We can’t deny that the year 2020 hasn’t been eventful if not notorious, there has been no shortage of huge international news headlines such as ongoing BREXIT negotiations between the United Kingdom and Brussels, the American election, and of course none bigger than the Wuhan flu pandemic. However, news about a huge mountain of money which seems unaccounted for has surfaced from the British Treasury. They have reported that as much as £50 Billion in banknotes is unaccounted for. This could simply mean it is money in savings not deposited or more sinister of a scenario, part of what is described as the “Grey economy”.
A Mountain of Unused Coins
As a consequence of one report, another interesting discovery surfaced and which caught the eye of the British public was the disclosure that the country was sitting on a mountain of unused £2 and 2 pence coins. Surprisingly, as the United States grapples with an acute shortage of circulation coinage attributed to an economic slowdown brought about by the pandemic, the opposite seems to be the case in the United Kingdom. While discovering that the Royal Mint and the Treasury were sitting on a significant level of coins which may never be released into circulation, it has been suggested that it could take more than a decade for the current stocks of £2 and 2 pence coins to diminish. The Royal Mint has confirmed the production of these two denominations would indeed be suspended for at least a decade, except for collector versions of the £2 coin, those are money-makers for the Mint. In fact, the last year these coins were minted for circulation was in 2018 for the £2 denomination and 2017 for 2 pence coins.
The Causes and an Explanation
Many experts have identified three primary causes for this situation which includes the introduction of the latest bi-metallic version of the £1 coin denomination in 2017. While the public returned a substantial number of the previous versions of this coin first introduced in 1983, they also took the opportunity to return other denominations sitting in jam jars. What was also discovered from 2017 to the beginning of 2020 was that at least £120 million worth of the old pound coins have not been returned. Another leading cause of the surplus is that in general, British consumers are using cash as a means of payment much less than a decade ago. Statistics show that fewer than three in ten transactions are carried out using cash. Just a decade ago, this number was six out of ten and if the trends continue, that number will diminish to just one in ten. Hence, the production of circulation coinage for instance has also shrunk by a substantial sixty five percent in the last ten years from 1 billion, one hundred million coins during 2010 to 2011 to 383 million coins between 2019 to 2020. Curiously, the question of minting of 1 penny and 2 pence coins was raised in Parliament in 2019 when the Royal Mint announced that neither of these two denominations would be produced for circulation for the first time since 1972. Despite calls by cash handlers and businesses to remove these two smaller coins from use, The British Chancellor, who is also Mintmaster of the Royal Mint, confirmed the two coins would indeed remain in circulation for some time. The Royal Mint also indicated in 2019 that no additional £2 would be minted and with about 494 million of these coins already in circulation, this quantity was sufficient to satisfy public demand.
A third and perhaps more timely reason for the accelerated fall in the use of physical currency is the pandemic of the Wuhan strain of COVID-19. Many consumers believe exchanging coins and banknotes promotes the transmission of the virus. The decline in the use of coins and banknotes for this reason is not exclusive to the United Kingdom and has been seen in many other countries – even those economies where cash is routinely preferred or prevalent.
The Rise of Electronic Payments
Case in point is a focus on the use of money in Germany, where cash has always been king. Over the years, Germans by overall choice prefer to keep hold of their banknotes and coins despite the fact that other countries across the world have embraced the convenience of bank cards, contactless payments and digital wallet services such as Apple-pay. The pandemic has prompted the German public to embrace new technologies, as concerns about hygiene were a primary reason to not handle physical cash. According to the National Association of German Cooperative Banks, cash-less transactions rose exponentially by 48 percent in May 2020 compared to the previous year. This shift was further accelerated when the German government agreed to double the transaction limit on contactless payments to 50 euros, prompting many Germans to use the contactless card function and smartphones for mobile payments for the first time. The future of currency in the German economy is forecast to decrease by thirty four percent while card and electronic payments will increase further by twenty eight percent within the time frame of 2019 to 2025.
The Consequences for Coin Collectors
The British Treasury and the Royal Mint’s stash of £2 and 2 pence coins – estimated to be twenty six times as many £2 coins as is needed, eight times as many 2 pence coins and six times as many 1 penny coins required, in total the face value adds up to more than £89 million. Accounts have also determined that the cost of storing the coins is relatively low so it is not likely these coins will be melted down in the immediate future. Unfortunately for coin collectors – this particular segment of society can also shed some light on the supply of £2 and fifty pence coins. Many collectors can attest the vast majority of these two denominations never seem to reach the point of distribution in a timely manner. As these two coin values are routinely used for commemorative reverse designs, the lack of availability can be very frustrating for avid collectors since the new coins are never seen in change because of the glut of coins in the chain of supply. The Royal Mint has stressed to explain commemorative coins do not receive priority to place them into circulation but are simply added to the already huge supply and will eventually make their way into use.
With the unveiling of the new £50 banknotes featuring the image of World War II-era Mathematician and computer pioneer Alan Turing last year, the Bank of England stressed they were committed to the supply and availability of banknotes to the British public. They highlighted that about 2.2 million people in the UK are estimated to be almost entirely reliant on cash on a daily basis. Elderly and vulnerable people and those in rural communities are likely to be hardest hit by any decline in cash availability.
Ultimately, many experts “in the know” do not believe the UK will see the production of 2 pence coins for circulation ever again. Taking trends into consideration and going into the next decade, public practises regarding in-person payments will gravitate almost completely to an electronic means. This alternative does have its pitfalls such as power failures and of course high-tech hacking of bank balances – which may become more wide scale as we rely further on this mode of payment. Demographics are also changing and 10 year olds today become adults towards the beginning of 2030, they will have almost been completely used to the likes of Paypal, Apple-pay, contactless and probably another means of commerce now under development. Interestingly, the man featured on the upcoming £50 banknote – computer genius Alan Turning may have hastened the move to an electronic means of money without ever having contemplated it during his lifetime. If trends continue into the 2030s and with the timeframe the Bank of England uses to introduce new banknotes, his image may in fact be the last one introduced on physical currency in the UK – how’s that for irony!
The author, Michael Alexander, is president of the London Banknote and Monetary Research Centre.
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