The ‘New’ Monetary Arrangements

  • Maximilian Hall


The new arrangements for monetary control, which took effect from 20 August 1981, were set out in the Bank’s paper entitled ‘Monetary control — provisions’ (BEQB, September 1981, p.347) and followed discussions on two of their earlier documents: ‘Background note on methods of monetary control’ (BEQB, December 1980, p.428) and ‘Monetary control: next steps’ (BEQB, March 1981, p.38). The main proposals were:
  1. (1)

    The establishment of a new monetary sector (to replace the UK banking sector) to include all recognised banks and licensed deposit-taking institutions (LDTs), the National Girobank, banks in the Channel Islands and the Isle of Man which opt to accede to the new monetary provisions, the Trustee Savings Banks (TSBs) and the Banking Department of the Bank of England. The TSBs were expected to account for approximately three-quarters of the resultant increase (£8b. or 10 per cent) in £M3.

  2. (2)

    The imposition of a non-operational cash requirement of ½ per cent of eligible liabilities (ELs) on all those institutions falling within the monetary sector whose liabilities average £10m. or more in the latest period over which the requirement is calculated. (ELs were redefined to allow offsets for funds, other than cash ratio deposits or special deposits placed with the Bank, lent by one institution within the monetary sector to another and for appropriately secured money-at-call placed with money brokers and gilt-edged jobbers.)1 This uniform ratio was designed to secure resources and income for the Bank, the volume of clearing bank balances voluntarily held at the Bank for the settlement of inter-bank indebtedness henceforth to serve as the fulcrum for money market management (previously represented by the London clearing banks’ 1½ per cent bankers’ deposits ratio). Concessions were granted to institutions whose principal place of business in the UK was Northern Ireland (the ratio was reduced to ¼ per cent for an initial trial period of two years) and to institutions not on the previous statistical list of banks which experienced transitional problems. To discourage institutions from artificially depressing their ELs on reporting dates, the Bank reserved the right to make spot checks on non-reporting days.



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  1. 1.
    Special arrangements exist for the calculation of ELs for members of the London Discount Market Association (LDMA) and certain banks with money-trading departments: see ‘Monetary control — provisions’, BEQB, September 1981, p. 347, para. 6.Google Scholar

Copyright information

© Maximilian J. B. Hall 1983

Authors and Affiliations

  • Maximilian Hall
    • 1
  1. 1.Department ofEconomicsLoughborough UniversityUK

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