Around one in 10 people in the UK is holding more cash at home than before the coronavirus hit, according to Bank of England (BoE) analysis.
Sarah Jones, chief cashier and director of notes at the central bank, told the public accounts committee (PAC) of MPs there had been increased “hoarding” during the pandemic, including among young people.
Giving evidence at a session on the production and distribution of cash on Monday, Jones said cash was increasingly being both kept by individuals and firms as a “store of value,” as well as used for more informal person-to-person transactions.
Under a quarter of the total cash in circulation is being used as part of the “transactional cycle,” she said.
Cash’s increased use as a store of value could explain the apparent “paradox” of growth in the number of notes in circulation both in the current crisis and in recent decades, when transactional use of cash has declined.
Jones said the trend had begun in the 1990s, but “accelerated” since COVID-19 hit.
A BoE survey found between 8% and 13% of people were holding more cash at home. This year cash withdrawals have fallen, but deposits have fallen further, increasing notes in circulation, she told MPs.
“What we saw when lockdown originally came it was people stockpiling cash, relying on cash as a contingency,” she said.
People were “stocking up on toil roll and wanted to stock up on cash at same time.” Such behaviour was common during periods of economic uncertainty, she added.
But declining case use in shops could also reflect the changing nature of many transactions during the pandemic, leaving some people with more cash than usual.
“Cash is being used less in a retail environment but still being used for person to person transactions. We’ve obviously had a lot of people shielding, trying not to to go stops themselves and having other people often shop on their behalf.
“And so the transaction happening in shops might be happening with a card and yet when those groceries are delivered to an elderly relative or someone being cared for, the carer is then being paid in cash but then not doing anything with cash,” said Jones.
“That is increasing the level of hoarding in the economy. We have some evidence to support the fact cash holdings by young people have increased since the start of the pandemic—we think its prob linked to some of this behaviour.”
Meanwhile a lot of small firms that take cash payments are also “not necessarily depositing that cash.”
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Such trends were an “international phenomenon,” not happening just in the UK.
Dr Ben Broadbent, deputy governor of the BoE, also appeared before MPs, and said the recent era of low inflation and interest rates since the 1990s had also contributed to the trend, limited the “cost” of keeping cash.
“You can think of the overall rate of inflation and official interest rate or general level of interest rates as a tax on holding cash,” he told MPs.
He said it was not a coincidence that when the central bank began inflation targeting in the 1990s, “you saw this demand for cash as a store of wealth start to rise.”
Jones added that the “opportunity cost” of holding savings in cash versus holding money in a bank was much lower when interest rates had been so low.
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