Death of Cash Belied by Increasing Use of British Banknotes

  • Both value and stock of notes in circulation are growing
  • Demand boosted in part by low interest rates, BOE blog says

Reports of the death of banknotes may be greatly exaggerated, according to the Bank of England.

While cash is decreasing in popularity as a method of payment, both the value and stock of banknote in circulation has grown steadily, economist Cordelia Kafetz wrote in a BOE staff blog post Thursday. In fact, the value grew 10 percent in 2016, double its average rate over the past decade, as sterling’s weakness fueled demand for the highest denomination fifty-pound note and by the introduction of a new polymer fiver, she said.

Even with the impact of those events stripped out, bills in circulation increased 8 percent -- the most in almost a decade -- even as a report by ING published this month showed just one fifth of Britons generally carry cash.

Demand has been boosted in part by the BOE’s record-low interest rates, which incentivize hoarding, Kafetz said. That, however, may not last. Policy maker Kristin Forbes broke ranks with her eight colleagues on the Monetary Policy Committee in March and voted for a rate increase, and some others indicated that they may also be leaning that way.

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