Do you remember that very poor joke from Liam Byrne about the UK having run out of money? It cost Labour dear.
But now the Public Accounts Committee has noticed that money is disappearing in the UK. As they have observed in a report issued this morning, no one knows where UK notes and coin are and what they are being used for:
In a report published today, Friday 4th December 2020, 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, and are failing to understand or act on the clear dangers of hardship if the UK continues its “precipitous” move towards a cashless society.
Their concern about an enforced move to a cashless society is real:
The reduction in the number of facilities from which to obtain cash, and in the number of businesses that will accept cash, can have a negative impact on the lives of many people, including those in some rural areas, vulnerable and digitally excluded people. 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.
I think that issue needs to be addressed but think this more significant:
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: only that this increasing demand for cash notes in the face of their declining use is “a trend being seen with other major currencies”.
They add:
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. The Bank of England doesn't know. There are implications for public policy and the public purse if a material proportion of the large volume of banknotes whose whereabouts or use are unknown are being used for illegal purposes.
As Meg Hiller MP noted:
“£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.”
I agree. As I do with these recommendations:
The Bank of England seems to lack curiosity about the huge volume of notes not used or held for day-to-day transactions. 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 whose whereabouts or use is unknown. These notes 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. The Bank does not have any real understanding of what these notes are being used for though says that it is a trend being seen with other major currencies. During the COVID-19 pandemic there was a significant increase in the value of notes in circulation, which the Bank thinks is probably explained by people being more inclined to hoard cash in case they need it. There are implications for public policy and the public purse if a material proportion of the large volume of banknotes whose whereabouts or use are unknown are being used for illegal purposes.
Recommendation: The Bank, working with other public authorities such as HMRC, should take action to improve its understanding of the factors that are driving the increase in demand for notes, and also who is holding the approximately £50 billion worth of notes.
The Bank of England's stock of notes seems high and it is not clear to us how the Bank decides upon what is an appropriate stock level. The Bank holds stocks of notes well above its own policies for minimum levels of stocks. For example, at the end of July 2020, it held contingency stocks with a value of £30.4 billion, against its minimum guidance levels of £15.6 billion. We recognise that the Bank would not wish to risk running out of notes. However, we do not understand the Bank's rationale for holding such high levels of stocks. The Bank does accept that it needs to improve the transparency with which it takes decisions on printing notes.
Recommendation: The Bank should ensure that it properly records and evidences the judgements it makes about printing notes and its stock levels so that it can be properly held to account for the decisions it makes.
The shadow economy remains a real threat to the UK's ability to deliver fiscal stability. It undermines honest businesses. It creates cultures of mistrust. It harms social cohesion. All of those are big issues. The Bank of England needs to take them seriously.
As if to prove there are credible politicians in the U.K., the Public Accounts Committee has done good work here. I welcome it's findings and recommendations. The Bank of England must be required to act.
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Not sure this is a big story…. or at least, not one for the BoE.
A) Having a large stock of notes is not a big deal. The cost of storage, at the margin, is zero and they will all get used. I would be more concerned if the BoE was sailing close to the wind with not enough stock of notes. Besides, how do you model demand for notes? What probability of running out would you accept? Etc. No, I am happy that they are well stocked.
B) A casual reader of the headline might think the notes have been lost or stolen and that someone is drinking champagne at our expense. This is not the case – merely that members of the public are choosing to hold notes and we don’t know why. Well, after a recent banking crisis and zero interest rates it is not surprising that savers choose to hold physical cash.
I DO accept that rising use of banknotes could reflect increased activity in the shadow economy (and money laundering/drug dealing etc) and I DO agree this is a problem – but a problem for the police and HMRC who should be resourced to deal with this.
What could the BoE do? I suppose they could survey people when they withdraw cash……. but I know what my answer would be – “none of your business”.
Clive
I disagree – this is a massive story
Our shadow economy runs on cash
As does the drug economy
And many activities linked to abuse
This is very big
Just not for the Bank of England, and it appears that they do not care
And that is a big story too
Richard
As I said, I agree there is a problem with shadow economic activity. Perhaps, the BoE should appear more concerned…. but what should they do? Holding cash as savings is, I think, reasonable and understanding what proportion of rising note demand is due to the shadow economy and what to savings is nigh on impossible.
If the BoE starts to impose conditionality on the delivery of notes it will make the problem worse as people hoard them even more . If this is a job that needs doing then it lies with the commercial banks and HMRC at a transactional level. They already have ways to monitor suspicious activity – they just need direction and resources to delve deeper…… and that is political.
Finally, this is not my specialist field and it is yours…. so I won’t be offended if you say I am wrong!
The answer is actually quite easy – and requires a more rapid change over of notes
That way the old ones are flushed into the open by requiring their redeposit – and then the holder has to identify how they came across the balance
Any sum above £1,000 would have to be deposited in a bank account
All exchanges would require proof of identity and proof of an NIC number
Bingo….
