£50 Billion In UK Banknotes Is ‘Missing.’ Nobody Has An Explanation

Here’s a head-scratcher: The use of cash has been
declining for years in Britain^[1], but
demand for banknotes is skyrocketing. Nobody is quite
sure where the money^[2] is
going.

A group of UK lawmakers said on Friday as much as £50 billion
($67.4 billion) in cash was “missing,” and it urged the Bank of
England to investigate.

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,”
Meg Hillier, chair of the House of Commons Public Accounts
Committee (PAC), which oversees government finances, said in a
statement. “It needs to be more concerned about where the missing
£50 billion is,” she added.

The Bank of England immediately pushed back. “Members of the
public do not have to explain to the Bank why they wish to hold
banknotes. This means that banknotes are not missing,” a
spokesperson said in a statement, adding that the central bank
would continue to meet public demand for notes.

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 by the Bank for
International Settlements. This has been partly driven
by lower interest rates, the report said, which have
diminished returns on savings held with banks.

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

And while there was a sharp decline in demand for notes and
coins during the peak of coronavirus lockdowns this year, it
has since recovered, with people stockpiling even more cash at home
as a result of the pandemic.

The number of notes in circulation in Britain reached a record
high of 4.4 billion in July, with a total value of £76.5 billion
($103 billion), according to a September report by the National
Audit Office (NAO), which monitors government spending. This
compares with 1.5 billion notes worth about £24 billion ($32.3
billion) in 2000.

At the same time, the volume of cash payments has declined, a
trend likely to accelerate because of the pandemic. A
decade ago, cash was used in six out of 10 transactions; last year
it was less than three.

The Bank of England estimates that between 20% and 24% of the
value of notes in circulation are used for cash transactions,
with a further 5% held by UK households as savings.

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

It recommended that the central bank, working with other public
authorities, improve its understanding of what is driving the
increase in demand for notes and who is holding the £50
billion.

“This work might help inform wider policy, for example on tax
evasion,” it added.

Financial exclusion risks

The NAO report cautioned that the dwindling use of
cash could increase the risk of financial exclusion if businesses
stop accepting cash due to rising costs associated with declining
volumes. Just over a million UK adults do not have a bank or
building society account, the report said, citing data from the
Financial Conduct Authority.

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

There are currently five public bodies responsible for
administering 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 the overall
responsibility for the retail cash system “given its existing
regulatory role and consumer protection objective.” It also
outlined plans to ensure people continue to have easy access to
cash.

Here’s a head-scratcher: The use of cash has been
declining for years in Britain^[1], but
demand for banknotes is skyrocketing. Nobody is quite
sure where the money^[2] is
going.

A group of UK lawmakers said on Friday as much as £50 billion
($67.4 billion) in cash was “missing,” and it urged the Bank of
England to investigate.

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,”
Meg Hillier, chair of the House of Commons Public Accounts
Committee (PAC), which oversees government finances, said in a
statement. “It needs to be more concerned about where the missing
£50 billion is,” she added.

The Bank of England immediately pushed back. “Members of the
public do not have to explain to the Bank why they wish to hold
banknotes. This means that banknotes are not missing,” a
spokesperson said in a statement, adding that the central bank
would continue to meet public demand for notes.

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 by the Bank for
International Settlements. This has been partly driven
by lower interest rates, the report said, which have
diminished returns on savings held with banks.

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

And while there was a sharp decline in demand for notes and
coins during the peak of coronavirus lockdowns this year, it
has since recovered, with people stockpiling even more cash at home
as a result of the pandemic.

The number of notes in circulation in Britain reached a record
high of 4.4 billion in July, with a total value of £76.5 billion
($103 billion), according to a September report by the National
Audit Office (NAO), which monitors government spending. This
compares with 1.5 billion notes worth about £24 billion ($32.3
billion) in 2000.

At the same time, the volume of cash payments has declined, a
trend likely to accelerate because of the pandemic. A
decade ago, cash was used in six out of 10 transactions; last year
it was less than three.

The Bank of England estimates that between 20% and 24% of the
value of notes in circulation are used for cash transactions,
with a further 5% held by UK households as savings.

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

It recommended that the central bank, working with other public
authorities, improve its understanding of what is driving the
increase in demand for notes and who is holding the £50
billion.

“This work might help inform wider policy, for example on tax
evasion,” it added.

Financial exclusion risks

The NAO report cautioned that the dwindling use of
cash could increase the risk of financial exclusion if businesses
stop accepting cash due to rising costs associated with declining
volumes. Just over a million UK adults do not have a bank or
building society account, the report said, citing data from the
Financial Conduct Authority.

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

There are currently five public bodies responsible for
administering 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 the overall
responsibility for the retail cash system “given its existing
regulatory role and consumer protection objective.” It also
outlined plans to ensure people continue to have easy access to
cash.