If I put $10K cash in a local bank, is that bank allowed to transfer that money to the Federal Reserve and use it as M0 or high powered money and thereby invoke the money multiplier to loan out a multiple of this original money?
Short answer: No (in terms of does your bank deposit add to M0) Longer answer: M0 (the monetary base) is only change when the Fed creates money out of thin air (usually) by buying T-Bill, or destroying money by (usually( selling T-Bills The deposit multiplier is in effect when your bank loans money from your deposit, which may be redeposited, then reloaned, and so forth. Money that your bank transfer to the federal reserve does not affect either M0 or M1 or M2
