so as to plan any extra sales operations that would be needed, with the intention of creating minimum disruption to the market consistent with meeting the mpc ’ s desired exit path. a portfolio of £200bn of gilt purchases has a market value which constantly varies as market prices change. currently there is a large “ mark - to - market ” positive accounting position, given the increase in gilt prices since the programme ended. but for the public sector as a whole such fluctuations wash out : the ( gilt ) assets held by the bank are the liabilities of the government and fluctuations in the value of one exactly offset the other in terms of the public sector ’ s notional balance sheet. nevertheless, once all the assets have been sold, the asset purchase facility may end up with a cash deficit and i want to make a few points about that possible outcome. in conducting the buying operations, it was in part an intended policy objective that we would push up gilt prices and hence lower long - term interest rates. when we sell the gilts back to the market, we will be tightening policy by pushing up on interest rates and hence necessarily making gilts cheaper. the net effect will depend on the path of interest rates relative to those expected at the time of each buying operation but, given the policy objective, the result of the sales programme could easily be a cash deficit. but i want to emphasise that such an outcome would not mean that the public finances have been made worse off. the ongoing dynamic effects of the programme will have been to make it cheaper for the government to issue its debt in the interim. more importantly, over the lifetime of the programme, it would have delivered great benefits to the public purse by stimulating the economy and avoiding deflation : the increase in taxes received as a result of higher nominal gdp should be an order of magnitude larger than any financial deficit on the purchases themselves. to genuinely assess the impact on the taxpayer, one would have to take these and other factors into account. the counterfactual story will never be known precisely but the speech available at http : / / www. bankofengland. co. uk / publications / speeches / 2010 / speech437. pdf. the dmo ’ s objectives include : “ to conduct its market operations, liaising as necessary with regulatory and other bodies, with a view to maintaining orderly and efficient markets and promoting a liquid market for gilts. ” see page 31, “ debt and reserves management report,

could be described as idle inventory stock, but these are defined as notes in circulation. but i should be clear that i don ’ t have enough evidence to prove to you that the stock : output ratio for banknotes has gone up, which would run counter to the story in almost all other industries. i want to move on now to trends in cash usage ( i am using “ cash ” here to mean banknotes and coin ). chart 8 shows survey evidence for the use of cash in retail transactions in the uk over the last 25 years. in terms of the share of the total volume of transactions, cash has fallen from over 80 % in the mid 1980s to 60 % currently. in value terms, cash accounted for around 9 % of all retail transactions in the early 1990s, whereas it is around 4 % currently. cash is generally used for small - value transactions. the latest evidence suggests that the average value of a cash transaction is around £9, with 93 % of payments under £5 being made in cash. one in five adults in the uk report that they use only cash for day - to - day transactions, with this group heavily focused on teenagers / young adults and the elderly. the survey evidence also indicates that more credit - constrained individuals prefer to use cash, as a budgeting tool based, i think, on the principle that with cash you can only spend what you have. the paradox of banknotes this quick survey of trends in banknote demand and use leaves us with what i regard as the paradox of banknotes. the total value of bank of england banknotes in circulation continues to rise, but their use in transactions is falling gradually. to recap, i have put forward some arguments that seek to explain this paradox. from a macroeconomic perspective, sustained low inflation has increased confidence in the real value of the currency, while more recently demand for banknotes has risen during this recession, and particularly for high denomination notes, reflecting loss of confidence in banks, and very low interest rates. atms have changed banknote issuance. and, banknote use is more concentrated among the young, the elderly, and those on low incomes. i would add one other thought on the demand for banknotes, which is more to do with human psychology. i suspect most people, however much they use cards, feel a degree of comfort from knowing that they also have cash in their wallet or purse, even if it is as a back - up. what does this analysis tell us about future