BoE says cash unlikely to ‘die out’

Cash is unlikely to "die out" anytime soon in the UK, according to research in the Bank of England's (BoE's) latest quarterly bulletin, despite the rise of new payment technologies.

In the article, Tom Fish and Roy Whymark, of the BoE's notes directorate, consider the evolution of cash and why the bank needs to prepare for a future in which it "remains important".

The authors assess a host of factors that will influence the demand for cash in the coming years, highlighting the importance of public attitude, and they conclude it will remain "resilient".

Other factors include the rise and acceptance of alternative payment methods, such as local currency schemes, and retail and commercial bank preferences. For instance, a change in cash-distribution channels – perhaps a move to cashless bank branches – would result in a decline in the demand for banknotes.

Government policy could also have an impact; for example, through a change in the method of distributing welfare payments or an expansion of bank accounts in a financial inclusion drive.

'Unique set of attributes'

Nonetheless, cash, say the authors, offers a "unique set of attributes" as a medium of exchange, including immediate final settlement and anonymity, which no other method of payment has improved on.

The authors examine how the use of cash has evolved in three markets: domestic, overseas and shadow. The value of BoE notes in circulation "continues to grow", trebling over the past two decades.

The question of where the majority of cash in the UK is being used remains difficult to answer due to its untraceable nature, but it appears much of the growth is outside everyday transactions in the domestic economy.

Fish and Whymark argue there are multiple factors contributing to non-transactional demand for cash. Hoarding at home and abroad, whether buried in the back garden or held in a bureau de change, are key drivers.

In the coming years, consumers are "likely to use cash for a smaller proportion of payments", say the authors, but, even so, they expect demand to be sustained.