Banks still not trusted as public hoards £50 notes

British consumers are hoarding cash because of fears that the banking system is unstable and unreliable. Even if they do put money on deposit, the returns are so negligible that it's scarcely worth the risk.

This conclusion comes from Andrew Bailey, executive director for banking services at the Bank of England, in a speech in Washington yesterday where he highlighted the paradox between declining use of cash for everyday transactions and increasing demand for high-denomination banknotes.

The bank first noticed a spike in the demand for £50 notes at the start of the financial crisis in summer 2007 - when notes valued at £7 billion were in circulation - and it then accelerated through the failure of Lehman Brothers last autumn. Currently, the value of £50 notes in circulation has risen to £9 billion now.

Bailey, who noted similar trends were being seen in other currencies, said currency-hoarding reflected "loss of confidence in banks and very low interest rates".

But it seems the British have not only developed a taste for 50s: as a share of UK output, the total value of banknotes in circulation has risen markedly over the past two years, to 3.2 per cent of nominal GDP, or around £45 billion, from a trough of 2.4 per cent in the mid-nineties. That's still well down from the 1970s when six per cent of GDP was circulating in readies. ·