subject: How Much Cash Is In Circulation In The Uk? [print this page] Calculating the exact amount of money in circulation in the UK is not a precise science, rather it is more of an art. Whilst the Bank of England is responsible for producing the coinage and notes we use in everyday life, it does not keep a precise track as to exactly how much is in circulation.
However, it does have an estimate for the amount of total money in circulation. At present, it believes that there is around 44.9 billion pounds worth of notes and coins in circulation. But this isn't the total amount of money in use in the UK that is estimated to be around 1.9 trillion, or 42 times as much 'virtual' money that supports our economy. The reason for the difference is that not every transaction needs cash to satisfy the demand. For example, cash deposited with banks for long term savings and money market accounts are both electronic forms of money that rarely need cash to support the transactions. Instead, electronic entries between accounts are sufficient without the need to produce hard cash.
Increasingly this is the case with consumers too. Cash is bulky, easy to lose or have stolen and difficult to keep in large quantities. It is also expensive for shops and banks to process, count and move. Compared to an electronic payment, paying for an item in the shops with cash means that the money needs transporting to a bank and then onwards to a clearing centre. All of this costs money, so to speak, so increasingly we are being encouraged to move to other methods of payment, the most obvious examples being debit or credit cards.
The Bank of England is responsible for managing the cash in circulation and replacing or withdrawing from circulation old or worn currency. Whilst coins are expected to last around 20 years, notes can last for as little as 6 months. Some notes will wear out faster than others for example a 5 note will be worn more quickly than a 50 note purely due to the frequency with which the former will be used in everyday transactions. A 50 note may last two or three years before it has to be replaced.
Banks have the responsibility of returning worn notes and coins to the Bank of England. They are replaced by newer versions which change over time to make them harder to counterfeit. In addition, notes are being made of more durable materials in an attempt to keep them in circulation for longer. Hence, keeping the total amount of money under control is a key task of the Bank of England. Through doing that and by using interest rates it attempts to manage inflation within an acceptable range.
Notes returned to the Bank of England are destroyed, usually by shredding. The Bank of England actually makes money from its printing operations since it charges banks for the new notes it issues.
Managing the amount of cash in circulation is important since if there is too much, it becomes too common and its value is in danger of being devalued. For example, if you suddenly had 10 when you only had 8 before you may be tempted to go out and spend it. With the same number of goods and services in circulation you would have more money chasing fewer goods so the price would rise leading to inflation.
