The monetary base is the total amount of money created by the central bank in a country. It includes the total currency circulating in the public, plus the currency that is physically held in the vaults of commercial banks, plus the commercial banks reserves held in the central bank. The monetary base is sometimes referred to as high-powered money as it can be expanded through the money multiplier effect of the fractional reserve banking system. It is a component of a nations money supply, but it should not be confused with the money supply, which consists of the total currency circulating in the public plus certain types of non-bank deposits with commercial banks.

Central banks can increase or decrease the monetary base through various forms of monetary policy, such as open market operations, which involve the buying and selling of government bonds. For example, if a central bank buys government bonds from commercial banks, they pay for them by adding new amounts to the banks reserve deposits at the central bank, which is a component of the monetary base.

The monetary base is usually measured by the central bank, which controls the circulation of currency in the economy. It is a monetary aggregate that is not widely cited and differs from the money supply. Economists typically look to more comprehensive monetary aggregates such as M1 and M2 instead of the monetary base.

In summary, the monetary base is the total amount of money created by the central bank in a country, which includes the total currency circulating in the public, plus the currency that is physically held in the vaults of commercial banks, plus the commercial banks reserves held in the central bank. It is a component of a nations money supply, but it should not be confused with the money supply. Central banks can increase or decrease the monetary base through various forms of monetary policy, such as open market operations.