The Economist — The Mystery of Billions of Missing Banknotes

This is a glimpse into a featured article written by Oliver Bullough for the 1843 magazine in the Economist and was published under the headline: “Billions of banknotes are missing. Why does nobody care?” on October 18th, 2021 [15 min read]

Abhishek Sambatur
First Glimpse
Published in
6 min readOct 26, 2021


Photo by Jason Leung on Unsplash

The trend of contactless payments began before the global pandemic in 2020 but has since accelerated to a point where carrying any cash in one’s wallet feels like a burden. This article throws a curveball at the generally accepted hypothesis on the non-existent future of paper money. Giving the reader a taste of everything, this article does it all from proving that central bankers can’t explain everything about money to describing how financial criminals and money laundering benefit central banks. This is a brief commentary on the most intriguing points from the article and a realization of why central banks are flawed at efficiently controlling the money supply (despite what our macroeconomics textbooks taught us in school).

Only a third of that £75bn is being circulated in the kind of day-to-day transactions that officials can monitor. The remaining £50bn is out there somewhere, being put to unknown uses. “The Bank of England doesn’t know where, who by or what for, and doesn’t seem very curious,” said Meg Hillier, head of a parliamentary committee that recently investigated the future of cash ¹

The premise of this story is fascinating but might only be intriguing for those who are interested in how the most liquid form of money, cash, functions in the economy and whether central banks are accountable for its movement within their respective country’s economic system. I love understanding and breaking down a good financial paradox and the cash paradox set up early in this long article got me hooked immediately. Structurally, any article that allows the reader to determine why they should care about its premise in the first paragraph is elite.

Bailey offered a twofold explanation. On the one hand, he argued, the financial crisis had lowered public trust in banks, so many people thought it safer to keep cash at home. At the same time, the number of atms was increasing, which meant more cash was needed to keep them stacked ¹

The author reports multiple perspectives on the interpretations of this cash puzzle but dismisses all of them as they fall shy of providing reasonable evidence. Before I arrived at the latter half of the article where the author provides their own interpretation, I hypothesized relatively quickly that this paradox may have something to do with money laundering or other cash-based financial crimes. And that isn’t just because I’ve recently been hooked on the Netflix show, Ozark, either. It is difficult to fathom that the Federal Reserve, the ECB, and some of the world’s most prominent central bankers would not even consider the existence of a large financial shadow system. Though the author does provide an alternate explanation for the lack of curiosity and apathy at these central banks, I do believe that it is at least partially due to an effort to preserve public trust, and acknowledging the existence of such a shadow system would imply a lack of control and inability to make reliable money supply decisions.

The European Central Bank (ECB) headquarters in Frankfurt, Germany | Yavuz Meyveci/

As central bankers ponder where their banknotes are, officials who are fighting money-laundering say it’s no great mystery. By some estimates, perhaps half of all cash in circulation is helping criminals evade governments’ increasingly intrusive surveillance of the financial system ¹

There is a brief mention of the golden age of money laundering and how easy it used to be to launder money for oneself or a drug syndicate via unregulated offshore banking systems. But I wish the author had expanded on that story and mentioned any details of newer methods used by financial criminals. Though the “how” of modern-day money laundering isn’t the crux of this story, I hoped the author would shed more light on that aspect as well. I guess that is my only qualm in this otherwise brilliant financial article.

Calculating seigniorage income in the age of electronic money is more complicated than it was in the Middle Ages, but the core concept is the same: it’s the profits that derive from the monopoly on issuing currency. Printing a $100 bill — a decorative piece of paper that is worth $100 only because the American government says it is — costs just 14 cents. And every time the Fed sends one out of the door it can invest the remaining $99.86 in something which pays it interest. Printing money, at the risk of stating the obvious, gives central banks a license to print money ¹

The description of modern seigniorage income and its usefulness to central banks in asserting control is not only interesting from a financial perspective but also unnerving for those who believe the monopoly of issuing currency is problematic. The original promise of cryptocurrencies, prior to its mainstream use as a volatile trading asset, was aimed at helping rebalance this monopoly over the money supply. This section of the article provided the biggest takeaways of the story for me and gave me a chance to consider other perspectives that you often hear nowadays — the need for a deregulated form of payments, why central banks are at the root of most big financial scandals, why quantitative easing is so controversial, etc.

Photo by Bermix Studio on Unsplash

The answer, as with many aspects of regulating the international financial system, lies in the difficulty of persuading everyone to act together. If either the Fed or the ecb committed itself to abolishing its large-denomination banknotes, for example, transnational criminals and kleptocrats would switch to operating in another currency ¹

The final paragraphs provide a few options on how to combat these problems of excessive paper money and breaking up the shadow economy. But the reluctance of central banks to do anything about them portrays them as defeatist and selfishly prioritizing their best interests over socio-economic welfare. Though most central banks have a narrowly defined dual focus on monitoring inflation and controlling unemployment, I believe they must take on greater responsibility in order to retain long-term public trust in the financial system. Apathy and ignorance might work for other less pertinent institutions but not for these essential financial watchdogs.

Final Thoughts —

Articles such as this one make me think about my time as a student studying economics at the university level and wondering why more classes didn’t revolve around real-world macroeconomic scenarios. While some Professors did do an excellent job at expanding my appetite for learning more about complex financial situations, most didn’t bother to scratch beyond the basic assumptions of the textbook. This was a hugely satisfying read and a reminder of one of the reasons I chose to study economics —to understand how different elements of society interact to produce complex, baffling economic outcomes.

Bottom line: This story is definitely worth sparing the 15 minutes and diving deeper into a modern economic paradox. Read further to understand the consequences of the cash paradox and its impact on how mainstream actors of the banking system handle longer-term crises and outcomes.


(1) The Economist | Billions of banknotes are missing. Why does nobody care? | Oliver Bullough| Updated on Oct, 18th, 2021

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Abhishek Sambatur
First Glimpse

An avid reader & learner 📚 Writing for posterity in case the robots take over 🤖 Trying to find an outlet for my constant stream of thoughts and ideas 💡