---
title: "Narrow Money & Broad Money (M1, M3) Explained"
description: "Narrow money (M1) covers currency and demand deposits; broad money (M3) adds time deposits. Learn how the RBI defines M1–M4 and why M3 anchors policy."
url: "https://modeldiplomat.com/learn/glossary/narrow-money-broad-money"
---

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Model Diplomat Research Team · Last reviewed June 22, 2026

TL;DR

- Narrow money (M1) measures the most liquid components of the money supply, while broad money (M3) adds time deposits and longer-maturity liabilities of the banking system.
- What is the difference between M1 and M3 in India?
- Why is M3 called aggregate monetary resources?
- How does reserve money (M0) relate to narrow and broad money?
- Does the RBI still target money supply growth?

[Civil Service & Diplomatic Exams](https://modeldiplomat.com/learn/civil-services/glossary)Updated June 22, 2026

Narrow money (M1) measures the most liquid components of the money supply, while broad money (M3) adds time deposits and longer-maturity liabilities of the banking system.

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Example

On 8 November 2016 the Government of India demonetised ₹500 and ₹1,000 notes, sharply contracting narrow money (M1) as currency with the public fell, while broad money (M3) held steadier as cash returned to bank deposits.

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