As some will have noted, there were a lot of reports yesterday on the fact that £50 billion of banks notes are missing in the UK economy. This got me thinking. And as a result I have to suggest that finding that £50 billion of cash would not be hard. Here’s how to do it.
As the Public Accounts Committee of the House of Commons has noted, around £50 billion of banknotes in issue have no explained use. In other words, they do not appear to be used for regular cash transactions. What their alternative use might be is not known.
Some could be in the possession of tourists, who have not bothered to exchange them on leaving the country. But the amounts involved would be small.
A bigger sum might be cash savings under the proverbial mattress. This is entirely plausible. It is possible that some of this will be related to benefit fraud: the amount of savings a person has can have a significant impact on their ability to claim a number of benefits.
There is no doubt that a significant part of this money Is used within the shadow economy. That can cover activity where tax is evaded, of course. But it also includes drug dealing and many forms of human trafficking and abuse.
No one is finding it easy to come up with an innocent explanation for the missing money. I cannot.
The Public Account Committee has suggested that the Bank of England is indifferent to this issue, even though in it acknowledges that the value of notes in issue is way in excess of those that appear to be required to meet the needs for regular cash payments within our economy.
The question then arises is whether anything can be done about this, and the obvious answer is that this is an issue that could be quite easily addressed if the willpower to do so existed. The way to address it is actually remarkably easy.
To address the issue what has to be done is that at short notice it is announced that all the UK’s main denomination banknotes (£5, £10, £20 and £50) are to be replaced. No more than a couple of weeks notice should be given.
The changeover period from the old to the new notes must be very short. A maximum period of a month should be allowed, but if possible, a shorter period of perhaps no more than two weeks should be provided.
It would then be the case that within a period of four weeks, at most, most literally the entirety of UK notes in issue would cease to be legal tender, and be replaced.
It’s a fact that designing and introducing new banknotes is normally a very time-consuming, and lengthy, process. But, this exercise does not actually require the design of new banknotes. All that needs to happen is that the colours of existing banknotes be swapped.
So, for example, the brown used for the £10 note, could now be used for the £5 note. The blue from the £5 note could be used for the £20 note. And so on. That is all that is required. The designs need not change: just the colour must.
And yes, I know that will create issues for some colourblind people, But I am not sure that in this case that is a major impediment to progress, although I would, of course, be willing to hear objection.
During the four-week transition period old notes could, of course, be spent. Replacement new notes, with a total value of about one third of the sum previously in issue, could then be injected into the economy. Because that’s all we apparently need.
At the end of the four week period, or any time during it, a person could present old notes and ask for new ones. But in the case of any sum in excess of £200 the person making the deposit would be required to identify themselves.
The usual money laundering rules for proof of identity would apply e.g. a passport, driving license or an equivalent range of documentation would be required to swap notes. Without proof new notes could not be obtained once the transition was over.
In addition, any request for an exchange of notes in excess of £500 would require that the money first of all be paid into a bank account. This money would then become traceable.
The bank through which cash deposits were made should be required to seek explanation from the depositor as to the source of the money. A very low threshold for suspicious transaction reports should be applied. HMRC should have the power to freeze deposits, instantly.
Four things would immediately happen. First, the vast majority of this £50 million would either be found, or it would cease to be in use and cease to be legal tender, and therefore cease to be available for criminal or fraudulent purposes.
Second, this cash would now have identifiable ownership. Of course some will be disguised, but the power for HMRC to freeze accounts and investigate funds must be used: this is a one off chance to freeze the shadow economy. The tax take will increase.
Third, criminal trading will become harder to undertake. This will be a massive benefit to society.
Fourth, by eliminating cheating we will have a fairer, more equal society and one in which honest small businesses will have a better chance of flourishing because they will not be undermined by dishonest ones.
How much would it cost? The National Audit Office happened to publish a survey on the cost of producing currency during the course of 2020. They estimated there are 4.5 billion notes in issue.
They also indicated the cost of printing notes was about 7p on average. Only one third of notes will be replaced. That implies a cost of £105 million to replace the necessary bank notes. Banks might also need to be paid for the additional work involved.
The benefits of reissuing all notes should massively outweigh the costs though, most especially if a significant number of investigators are employed to pursue data and collect tax owing and pursue criminal enquiries.
And let’s also be clear, even if no cash was recovered (it’s possible, although unlikely) significant criminal activity would have been discouraged. It’s a win either way.
So will the social benefits outweigh the costs? I think so. I look forward to the argument from the politician who says otherwise.

