Money Supply and the Monetary Base: Where New Money Comes From, and Why It Is Tied to Inflation

Where exactly does the new money added to an economy each year come from? We will clarify three terms: the monetary base, broad money, and the multiplier. Because growth in these three numbers eventually reaches the prices you pay. The monetary base is the only money that the central bank itself creates. Broad money is all the money people hold, including deposits and quasi money. The multiplier is simply broad money divided by the monetary base, nothing more. Level one is the central bank. A bigger balance sheet means a bigger base. Level two is the banks. Every new loan they make creates a brand new deposit. Suppose one hundred million tomans arrives and the reserve requirement is ten percent. The lending chain ends up creating roughly one billion tomans of deposits. In March two thousand twenty six, that multiplier stood at seven point zero nine five. Broad money reached about fifteen and a half thousand hemat, the base about two thousand two hundred. The central bank said most base growth came from revaluing its foreign assets. Its most direct lever is the reserve requirement, raised one and a half percentage points. First mistake: thinking that printing money means switching on the banknote press. Second mistake: assuming a lower multiplier by itself means inflation is contained. Watch all three numbers together. A smaller multiplier can mask a swelling source. So now you know: new money starts on the central bank's balance sheet. The next lesson comes tomorrow.