Spudda, the grand exponent of Modern Monetary Theory, doesn’t in fact understand money. The PAC report on more cash floating around:
But now the Public Accounts Committee has noticed that money is disappearing in the UK. As they have observed in a report issued this morning, no one knows where UK notes and coin are and what they are being used for
And?
The shadow economy remains a real threat to the UK’s ability to deliver fiscal stability. It undermines honest businesses. It creates cultures of mistrust. It harms social cohesion. All of those are big issues. The Bank of England needs to take them seriously.
As if to prove there are credible politicians in the U.K., the Public Accounts Committee has done good work here. I welcome it’s findings and recommendations. The Bank of England must be required to act.
And you’d think that one of the leading economic thinkers of our day – and Master of MMT – would actually understand money. As someone who never did become a professor at a British university might be able to point out:
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.
Why is it that the Tre Professore is so damned ignorant?
There’s another incentive worth mentioning. Problem with having money is there’s always other people want to get at it. Taxman for one. When you can put money somewhere earns interest, the income balances the risk of it being got at. Lower the interest rates the incentives change. At zero rates, all the incentives are to keep your wedge out of sight. Which is what you’re seeing. Money disappearing from view. Then you get a demand for methods or transferring it, don’t involve making it visible. Happy days!
I don’t understand the point in the Expunct article about making £50 profit when the BoE sells the banknote. If it’s a £50 note, surely the BoE has to recognise a liability of £50 for the issued promissary note? They presumably impose some sort of charge on the bank they issue it to (let’s say 30p to use Tim’s numbers). There must be rather a lot of them to explain the Federal Reserve’s profit on this though.
@bis, is that not exactly the worry the PAC have: money not in visible circulation is more likely to be used for tax evasion?
And only about 8 months behind JP Koning. Admittedly, he also started banging on about drug dealers and what not.
Thing is, back in March, one of the very first things all the shops did (those that remained open, anyway) was shift to card-only. They really did not like to accept physical cash – presumably thinking it was dangerous to do so as a potential vector for the transmission of SARS-CoV2.
So the number of potential transactions that physical cash would normally support, velocity, suddenly dropped of a cliff. Physical cash was being “hoarded” as it could not swapped easily for anything – and the retail banks had been closing their branches anyway over the years, increasingly making it a right pain in the arse to deposit it, swapping physical cash for digital cash. The other issue is NFC, pay by bonk. This was already eating into the volume of lower value transactions that cash would normally be used for. And the transaction limits there have been increasing – from £15 to £45 now, I think.
Notionally, the value of notes and coins just went down – it now has limited utility as a medium of exchange. So it’ll “trade” at a discount to digital cash – so some chunk of £71bn hasn’t gone missing, as that £71bn is just the book value – which should be marked to market and written down. Which is interesting, as the value of seignorage to central banks just went down as well, so CBDC, and inflation just went up.
On the other hand, households don’t have access to the kit required to process digital transactions. So they’ll still be using it – where you can not adequately count the number of transactions directly. So, second- or third-hand goods advertised on Arsebook and the like.
Which trade at a discount to new goods anyway. For those secondhand goods, households will experience a different rate of inflation.
The system looks like the Fin/Comm Rand one to me.
Notes that get sold for £50 and never come back are pure, pure, profit. Well, £49.70 profit. Some – unknown – number never do come back. Thus the profit.
It’s also true that the amount of cash in circulation increases, gently, That increase is also profit. For while it may well come back, at any one time there’s more that hasn’t come back.
I pay my household window cleaner electronically. I think it’s only the milkman that I pay with a cheque now.
(looks in chequebook)
10 of the last 14 cheques have been energy bills paid over the counter for when my flat has been empty. And that’s going back to 2016.
So it’ll “trade” at a discount to digital cash – so some chunk of £71bn hasn’t gone missing, as that £71bn is just the book value – which should be marked to market and written down.
Really? Unless you are talking about a fraction of a % point for normal time value. I can still deposit the notes back at the bank. I still do pay cash in all sorts of places pretty much as I please.
My personal cash usage has gone to zero for months except for a couple of parking meters. My wife still uses cash for the fruit & veg stall down the road, as he only has a cash box with a slot.
The threat to the honest business and fiscal stability, is a level of tax which further incentivises its avoidance.
Tim, where’s the next lot of £49.70 profit coming from? The physical cash that’s apparently gone missing is not circulating through the normal sets of deposits and withdrawals at retail banks – so it would be more difficult than usual to follow the normal process, were the current situation to persist. And there’s still NFC stealing transaction volume.
While the money supply would increase at some rate – the floor being some mix of population and transaction volume growth – there’s less coming back. Future issuance becomes less profitable.
PF – yes, it could easily be a very small discount. But, it’s a large number, potentially over a long time. It’ll rack up. And you might still be slinging cash around with wanton abandon, but many others are not. Talk to the staff in shops – cash amounts in the till drawers are down, even if money taken is up. Admittedly, you might want to make sure they know you well before you start inquiring about cash in the till.
Bloke on A720 said:
“I don’t understand the point in the Expunct article about making £50 profit when the BoE sells the banknote. If it’s a £50 note, surely the BoE has to recognise a liability of £50 for the issued promissary note?”
But they can settle that liability by issuing a new bank note, which costs 30p, not £50. And yes, that generates a new £50 liability, but they can settle that with a 30p printing. etc. Presumably eventually all those 30p costs might add up to £50, but by that point £50 will be loose change.
“PF – yes, it could easily be a very small discount.”
OK, yes, I get that, I understand.
“And you might still be slinging cash around with wanton abandon, but many others are not.”
I just enjoy it..:)
‘I just enjoy it..:)’. For me, PF, I do it that way because I’ve always done it that way. The best of all reasons.
Of course the turdocrats are always trying to make me do it the way they want, instead of them doing it the way I want. The shits.
No doubt I’ll eventually be bullied by the bastards into changing my ways, but it’ll only be under duress.