12
local currency into a more desirable external currency, there is no
backing of external and/or other assets to be held against the coinage
liability. The receipts of issue are treated as income and not as
capital sums to be invested pending a future need to discharge the
liability.
6.6
J
(Notes
With notes, on the other hand, the position is different.
Notes were originally issued as substitutes for coins or for bullion,
as evidence of debt or IOUS which were issued only against equivalent
value and which could be exchanged on demand for coins or bullion.
This concept of repayment has become a fiction although it has been
perpetuated by the formula "I promise to pay the bearer..." on Bank of
England notes, which is given plausibility by the interpretation that
one note is always exchangeable through the Bank for another note or
notes of the same face value. This is now the only sense in which
notes can strictly be said to be "redeemable" in the hands of the public a situation which is relevant for practical purposes only
when notes of a particular issue cease to be legal tender.
can, of course, also be exchanged for a bank deposit.)
6.7
But in a broader sense surplus notes held by the banking
system can be redeemed at any time in exchange for balances at the
Bank of England, and these balances can in turn, through the mechanism
of the Bank's Issue Department (formally the issuing authority operated
on behalf of HMG), be exchanged for other financial assets such as
British Government securities and, subject to exchange control
limitations, assets abroad. Notes are liabilities of the Issue
Department and at all times "backed" by assets, mainly Government
securities. Only in this very limited sense are they "redeemable".
7. PRACTICE IN UK DEPENDENT TERRITORIES
7.1
The treatment of currency as regards its "backing" in these
territories (as well as in many countries which were formerly UK
dependencies) tends to reflect UK doctrine rather than UK practice.
7.2
The background is the former widespread use of British currency in British colonial territories. Particularly in those areas
that were economically most backward, coins were the main element in
the money supply until quite recently. However, though the pattern
was not uniform, until the first two decades of this century there
were few examples of conscious policy in currency matters by the British
authorities. Coins and tokens of European and local origin circulated
alongside British coins. In 1912 a Treasury witness, speaking to
Page 105Page 106