The Bank’s Quarterly Bulletin, due to be released tomorrow, looks at the long-term factors affecting cash use and predicts that despite consumers increasingly choosing electronic means of payment, “overall demand is likely to remain resilient”.
In a pre-release statement, the Bank said it believed one of the factors behind the continuing demand for cash is the shadow economy. The report estimates that at least half of BoE notes in circulation are either held overseas or are being used for illegal purposes.
“The evidence available indicates that no more than half of BoE notes in circulation are likely to be held for use within the domestic economy for legitimate purposes,” it said. “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.”
According to Roy Whymark, manager of the De La Rue banknote strategy team, the value of the total number of banknotes in circulation has been steadily rising over several decades. There is now the equivalent of around £1,000 in banknotes in circulation for each person in the UK.
“Since the mid 1990s demand for banknotes has been rising faster than the aggregate spending in the economy. Our article is an attempt to objectively assess this surprinsing trend and to dispel some popular myths about the so-called demise of cash,” he said.
Basingstoke-headquartered De La Rue’s own research concurs.
“Our analysis of the volume of banknotes in circulation globally suggests that it continues to grow at roughly 4% year on year,” a spokeswoman said.
“While there can be short-term variations, the long term-trend is clear. While we continually monitor industry predictions regarding alternatives to cash, like the BoE, De La Rue remains confident in the future of cash.”
The BoE’s assessment is that 20%-30% of its current cash in circulation is used in the transactional economy, “a large amount” is hoarded by people who do not want to put their savings in a bank.
The group makes banknote paper at its Overton Mill in Hampshire. In the year to 28 March paper volumes fell 2% to 9,400 tonnes, while the number of banknotes printed by the group actually increased by 5% to 6.5bn.
Group sales fell 8% to £472.1m while underlying operating profit was down 22% at £69.5m. Underlying pre-tax profits fell by a quarter, from £77.3m to £57.7m.
The group will print the new polymer £5 and £10 notes on substrate supplied by Innovia Security, after it secured a 10-year print contract with the BoE in September.
The notes are set to go into circulation in autumn 2016 and autumn 2017 respectively and the £20, the contract for which has not yet been tendered, is “expected to launch in the next three-to-five years”.