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More from @RichardJMurphy

28 Nov
I’ve tweeted more about quantitative easing than I really thought to be decent of late. However the questions still keep coming, so here is another QE thread, on the use of QE funds and (especially) the link to the Green New Deal.....
The question I have been asked is does it matter what QE money is spent on, and the honest answer is ‘it’s complicated’. But, maybe not so so complicated if it’s understand that QE came in three stages, each of which is quite different.
Stage 1 QE lasted from 2009 until 2016, when the last round of this stage took place in the UK. The aim at this stage was simple. As always, new money was created by the Bank of England, and mainly government bonds (gilts) were bought. That’s what QE does, in essence.
Read 21 tweets
27 Nov
I have been asked by a number of people, from MPs onwards, to prepare answers to the types of questions being commonly asked about the economy in the Covid era. I can’t see why these things shouldn’t be shared. This thread provides some suggestions.
Should we raise taxes to pay for Covid 19?

Right now, definitely not. We’re facing an economic downturn in 2021. Almost nothing can prevent it. And increasing taxes will take more tax out of the economy, and make the town turn worse. So definitely don’t raise taxes now.
Does that mean we don’t need any tax changes?

No, it doesn’t, but overall taxes mustn’t increase. Tax the wealthy more then, and reduce tax for the poorest. That increases overall spending power in the economy because those least well off spend all their income. But that’s it.
Read 17 tweets
23 Nov
There is an obsession that the national debt must be repaid. Assuming it is properly calculated (and I have real doubt about that) it’s coming on for £2,100 billion. Knowing what makes this up is really important. Then we can decide if we really want to repay it. Stay with me….
Around £200bn of the national debt is made up of National Savings & Investments. That's things like Premium Bonds and the really safe savings accounts older people tend to appreciate. So why do we want to force these people into riskier savings accounts? I don't think we do.
Around £400bn of the national debt is owned by foreign gov'ts. That's cool: they want to fund us. They do that because they want to hold our currency. That's because that helps them trade with the UK. Would we want to force them to take their money back in that case? I doubt it.
Read 9 tweets
22 Nov
There’s massive misunderstanding about what QE is and what it does. So please forgive a long thread on one of the most important tools used in modern economics, which if used properly might provide real hope for a better future.
Outside Japan QE was unknown until 2009. Since then the UK has done £845 billion of it. This is a big deal as a consequence. But as about half of that has happened this year it’s appropriate to suggest that there have been two stage of QE, so far. And I suggest we need a third.
Stage 1 QE started in 2009 and was last used in 2016. It created £445bn of new money. That was used to buy £435bn of government bonds, or gilts, and £10bn of corporate bonds, which we can ignore. There were three goals to first stage QE.
Read 68 tweets
15 Nov
Rarely has the UK faced an existential crisis like the one it does at this moment. The relationships between its member nations are uncertain. We face meltdown with the EU, even if we get a deal. And the special relationship with the US is anything but that. This is unprecedented
What has now happened in this mess? The architects of it, secure in the knowledge that the damage they sought to create has been delivered and their consulting futures are secure, have walked out of government. Is that by chance? No. It’s deliberate distraction.
The Brexiteers aim has always been apparent. It has been to maximise the chance of disruption. That’s because they believe financial capitalism works best in such conditions. And they are right. Moments of chaos are times when hedge funds have greatest chance of making money.
Read 13 tweets
5 Nov
The government is going to do £450bn of quantitative easing (QE) this year. That should more than cover its total borrowing fir the year, meaning the actual sum owed to third parties will fall, and so will real national debt as well as a result. 1/-
Saying this, I know that much of the new money created by the Bank of England to fund QE ends up back on central bank reserve accounts held by U.K. High Street banks and building societies with the Bank of England. And that interest is paid on their balances 2/-
The interest paid in those balances is 0.1%. That rate is controlled by the Bank of England, and will not be changing for a long time to come. In effect then the government is paying banks and building societies 0.1% to make them hold new money that cancels the national debt 3/-
Read 9 tweets

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