Sunday, September 23, 2018

Did Brexit break cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 banknote?


Nations never experience year-over-year declines in cash in circulation. Sweden (which I wrote about here, here, and here) is one of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 rare exceptions. India is anocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r, but this was due to its notorious botched demonetization attempt (which I wrote about here, here, here, and here). But now cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK seems to be joining this small group of outliers.

Why does a nation's cash in circulation generally grow consistently from one year to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 next? While economies do experience cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 odd recession, in general cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y are always improving. Improving economies coincide with more demand to make transactions, and for this cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 public needs to have greater amounts of cash on hand. There is a counter-cyclical element to cash holdings. When recessions occur, people often turn to unofficial sectors of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 economy to make a living, and this often requires cash. The last explanation for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 steady growth in cash outstanding is inflation. Let's assume an inflation rate of 10%. Someone who generally hold $10 worth of purchasing power in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir wallet in 2018 will have to hold $11 in 2019 if cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y want cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir situation to stay cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same. To meet that demand, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 central bank has to print more banknotes.

All of this is why cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK's recent flirtation with decashification is so strange. Below is a chart showing cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 year-to-year change in British paper currency in circulation:


For eight months now, since February 2018, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 stock of Bank of England banknotes has been registering below cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 previous year's count, a phenomenon that Britain has never seen (at least not since cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 start of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 data series I found).

One potential explanation for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 recent bout of decashification is increased debit and credit card usage. I am not entirely convinced by this argument. People's transactional habits are notoriously slow to change. When cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 inevitable card-induced decline in cash does occur, it won't suddenly occur in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 space of eight or nine months, but will take place over an extended multi-year period. As in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK, card usage in Canada is ubiquitous, yet we haven't seen cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same sort of effect on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 stock of cash. Something unique seems to be occurring in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK.

The UK has been switching to polymer notes recently, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 new £10 being introduced in 2017 and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 £5 in 2016. Old paper versions can no longer be spent. The £20 is slated for a switch in 2020. Perhaps this is creating havoc with people's money holding patterns? I suppose it's possible, but here in Canada we went through cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 whole polymerization process without a hiccup. (See chart here). So I don't see why cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK would experience any sort of discontinuities during its own changeover.

The answer can only have something to do with Brexit. One possibility is that Brexit has reduced immigrant inflows and encouraged outflows, and immigrants are large users of cash. Ipso facto, cash-in-circulation has declined. The problem with this explanation is you'd need really large changes in migrations flows to see that sort of pattern in cash demand, and I am skeptical we're seeing that sort of upheaval.

Anocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r Brexit-based explanation is that Brexit has broken cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 banknote. British banknotes have suffered a massive credibility shock. All those paper pounds hoarded away under Brits' mattresses, or in criminal vaults, or in foreign pockets, are just not as trustworthy as cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y were before. So cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y are being quickly spent or exchanged for ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r paper, say euros. Eventually cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se unwanted notes are resurfacing back in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK where cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Bank of England is forced to suck cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365m back up and destroy cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365m.This paints a particularly dour picture. It says that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Bank of England's seigniorage revenues have been permanently damaged, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 short-fall having to be made up by cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 British taxpayer. It makes one worry about potential long-term damages to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Bank's ability to effect an independent monetary policy.

Having had some time to think about this, I think I've got a better story. The changes are indeed Brexit-induced. But cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 big decline we've seen over cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 last year isn't a sign of distrust in paper pounds. Racá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r, it's a reversion to trend. More specifically, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 decline in cash-in-circulation so far this year is actually cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 unwinding of an unusual surge in cash-in-circulation that began in early 2016. Check out cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 chart below:



Beginning in 2016, as cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 political competition in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 leadup to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Brexit vote intensified, banknotes-in-circulation suddenly started to rise relative to long-term trend line growth (black line). This was cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 fastest rate at which banknotes in circulation had increased since cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 2008 credit crisis. The Bank of England's blog, Bank Underground, commented on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 surge in banknote demand back in 2016.

The sudden demand to hold more cash continued through cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 June 23, 2016 vote into early 2017. I suspect that this was a symptom of an underlying uncertainty shock spreading through cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK economy. Brits were growing increasingly worried about cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 effects of Brexit. Perhaps cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y wanted to hold fewer deposits, or have less exposure to assets like stocks and real estate. Cash is a coping mechanism. In uncertain times it one of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 few assets that offers cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 combination of short-term price certainty and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 ability to be mobilized in an instant.

This chart from cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Bank of England shows that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 demand for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 £50 note (pink line) was particularly marked in 2016:

Source: Bank of England

But by mid to late-2017, Brexit-related uncertainty began to subside, and cash began to be redeposited into cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 banking system. UK cash usage has now returned to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 long-term trendline growth rate. Going forward, I'd expect cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 year-to-year change in cash outstanding to return to its habitual 5%-ish per year. That is, absent more Brexit-induced panics.



For much of this post, I am indebted to this great round of conversation on Twitter:

11 comments:

  1. I suspect you've missed cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 salient change.

    Contactless card payments have become mainstream across cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK (but also in Slovakia, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Czech Republic, Hungary and ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r countries...) at around cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same time (coincidental timing).

    Even before contactless cards, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK already had very high penetration of debit card (and credit card) use for retail transactions (over 50% by value). However, people generally only used cards for higher value transactions (> £10) and so people still had to carry cash. Contactless cards have changed that: low value transactions can now be conducted with a tap of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 card, without pin entry, and payment processors have changed cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir fees on retailers to make small electronic transactions an attractive proposition. There's no longer a minimum transaction size to pay by card, paying by card no longer requires pin entry, and payment by card is now an option in more locations than ever before. Quite suddenly, it has become possible to live without cash.

