Gilts to back £99 billion in banknotes under new framework
Sterling banknotes will be backed primarily by UK government bonds under a new long-term balance sheet framework. The Bank of England will retain £120 billion of long-dated gilts in the Asset Purchase Facility before transferring asset purchases directly to its Issue Department.
Long-dated bonds to anchor currency liabilities
Sterling banknotes recorded on the Bank of England balance sheet reached £99 billion in September 2026, comprising £94 billion in circulation and £5 billion backing Scottish and Northern Irish issuance.
Following the Monetary Policy Committee's decision to unwind monetary policy gilt holdings in full, the Bank will retain £120 billion of long-dated gilts in the Asset Purchase Facility (APF).
These bonds will back the banknote liability indirectly through an internal Issue Deposit until they begin maturing in 2049.
Once maturities begin, proceeds will be reinvested into gilts purchased on secondary markets and held directly on the Issue Department balance sheet, formalizing a permanent backing structure.
Statutory separation and cash holding trends
Under the Bank Charter Act 1844, note issuance remains separated in the Issue Department, distinct from Banking Department operations.
While cash transactions dropped from 58 percent of UK payments in 2009 to 8 percent in 2025, total circulation doubled as cash remained a store of value.
Between 2013 and July 2025, seigniorage payments from Issue Department to HM Treasury reached £19 billion.
The new strategy restores pre-2009 plans that were paused when large-scale quantitative easing began.
A pragmatic fix for balance sheet plumbing
Carving out £120 billion in long-dated gilts provides an elegant solution to the quantitative tightening timeline.
The structure shields secondary markets from unnecessary gilt sales while maintaining statutory backing requirements.
It is a pragmatic administrative alignment that removes long-term balance sheet ambiguity.
Source: The promise to pay: what backs banknotes?
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