£50bn worth of UK banknotes posted ‘missing’

National Audit Office reports no ‘reliable information’ on whereabouts

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, and a co-ordinated effort is needed.

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 the cash system.

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.

Moreover, the decline in cash use in transactions is putting pressure on the system as many costs involved in cash production and distribution of cash are fixed.

In 2019-20, the bank incurred note production and distribution expenses of £119m and the treasury, which pays the mint to produce coins, incurred expenses of £23.6m.

Gareth Davies, the head of the NAO, said: “As society progresses towards the wide use of digital payments, the use of cash in transactions is dwindling. It may become harder for people to access cash and those without the means to pay digitally will struggle if cash is not accepted.

“HM Treasury now works more closely with the public bodies in the cash system to achieve the government’s goal of safeguarding access to cash. However, the approach is fragmented, and it is not clear if it will keep up with the pace of change.”

Covid-19 has accelerated the decline. Industry data suggests market demand for notes and coins from cash centres plunged by 71% between early March and mid-April.

However, cash use appears to have been recovering more recently as businesses have reopened.

As society progresses towards the wide use of digital payments, the use of cash is dwindling, according to a public spending watchdog.