    That, surely, is cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 underlying cause. The UK case is more like Sweden (or Denmark, Norway or Iceland) than anything new or Brexit related. Ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r European countries (such as Czechia or Slovakia) are moving rapidly in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same direction.

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    1. "Quite suddenly, it has become possible to live without cash."

      For sure. But Canada has also gone through cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 exact same experience, and we haven't seen a downturn in cash outstanding. Australia dominates cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 list of contactless countries, but banknotes in circulation continues to grow. There is something unique going on in UK, and it isn't contactless. It's got to be Brexit.

      You mention Iceland, by cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 way. Huge growth in cash outstanding, even though contactless card payments are very popular:

      https://www.bullionstar.com/blogs/bullionstar/cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365-future-of-cash-iceland-vs-sweden/

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    2. Regarding cash issuance... Iceland is not a typical case - tourists visiting each year outnumber inhabitants by a multiple of around 7, and many tourists leave with a bit of Icelandic cash, never to return again (withdrawn from effective circulation forever). Iceland's "cash outstanding" (in reality: cash created, taken away by foreigners and lost forever) will continue rapid growth for as long as Icelandic cash is still a thing that tourists pick up.

      The comparison to make between cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK and Scandinavian countries is in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 high prevalence of cashless payments (universal adoption by retailers; high popularity among cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 population). In cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK, 76% of all transactions (by number of transactions) and around 90% of all transaction value is paid by card (by latest BRC numbers). That's not yet at Scandinavian proportions - we're still a decade or so behind (but catch-up might not take a decade). It doesn't look like eicá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r Australia or Canada have reached that depth of penetration yet. It's quite different from cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 United States, where transaction fees are generally far higher and many retailers refuse to adopt; or Germany where users don't trust electronic payments operators/ government with cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir transaction data; or Italy where cash-in-hand is essential for petty tax avoidance; or Central Europe where a large portion of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 population is unbanked and doesn't have access to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 necessary cards.

      Perhaps cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 key to declining cash outstanding really is Brexit: afraid of Brexit pensioners are emptying cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir mattresses and investing in currency-hedged ETFs; afraid of Brexit, cocaine dealers are switching to euros and Swiss francs? Or maybe, just maybe, demand for cash is falling as people feel cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y can comfortably live for months (or years) at a time without ever touching a banknote or coin?

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    3. When I was writing cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 blog post about Iceland I overlaid Iceland's monthly cash-in-circulation on top of its monthly tourism visits. Cash outstanding actually peaks in December, when cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re are no tourists... not in summer which is peak tourist season. So I don't put much stock in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 idea that tourists to Iceland are driving its growth in cash.

      "Perhaps cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 key to declining cash outstanding really is Brexit: afraid of Brexit pensioners are emptying cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir mattresses and investing in currency-hedged ETFs; afraid of Brexit, cocaine dealers are switching to euros and Swiss francs?"

      I hope you don't think that was my cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ory. My cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ory was that anxious Brits were holding more cash in 2016 and early 2017 due to concerns over Brexit, and now cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y aren't so anxious and are returning it. Thus cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 year-over-year decline.

      Let's revisit this in 12 months. If I'm right, growth in cash-in-circulation will have returned to it's previous range. If you're right, it should keep falling.

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  2. If it's Brexit why did it also happen in 1991?

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    1. I must confess that I did dig around to find out what happened in March 91-to-March 92 but had no success. Negative growth was just fleeting, though, lasting just two weeks.

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    2. That's interesting - a 1992 blip supports cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 notion that speculative currency holding (and hence events such as Brexit) might actually matter.

      Notably, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 UK crashed out of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 ESRM in September 1992 (black Wednesday, massive devaluation). The large current account deficit, and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 BoE's funding shortage were evidently unsustainable. Perhaps some speculator agents (e.g. banks, which hold some reserve of cash as banknotes) made a concerted effort to reduce cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir exposure to a likely sterling devaluation?

      If it has happened before, it could feasibly have happened again (as Brexit justifies a tangible fear of sterling depreciation). But cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365n: where are cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se large stocks of banknotes held, and why would anyone be (A) so unsophisticated as to hoard notes but (B) sensitive enough to control cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir exposure to FX movements?

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  3. I imagine cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 difference is due to what suppliers are willing to accept racá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r than demanders are able/wanting to pay in.
    Cashless existed before cash, ergo must people have access to it all cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 time unless it is for something out of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir normal routine.
    for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365m to change cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir habits instantly indicates a change in what most suppliers are willing to accept.
    did anything happen?
    it seems unlikely a lot of suppliers who could process cash previously would suddenly turn down cash, cashless cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y do turn down for low amounts.
    cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 only people who might be willing to accept cashless who previously didnt would be cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 'cash-in-hand' guys.
    did 'cash-in-hand' suddenly go out of fashion?
    i think cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 gig economy mob might have something to do with it.

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  4. plus supermarket 'people free' checkouts. using cash is a pain

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  5. I wonder if cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 amount stored in ATMs has fallen. We used to have three machines in our village, sometimes with queues. Now we have one and no queue. With 700+ ATM robberies per annum, machine operators may be reducing amount kept in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 machines. Closed bank branches also hold no cash!

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