The Bank of England is urging financial institutions to stock up ATMs with £5 notes in a bid to increase their circulation. The call comes as evidence grows that Brits are hoarding cash because they do not have confidence in the banking system.
Although ATMs in the UK must be able to stock notes of all denominations, the vast majority only hold £10 and £20 notes. Over the past two years the total number of £5 notes in circulation has increased - from around £1 billion to £1.3 billion - but there are still far fewer than £10 and £20 denominations.
Andrew Bailey, executive director, banking services and chief cashier, BoE, says the fact that few ATMs dispense £5 notes combined with their scarcity means they tend to stay in circulation longer, and change hands more times before they return into the wholesale cash distribution system for fitness sorting.
In a bid to increase the number of fivers in circulation, the Bank asked HSBC to stock 100 UK cash machines with them for a trial period.
In a speech at the Banknote conference in Washington, Bailey revealed that the results to date of the pilot "suggest that the business case for stocking some ATMs with £5s is stronger than previously thought".
The Sainsbury's supermarket chain has also conducted a trial which involves supplying more £5s to many of its stores, again, with notable success, says Bailey.
Now, he says: "I hope and expect that we will take these examples to other financial institutions and major retailers to make the case for a change of policy towards issuing £5s...we need to see more £5s dispensed from ATMs and by retailers in change."
In his speech, Bailey also claimed low interest rates and a loss of faith in banks has led to Brits hoarding cash.
As a share of nominal GDP, the value of notes in circulation declined from six per cent in 1970 to a low point of 2.4% in the mid-1990s but has since stabilised and then increased, noticeably over the past two years.
There has been a particular rise in demand for £50 notes. Since the summer of 2007, the total value of £50 notes in circulation has risen from £7 billion to £9 billion.
"In the current recession, the demand for banknotes has risen, and it is likely that this reflects demand for central-bank money as a store of value," says Bailey.
He highlights the apparent 'paradox of banknotes' - the increasing value of notes in circulation alongside their gradually declining use as a means of payment. The use of cash has been gradually declining, to around 60% in volume terms and four per cent in value.
Read the speech here:Download the document now 77.6 kb (PDF File)