THE claim that Britain is turning into a cashless society has long looked wide of the mark. As in most rich countries, the amount of cash floating around has in fact grown in recent years. At more than £80bn ($104bn), the value of notes and coins in circulation is in real terms one-third higher than in 2007, when Britain got its first contactless payment cards. Cash still accounts for some 40% of transactions. Yet lately something has changed. The value of currency in circulation has dropped, year on year, for seven consecutive months (see chart), for the first time since records began in the 1960s. Numismatists are scratching their heads.

What is going on? Recent policies may have pushed people away from using cash. In January the government banned retailers from charging customers fees for using a particular credit or debit card. And the Bank of England has done its bit. Since November 2017 the base rate of interest has risen from 0.25% to 0.75%. Rate-setters have made clear that further rises are on the way. As the returns on savings increase, people become more likely to put their money in a bank than to squirrel it away under a mattress.

Changing immigration patterns could also play a role. Some evidence suggests that foreigners are more likely than natives to use cash, in part because they are less likely to have a bank account. Annual net migration to Britain has fallen from around 340,000 a year, on the eve of the Brexit referendum in 2016, to 270,000. The stock of European Union migrants working in Britain has fallen by 4% in the past year. All this may trim demand for notes and coins. The most interesting explanation of the puzzling trend, however, is that it represents the winding-down of a period of unusually high demand for notes. In the aftermath of the Brexit vote, the value of circulating currency was growing by 8-9% a year, well above the long-run average. Just as during the financial crisis of 2008-09, Britons may have worried about the solvency of their banks and pulled their money out just in case. In uncertain times, paper currency is one of the few assets that offers both short-term price certainty and the ability to be mobilised in an instant, points out J.P. Koning, a financial writer. The pound’s plunge after the referendum may also have encouraged people overseas to load up on sterling notes. They are already a popular choice for people whose home currency is more frequently volatile, as well as money-launderers. Research from the Bank of England suggests that a fall in the value of the pound leads to higher overall demand for banknotes, as buyers bet that sterling’s value will subsequently rise again. After the referendum, overseas buyers apparently loaded up on high-denomination bills. In the two years to February 2018 the number of £50 banknotes in circulation rose by 25%. The fall in the amount of cash in circulation in recent months suggests that this rise in demand has reversed. Britons reassured by the banks’ stability since the referendum may have returned their cash to the vaults. The trade-weighted value of sterling is 5% above its post-referendum low, encouraging overseas holders to sell up.

Once again, however, the tables are turning. The latest month’s figures, for September, suggest that the decline in the number of banknotes is petering out. Not coincidentally, that month also saw a rash of stories about the rising possibility of a no-deal Brexit. Uncertainty continues to grow. Britain may rely on cash for some time yet.