High Powered Money in India-An Empirical Analysis

Abstract

High powered money in the sum of commercial bank reserves and currency (notes and coins) held by Public. High powered money in the base for the expansion of bank deposit and creation of money supply. Thus high powered money H=C+RR+ER. Where C represents currency with the public, RR the required reserves in the commercial banks and ER the excess reserves with banks. High powered money also known as the monetary base. In India the Reserve Bank of India is responsible for regulatory and controlling the monetary base. It is important to note that the composition and dynamics of high powered money in India can change over time due to shifts in monetary policy, economic conditions, and changes in banking regulations. High powered money plays a fundamental role in monetary system. It serves as the base upon which the broader money supply (M1, M2 etc) is created through the process of fractional reserve banking. When banks make loans, they create deposits, effectively increasing the broader money supply. The RBI uses various tools, such as open market operations and reserve requirement, to control the growth of high powered money and, consequently the money supply to achieves its monetary policy objectives, such as controlling inflation and promoting economic growth.