m3 money supply
M3 Money Supply is the widest measure of money in an economy, adding cash, bank deposits and near money like treasury bills and fixed deposits together.
In plain English
Mama Ngozi at Ariaria market keeps her savings in three places. Some cash sits under her mattress, some sits in her current account, and the rest she has locked away in a fixed deposit that matures in six months and earns her a little interest.
If you asked how much money she has, you would get a different answer depending on which pocket you counted. That is exactly the puzzle economists face when they try to measure how much money exists in the whole of Nigeria, more than in one trader's box.
M3 is the widest net they throw. It starts with M0, the physical cash and coins in circulation, then adds current and savings accounts, and finally adds the slower moving money such as fixed deposits, treasury bills held by the public, and other near cash instruments that can be turned into spendable money without much trouble.
The Central Bank of Nigeria watches M3 closely because it tells a story about inflation. If M3 is growing much faster than the actual goods and services being produced in the country, prices tend to climb, because more money is chasing the same amount of yam, rice and fuel.
In the United Kingdom, the Bank of England pays attention to a similar broad measure to judge whether there is too much money floating around chasing too few houses and groceries, which is part of why interest rates move the way they do.
For someone in London sending money home every month, M3 might feel far removed from daily life, but it calmly shapes the exchange rate and the price level waiting for that money when it lands in Lagos.
If Nigeria's M3 grows from ₦60 trillion to ₦72 trillion in a year while the economy only produces 5 percent more goods, that extra money floating around is a strong hint that prices will rise faster than usual.
Questions people ask
What is the difference between M0 and M3 money supply?
M0 is just the physical cash and coins in circulation. M3 is the widest measure, including M0 plus current accounts, savings accounts, fixed deposits and other near cash assets. M3 gives a fuller consider of total money in the economy.
Why does M3 money supply matter to ordinary Nigerians?
When M3 grows faster than the goods and services the economy produces, there is more money chasing the same amount of things to buy, which tends to push prices up. That directly affects how far your salary or your remittance stretches at the market.
Who tracks M3 in Nigeria and why?
The Central Bank of Nigeria tracks M3 as part of its job managing inflation and financial stability. It uses this figure alongside interest rates and reserve requirements to decide how much money should be circulating in the economy at any time.
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