Over the weekend I spotted a rather curious claim circulating via Bloomberg.
What happens if the Internet goes dark and we can’t use our phones or cards? We may have a solution to one of the biggest nightmares of an increasingly cashless world
This is a rather odd thing to say and as I shall explain it is simply not true. Actually we then find old that for world they really meant Sweden.
In doing so, the startup may have figured out how to help societies function without cash, even “if the lights go out,” which Sweden’s central bank Governor Stefan Ingves once mused would require a return to bank notes and coins………..The Bank for International Settlements has dubbed Sweden the world’s most cashless society. The virtual disappearance of cash in Sweden has spurred a fever of innovation within digital payments, including by the Riksbank itself. Along with China, Sweden leads major economies in developing a central bank digital currency. ( Bloomberg)
I am pointing this out because we have in fact seen quite a surge in the amount of cash in terms of notes and coins being around. Even the ECB pointed this out last week and the emphasis is theirs.
The growth in circulation of euro banknotes has been strong since they were introduced, even when considering the ratio of euro banknotes to GDP, or to the broad monetary aggregate M3.[3] This growth in circulation has intensified during the coronavirus (COVID-19) pandemic. At the end of 2020, the value of euro banknotes in circulation amounted to €1,435 billion, increasing by 11% from €1,293 billion in 2019 (Chart 1). Due to the COVID-19 pandemic, this annual growth rate was exceptionally high when compared with previous years (5% annual growth in the past 10 years on average). The only time the growth rate was higher was during the months following the Lehman Brothers collapse in September 2008.
As you can see reality is somewhat different to what we are regularly told and the ECB puts it like this.
A phenomenon referred to as the “paradox of banknotes”[1] has been observed in the euro area; in recent years, the demand for euro banknotes has constantly increased while the use of banknotes for retail transactions seems to have decreased.
This morning the Bank of England has confirmed the data for the UK and you have to drill though the numbers for it. But when you do you see that cash in circulation rose by 1.4% in February and is up some 13.1% on a year ago. Actually the last 3 months have an annualised growth rate of 18.1% So we see that reality is very different to what we keep being told. The amount of cash is £93.76 billion and since the end of April last year when it was £83 billion it has been on quite a tear. Also whilst there had been some plateauing for a couple of years or so the credit crunch has seen quite a rise overall too as the amount was £58.17 billion at the beginning of 2011.
That cashless world has rather lost its lustre hasn’t it?
QE
Looking at the numbers above there looks like there is a correlation between QE and the rise in the amount of cash in circulation. In economics many things correlate without a real link but in this case it has reduced the price of holding cash in terms of interest-rates especially if we add in the associated Bank Rate cuts. So there is some logic to it.
Bank Deposits
We find that what is the nearest thing to cash has been surging as well according to the Bank of England.
Households’ flows into deposit-like accounts remained strong in February. The net flow of deposits remained strong at £17.1 billion, compared to the monthly average of £15.0 billion since March 2020.
This has been complicated by what has been happening at the state bank if I may put it like that but the picture remains the same.
There was a small withdrawal (£1.4 billion) from National Savings and Investment (NS&I) accounts in February, which are not captured within household deposits but can act as a substitute for them. The combined flow into both deposits and NS&I accounts in February (£15.8 billion) was similar to January but remained well above the monthly average of £5.6 billion in the six months to February 2020.
This is a reflection of the larger amount of savings we have been reporting although the returns are somewhat thin.
The effective interest rate paid on individuals’ new time deposits with banks fell to 0.34%, a new series low since the series began in 2016. The effective rates on the outstanding stock of both sight and time deposits were broadly flat, at 0.12% and 0.48%, respectively. The rate on the stock of sight deposits remains the lowest since the series began.
I wish they would stop meddling with the series as it inhibits longer-term comparisons. But as it stands it gives us a two-way swing. Because 0.34% is not much but then these days the concept of interest has been given a good shove lower and if we look to Europe we see much of it with negative ones although that still has mostly been kept away from the ordinary depositor.
Consumer Credit
This by contrast has had a simply dreadful pandemic and the beat goes on.
