Inside the UK’s moneymaking factory where cash is still king

At the end of a grimy industrial estate in Essex, behind imposing electric gates flanked by two layers of barbed wire fences, is a distinctly unwelcoming building that produces several million banknotes each day.

Every sterling note since the 1950s has passed through this UK factory’s high gates and despite the pandemic lockdowns and rapid rise of online retail, the site is ratcheting up production.

In 2020, it manufactured more than 1.3bn banknotes for the Bank of England and other central banks around the world. This year, its printing presses have started to run all day, every day, for the first time, to meet demand and take on work from closed facilities elsewhere.

During a rare visit to the 1950s double-humped building — designed by the firm behind the Sydney Opera House — the presses were busier than ever; the noisy activity belied expectations that the appeal of cash may finally be coming to an end. 

“It seems counter-intuitive in Covid [but] when there are worldwide crises, demand for cash goes up,” said Clive Vacher, chief executive of De La Rue, the 200-year-old FTSE 250 listed company that holds the contract to print currency at the site. “Cash is still the dominant system in many countries around the world. Volumes are rising.”

BoE data suggest people are spending less cash, but the total value of banknotes in circulation has increased as they appear to want to hold more of it.

In 2019, 23 per cent of all payments were made using cash, down from close to 60 per cent a decade earlier, as people turned to debit cards and digital payments. 

But between 2005 and 2017, the value of banknotes in circulation doubled — a paradox the BoE explains in part by people ascribing cash a greater role as a store of value.

Covid has not changed this trend even though it has forced millions of people to stay at home and closed businesses. The volume and value of cash withdrawn from the ATM network overseen by Link was about 60 per cent lower in March last year, compared with the same period in 2019, and was still about 40 per cent lower by October. But the number of notes in circulation reached a record high of 4.4bn — worth £76.5bn — in July 2020.

The same trend has been measured by the European Central Bank. At the end of 2020, the value of euro banknotes in circulation amounted to €1.4tn — an increase of 11 per cent compared with 2019. The only time the growth rate was higher was during the months following the Lehman Brothers collapse in September 2008, the ECB said.

The BoE has also pointed out that at any one time only about a fifth of UK banknotes are used for recorded domestic transactions — the remainder is held as a store of wealth by individuals and overseas investors, or for what the BoE calls the “shadow economy” — cash-in-hand services and crime. British MPs on the public accounts committee said in a report last year that more than £50bn in cash was unaccounted for.

Comfort in cash

De La Rue serves more than the Bank of England at the Debden site, with jobs for more than 30 central banks planned for this year, often for countries where ecommerce is less developed than the UK. 

The company estimates there are 620bn banknotes in circulation globally, with 170bn printed every year. About 19bn are printed commercially, with De La Rue holding the largest share, at 7bn. 

“People are withdrawing more cash around the world, which seems to indicate there is some reassurance in having banknotes just in case, even in parts of the world where banknote demand is in decline,” said Nikki Strickland, head of product marketing at De La Rue.

She pointed to growth in parts of Asia, Africa and the Middle East where “cash plays a fundamental part in billions of people being able to transact”.

De La Rue is particularly active in moving banks from paper to polymer notes. It is one of only two companies that supply polymer substrate and the only polymer supplier that prints banknotes, and is doubling capacity in this area in 2021.

Polymer is hardier, and more difficult to forge as it allows additional features to be added. All UK banknotes are now polymer-based. Sterling has among the most technically challenging banknotes to produce in the world, according to De La Rue.

Each note takes up to six weeks to make at the Debden site. At the start of the process, vast rolls of unmarked polymer-based substrate sheets are fed into presses, while at the other end bundles of £10 and £20 notes are guillotined, trundling down a conveyor belt to trolleys and off to vaults that line the sides of the cavernous central area.

In the middle, there are five processes that layer on artwork alongside security threads and holographic foils. The Queen’s head is inked about halfway along. Much of the process is automated.

Security is naturally tight. Kidnapping is a risk to staff and theft is a concern — which means regular spot searches for workers and strict admittance rules through multiple gates after background security checks for visitors. Every note is accounted for each night.

Once UK banknotes have been printed, they are sold to members of the Note Circulation Scheme at a profit for the BoE.

They are then supplied to banks, ATM operators and merchants. Excess notes are recirculated, which means they are used many times without needing an overall increase in number.

Back from the brink

In recent months, De La Rue has won contracts to make close to two-thirds of the polymer for £5 and £10 notes for the UK, while also preparing the launch of the new £50 that features Alan Turing next month. 

The £20 is the most popular banknote — the “work horse”, as Vacher calls it — though he questions whether inflation will slowly make the new £50 more popular as a means of transaction.

Making money is again proving moneymaking for the company, which last year warned it was at risk of collapse given its high debt and falling profits. An £18m write off from bad debts at Venezuela’s central bank and a loss of the contract to make British passports to a French rival sparked fears over De La Rue’s future. 

A cost-cutting turnround plan under a new chief executive is starting to pay off: in a trading statement in April, De La Rue said operating profit for the financial year would be around the top end of its forecast range.

But even among the bustle of the Debden warehouse, there are fears the longer term popularity of cash is starting to wane in more developed nations. 

According to a survey by the BoE last year, a third of consumers expected to make more non-cash payments. Retailers have said cash payments should recover after the pandemic but few expect a return to pre-Covid levels.

“Covid may ultimately have longer lasting effects on cash than on electronic payments,” the BoE said in a report on the cash paradox.

When cash starts to decline, the fall can be rapid. In Sweden, cash payments fell by four-fifths in the decade after the 2008 financial crisis. According to a separate BoE report in 2019, “the UK may only be four to six years behind”.

Digital currency could be another problem for De La Rue. The BoE said last month that it was looking into whether a central bank-backed version was viable.

Vacher said the company was considering whether to develop its own digital currency technology to run alongside its more traditional money making.

“We have not yet made a big investment in central bank digital currency. We are looking for the right time to do it. We may well be making a move in that field.”

If it does, the Debden factory might not always be as busy as it is now.