage that is in a circulation in the U.S. now is a "symbolic money." It means that the real value of the coin (the value of material it is made of) is lower than the value marked on the coin. It was done to prevent the remelting of coins in order to sell them as a metal ingots. Bank notes are more important and take about 25% of M1. All the bank notes were issued by Federal Reserve bank with the permission of the U.S. Congress. You can see a Federal Reserve bank sign on every bank note. Demand deposits became widespread nowadays because it is safe and useful. If you need to pay a great sum of money you don't have to take them all with you. All you need is draw a check. That's much easier. The loss of check-book is not as tragical as the loss of equal sum of money. Nobody can use check if it is not endorsed. That's why deposits became so popular. It might sounds strange that checkable deposits are part of M1, but it's easy to explain. People use checks as a medium of circulation. Besides such deposits and checks can be turned into a cash money. M1 has the characteristic of being highly liquid, where liquidity is the term that describes the ease of converting an asset into money. "

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