Euro Area Money Supply - M2 and M3

Think of it this way

Back to the family: if M2 is what they have in cash and in the bank, M3 also adds what they have put into very short-term financial products, the kind that turn into cash within a few days. It is more money counted, but counted with a different rule.

What is Euro Area Money Supply - M2 and M3?

M3 is the European Central Bank's broad aggregate, and here is the difference almost nobody explains. The ECB builds three tiers: M1 is currency plus overnight deposits; M2 adds deposits with a maturity of up to two years and those redeemable at notice of up to three months; and M3 also adds three marketable instruments that US M2 does NOT contain: repos, shares in money market funds and debt securities issued with a maturity of under two years. That is why European M3 is a wider net than US M2: it captures money parked in market instruments, not just in bank accounts.

How to read Euro Area Money Supply - M2 and M3

Monthly line in euros, not dollars. If you look at it converted into dollars you will mostly be seeing the exchange rate: a 5% move in the dollar changes the euro bloc by a trillion dollars without a single euro having been created. In its own currency you see the ECB's monetary policy; in dollars you see EUR/USD in disguise. Lag: up to 90 days.

What Euro Area Money Supply - M2 and M3 means for the market

The euro area is the second-largest monetary bloc in the Western world, so its expansion or contraction matters for global assets. But its transmission to dollar-denominated assets runs through the exchange rate, which makes the relationship much noisier than that of US M2.

Where the money flows

The same as European M2, plus the money that has left bank accounts for short-term market products. When a saver moves money from a deposit to a money market fund, it leaves M2 but stays inside M3: it has not disappeared, it has changed place.

What to watch in Euro Area Money Supply - M2 and M3

Never add it to US M2 without saying you are adding different things. The figure comes out, but it is an aggregate of definitions that do not match. That is why this section's global aggregate uses European M2 and not M3.

The European equivalent, but it is a BROADER measure than US M2.