Half of UK banknotes are used in the ‘shadow economy’, says Bank of England

Just half of UK cash in circulation is used within the domestic economy for transactions, with some being ‘hoarded’. The rest is stored overseas for travel or stored for use in the ‘shadow economy’, says the Bank of England.


Cash to remain ‘resilient’

The Bank said that the future rate of growth is ‘uncertain’ because of the multitude of factors such as evolving alternative payment methods and shifting retailer preferences at play. It also stressed that the public’s attitude to cash will be the most important factor.

Data from this year have revealed that cash transactions were overtaken for the first time by non-cash ones, with contactless, mobile and card payments being on the rise.

However, whilst the Bank admitted that over the next few years, consumers are likely to use cash for a ‘smaller proportion’ of the payments they make, even then, the overall demand for cash is likely to ‘remain resilient’.

For now, it says that the £62.6 billion in circulation at the moment equates to £1000 for every person in the country.

“Cash is not likely to die out any time soon,” the Bank stressed.


‘Hoarded funds’

The Bank’s findings also suggest that we are a nation of hoarders with £3 billion being hoarded domestically – £345 per hoarder. The Bank also adds that these statistics may be underestimates since given the financial sensitivity of the questions, “many are likely to have under-reported their cash holdings”.


‘Illegal activities’

The Bank also pointed out the darker usages of cash. “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.”

The other half is being used in a the ‘shadow economy’ – which is described as being made up of any illegal, but also legitimate activities that are unlawfully concealed from the authorities.

The Bank concludes that “evidence suggests that activity in the shadow economy has not seen significant growth” given that the size of concealed legitimate activities relative to GDP being on a gradual decline since the 1990s, the value of uncollected tax remaining stable, and criminal activities being reduced.


Bitcoin won’t impact cash…yet

Digital currencies are seen by the Bank as “nascent technologies” that are still only used by a tiny proportion of people.

However, it points out that the underlying technology “has the potential to be more widely used in the financial system”, and the ever increasing appeal of its pseudonymous characteristics could lead to it being more widely used by privacy conscious users.


Cash revitalised?

That’s the question that could be legitimately asked in the wake of the Bank’s findings. Despite everyone proclaiming that cash is withering faster than an unwatered flower in the dark, most surveys suggest people still expect to be using cash in the next few years and recent data from Link shows that ATMs are actually on the rise.

Bank of England says that given the rise of a plethora of payment technologies, it is inevitable that “cash consumption as a proportion of overall spending in the domestic economy will continue to decline”.

However, it caveats that statement by pointing out that currently there are no major initiatives on the part of banks or retailers to get people away from cash. Furthermore, current consumer preference suggests that the public is still not discouraged by cash.

Taking all of this into account, the Bank concluded “the absolute amount of cash used for transactions is likely to remain resilient”.

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