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the use of this formula now appears superfluous, as numismatic coins have recently been excluded from the definition of demand liabilities, and thus from the backing requirement, and it is
unlikely that circulatory coins will ever again contain precious
metals.)
While theoretically attractive, there are practical drawbacks
to this scheme. One is the difficulty involved in calculating the bullion value of those coins outstanding at any given time. Where a territory has been involved in a number of programmes over a period of years, the specifications of the coins will
have been amended on several occasions to take account of the
fluctuations in bullion prices. Consequently, accurate records
would need to be maintained detailing the numbers of coins
minted with particular specifications. A greater problem, however, arises from the continuing instability of, particularly, gold prices. The frequent changes in these would require
regular amendments to the book value of the bullion accounted
for in the backing fund, and this could result in the need to
adjust, at excessively frequent intervals, the value of
securities, etc., held to balance the fund. There is also the problem (mentioned in Section 7.8 above) of providing foreign
exchange to meet redemption demands in advance of the
possibility of realising the proceeds of the bullion content of
the coins redeemed. We have no evidence that this facility has so far been used in any dependency.
(7) Renunciation of redeemability.
This course is, obviously, radically different. It would be a complete break with the traditional style of currency issue in the dependencies and indeed in many other countries (not just British-influenced
ones). But, paradoxically, it would also represent a switch to British domestic theory and practice.
As outlined in Section 7, the acceptability of local currencies
in UK dependencies has been regarded as largely dependent on
the right to obtain at a fixed rate an amount of external
currency (usually, in the past, sterling) in exchange for equivalent local physical currency (notes or coins). The explicit right of holders of physical currency to claim redemption/conversion in foreign exchange is sometimes omitted
in recent legislation there are no provisions to that effect