Where does £50 billion disappear to?

In today’s Exponential Investor…

  • My coat obsession
  • Missing £50 billion?
  • If you can’t beat ‘em, join ‘em

One of the things I like about winter is getting to use all my winter coats again.

My wife reckons I’ve got a problem. She says I buy too many coats. I don’t think she’s right. I have a lot of coats because I don’t throw them out. Why should I, they last ages if you take care of them.

Besides, not throwing out coats means I’m doing a little bit more for the environment, right?

Ok, so maybe when there’s a sale on as we get towards Xmas and then after it, I’ll have a bit of a sticky-beak through the coats and jackets.

But I just like wearing winter coats, something that you really don’t get to do much when you’ve lived in Australia for most of your life.

Anyway, I threw on a coat I hadn’t worn since February as I needed to head out to drop my wife at the station.

As I did, I slid a hand into one of the pockets and… surprise, surprise there was a little surprise in there waiting for me!

A tenner in the pocket

The little surprise wasn’t a hairball the cat had coughed into my jacket pocket. It was a tenner! A £10 note.

Now I know you’ve had a similar experience before. Most people have. The joy of finding an unknown tenner in a jacket pocket is something that really words can’t describe.

I wonder just how many “missing” tenners are in jacket pockets all across the UK. I wonder how many pound and two pound coins exist in the cracks of couches and armchairs across the country.

I wonder about the coins under car seats and the money under mattresses. Or even how much coin and cash people are keeping safe and secure in their homes intentionally.

Well, apparently the National Audit Office (NAO) and the Bank of England (BoE) know exactly how much – £50 billion.

That’s how much cash and coins are “missing” in the British economy. Apparently the BoE doesn’t worry about it too much.

According to the BBC, quoting a representative from the BoE,

“It is the responsibility of the Bank of England to meet public demand for banknotes. The Bank has always met that demand and will continue to do so.

“Members of the public do not have to explain to the Bank why they wish to hold banknotes. This means that banknotes are not missing.”

How this money is used is another question. The NAO suggests a lot might form a part of the “shadow economy”. That’s the part of the economy that deals in cash only so it can’t be traced, tracked or in many cases… taxed.

Now £50 billion is a lot. And it would also mean a lot to the economy if that were to be “found”.

So, while the BoE might say it’s not bothered by where people hold their banknotes, it’s fair to say the BoE and the government have a little more concern about the proliferation of the shadow economy.

It’s also why in the near future I envisage a UK where the use of cash is banned. Well, physical cash, notes and coins at least. Expect that over the next decade the BoE starts to make moves towards a fully digital, central bank-backed digital currency.

Some might call it a central bank-backed cryptocurrency, but it won’t be that. It will just be the exact same thing as your money that you hold now, except those notes and coins that are “missing” will actually end up being worthless, unless you send them in to your bank to exchange for your “eGBP”.

At least that’s the direction I see things heading. It’s because with a digital currency circulating in the economy, the central bank can effectively keep tabs on every single unit that moves through the country and across the world.

This by the very nature of its design, eliminates the “shadow economy”. It doesn’t impact the mechanisms of how the central bank can move rates or the value of the currency, it’s merely a better operational change rather than a functional change.

Countries like China are already well down this pathway, and more like the US and the UK will follow suit.

I have seen the future…

I’ve written before about central bank and government involvement in the idea of digital currencies. Also the fact they’re worried about how cryptocurrencies are developing. In my book, Crypto Revolution: Bitcoin, Cryptocurrency and the Future of Money, I wrote,

Of course there’s always danger that government also wants to get their grubby mitts on crypto. They want to regulate it, control it and have a hand in it.

Remember, one of the core principles of cryptocurrency is its decentralised nature. That means it’s free from central bank interference and government control.

This is what makes cryptocurrency so appealing. However, this does not please central banks or governments. Cryptocurrency is a threat to the control of these centralised powers.

And that’s exactly why central banks and governments want a bigger say in how cryptocurrency works.

Ed note: By the way, we’ve done an all-new print run of the hardcopy of my book, Crypto Revolution. If you’d like a copy, you can get one for a fiver (or two for a tenner!) here.

This pushback on crypto has been underway for several years already. Now instead of trying to supress it, central banks are applying the if you can’t beat ‘em, join ‘em’ approach.

Now I don’t have a problem with them doing this. In fact I think it will benefit the wider crypto economy.

What you need to be concerned about is the “programmable” nature these future digital central bank currencies carry.

The concern is they’re also used to collect more data and information about you, what you do, how you do it and with whom you do it. There’s also the concern they can move faster, are swifter and operate even more loose and free fiscal policy.

Considering the predicament that policy has put the world in today, that’s a concern worth having.

What it won’t do is eliminate or detract from the need for crypto assets like bitcoin to form a universal, global part of what’s fast becoming an alternative financial system.

There’s also a genuine concern from authorities that crypto assets are gradually eroding the confidence in national currencies and slowly destabilising economies. That might be the case, in which case they want to shift the perception and trust back in their favour, and try to stifle crypto economy growth.

We’re already seeing a bit of this play out in the US.

What’s happening right now, is the system we know, that’s broken, fractured, fragile and fundamentally flawed is under threat from all new approaches and developments in crypto assets.


Sam Volkering
Editor, Exponential Investor

Category: Cryptocurrency

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