The Royal Mint is halting the production of some coins for at least 10 years as reduced demand leaves a substantial amount of unused stock.
Increased availability and popularity of alternative payment methods, including numerous digital options, is leading to a gradual decline in the use of cash in general. The Covid-19 coronavirus pandemic caused a sudden drop in cash purchases as many people converted to other, contactless, payment methods.
Earlier this year, The Royal Mint, which has been producing coins for more than 1,100 years, forecast it had enough 2p and £2 coins to last at least 10 years as demand slowed.
Consumers are increasingly using credit and debit cards for smaller amounts, which coupled with the increased adoption of digital methods, such as contactless card and mobile payments, is leading to a drop in demand for cash in general.
According to a National Audit Office (NAO) report, the volume of coins purchased by HM Treasury from the Royal Mint has dropped by 65% every year since 2011.
The Covid-19 pandemic has accelerated this decline, with a 71% drop in market demand for notes and coins between early March and mid-April 2020.
Ten years ago, cash was used in six out of 10 transactions, according to the NAO, but last year it was less than three in 10, with forecasts suggesting this might fall to one in 10 by 2028.
The NAO report said the reduction in cash transactions was putting pressure on the cash system. “Many of the costs of cash production and distribution are fixed. Commercial operators have warned of pressures on their business models, which have previously depended on higher cash volumes to maintain the commercial attractiveness of their operations.
The production cost of notes and coins is offset by income resulting from their sale to the market at face value. In 2019-20, HM Treasury incurred UK coin production expenses of £23.6m. Research commissioned by the finance sector has estimated that the UK’s entire cash infrastructure costs around £5bn a year.
A Nationwide Building Society survey in June predicted the lockdown, introduced to reduce the spread of Covid-19, would have a long-lasting effect on the use of cash in the UK.
The survey of 2,000 people found that the average respondent went over six weeks without using cash. At the same time, the rate of digital payments increased, with many people using them for the first time during lockdown. According to the survey, lockdown forced 27% of respondents to use mobile payments and 25% to use online or mobile banking for the first time.
Nationwide found that 50% of people expected to use cash less often in the future and 61% had started using other methods to make payments.
Notably, Covid-19 fears and restrictions forced the older generation, typically more cautious of adopting new ways of managing their finances, to change their habits. The survey found that three-quarters of Nationwide customers over 55 had reduced their use of cash.