The UK Public Accounts Committee joins the war on cash

by Shaun Richards

We have become used to a range of attacks on cash with public enemy number one in this regard being Kenneth Rogoff. The attacks are full of insinuations and claims and come with a mostly unspoken agenda. The former have been repeated by the BBC overnight so let us take a look at them.

The Bank of England should be trying to track down £50bn of “missing” UK currency, a committee of MPs has said.

The cash is not used in transactions or held as savings, but may be overseas, tucked away in homes unreported or being used in the “shadow economy”.

The issue was first identified by the National Audit Office (NAO), which highlighted it in September.

Now the Public Accounts Committee has said the Bank should “get a better handle” on the currency.


This is an interesting one and in many ways is really rather ignorant. For example should people chose to hold cash at home that is their business. There is a risk of theft but again that is their issue.Also last time I checked it was not illegal for foreigners or indeed UK expats to hold Pounds abroad. Furthermore overseas use of your currency is usually seen as a strength and I have noted several times in the past the ECB referring to overseas use of the Euro in glowing terms. For example it released this in June 2019.

Euro’s share in global foreign exchange reserves rose by 1.2 percentage points in 2018

Role of euro also strengthened in debt issuance and remained stable as invoicing currency

Policies for deeper economic and monetary union are key to supporting a further rise in international role of the euro

Indeed it is part of their strategy.

The report provides background to the initiative launched by the European Commission in December 2018 to strengthen the international role of the euro.

Now they are mostly referring to electronic Euros but they would have been grateful for purchasers of say Greek and Italian debt in any form including cash.

Next we can switch to the role of the Bank of England which seems to have been expanded by the Public Accounts Committee. Here from the latest Quarterly Bulletin is its view of its role.

As the UK’s central bank, we are responsible for banknote production and ensuring banknotes are high quality, durable and difficult to counterfeit. We also monitor trends in cash usage and cash demand to understand what is behind changing behaviours so we know how many notes we need to produce in the future, and how best we can support access to cash for those who want to use it.

As you can see they have a general and generic interest in the matter as their role is to make sure that there are enough banknotes as well as producing ones which are hard to counterfeit. Which is why we have the new “plastic fantastic” ones which former Governor Mark Carney dipped in some curry.

The Problem

Actually it is more of a change in behaviour than a problem so let me return to the Bank of England for a description of what has been taking place.

While the transactional use of cash has declined, the value of notes in circulation (NIC) has increased (Chart 1). Between 2005 and 2017, the value of banknotes in circulation doubled. Even adjusting for rising economic activity and price levels, NIC has generally been trending upwards since the early 1990s. This fall in the use of cash for transactions, but continued growth in demand for notes, has been called the ‘paradox of banknotes’

Regular readers will be aware of the state of play as we have noted it several times before. I doubt you will be surprised to read that the Covid-19 pandemic has given it another push.

There has been a significant fall in cash withdrawn from ATMs (Chart 2). Both the volume and value of cash withdrawn from the ATM network overseen by LINK, a private not-for-profit company run on behalf of its commercial members, were approximately 60% lower in late March 2020 than the same period in 2019. Cash withdrawals from ATMs increased slowly over subsequent weeks but remain well below previous levels. By the second week of October ATM volumes and values were still about 40% and 30% lower respectively than the previous year.

I can vouch for that on a personal basis as I had the same ten pound note in my pocket for some time and only in fact used it when a neighbour’s children were washing cars to earn some money.Apart from that I was entirely electronic in cash terms. But demand for cash notes actually rose.

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Growth in demand for banknotes increased slightly in late March around the time the Prime Minister first announced lockdown measures. This is likely to be due to people withdrawing some extra cash as a precautionary response to heightened uncertainty. The level of banknotes in circulation then remained broadly flat until the start of May, following which there was very strong growth in the value of notes in circulation. This occurred around the same time that economic activity began to recover.

Okay so step one is part of the rise in savings we have been observing.

The households saving ratio increased to a record 29.1% in Quarter 2 (Apr to June) 2020, compared with 9.6% in Quarter 1 (Jan to Mar) 2020. ( UK ONS)

Oh and we are far from alone.

The UK is not alone in experiencing a sharp increase in the value of cash in circulation during the Covid pandemic. In both the US and the euro area, total currency in circulation in September was more than 10% higher than a year earlier, with a similar pattern in Canada and many other countries. ( Bank of England)


This really is extraordinary stuff and the Public Accounts Committee should know better. Or they should take advice from those aware of what is taking place. This is a call for a type of financial Stasi.

The money “is stashed somewhere, but the Bank of England doesn’t know where, who by or what for – and doesn’t seem very curious”, said Meg Hillier, who chairs the committee. ( BBC)

If we switch now to the reasons behind the changes in cash demand the Bank of England identifies two main factors. Firstly a cash buffer.

First, people could be holding more cash than before the Covid crisis began. This is for contingency reasons, in line with cash’s established role as an emergency means of payment; a survey by the ATM network LINK in April found that 14% of respondents were keeping more cash at home in case of emergencies.

Also an adaptation to changing times.

Second, it is also possible that cash use — particularly in non-retail environments — recovered as lockdown measures eased and economic activity picked up, but cash took longer to be deposited. Cash is often used for person-to-person transactions, such as between family and friends. Indeed, new forms of cash payment may have emerged during the Covid crisis, such as payments made by isolating households to friends and family in return for shopping or other services. Cash is also used as payment for household services including window cleaning and gardening. These services recovered as the economy reopened over the summer.

Returning to Meg Hillier MP she seems to think that the Bank of England should be snooping around, perhaps looking under people’s mattresses?

“It needs to be more concerned about where the missing £50bn is. Depending where it is and what it’s being used for, that amount of money could have material implications for public policy and the public purse.

“The Bank needs to get a better handle on the national currency it controls.”

The BBC chimes in with the establishment line.

In the case of the dollar, only about 15% of the US currency supply can be accounted for – a significantly lower proportion than for the UK.

Both those currencies are more attractive to criminals because they have higher-denomination notes which make it easier to smuggle or stash ill-gotten gains.

However it seems to have not noticed the amount of financial crime that goes on in banks. This has been taking place on a grand scale. Also some situations like Wirecard in Germany really are extraordinary. Yet this gets ignored because electronic money is a way of enforcing negative interest-rates.

Whereas the ordinary person seems to be singing along with Cardi-B

Shake a little ass (money)
You get a little bag and take it to the store (store, money)
Get a little cash (money)
You shake it real fast, you get a little more (money)

As well as Pink Floyd.

Money, get away
Get a good job with more pay and you’re okay
Money, it’s a gas
Grab that cash with both hands and make a stash
New car, caviar, four star daydream
Think I’ll buy me a football team



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