The Bank of England is still committed to cash which continues to be used as an important budgeting tool, particularly for low income families, says its Governor Andrew Bailey. Mr Bailey said the central bank is also experimenting, like many organisations, in the use of artificial intelligence (AI).
A decade ago cash was used in around 50% of transactions, but is now just over 10%.
However, regulator the Financial Conduct Authority (FCA) says that more than one million people are excluded from digital banking because they don’t have bank accounts. The FCA also estimates that around two million use cash for the majority of their purchases.
Mr Bailey said: “We can observe that the usage of cash has declined. However, when we ask people if they still want to have cash the answer comes back clearly yes, and I can understand why. We feel more comfortable if we have something in our pocket which we know we can use in case as it were.
“There is also a section of the population, particularly those on low incomes, that use it as a budgeting tool. So, our view is very clear at the Bank of England, which is that we will supply cash as long as people want it, and the evidence is that they do want it.
“So, we are going to go on providing cash. However, the paradox is this, while usage is declining, when I look at the amount on our balance sheet, which is the amount in issue, it hasn’t gone down at all.”
On the central bank’s use of artificial intelligence, Mr Bailey said: “We are experimenting in how we can put it to work in sort of the analysis of our analytical functions.
“One of the things I would say about it at the moment, and this will change no doubt, it’s really what I call a one step ahead forecasting. If you give it a world of information it will tell you the next step, but our world of forecasting is much more structural, so we haven’t found yet that AI can really take that sort of thing on, but it will develop no doubt.”
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The governor said he also uses AI to help summarise speeches. He added: “When I write speeches they are always too long. I don’t use it (AI) to write speeches, but it is quite a good summarising tool actually... and saves me a load of angst having to sit down for a few hours having to shorten one of my speeches.” The Bank uses AI platform Copilot.
Latest official figures show weak productivity in both the public and private sectors.
Mr Bailey said: Pre-Covid to today, the public sector (productivity) and the health part of it. I am looking at it quite hard as it is important, but the question for me is how much of that is actual and how much is the measurement and I don’t know, but I suspect both is the answer, However, I think it is a very important question.”
On home ownership he said: “We have got an ageing population and therefore more people owning their houses outright.
“Home ownership rates in aggregate haven’t changed hugely, but there is a part of the population renting. But the thing that has also changed is the switch from variable rate mortgages to fixed rate mortgages. Pre financial crisis the largest part was variable rate and a smallish part was fixed rate, but now it has almost exactly reversed itself. Of course for us that affects the transmission of monetary policy, so we have to spend a lot of time looking at that.”