§ Dr. Reginald Bennettasked the Chancellor of the Exchequer whether, in view 287W of the calculation by the Bank of International Settlements in its Annual Report for the year ended 31st March 1975, that the net external liabilities of United Kingdom banks in sterling and foreign currencies had increased from the equivalent of US$11,080,000,000 in December 1973, to US$14,140,000,000 in December 1974, the reported money supply figures on either the M1 or M3 definitions understate the liquidity in the United Kingdom banking system to any significant degree.
§ Mr. DellMl and M3 are measures of different categories of liquidity held by United Kingdom residents in the banking system and in notes and coin. If one is concerned with such liquidity because it may be used to finance transactions in the United Kingdom economy, and so represents a potential claim on resources, it may be justifiable also to take into account overseas residents' gross deposits, but only in so far as they are held for the purpose of trading with the United Kingdom. It is not possible to distinguish deposits held for this purpose, but the foreign currency element is probably negligible, and the sterling element will represent only part of overseas residents' sterling deposits with the United Kingdom banks. The total change in such sterling deposits in 1974 was£727 million, so the change in the element held to finance United Kingdom transactions was almost certainly not significant in relation to the change in the money stock (M3) of£4,204 million.