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coins are not intended for normal commercial transactions
it is an essential part of their definition that they should have legal tender status.
(ii) It was found that the volume of issues in more than oneecase was reaching disturbing proportions, particularly
because the total face value of numismatic coins issued was
already several times that of ordinary notes and coins in
circulation. In one case the programme did not conform
•
with the Currency Law which required that all notes and coins issued should be backed fully by assets in the
Currency Fund. The system of royalty payments and the quantity of coins issued virtually precluded the possibility
of complying with the Law. Apart from any legal implications the absence of adequate "backing" in foreign
exchange assets posed a potential threat to the
territories' financial position. In the event of
large-scale redemptions of coins, resulting from a
deterioration or even collapse in the bullion and/or coin
collectors' markets, the territories might be unable to meet implicit or explicit obligation to redeem the coins by
payment in an external currency, and HMG could thus be
placed in a position of having to meet a territory's
resultant deficiency.
(iii) The principles of the philosophy of currency
management in the overseas territories are based on the
"British model". Redeemability or convertibility of both
notes and coins of a local currency in terms of an external currency (originally sterling, now more usually US dollars) has been regarded as a condition of issue that is essential
for confidence. Even though the power to surrender notes
and coins for redemption has been confined in practice to the
commercial banks and even though the power of individual