Individuals continued making net repayments of consumer credit in February (£1.2 billion). This is a slightly smaller net repayment than the average of £1.8 billion since March 2020 (Chart 2). As a result of the further repayment, the annual growth rate fell to -9.9%, a new series low since it began in 1994.
This is something that will have caused indigestion at the Bank of England. Policy had previously been to pump this up via the Funding for Lending and Term Funding Schemes getting the total up to around £220 billion as opposed to the £197.3 billion we now see. As to the detail there is this.
Within consumer credit, the weakness on the month reflected net repayments on credit cards (£0.9 billion) with some repayments of other forms of consumer credit (£0.3 billion). The annual growth rates of both components fell further, to -21.0% and -4.8%, respectively. Both represent new series lows.
As you can see the main mover has been credit card debt presumably because of the cost of it.
Rates on new personal loans to individuals fell to 5.16% and remain low compared to an interest rate of 7.03% in January 2020. The cost of credit card borrowing rose by 15 basis points to 18.18% in February, the highest since May 2020.
Comment
We keep being told that cash is dead but that is because the media only look at one part of it. The situation is in fact much more complex with in fact in terms of amounts if not being king it is like this.
Money talks, mmm, mmm, money talks
Dirty cash I want you, dirty cash I need you, ooh
Money talks, money talks
Dirty cash I want you, dirty cash I need you, ooh
(Dirty cash, dirty cash) ( Stevie V)
Something else has been on the rise and it is due to the work of the present Bank of England Governor Andrew Bailey when he was in charge of the Financial Conduct. The overdraft interest-rate is now 33% as opposed to the below 20% it was when he tried to reduce it. Yes you did read that right.
Speaking of interest-rates there is one set that seems to be following the changes we have been noting in bond yields and it will concern the Bank of England.
The ‘effective’ rate – the actual interest rates paid – on newly drawn mortgages rose 6 basis points to 1.91% in February. That is slightly higher than the rate in January 2020 (1.85%), and compares with a series low of 1.72% in August 2020. The rate on the outstanding stock of mortgages remained at series low (2.09%)
Podcast
https://soundcloud.com/shaun-richards-53550081/notayesmanspodcast121
Notayesmanseconomics's Blog 
On interest rates :-
” The rate on the outstanding stock of mortgages remained at series low (2.09%)”
All those doomsters press who were predicting a house price fall were wrong Rightmove saw the highest sales for a decade last Tuesday with 8,000 homes as sales agreed
https://www.thisismoney.co.uk/money/mortgageshome/article-9406527/Record-day-property-sales-Rightmove-traffic-surged.html
The property market in the North West is going balistic at the moment, near where I live a property was sold subject to contract within 24 hours of being listed without a viewing inside or proper sale particulars being posted
https://www.rightmove.co.uk/properties/104645882#/
Most of the agents properties sold subject to contract. In the North West there are 3 prospective buyers to one seller, Liverpool, Bootle and are seeing strong demand.
Record low mortgage rates, stamp duty holiday and Joe Public being able to save during lockdown is fueling property price rises.
this can be of no surprise , there is pent up demand , factor in warmer weather , freedoms ( ahem) being returned and as you point out a wedge of cash in hand.
So long as you have a job and feel secure in it then , well to hell with the future buy now ! go on holiday , spend spend spend !!
they are being good citizens and are “saving” the economy .
has any one got a handle on how long this feeding frenzy will last ?
IMHO I think until September , then a possibility of fresh lock down .
After all the legislation been extended until then , just in case eh ?
Forbin
I won’t obey another lockdown.
forbin
“IMHO I think until September , then a possibility of fresh lock down .”
Certainly until September, but there has been migration from London and it is possible the North West could continue a catch up in house prices, still fueled by low interest rates and Joe Public wanting garden space.
In the North West you get far more garden space than you do in London.
I suspect Wales and Shropshire will also benefit from migration from the cities as there is more people able to work from home.
“All those doomsters press who were predicting a house price fall were wrong…”
So far.
There is one huge, insurmountable problem for our digital World.
It isn’t fraud, although it’s always been a race by the fraudsters to keep one step ahead of the authorities.
It’s nature.
Earth’s magnetic shield has been diminishing for approx 150 years, and the pace is accelerating.