There are two problems.
1) Shadow economic activity.
2) The calculate move to a cashless society.
The two are related. The cashless society encourages shadow economic activity. Forgive me Mr Parry, but I am a little surprised that such an acute commentator, I am sure much better informed about the subtleties than I would dare claim, should appear so complacent about this matter: unless I am missing something both obvious and important, I think this is critical; not immediately, perhaps – but it is the seductive creep of both that makes it so pernicious; and then it is too late.
If my experience is anything to go by, some part of it is sitting in peoples’ purses and wallets. Many of our shops are ‘card only’ use at this time. I’m not saying that this accounts for the majority of the £50 bn though.
This part is allowed for – it is the part recognised to be in use
It is the rest that is of interest
This is essentially about the capture and control of the population. Read Shoshanna Zuboff, ‘The Age of Surveillance Capitalism’; then think about all that, in the hands of the banks: the banks – the banks of all people; the people that brought Austerity to millions, and sailed on, bonus regimes untouched.
The idea of a cashless society is being sold as the seductive power of personal convenience. Nobody thinks about those without bank accounts, or whether it is a virtue to make the banks the gatekeepers for access to absolutely everything that requires money. That is tyranny beyond the dreams of dictators.
Meanwhile, Banks are licensed. They should not be able to close branches with impunity, whether or not they are a cost; they are a cost of the licence.
As far as I understand the BoE simply responds to public demand for cash, but does not seek to influence that demand. The banks are the conduit for cash being distributed into the economy and they certainly try everything they can to limit our use/access to cash, with daily withdrawal limits and general closure of free to use ATM’s, as they have to pay face value to the BoE for every note and coin they have to obtain. They would far prefer us to use their electronic funny money and just settle with other banks via the settlements system ,it being a far cheaper option.
This is just as sinister as the black market use of cash.
A central bank issued digital cash would be to be the answer here. It would provide more transparency as to who actually holds and uses the cash as well as allowing those who cannot use bank accounts to access that digital form of money, which our money supply is increasingly becoming.
I think MPs are right to suggest that demand needs to be managed
No surprise that this might be required, is there?
Much else is in the same category. Why not cash when it is open to abuse?
I understand there was quite a bit of activity when the Euro was brought in – suddenly there was an overwhelming urge to replace what would shortly become worthless pieces of paper.
Meanwhile in UK, we find stories of banks accepting multiple cash deposits of an amount just under the reporting figure in random small towns. There seems to be a lack of curiosity on the part of mainstream banks too.
But overall I agree that this has to be a ‘red flag’ indicator of a large shadow and criminal economy.
When I was in HMRC there used to be “cash teams” whose job was to try to detect undeclared trading and they relied a lot on visiting VAT officers who were always out and about in their local area and would note down details of addresses where builders’ vans were working as much of the undeclared cash was in the home improvement sector – I doubt whether such teams exist any more.
I very much doubt it
the criminal economy ? yes look no further than your Government who are handing out billions without due diligence to there friends and associates,then move on to of shore accounts avoiding scrutiny, puts 50 billion amongst the populace look tiny.
The 2015 FATF paper “Money laundering through physical transportation of cash” reported that cash was important and increasing as a ML typology across many types of crime. I Tweet regularly on cash seizure around the world (@tristram_hicks). The FATF paper stated: “The currencies most frequently encountered in consignments of criminal cash — the US dollar, the euro, the British pound, the Swiss franc, etc. — are the most stable, widely used and readily traded in the world”. The BoE has a role to play in AML & it’s not playing it.
Do I remember Liam Byrne?!
Will I ever forget, more like?!
The man is jerk. And he should have been expelled from the Labour party.
As to the point of the post, having just read ‘Putin’s People’ and being about to dip into ‘Kleptocracy’ I agree with Richard – things are bit too loose .
If it helps HMRC I can confirm I haven’t got any of it.
🙂
I should hope not young man!
I know it’s fraud but maybe families are storing cash because any significant savings in bank accounts prevent them from claiming any benefits? And if families know that benefits are precarious and can be taken from them almost at will it’s wise to keep cash at hand to save them from the food bank, for at least a little while? I’ve seen a few households go from 3 cars to one car in the drive and that could easily be enough to scupper a full benefit claim. It’s brutal out there.
I accept there are professional criminals.
I also worry about the civil liberties issues surrounding a cashless society and the extent of the social control that could lovingly wrap around anyone not doing what is thought to be wise by our betters.
I would certainly suggest that there should be a legal requirement for certain business’s to accept cash, primarily food & public transport.
As with so many things though there seems to be a lack of will to address criminal activity, whatever its faults the USA does on occasions seem to be very good at this.
So post this morning
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