Australian News

Australian news and media publication

Here’s something to scratch your head: Cash use has been declining for years in Britain, but the demand for banknotes is skyrocketing. No one is sure where the money is going.

A group of United Kingdom Lawmakers said on Friday £ 50 billion ($ 90 billion) in cash was missing, and urged the Bank of England to investigate.

The money “is hidden somewhere, but the Bank of England doesn’t know where, who or what for, and it doesn’t seem very curious,” said Meg Hillier, chair of the House of Commons Public Accounts Committee (PAC), which oversees government finances, it said in a statement.

£ 50 billion in UK banknotes are 'missing' and no one has an explanation.
£ 50 billion in UK banknotes are ‘missing’ and no one has an explanation. (Shutterstock)

“You must be more concerned about where the missing £ 50bn is,” he added.

The Bank of England rejected immediately. “Citizens do not have to explain to the bank why they want to keep banknotes. This means there is no shortage of banknotes,” a spokesperson said in a statement, adding that the central bank will continue to meet the public demand for banknotes.

Despite the increased use of digital payments, demand for cash has risen in most advanced economies since the global financial crisis, according to a 2018 report from the Bank for International Settlements. This has been driven in part by lower interest rates, according to the report, which have diminished returns on savings at banks.

“We are seeing an increasing use of cash as a store of value, rather than for transactional purposes,” said Bank of England chief teller Sarah John in testimony before the Public Accounts Committee in October. Concerns about the strength of financial institutions since the 2008 crisis have also contributed to this, he added.

Credit card
Despite the increased use of digital payments, the demand for cash has increased in most advanced economies since the global financial crisis. (Getty)
And although there was a sharp drop in demand for banknotes and coins during the peak of coronavirus lockdowns this year, it has since recovered, with people hoarding even more cash at home as a result of the pandemic.

The number of banknotes in circulation in Britain reached a record 4.4 billion in July, with a total value of £ 76.5 billion ($ 138.5 billion), according to a September report by the National Audit Office (NAO), which oversees government spending. This compares with 1.5 billion banknotes worth around £ 24 billion ($ 43.5 billion) in 2000.

At the same time, the volume of cash payments has decreased, a trend that is likely to accelerate due to the pandemic. A decade ago, cash was used in six out of ten transactions; last year it was less than three.

The Bank of England estimates that between 20 and 24 per cent of the value of banknotes in circulation is used for cash transactions, with UK households holding another 5 per cent as savings.

Little is known about the remainder, worth around £ 50bn, but possible explanations include overseas holdings for transactions or savings and possibly UK holdings of undeclared domestic savings or for use in the shadow economy. “the NAO said in its report.

He recommended that the central bank, in collaboration with other public authorities, improve its understanding of what is driving the surge in demand for banknotes and who has the £ 50bn.

“This work could help inform a broader policy, for example on tax evasion,” he added.

Financial exclusion risks

The NAO report warned that decreasing use of cash could increase the risk of financial foreclosure if companies stop accepting cash due to increased costs associated with declining volumes. Just over a million UK adults do not have a bank or mortgage company account, according to the report, which cites data from the Financial Conduct Authority.

“There is definitely a link to more deprived areas that still rely on cash much more than some city centers,” John told the PAC.

There are currently five public bodies responsible for managing or overseeing Britain’s cash system, including the Bank of England, the Treasury, the Royal Mint, the Financial Conduct Authority and the Payment Systems Regulator.

The UK government said in October that it is considering giving the Financial Conduct Authority overall responsibility for the retail cash system “given its existing regulatory role and consumer protection objective.” He also outlined plans to ensure that people continue to have easy access to cash.

Leave a Reply

Your email address will not be published. Required fields are marked *