The amount of cash around continues to rise contrary to what we keep being told

by Shaun Richards

Over the weekend I spotted a rather curious claim circulating via Bloomberg.

What happens if the Internet goes dark and we can’t use our phones or cards? We may have a solution to one of the biggest nightmares of an increasingly cashless world

This is a rather odd thing to say and as I shall explain it is simply not true. Actually we then find old that for world they really meant Sweden.

In doing so, the startup may have figured out how to help societies function without cash, even “if the lights go out,” which Sweden’s central bank Governor Stefan Ingves once mused would require a return to bank notes and coins………..The Bank for International Settlements has dubbed Sweden the world’s most cashless society. The virtual disappearance of cash in Sweden has spurred a fever of innovation within digital payments, including by the Riksbank itself. Along with China, Sweden leads major economies in developing a central bank digital currency. ( Bloomberg)

I am pointing this out because we have in fact seen quite a surge in the amount of cash in terms of notes and coins being around. Even the ECB pointed this out last week and the emphasis is theirs.

The growth in circulation of euro banknotes has been strong since they were introduced, even when considering the ratio of euro banknotes to GDP, or to the broad monetary aggregate M3.[3] This growth in circulation has intensified during the coronavirus (COVID-19) pandemic. At the end of 2020, the value of euro banknotes in circulation amounted to €1,435 billion, increasing by 11% from €1,293 billion in 2019 (Chart 1). Due to the COVID-19 pandemic, this annual growth rate was exceptionally high when compared with previous years (5% annual growth in the past 10 years on average). The only time the growth rate was higher was during the months following the Lehman Brothers collapse in September 2008.

As you can see reality is somewhat different to what we are regularly told and the ECB puts it like this.

A phenomenon referred to as the “paradox of banknotes”[1] has been observed in the euro area; in recent years, the demand for euro banknotes has constantly increased while the use of banknotes for retail transactions seems to have decreased.

This morning the Bank of England has confirmed the data for the UK and you have to drill though the numbers for it. But when you do you see that cash in circulation rose by 1.4% in February and is up some 13.1% on a year ago. Actually the last 3 months have an annualised growth rate of 18.1% So we see that reality is very different to what we keep being told. The amount of cash is £93.76 billion and since the end of April last year when it was £83 billion it has been on quite a tear. Also whilst there had been some plateauing for a couple of years or so the credit crunch has seen quite a rise overall too as the amount was £58.17 billion at the beginning of 2011.

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That cashless world has rather lost its lustre hasn’t it?


Looking at the numbers above there looks like there is a correlation between QE and the rise in the amount of cash in circulation. In economics many things correlate without a real link but in this case it has reduced the price of holding cash in terms of interest-rates especially if we add in the associated Bank Rate cuts. So there is some logic to it.

Bank Deposits

We find that what is the nearest thing to cash has been surging as well according to the Bank of England.

Households’ flows into deposit-like accounts remained strong in February. The net flow of deposits remained strong at £17.1 billion, compared to the monthly average of £15.0 billion since March 2020.

This has been complicated by what has been happening at the state bank if I may put it like that but the picture remains the same.

There was a small withdrawal (£1.4 billion) from National Savings and Investment (NS&I) accounts in February, which are not captured within household deposits but can act as a substitute for them. The combined flow into both deposits and NS&I accounts in February (£15.8 billion) was similar to January but remained well above the monthly average of £5.6 billion in the six months to February 2020.

This is a reflection of the larger amount of savings we have been reporting although the returns are somewhat thin.

The effective interest rate paid on individuals’ new time deposits with banks fell to 0.34%, a new series low since the series began in 2016. The effective rates on the outstanding stock of both sight and time deposits were broadly flat, at 0.12% and 0.48%, respectively. The rate on the stock of sight deposits remains the lowest since the series began.

I wish they would stop meddling with the series as it inhibits longer-term comparisons. But as it stands it gives us a two-way swing. Because 0.34% is not much but then these days the concept of interest has been given a good shove lower and if we look to Europe we see much of it with negative ones although that still has mostly been kept away from the ordinary depositor.

Consumer Credit

This by contrast has had a simply dreadful pandemic and the beat goes on.

Individuals continued making net repayments of consumer credit in February (£1.2 billion). This is a slightly smaller net repayment than the average of £1.8 billion since March 2020 (Chart 2). As a result of the further repayment, the annual growth rate fell to -9.9%, a new series low since it began in 1994.

This is something that will have caused indigestion at the Bank of England. Policy had previously been to pump this up via the Funding for Lending and Term Funding Schemes getting the total up to around £220 billion as opposed to the £197.3 billion we now see. As to the detail there is this.

Within consumer credit, the weakness on the month reflected net repayments on credit cards (£0.9 billion) with some repayments of other forms of consumer credit (£0.3 billion). The annual growth rates of both components fell further, to -21.0% and -4.8%, respectively. Both represent new series lows.

As you can see the main mover has been credit card debt presumably because of the cost of it.

Rates on new personal loans to individuals fell to 5.16% and remain low compared to an interest rate of 7.03% in January 2020. The cost of credit card borrowing rose by 15 basis points to 18.18% in February, the highest since May 2020.


We keep being told that cash is dead but that is because the media only look at one part of it. The situation is in fact much more complex with in fact in terms of amounts if not being king it is like this.

Money talks, mmm, mmm, money talks
Dirty cash I want you, dirty cash I need you, ooh
Money talks, money talks
Dirty cash I want you, dirty cash I need you, ooh
(Dirty cash, dirty cash) ( Stevie V)

Something else has been on the rise and it is due to the work of the present Bank of England Governor Andrew Bailey when he was in charge of the Financial Conduct. The overdraft interest-rate is now 33% as opposed to the below 20% it was when he tried to reduce it. Yes you did read that right.

Speaking of interest-rates there is one set that seems to be following the changes we have been noting in bond yields and it will concern the Bank of England.

The ‘effective’ rate – the actual interest rates paid – on newly drawn mortgages rose 6 basis points to 1.91% in February. That is slightly higher than the rate in January 2020 (1.85%), and compares with a series low of 1.72% in August 2020. The rate on the outstanding stock of mortgages remained at series low (2.09%)



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