ISSUES
: Business and Trade
Chapter 2: Corporate responsibility
33
Half of UK banknotes used to fund
shadow economy
Bank of England report reveals that only half of notes in circulation are used legitimately,
with remainder linked to drug dealing and prostitution.
By Patrick Collinson and Rupert Jones
A
t least half of all UK banknotes
in circulation are being used
for purposes such as drug
dealing, prostitution and dodgy
business deals, or are being held
abroad, according to a Bank of
England report.
It said that no more than half of
banknotes are being used for
legitimate purposes, with the rest
used to fund the ‘shadow’ economy
or held overseas.
The so-called shadow economy
encompasses a range of illegal
activities, from drug dealing,
prostitution, smuggling, fraud and
human trafficking, plus legitimate
activities that are concealed from the
authorities, such as ‘off-the-books’
business deals and cash-in-hand
payments for goods and services
such as building work where the aim
is to escape paying tax.
In an extraordinary admission, the
Bank said: “The evidence available
indicates that no more than half of
Bank of England notes in circulation
are likely to be held for use within
the domestic economy for legitimate
purposes.
“The remainder is likely to be held
overseas or for use in the shadow
economy. However, given the
untraceable nature of cash, it is not
possible to determine precisely how
much is held in each market.”
The shadow economy is estimated
to be around 10% of the UK’s GDP,
although it is reckoned to be half the
level of Greece and Italy.
The new Bank report follows earlier
studies that have suggested that 11%
of UK banknotes in general circulation
are contaminated with cocaine.
Criminals and tax evaders will often
hoard cash, said the Bank, which
added that articles in the media
reporting on the seizure of large
sums during police raids “suggest the
values involved may be sizeable”.
But it added that official data
suggested that activity in the shadow
economy had not seen significant
growth over the last few years.
It is not just criminals who are hiding
away supplies of cash: the Bank said
its research indicated that within the
legitimate domestic economy, at least
£3 billion was being hoarded by UK
citizens. “People may choose to save
their money in a safety deposit box,
or under the mattress, or even buried
in the garden, rather than placing it in
a bank account,” it added. However,
it acknowledged that this may be an
underestimate of the true situation.
Figures for how much cash is in
circulation per head will also come as
a surprise to people used to taking out
just £20 or £30 out of a cash machine
at a time. The Bank of England said:
“There is now the equivalent of around
£1,000 in banknotes in circulation for
each person in the United Kingdom.”
However, the equivalent figures for the
US and Australia are higher, at £2,500
and £1,220, respectively.
Predictions about the death of cash
as consumers switch to contactless
payments are premature, said the
Bank. It said that while cash usage will
drop, it will be around for many years
to come.
The report added: “Over the next few
years, consumers are likely to use
cash for a smaller proportion of the
payments they make. Even so, given
consumer preferences and the wider
uses of cash, overall demand is likely
to remain resilient. Cash is not likely to
die out any time soon.”
Nevertheless, a few countries are
seeing dramatic falls in cash usage.
The Bank said people in Sweden
can now buy almost anything using
alternative payment methods and
noted that homeless street vendors
there who sell a magazine similar to
The Big Issue
were able to accept
payment via a debit or credit card,
while it was common for Swedish
children to be paid their pocket money
electronically.
In the next few years new banknotes
for the £5, £10 and £20 denominations
will be launched. The notes will be
made of a polymer substrate – a
cleaner and more durable material –
and will incorporate security features
that will strengthen their resilience
against the threat of counterfeiting.
15 September 2015
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The above information is
reprinted with kind permission
from
The Guardian
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© 2016 Guardian News
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