§ Mr. Ian Stewart
asked the Chancellor of the Exchequer what are the advantages and disadvantages of including interest-bearing sight deposits of the United Kingdom private sector in the definition of Ml money supply.
§ Mr. Denzil Davies
There are difficulties at the margin with the precise definition of all the monetary aggregates. Ml, money supply on the narrower definition, is principally designed to cover cash and those bank deposits which are readily transferable or convertible into cash without notice. Thus it includes, in addition to notes and coin in circulation with the public, all sterling sight deposits with banks held by the private sector whether or not these bear interest.
In practice, the interest-bearing deposits are predominantly large-scale or "wholesale" in character, whereas the non-interest-bearing deposits are typically "retail" deposits—that is, current accounts on which cheques can be drawn—although some such current accounts bear interest. The exclusion of interestbearing deposits from Ml would probably 199W make changes in the aggregate a closer reflection of changes in the level of accounts transferable by cheque, but it would not be entirely accurate and would omit funds which are readily transferable into the same form.
A possible drawback of the Ml definition is the problem, at times of substantial changes in interest rates, of interpreting the movements in a series which includes some deposits that bear interest and others that do not. But, to ease these difficulties, the regular statistics published in the "Bank of England Quarterly Bulletin" and "Financial Statistics" distinguish, from May 1975 onwards, between the interest-bearing and non-interest-bearing components of sight deposits.