17 October 2017

Bank of England stocks the cash vault as demand continues to grow

16 September 2015  |  7330 views  |  3 ten pound note

Demand for cash is unlikely to be severely dented by the growing availability of alternative forms of payment over the coming years, declares the Bank of England in its quarterly bulletin, noting that half of all UK banknotes are active in the black market or held overseas.

People can now make payments using debit and credit cards (including contactless technology), internet banking, mobile wallet’, and smartphone apps.

Yet despite these developments, cash continues to play an important role, with demand for Bank of England notes growing faster than nominal GDP. There is now the equivalent of around £1000 in banknotes in circulation for each person in the UK, notes the central bank.

The evidence available indicates that no more than half of Bank of England notes in circulation are likely to be held for use within the domestic economy for legitimate purposes. This includes cash used for transactions and for ‘hoarding’.

The remainder is likely to be held overseas or for use in the shadow economy. However, given the untraceable nature of cash, it is not possible to determine precisely how much is held in each market.

While the future rate of growth in demand for cash is uncertain, overall demand is likely to remain resilient, believes the BofE.



Nonetheless, the Bank says it will continue to monitor developments and "respond as necessary".

"Cash is not likely to die out any time soon," says the central bank. "As such, cash issuing authorities need to work with the cash industry and continue to invest in notes and coins."

The Bank's confident assessment comes as new research from RBR shows that the number of payment cards in circulation worldwide increased by 11% in 2014 to reach 12 billion, boosting worldwide card spend to $20 trillion, a 15% year-on-year growth.

Comments: (3)

Jan-Olof Brunila
Jan-Olof Brunila - Swedbank - Stockholm | 17 September, 2015, 07:54

In a year or two the cash in circulation should should start dropping under condition that the black market and overseas usage of the GBP banknotes does not grow. In Sweden now some 80% of all purchases in retailer outlets are paid for by Visa or MasterCard cards and cash in circulation is going down substantially. It is easier to find a retailer that does not accept cash than to find one that does not accept cards. Cash handling costs are also rising making it even more attractive for the retailers to prefer electronic payments, either cards or the newcomer online mobile phone credit transfer Swish, that is harvesting the last cash usage pockets in Sweden.

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James Piggot
James Piggot - Finastra - London | 17 September, 2015, 08:41

@Jan-Olof I found the same was true in Finland where even quite small transactions like a bootle of water are paid for with cards. Here in the UK there aere still small merchants that only accept cash, because of the expense of having a card terminal or maybe to avoid queues, although the latter reason will become less valid with the rise of contactless presumably. Also cash is used to share payments in restaurants between groups of people dining together, I know there are other ways of doing this but they haven't seemed to catch on.

It seems surprising that the BoE cheerfully admit up to half of cash in circulation maybe used in the shadow economy while celebrating it's continued expansion? From a government point of view doesn't it make sense to try and get rid of cash so you can keep tabs on people and make sure they pay their taxes?

(yes I know the BoE is independent...)

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 18 September, 2015, 16:43

Prediction of drop in cash usage in a "year or two" resembles other "evergreen" predictions like "mobile payments will become mainstream next year". Since I'm tired of hearing them year after year, I wish they come true. However, since cash usage has actually increased during the recent past, I doubt if my wish will be granted anytime soon.

Meanwhile, let me go back to The Death Of Cash Is At Least 190 Years Away and push out the predicted end date for cash by a decade or two.

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