It will now take a Solar coronal mass ejection (CME) or Solar flare of much less power than the Carrington Event of 1859; say more like the one which blacked out Toronto in March 1989, to fry ALL the electronic equipment on Earth or (as in man-made satellites) above it.
It won’t matter that your GPS doesn’t work, because your car is a write off.
No electricity, no services, all digital information scrambled, and all the equipment it’s held on, fried.
No credit histories, in fact, no credit presents, no cards, no apps, nothing. Only hard-copy files will remain.
It’ll be cash or barter or steal.
You may think this absurd, but we’re well overdue such a solar flare, had a very lucky escape in 2017, whereby, had the two x-class flares which went off on Sept 6th, erupted on the 4th, which it could easily have done, there are doubts about whether we’d have electricity back yet.
Flare measurements are logarithmic rather than arithmetic, so an x9.2 is 128 times bigger than an x 2.2.
cash is king
“The grocery store within walking distance would only take cash, as all the credit card machines were down and they had none of those little carbon copy slips left over from the ‘80s. Without power, ATMs were inoperable and traffic signals dead.”
and the BoE wonders why we keep cash ?
Greece’s Empty ATMs Show the Surprising Power of Cash
https://www.wired.com/2015/06/greece-atms/
How quickly people forget ……
btw , an EV car will be grounded if a EMP happened and therefor should be its own faraday cage to earth when charging over night . If driving , well thats a bummer ! ( tests by police to use EMP to disable cars I think still have not proven to work and also regarded as dangerous , hacking via Bluetooth is another matter) .
Forbin
Forbin: food is king.
I’m in the middle of planting 50kg of seed potatoes, which, if all goes to plan, should yield half a tonne. If things are fine, I give the surplus to friends, if not, I’ve something to trade. That & other veg in a primarily animal agricultural area should allow me to swap.
I also have some cash put by….just in case.
I don’t have the land for crops but its good to have staples stock piled , I buy bulk rice and pastas as cheap as I can get .And have a parafin stove with a couple of gallons stashed. yeah its can be smelly but you can always get a brew up going .
candles and long life alk batteries , tins of stuff I normally eat but keep 3 months supply on hand and turn over regular.
no need to go over board but once you’ve lived through miners strikes and even recently had a sub station outage (!) . normal phone handset as telecoms is on a different circuit ( amazed at people who rely on mobiles only , even if modem is off you have a landline connected ).
I’d say I’m not a dedicated like preppers but have stuff covered I know have already failed in my life time seems sensible.
keep silver too , gold attracts too much attention but silver coins/rounds are good for barter . And keep their value too , buy some nice pretty ones you like . At least something will outlast you 😉
cheers
forbin
The knowledge of how to grow your own food, preserving the surplus & having the wherewithal to protect it are far more important in the long run than some stashed staples, although they are better than nothing, because if it hits, we.ve no grid for YEARS!
Where will you get the water to rehydrate your rice & pasta?
I have friends with wells in their gardens 100 yards from me and a stream 20 yards from my door.
Good post and I am sure that you are right, but sometimes I understand why people want to stick their head in the sand – ignorance is bliss!
If something like this happens, cash will presumably have a rarity value, as cash points will not work either, so what you have in your pocket is what you have, full stop.
It is amazing that we have moved so far in one generation that we cannot really imagine an electronics-free world, although many of us (old gits like me) were brought up well before the internet existed.
I just hope that you are wrong or at least out by a century!
“The ‘effective’ rate – the actual interest rates paid – on newly drawn mortgages rose 6 basis points to 1.91% in February. That is slightly higher than the rate in January 2020 (1.85%), and compares with a series low of 1.72% in August 2020. The rate on the outstanding stock of mortgages remained at series low (2.09%)”
Hi Shaun, the financial expert and know all I work with still contends his plan of buying a £500,000 house with a £300,000 mortgage and having £40,000 on his FOUR credit cards at 0% interest rates is going to pay off, as in about ten years he reckons his house will be worth £1m and he can retire pay off his mortgage on the sale and downsize.
