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There is much more money in the world than all banknotes and coins put together. What? How can that be?
Who decides how much money there should be?

Licence to print money

In the eurozone the European Central Bank (ECB) determines how many euro notes and coins are put in circulation. Paper money is printed by the national central banks, with each of them responsible for a defined portion of the banknotes to be issued. The national finance ministries mint the required coins. How much cash each country produces is published on the ECB website. But it wasn’t always like this. Central banks were established in the 19th century and vested with the power of printing banknotes. Central banks are often named after the country of establishment (such as the Bank of England); sometimes, they are also called reserve banks (such as the Federal Reserve in the US). In June 1998 the countries of the eurozone placed responsibility for the euro currency in the hands of the ECB. This effectively made the ECB the joint central bank of all countries that have adopted the euro as their currency. Its activites are coordinated closely with the national central banks of the eurozone countries.  
How much is much?
According to the European Central Bank, there were a total of 1.58 trillion euros in notes and coins in the euro area as of December 31, 2021. While this sounds like a huge amount, it is only a fraction of the entire eurozone money supply.

From M0 to M3

Currency in circulation forms the money supply base, called “M0” by experts (M stands for money). The money base M0 also includes money which “normal” (commercial) banks are required to deposit as a minimum reserve with the ECB. M0 is the most narrowly defined of four categories: M0, M1, M2 and M3. The next category is M1, which includes all demand deposits and cash held by non-banks. Non-banks are private households (including yourself and your family), companies and government institutions. Demand deposits, or sight deposits, are payable by the bank on demand (or on sight), which means the depositor can withdraw and spend the money at any moment. If you have 50 euros in a demand deposit, this amount is part of M1, but not of M0 – because it is not cash in hand, you don’t have the 50 euros in your pocket. Central bank money and “vault cash” stored by commercial banks are not part of M1 either (as opposed to M0).

Most money exists only in accounts

Most money does not exist as cash at all: our salaries and wages are transferred to our accounts, from which we pay such things as rent, insurance and mobile phone fees, and we increasingly use debit cards or smartphones for contactless payments at the supermarket. Money that is transferred from one account to another is called book money. And while we may be under the impression that we use cash frequently, most money today is book money in bank accounts. Therefore, the size of M1 one is huge: according to Statista, it was around 11.3 trillion euros at the end of December 2021. M2 is M1 plus savings deposits with a term of two years or less. M3 includes M2, plus certain securities and debt instruments. M3 makes up a very large sum, about 13.15 trillion euros in February 2020, says Statista.

How priate individuals influence money supply

M3 money supply grows every time a person takes out a loan at a bank. The reason for this: The loan amount is entered twice in the books. Here is an example: Let’s say a man receives a 200,000-euro loan from a bank. The loan amount is credited to his account. At the same time, the bank records its claim on the 200,000 euro (plus interest) as a “receivable” in its books. This means that M3 has grown by 200,000 euro – and this will be reversed only when the man repays his loan. Sounds complicated? That’s understandable, since money creation is a chapter of its own. Find out more in the section “Loans: Let’s make money!“

The eurozone

20 of the 27 EU member states have adopted the euro as their currency. Collectively, they are referred to as the euro area or eurozone. The eurozone countries are: Austria, Belgium, the Republic of Cyprus, Croatia, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

Links:

Money supply

What Dr. Dr. Money says

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