§ Sir David Price
asked the Chancellor of the Exchequer how he currently defines money for the purpose of controlling the money supply; how sensitively he is able to measure it and on what time scale; what his chosen instruments are for controlling it; and with what degree of precision these controls can be made by him to work.
§ Mr. Lawson
The definition of the money stock currently used as the Government's target aggregate is sterling M3. This comprises notes and coin in circulation with the public, together with all sterling bank deposits held by the United Kingdom private-sector residents and the public sector. But as the Green Paper on monetary control pointed out, no single statistical measure of the money supply can be expected fully to encapsulate monetary conditions, and it is necessary also to take account of the growth in other aggregates in assessing these conditions.
While the supplementary special deposits scheme was in operation, the sterling M3 figures were distorted significantly because of changes it brought about in the composition of the liquid assets held by the non-bank private sector. Instead of holding deposits with the banks, companies and individuals were encouraged by the action of the banks to hold commercial bills, euro-sterling or foreign currency deposits or public sector debt instead. With the ending of the SSD scheme these distortions have been largely removed.
There are at present a number of policy instruments available to the authorities for influencing monetary condi- 352W tions. Of these, the main ones are fiscal policy, debt management and administered changes in short term interest rates. Experience suggests that these present arrangements may not be adequate, even over the medium term, to achieve the Government's monetary objectives. The Government are therefore currently examining possible improvements, particularly the possible advantages of a system of monetary base control and we shall announce the outcome of our considerations in due course.