The New York Times is reporting this week with some interest that while the economic turmoil wrought by the coronavirus pandemic is leaving some people in Britain counting every penny, the country's central bank is apparently having trouble keeping track of billions of pounds.
A parliamentary report released last Friday said that 50 billion pounds (about $67 billion) of paper money is “missing” from the country's cash supply and that the Bank of England “seems to lack curiosity” about where it's gone.
Of the more than 70 billion pounds worth of bills in circulation in Britain, the report found that only about a quarter was being spent in stores and on other purchases. That leaves the majority of the bills — which by design are not traceable — unaccounted for.
The 50 billion pounds in cash may be hidden away in unreported household savings, squirreled away for a rainy day, or used for more nefarious purposes, Parliament's Public Accounts Committee said in the report, calling on the Bank of England to investigate.
“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,” said Meg Hillier, the lawmaker for the Hackney South and Shoreditch areas of London and chair of the committee that produced the report.
The Bank of England responded negatively to “the suggestion it was taking a laissez-faire approach to the issue.”
“It is the responsibility of the Bank of England to meet public demand for bank notes. The bank has always met that demand and will continue to do so,” a spokeswoman from the central bank said last week. “Members of the public do not have to explain to the bank why they wish to hold bank notes. This means that bank notes are not missing,” the bank's statement said, somewhat oddly.
The pandemic has led to a slump in cash payments, but demand for bills has risen in recent years and the pandemic has accelerated that trend, the report said. The value of paper (and polymer) bills in circulation in Britain hit a record high in July of 76.5 billion pounds.
One reason might concern interest rates, which have been low for years, and were cut even further this year to boost the British economy. “With interest rates so low, it doesn't really matter whether you keep money in the bank or keep it in cash,” said Andrew Sentance, a senior adviser at Cambridge Econometrics and a former member of the Bank of England's monetary policy committee. The current base rate of 0.1 percent means “a lot of people will have more cash in their wallet than they usually have.”
Still, the public accounts committee — which scrutinizes the economy and spending—is unconvinced by that explanation and is concerned that a substantial proportion of the 50 billion pounds has been siphoned off and is being used for illegal activity such as money laundering in the shadow economy, whether in Britain or abroad.
“Are more of us putting money under the mattress because of COVID? It would have to be a lot of us doing that,” Hillier said in an interview on Friday. She added that the gap between notes in circulation and those actually being used “must be linked to crime.”
The parliamentary committee hopes an investigation by the Bank of England may shed some light, if not on where it is being held, then at least on the factors behind the increase in demand for cash.
For its part, the Bank of England said the amount of paper money being used for transactions in Britain — around 20% to 25 % of all cash in circulation — was broadly in line with other major economies.
So, we will see. The British economy is under significant stress just now as it prepares for its exit from the EU, a shift with far from clear implications. In addition, the COVID fight certainly is another area of uncertainty, along with the U.S. election. Thus, U.S. producers should follow the results of this investigation closely for possible impacts on the U.S. economy as it completes its transition to a new administration with new people and policies this fall, Washington Insider believes.