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Bank of England called to account over £50 billion in missing banknotes

Bank of England called to account over £50 billion in missing banknotes

The Bank of England is coming under pressure from MPs to discover the whereabouts of £50 billion in missing banknotes at a time when cash supply is dwindling on the high street.

A report from the Public Accounts Committee, says oversight of the production and distribution of notes and coins is “unclear” and “fragmented” across responsible authorities, who have been “behind the curve” in ensuring access to cash for consumers and businesses.

Meg Hillier MP, chair of the public spending oversight body, says: “Our run up to Christmas and Christmas shopping is obviously very different this year, but it highlights how increasingly difficult it has become to, for example, choose to support a small local business by paying it in cash - generally the cheapest form of payment to accept.

“In many areas where you can use cash you’d be hard pressed to find it, at least without paying an ATM fee that may be a substantial percentage of a small withdrawal - yet making frequent, small withdrawals can be a key budgeting tool for those on low incomes, and least able to afford those fees."

Responsibilities are spread across HM Treasury, the Financial Conduct Authority, the Payment Systems Regulator and the Bank of England but no one body is in overall charge of making sure that people and businesses have access to cash, the Committee points out.

Conversely, demand for sterling notes has steadily increased, but the Bank of England does not “appear to have a convincing reason for why the demand for notes keeps increasing” or any real understanding of where approximately £50 billion of issued sterling notes are, or being used for.”

The Bank estimates that 20%-24% of issued notes are used or held for cash transactions. This leaves about £50 billion worth of issued bank notes that may be being used overseas for transactions or savings, or held in the UK as unreported household savings or for use in the shadow economy.

Says Hillier: ££50 billion of sterling notes - or about three quarters of this precious and dwindling supply - is stashed somewhere but the Bank of England doesn’t know where, who by or what for - and doesn’t seem very curious. It needs to be more concerned about where the missing £50 billion 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.”

Comments: (4)

A Finextra member
A Finextra member 04 December, 2020, 11:40Be the first to give this comment the thumbs up 0 likes

Down the back of the couch?

A Finextra member
A Finextra member 04 December, 2020, 17:00Be the first to give this comment the thumbs up 0 likes

The BoE has explained very clearly why is cash is used as a store of value. "The contingency role of cash leads consumers to increase their cash holdings in times of crisis. A Link survey in April showed that 14% of people held more cash at home during the pandemic."




A Finextra member
A Finextra member 05 December, 2020, 13:273 likes 3 likes

1. "missing" is an odd word to use here - it makes it sound like the Bank of England has been negligent or lost £50bn which is clearly not the case. "Whereabouts unknown" is more accurate.

2. Even at 0.1% interest, the BoE is making £50m a year seignorage on this cash.

3. The cash belongs to private individuals and organisations, so how could it have "material implications for public policy and the public purse" unless MPs want to confiscate it?

4. The observation that £50bn in cash is "about three quarters of this precious and dwindling supply" fails to undertstand that the BoE is able to print as many notes as it likes to meet consumer demand; and with £895bn in QE the Bank of England's money issuance held electronically has far bigger implications for the public purse than cash.

5. The MPs concerns have overtones of surveillance and privacy - why should the BoE need to know the whereabouts of everyone's cash holdings and how would it give then a better handle on the currency it controls?

There are genuine reasons to be concerned that large cash hoardings may be used criminally - tax evasion, payments in illegal activities and so on, but if this is the case, then it is a law enforement issue rather than a monetary one.


Russell Bell
Russell Bell - Fastbase Ltd - Wellington 07 December, 2020, 02:13Be the first to give this comment the thumbs up 0 likes

Yes the title is misleading.  Responsibility for production and distribution of cash may indeed be fragmented, and authorities may be failing to ensure ATMs are available and fees low or zero.  But publishing reports about who uses and holds cash, that's different.

Depend on it the conclusion of these reports will be "cash is only used by criminals" when in reality most cash use is legitimate, only a fraction is criminal, and most of the proceeds of criminal activity are held in bank accounts, only a fraction in cash, the same as the legitimate economy.

The "material implication" is that cash is a spanner in the works of negative interest rates, an obstacle to confiscation.