M0= cash in circulation; M 1=M0+ commercial bank demand deposit; M2=M 1+ commercial bank savings deposit+commercial bank time deposit; M3=M2+ deposits of non-bank financial institutions; M4=M3+L (current assets).

The significance of dividing currency grades:

To understand the level of money, we must first understand the scope of money. Money includes not only cash in circulation, but also bank deposits, securities and current assets. Therefore, the classification of currencies is conducive to the central bank's understanding of the status of different levels of currencies in the entire monetary system and to macro-control of the monetary system.

Check whether the market is in a balanced and healthy state, further provide a basis for the formulation of monetary policy, and make the country more accurately understand the various forms and activities of holding money in the circulation field.

Using the obtained information, we can better analyze the dynamic changes of the economy and strengthen the ability to regulate a certain level of currency, so as to make the national economy run better through the regulation of currency.

Division basis:

Returning to the liquidity standard, it is not difficult to see that the liquidity standard of China's monetary system is based on the domestic liquidity of financial assets.

On some differences of currency stratification between China and the United States, if China and the United States have the same M system, the cash with practical economic significance in the United States is M 1, while the cash with practical economic significance in China is much smaller than M 1. This difference makes China's economic units have insufficient currency in circulation, while the United States has abundant currency relative to China.

The reason for this difference is that China's cheque cannot be directly converted into cash, even though it is currency.

For example, under the M2 project, if M2 is the same, China's savings are large, but there are few currencies with practical economic significance in circulation, because M2 in China is occupied by high savings.

In the United States, almost all of them are M 1 (the American savings rate is very low), that is to say, they are actually M0, that is, most of them are cash, and there are enough economically meaningful currencies in the market. China, on the other hand, is seriously short of money with practical economic significance.