The money supply is the total amount of money in circulation in an economy at a given time. It includes notes and coins, but most money today consists of deposits in bank accounts. The Central Bank of IcelandCentral bankThe bank that issues a country's currency, sets interest rates and safeguards financial stability. In Iceland it is the Central Bank of Iceland. regularly publishes figures on Iceland's money supply.
M1, M2 and M3
The money supply is measured in groups, depending on how easy the money is to use:
| Group | Central Bank's Icelandic name | What it includes |
|---|---|---|
| M1 | Peningamagn | Notes and coins in circulation plus current accounts that can be used straight away |
| M2 | Peningamagn og almennt sparifé | M1 plus ordinary savings deposits |
| M3 | Peningamagn og sparifé | M2 plus term deposits |
How is money created?
Many people think the central bank creates all money, but it doesn't. When a bank makes a loan, it pays the amount into the borrower's account, and new deposits have been created. Most of the money supply comes into being in the banking system this way. The Central Bank influences it through the policy ratePolicy rateThe Central Bank's interest rate that other rates in Iceland follow. The bank calls it its key rate and moves it to keep inflation in check.: when rates are high, fewer people borrow and the money supply grows more slowly.
Money supply and inflation
If the money supply grows much faster than the output of goods and services, it can push up InflationInflationA general rise in prices over time, which means each króna buys less than before., because more krónur are competing for the same amount of goods. The relationship is neither simple nor direct, though, and economists disagree about how strong it is.
Money supply and bitcoin
For many bitcoin owners this matters a lot. The supply of fiat currencies can grow without limits set in advance, while bitcoin's maximum supplyMaximum supplyThe largest number of units of a cryptocurrency that can ever exist under its rules, such as 21 million for bitcoin. is 21 million, and the issuance of new units halves roughly every four years. This difference is at the heart of the case for bitcoin as a store of value, set out in Why does Bitcoin have value?
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 2 November 2026.