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Bank Deposits

Volume 895: debated on Thursday 17 July 1975

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asked the Chancellor of the Exchequer what was the total of the current account balances with United Kingdom banks of the public sector on 31st December 1972, 1973 and 1974 and at the latest date for which figures are available; and why these balances are excluded from the domestic money supply as calculated under the M1 definition.

Public sector deposits with United Kingdom banks were:

£ million
31st December 1972625
31st December 1973725
31st December 1974656
21st May 19751,035
Separate figures have not hitherto been available for current accounts but it is assumed that the majority of these deposits were in such accounts.M1 is a measure of the private sector's holding of money essentially as a medium of exchange. When the monetary aggregates were defined it was considered that it would be less illuminating to aggregate this with comparable public sector deposits. The public sector can pool its cash resources more easily than the private sector and the central Government can create additional cash if necessary. This means that changes in the total of public sector deposits usually bear little relation to the size or frequency of public sector transactions.

asked the Chancellor of the Exchequer (1) what effect he estimates the increase in the gross liabilities of United Kingdom banks to non-residents from the sterling equivalent of £16,795,000,000 at the end of 1970 to £51,131,000,000 at the end of 1974 has had of an inflationary character on the domestic economy;(2) what are the reasons for the exclusion of non-resident deposits with United Kingdom banks from the money supply figures; if he will consider the practice in the United States of including nonresident deposits with American banks in the American money supply figures; and if he will make a statement.

The great majority of non-resident deposits are acquired by United Kingdom banks in the course of their operations in the Euro markets: the increase in deposits referred to was largely matched by an increase in advances to non-residents of over £30,000 million in the same period. This activity only affects the United Kingdom economy directly to the extent of the net balance between banks' non-resident deposits and assets, and to the extent that it constitutes a source of invisible earnings. The former is small in relation to the changes in the domestic monetary aggregates in the period, and it is therefore not possible to distinguish its effects on the economy.In the case of the United Kingdom the inclusion of banks' gross liabilities to non-residents in the monetary aggregates would virtually remove their value as indicators of domestic monetary conditions since the vast majority of such holdings are not held to finance business in this country. Changes in net liabilities to non-residents are, however, one component of the difference between domestic credit expension and the change in the money supply (M3).