Source · Select Committees · Public Accounts Committee
Recommendation 4
4
The Bank of England seems to lack curiosity about the huge volume of notes not...
Conclusion
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 production and distribution of cash 7
Government Response
Not Addressed
HM Government
Not Addressed
4.1 The Bank of England agrees with the Committee’s recommendation. Target implementation date: December 2021 4.2 As the Bank of England stated when the Committee’s report was released, the Bank of England’s responsibility is to meet the public’s demand for banknotes. It has always met that demand and will continue to do so. The delivery of this responsibility does not require identifying who is holding banknotes at any point in time. Members of the public do not have to explain to the Bank of England why they hold banknotes or how much they hold. 4.3 The Committee highlight the continuing increase in the value of notes in circulation, despite the use of cash for day-to-day transactions falling in recent years, including during the pandemic. This suggests that banknotes are increasingly held as a store of value. Holding banknotes as a store of value can be perfectly legitimate, and the trend towards using banknotes for this purpose is also being seen in many other major currencies around the world. 4.4 The Bank of England does not agree that it lacks curiosity about the increasing number of notes not being held for day-to-day transactions. The Bank of England already carries out work on trends in banknote use for the purposes of understanding future banknote demand. The Bank of England’s future work will – consistent with the Committee’s recommendation – focus on banknotes held as a store of value, given the declining trend in notes used in the domestic economy to facilitate transactions. The Bank of England will conduct surveys over the next year on households’ use of banknotes as a store of value and on small businesses’ banknote holdings and usage. There may be limitations to survey-based techniques as, for example, respondents may not want to reveal their true holdings. 4.5 The Bank of England will also engage with other relevant authorities, in particular Her Majesty’s Revenue and Customs (HMRC) and the National Crime Agency, who may hold additional relevant information.