High Powered Money. High powered money or monetary base refers to the money produced by R.B.I. and Government of India. Alternatively total liability of monetary authority of the country and R.B.I. is called monetary base or high powered money (H). It consists of (i) currency (notes and coins) in the hands of public (C), (ii) Cash reserve of commercial banks (R) and (iii) Other deposits with R.B.I. (OD). Symbolically:
H = C + R + OD
High powered money is different from ordinary money (M1) which consists of (i) currency held by public (C), (ii) Demand deposits in banks (DD), and (iii) Other deposits with R.B.I. (OD), i.e., M1 = C + DD + OD. The only difference between the two (H and M1) pertains to their one component. It is currency in circulation with the public (C) for high powered money but demand deposits in banks (DD) for ordinary money. In high powered money if any person produces a currency note to R.B.I., the latter must pay him value equal to the figure printed on the note.