The Public Accounts Committee – led by Meg Hillier who manages to make even Dame Margaret, Lady Hodge, look good – has managed to fall over their own ignorance into actual insanity:
As much as £50bn of cash is “missing” as the authorities cannot trace it and have no clear record of when it was most recently used, MPs have warned.
It amounts to around three-quarters of the £71bn of banknotes in circulation. The Public Accounts Committee (PAC) said the money could be used for overseas transactions and savings, stuffed under the mattress as savings in the UK, or potentially being used for illicit purposes. Only the remaining quarter is thought to be held for transactions.
Meg Hillier, chair of the Public Accounts Committee, said: “£50bn of sterling notes – or about three quarters of this precious and dwindling supply – is stashed somewhere but the Bank of England doesn’t know where, who by or what for – and doesn’t seem very curious. It needs to be more concerned about where the missing £50bn is.
Ignorance, sheer, gasping, ignorance.
The total value of banknotes in circulation has almost tripled from just over £24bn in 2000 to more than £70bn in 2020, despite cash use halving from about six in 10 transactions in 2009 to three in 10 last year.
That’s not a dwindling supply, is it?
So, to basic economics. The price of money has changed. You know that, right? You now know more than the people who aim to account the country, the PAC.
Interest rates – the price of money – have fallen. Back 15 years you could get 5% by exchanging cash for bonds, or savings accounts and the like. So, incentives matter. People would, when they had some spare cash, pop it into some interest bearing investment or hidey hole. Now interest rates are nothing. Lend to the government and they might actually be charging you. Cash now pays a better interest rate – nothing is better than minus – than many of those former hidey holes and absolutely no homes for cash equivalent savings make it worth the while bothering.
So, the hidey hole is now the back of the sofa.
This is just obvious. Change the price of cash as against near cash equivalents and the demand for cash and near cash equivalents changes. Anyone who doesn’t get this shouldn’t be allowed anywhere near the public finances let alone the PAC.
And now to slightly more sophisticated economics. The Bank of England makes a considerable profit out of issuing bank notes. It’s called seigniorage. Adding 10 pence of ink to 5 pence of paper then selling it for £50 is profitable. That profit is fed straight back to the Treasury. What the BoE makes out of it I don’t know but the US Federal Reserve makes perhaps $20 billion a year out of doing something similar – with $ not £, obviously. This is pure profit.
Now the PAC is complaining about the government making a profit out of the monopoly of making legal tender? The Public Accounts Committee is?
Seriously, can we get these folks lobotomies so we can get their intellects up into the sort of range usual for human beings?