Posted by: Dirk | January 7, 2019

Treasury Deposit Receipts (TDR) in the UK in 1940

This is from a paper by Geoff Tily in 2009:

In WWII Keynes and his HM Treasury colleagues devised Treasury deposit receipts that formalised processes for borrowing from banks. Howson is one of the few authors to discuss this vital tool of government policy:

The introduction in July 1940 of Treasury Deposit Receipts (TDRs), by which the major banks were obliged to lend directly to government added a new instrument to the floating debt, enabling the authorities to borrow on short term without either increasing the Treasury bill issue or having recourse to Ways and Means Advances. Of longer maturity (six months) than three-month Treasury bills and non-marketable, TDRs were less liquid than Treasury bills and carried a slightly higher interest rate (1 1/8%). This wartime expedient [14] was, as Sayers put it, ‘concocted . . . [so as] not to disturb the customary relationship [between banks, discount houses, and the Bank of England] and customary “ratios” of the peacetime [banking] system’, but it was nonetheless seen as a revolution in fiscal policy, at least in Labour Party circles … (Howson, 1988, pp. 252–3)

TDRs were quickly discontinued after the war, in spite of Keynes’s and HM Treasury’s recommendations to the contrary.

This is very interesting since apparently here the power balance between banks and the government was readjusted. It is a different arrangement from what the US did in WWII, where it was clear that “taxes for revenue are obsolete” (FRBNY chairman Beardsley Ruml). However, the logic is the same. You could just add some central bank deposits to the Government’s account and then it could spend. If your central bank won’t create them for you, you can force private banks to surrender their central bank deposits in return for more central bank deposits in the future – Treasury Deposit Receipts. I can imagine that the Bank of England was allowing banks to use the TDRs as collateral for borrowing.


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