This of course all depends on this zero interest rate environment continuing, now obviously I’m not going to ask you to predict the future, but regarding these rollover mortgage deals that the massively overborrowed keep relying on to stay in their overpriced properties, how long do you think the BofE can keep the 5 year gilt low enough to keep them sneering at those who look at their irresponsible behaviour with horror?
I don’t know how long credit card companies will keep doing these 0% transfers, but as long as there enough people paying(and not defaulting) the mid twenty percent interest rates on existing balances can it continue as well or is there some other external factor I haven’t thought of yet?
hi Kevin,
“or is there some other external factor I haven’t thought of yet?”
the cheap rates are political as the HMG and Banks need low rates for finance the recovery(s) *. Not sure how much longer this can go on but at the mo I see the FED are sitting on their hands , so will the BofE .
Frankly I see no end to this for atleast another 10 years baring “events” . After all who would have thought a home in Chelsea would go from £300K to £3 million ?
Its a worry as getting on the “ladder” ,yet alone moving up , seems further and further away ………..
The trouble with crashes is they are hard to predict ( and always obvious after the fact ) .
Forbin
* and prevent them going bust although technically HMG can never go bust as it owns the currency **
** so long as other countries will take stirling ( or dollars for USA) and dont tale fright .
The credit cards may keep coming;
I’m still offered them, (I now decline them, because there’s no margin investing the money) but there are handling fees, which for cash, equate to 4% pa. So that’s £1600 per £40k (did you mean 4x credit cards EACH at £40k? because very soon you will run out of cards to switch to,) If, for any reason, ONE credit card payment is missed, the rate immediately reverts to the normal rate, which, for cash, can be over THIRTY PER CENT!!!
Furthermore, that will immediately show up on your credit rating, & the “free money will disappear very quickly, as you would not be able to juggle cards.
A very dangerous game.
Hi,
No it’s £40,000 spread over four cards, I may be wrong but I thought you were only allowed to have one credit card as the issuer would want to know the extent of your borrowings, but maybe I’m wrong or rules have changed.He loves gloating over the fact that I have been predicting higher interest rates for the last ten years and they just keep going lower, thanks of course o BofE intervention on his and other over-leveraged borrowers behalf’s.
He obviously thinks and has been proved right over the last twelve years that the government will never let house prices fall. In my question to Shaun, I just wanted to know if there are a particular set of circumstances that would lead to either credit card interest rates going up or mortgage rates going up appreciably.
yes it has to be 4 cards
did you know you can aonly draw 10K on a card ? I found out when I purchased a car , split between two cards ( actually its a 10k per transaction on transfers too unless otherwise previously agreed ).
Forbin
Cash in hand, Shaun. The tax man doesn’t need to know….
A lot of building work going on at the moment as those with cash have nothing else to spend it on.
Hi Bootsy
Your comment raises a smile because this evening I saw a workman ( painter I think) waiting for a fair while outside a neighbour’s flat. At that time it felt like someone looking to do a job after normal work and as you say perhaps for cash in hand.
Great blog and podcast as usual, Shaun.
Regarding your podcast comments on inflation, the March 24 release that updated the CPI to February 2021 also updated the CPIH(NA) series to December 2021. The annual inflation rate for CPIH(NA) for December 2021 is 0.6%, exactly the same as the CPI, rather anticlimactic considering that housing price growth was strong, with a 3.8% inflation rate for the new dwellings component of the CPIH(NA) series. The reason the inflation rate for CPIH(NA) is so low is due almost entirely to its stamp duty component. This is not published for CPIH(NA), but must be close to, if not the same as, the -57.2% inflation rate for the stamp duty component of the CPIH(Payments) series.
The CPIH(NA) series should really be supplemented by a constant-tax CPIH(NA) which would not exclude the stamp duty component but would show increases in stamp duty over the year 2020 that would not reflect any changes in statutory stamp duty rates over the year but would reflect implicit increases in stamp duty rates due to rising house prices. This series would, of course, show a higher inflation rate for December 2020 than the constant-tax CPI series (2.2%). This is, sadly, the last monthly CPI-CT inflation rate that the ONS plans to publish. This was a poor decision that really deserves to be reversed.
Pingback: The amount of cash around continues to rise contrary to what we keep being told - Enri$hed Feed