Eliminating high denomination notes and making the mob miserable

Ronnie Driver

Economists usually talk about money serving three functions – a medium of exchange, a store of value, and a unit of account.  But the ability to make payments using commercial bank deposits, which account for the vast majority of money, has already divorced the physicality of notes from the concept of the medium of exchange. Inflation and non-remuneration renders physical money a poor store of value.  And the unit of account does not rely on physical cash.  So is there a specific role for physical paper money anymore?

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Are firms ever going to empty their war chests?

Katie Farrant and Magda Rutkowska

UK private non-financial corporations (PNFCs) consistently ran a financial surplus between 2002 and 2013. They now hold around £1.8 trillion of financial assets, including £0.5 trillion of cash. This has attracted attention from policymakers and the media. Should we expect companies to spend these assets to finance investment? The MPC considers this to be possible (see e.g. the February 2015 Inflation Report). Many agree, calling on companies to spend their ‘cash hoards’ (see e.g. these articles in the Telegraph and the FT). Here, we explain why we think companies are unlikely to run down their assets significantly. This does not mean that they will not invest; rather, they will not necessarily finance investment through liquidating assets.

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