£50bn-worth of UK banknotes ‘missing’ from circulation

Mystery surrounds the exact whereabouts of £50 billion-worth of banknotes in circulation, according to a public spending watchdog.

The National Audit Office (NAO), which said cash production capacity should be aligned closely to future needs, also said it could take at least a decade for current stocks of 2p and £2 coins to run out.

The NAO said little is known about around £50bn-worth of notes in circulation which are not being used for 
transactions or identified as savings held by UK households.

Possible explanations include holdings overseas, unreported domestic savings, or cash held for use in the “shadow economy”.

There is little reliable information to quantify how much is likely to be held where, the NAO said.

The NAO said a “fragmented” approach is being taken by the bodies involved in the UK’s cash system.

Five public bodies – the Treasury, the Bank of England, the Royal Mint, the Financial Conduct Authority (FCA) and the Payments Systems Regulator (PSR) – play a role in administering or overseeing 
it.

But these bodies lack a shared view of what a good outcome for the consumer looks like and how the costs of achieving this are to be taken into account, the NAO’s report said.

There is no single body with responsibility for overseeing how well the cash system is performing.

The NAO said when fieldwork was carried out, the Mint had no plans to produce new 2p or £2 coins for at least 10 years.

When the Mint replaced the old £1 coin, people returned unexpectedly large volumes of all coin denominations, the report said.

The Royal Mint’s “buffer” stocks in March 2020 exceeded targets in all denominations, the NAO said, with holdings of 1ps and 2ps six and eight times above target respectively, and £2 coins 26 times over target.

Ten years ago, cash was used in six in 10 transactions, but 
by 2019 it was used in fewer than three in 10. Forecasts suggest it might be one in 10 by 2028.

Covid-19 has potentially accelerated the decline.

Industry data suggests market demand for notes and coins from cash centres plunged by 71 per cent between early March and mid-April.

However, cash use appears to have been recovering as businesses have re-opened.

The NAO said older people and low incomes are particularly likely to rely on cash.