Where is our money?

The recent Maastricht Letter on Ireland’s financial position released by the Department of Finance shows that the government expects to have €24.8 billion of cash in working balances at the end of 2011, up from €18.7 billion at the end of 2010.  The increase is our cash balances is largely the result of frontloading of our borrowing from the EU/IMF package and the reduced cost to the State of this year’s bank recapitalisation programme.

The ESRI have recommended that “significant interest savings could be achieved by reducing the holdings of cash”.  This is on the basis that the interest cost of our debt is greater than the interest gain from our deposits.

So where are we keeping close to €25 billion of cash?  Here are deposits from Irish residents in all banks operating in Ireland.

Deposits from government in banks operating in Ireland were €2.8 billion in September 2011.  Of this, €2.4 billion was in the covered banks (AIB, BOI, PTSB), while €0.4 billion was in non-covered domestic banks (Ulster Bank etc.).  There were no deposits in other (IFSC) banks.

Deposits from government did rise to over €20 billion from April to June of this year, but that was the money set aside for the recapitalisation of the banks as we discussed here.  Since July, government deposits have returned to less than €3 billion.

So, if we are supposed to have almost €25 billion of cash at the end of the year where (or what) is it?  Do the NTMA have it?  Are they then included in the Financial Institutions or Private Sector deposits in the banks? Is the increase in cash balances of the State giving the false impression that deposits in Irish banks have stabilised?

As suggested by the ESRI it does seem costly to have a debt of €170 billion, while at the same time having  €25 billion in cash.