Explanation:

Reserve money =
Currency in Circulation + Bankers’ Deposits with RBI + ‘Other’ Deposits with RBI

Among these components, the most important one is currency in circulation. It includes notes in circulation, rupee coins and small coins.

Currency in circulation comprises currency with the public and cash in hand with banks. It indicates the volume of currency notes with the public and cash in hand with the banking system. We know that these two – the public and the banks are the most important uses of money. Bulk of the country’s money supply will be with these two group.

The other two components are small in size. To understand the relative importance of the three components, look into the data shown in the coming part.