Future Forum | Bank of England

How do we know how much money to print?

Future Forum
Future Forum | 3 months ago | in Money, Money, Money

Every day bundles of fresh banknotes land on the conveyor belts in our printing facility in Essex. The new cash is bought by wholesale distributors who supply to commercial banks, which stock some of it in ATMs all across the country.

Most of the money we print is to replace old, worn-out banknotes. But we also have to predict, or forecast, how much we think demand for cash will increase.

When forecasting demand for banknotes we have to think about what drives it.

Fundamental changes to society such as an increasing population, inflation and economic growth are important. We expect people to demand more banknotes over time because wages increase and things get more expensive.

We also know people want more notes when the economy is doing well because they have more money to spend.

However, over time, technological developments such as the introduction of contactless cards means that less of this money is spent via cash.

When the pound drops in value, overseas demand for notes increases in part because overseas investors buy cash expecting to make a profit in the future. Tourists who need to exchange money ahead of their travels also tend to do so while it’s cheap. Overall, Britain becomes cheaper as a holiday destination and attracts more visitors when the pound goes down.

When the interest rate goes up, fewer people keep cash at home because it’s more lucrative to deposit money in the bank.

When we introduce a new series of notes we have to print many more new notes. In fact, we printed just over one billion notes ahead of the new £10 launch.

To find out more about how demand for cash increases at certain times of the year, or how demand for cash has changed over time, read our full KnowledgeBank Guide: https://edu.bankofengland.co.uk/knowledgebank/how-do-we-know-how-much-money-to-print/

edited on Oct 31, 2018 by Future Forum

Stephen Bassett 3 months ago

OK, imagine that all money is somehow electronic, how much of it do you then allow to be in 'circulation'.

Might it not then be cheaper and easier for fraudsters to create counterfeit electronic money and just inject it into the system.

Might having only digital money actually tend to disempower those lower down the wealth and power spectrums. If your card doesn't work and/or you do not have a bank account, where does that leave you?

Over time Banks have shown themselves very poor at preventing fraud in the existing system. Why exactly do we think they will be any better in a digital system?

Or, who will regulate it all and have the job of keeping up to date with Criminals technological advances and innovative methods of breaking the system or peoples over confidence in it.

Shelley (BoE Moderator) 3 months ago

Thank you Stephen. You raised some interesting points here with the theory of just electronic. I think it is safe to say that there will always be crime when it comes to money - i suppose it is more about what measures people (you and me as well as organisations and banks, etc) can put in place to reduce the risk of fruad and crime. Personally, I don't think it will ever completely disappear as there will always be people trying to 'get round the system' unfortunatly.

Amy Buckingham 2 months ago

This idea has been advanced to the next phase

Amy Buckingham 1 month ago

This idea has been advanced to the current phase