How do we know how much money to print?
Every day bundles of fresh banknotes land on the conveyor belts in our printing facility in Essex. The new cash is bought by wholesale distributors who supply to commercial banks, which stock some of it in ATMs all across the country.
Most of the money we print is to replace old, worn-out banknotes. But we also have to predict, or forecast, how much we think demand for cash will increase.
When forecasting demand for banknotes we have to think about what drives it.
Fundamental changes to society such as an increasing population, inflation and economic growth are important. We expect people to demand more banknotes over time because wages increase and things get more expensive.
We also know people want more notes when the economy is doing well because they have more money to spend.
However, over time, technological developments such as the introduction of contactless cards means that less of this money is spent via cash.
When the pound drops in value, overseas demand for notes increases in part because overseas investors buy cash expecting to make a profit in the future. Tourists who need to exchange money ahead of their travels also tend to do so while it’s cheap. Overall, Britain becomes cheaper as a holiday destination and attracts more visitors when the pound goes down.
When the interest rate goes up, fewer people keep cash at home because it’s more lucrative to deposit money in the bank.
When we introduce a new series of notes we have to print many more new notes. In fact, we printed just over one billion notes ahead of the new £10 launch.