UK households are more prepared to withdraw and hoard physical cash than ever before as we’re all living through a time of unprecedented economic turbulence. This alarming trend is evidence that citizens are deeply concerned with the state of the banking system. They are worried about future planned outages coming this winter.
Victoria Cleland, the Bank of England’s chief cashier, says that the circulation of banknotes has increased to historic levels. This trend has been hard to miss over the past few months. This increase, which started in 2022, coincides with the increased worry about economic security that many Britons are feeling right now. Cleland echoed these sentiments on Tuesday, pointing to the public’s increasing tendency to save money as an emergency cushion.
This increase of banknotes is the result of many different forces shaking consumer confidence. Recent events, such as a power outage affecting Spain and Portugal, have heightened fears about the reliability of banking systems. There is a large preference for holding cash among the general public. In doing so, they provide themselves access to much-needed funds during unexpected disruptions.
Households are adapting their financial game plans. Moving in the direction of hoarding cash represents a sharp departure from recent years’ trend toward greater dependence on all-digital transactions. Consumers across the globe have rerouted their focus toward more physical representations of currency, suddenly considering them a protective barrier against walking into a more uncertain future. In all those cases, Cleland’s observations illustrate an unmistakable pattern. In many cities across the United States, the demand for physical cash has recently skyrocketed.
The impacts of this behavior go well past just harming the finances of each individual household. If these trends persist, it may have profound implications for banking sector behaviour and monetary policy in the UK. The onus is on the Bank of England to adapt to all these changes. Its top priority should be building strong public confidence in the banking sector and making sure there’s plenty of cash flowing.