These are deposits made by the clearing banks at the Bank of England, usually by order of the government through the Treasury. They are used as a means of restricting credit generally. Bank lending is directly related to available cash and the request for special deposits, which are quite distinct from the balances which those banks hold at the Bank of England as part of their general cash resources, forces them to tie up cash resources on a semi-permanent basis. This reduces cash available as the base for granting credit to the business world, the volume of which depends on that base.
|Reference: The Penguin Business Dictionary, 3rd edt.|