monetary base
Beneath the vast pile of money sloshing through an economy lies a small, special core that the central bank alone controls. It is the raw material from which all the wider money is ultimately built: physical cash, plus the reserve balances that commercial banks keep at the central bank. This core is the monetary base — sometimes called base money, high-powered money, or M0.
Precisely, the monetary base equals all the currency in circulation (notes and coins held by the public and in bank tills) plus the deposits commercial banks hold in their accounts at the central bank (their reserves). Two features make it special. First, it is the only money the central bank creates directly — when a central bank 'prints money', it adds to the base, either as new cash or, far more often, as new electronic reserves credited to banks. Second, it is called high-powered because a single dollar of base can support several dollars of broader money: a dollar of new reserves lets banks lend, those loans become deposits, and through the money multiplier the base is leveraged up into a much larger money supply. The base is the foundation; the deposit money created by banks is the building on top.
The monetary base matters because it is the lever the central bank actually moves. Through open market operations the bank buys or sells assets and pays with new base money, expanding or shrinking the foundation. During quantitative easing after 2008, central banks hugely enlarged the base by creating reserves to buy bonds. A crucial, counterintuitive lesson from that episode: a bigger base does not automatically mean a bigger money supply or more inflation. Much of the new base sat idle as excess reserves because banks did not lend it out — proof that the base sets the potential for money creation, but banks and borrowers decide whether that potential is used.
When the central bank buys $1 billion of government bonds, it pays by crediting the selling banks with $1 billion of new reserves — base money that did not exist before. Those reserves can then underpin several billion of new loans and deposits, which is why economists call the base 'high-powered'.
Monetary base = cash in circulation + banks' reserves at the central bank.
The monetary base is much smaller than the total money supply, and expanding it does not mechanically expand the wider money. After 2008, central banks multiplied the base many times over without comparable growth in broad money, because banks held the extra reserves rather than lending them — the link from base to money supply runs through bank behaviour, not arithmetic.