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Notes And Coins: Decrease

Volume 590: debated on Monday 1 June 1998

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asked Her Majesty's Government:In view of the Bank of England's Statistical Releases published between 1963 and 1997 which disclose a decrease in the supply of notes and coins (MO) from 21 per cent. to 3.7 per cent. when the remainder of the money supply (M4) is interest bearing, whether they intend to take any measures of compensation for this loss of interest-free money as part of the total money supply. [HL1953]

The decrease in notes and coins as a proportion of the total money supply partly reflects the considerable innovation in the banking sector over the last 35 years which has allowed the velocity of circulation of notes and coins to increase. Reduced costs of transfer between interest bearing and non-interest bearing money mean that agents now wish to hold a smaller proportion of their assets in the latter form. Any attempt to reverse the trend would place a burden on consumers and firms alike, unnecessarily reducing the efficiency of financial intermediation.