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Money Supply

Volume 23: debated on Monday 10 May 1982

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asked the Chancellor of the Exchequer what was the percentage increase in the velocity of circulation of money between the first quarter of 1974 and the first quarter of 1980; and whether he can make any assessment of reasons for the change.

The increase in velocity of circulation of sterling money stock between the first quarters of 1974 and 1980 was 56 per cent. calculated from the series given in table 7.1 of Financial Statistics.

Velocity was at a low point in early 1974. Velocity fell in the early 1970s, partly as a result of the institutional changes associated with the introduction of competition and credit control, and the effects of "round-tripping" in adding to recorded monetary growth. The increase in the velocity of £M3 after early 1974 partly reflected the introduction of the SSD scheme in December 1973, which gave banks an incentive to reduce the size of their balance sheets and encouraged disintermediation.