MZM Outside America
The problem is that in other countries, this definition is not available. And the definition of what constitutes M1, M2 and M3 usually differ between different countries. So instead most people (including until recently me)uses M3 as the best broad money supply definition for all countries. Yet I have recently reconsidered this. When preparing a report for Swedish free market think tank Timbro about Swedish monetary policy which will soon be released (Unfortunately for my non-Swedish readers, it will be in Swedish), I started to actually look at what the different money supply measures included. And it became immediately clear to me that M3 is too broad. M3 included for example interest-bearing securities held by the Swedish public with a maturity of up to two years. A two-year bond could hardly be considered money in my view, as it implies that the holder of it has given up the money invested in it for two years, unless he can find someone else willing to take over that commitment by buying the bond. And the same thing really goes for 1-year bonds and treasury bills. Of the non-M2 M3 items, only money market fund holdings can be considered money. Non-M1 M2 is more unclear since it seems to package together without any subdivision both saving deposits (which should be considered money) and genuine time deposits (which should not be considered money). Still, overall M2 seemed like the best of the three M's. Note that this applies to the euro area too as the Swedish definition is explicitly harmonized with the one used by the ECB.
What this reminds us of is that money supply definitions can be too broad as well as too narrow. And I suspect that M3 is too broad in many other countries as well. In New Zealand for example M3 explicitly includes all funding of New Zealand financial institutions, whereas M2 only includes funding that "can of right be broken without break penalties". Although it is unclear what these penalties consist of, it seems clear that we're here talking about time deposits. Similarly, in Australia M3 also includes CDs and other time deposits. However, no M2 seems to be available on the monetary aggregates page of the Reserve Bank of Australia web site, so the best money supply definition seem to be M3 minus time deposits or alternatively M1 plus "other deposits".
This discussion may seem technical, but as the growth of different money supply definitions often differ significantly (In recent years, broader aggregates seem to grow faster in most countries) it is relevant for determining just how strong inflationary pressures from the monetary system is. In the case of New Zealand, we see M2 shrinking by 1.4% while M3 is up 8.9%. In Australia and Sweden all monetary aggregates show significant growth, although M3 is growing significantly faster than the other aggregates in both countries.