54
G
This
in the Belize Monetary Authority's legislation (1976). is because physical currency is a less important component of the total money supply than formerly, because in practice exchange control is often a hindrance to automatic convertibility
so far as residents of the territories are concerned, and because
it has increasingly come to be realised that the purchasing power of the monetary assets held by the public does not depend
entirely on the value of the external assets held to back the
physical currency. But the principle is still maintained that
physical currencies should be backed 100% by specified assets. These have to be largely in foreign exchange, though most currency authorities now possess, and many have implemented,
powers to "dilute" the backing up to a specified maximum with
approved domestic assets, such as Government securities. But
convertibility, in theory if not in practice, is still assured
by the foreign exchange backing, and it enhances the confidence of holders of the currency: they have the power to exchange
their holdings for an external asset with a value independent
of the local territory.
To renounce the right to redeemability/convertibility of holders
of future numismatic coins would clearly dispense the issuing authority from all obligation to hold any backing at all in
respect of them. It would be preferable that all legal tender
coins should be treated consistently, and there will probably
be more numismatic coins issued than the circulatory kind;
this renunciation should therefore apply to future issues of
circulatory coins as well.
In principle, this course should not affect the legal tender
status of either type of coin. This position has been achieved already in Bermuda where, however, the Monetary Authority still provides full backing in foreign exchange for
its circulatory coins.
The immediate problem arising from this course would clearly be its implications for existing coins of both types and for the
rights of convertibility/redemption attaching to them. It would doubtless be inequitable to remove existing rights.
But on the assumption that these rights were unchanged, this
course would certainly serve to limit (once for all) the risks
accepted by those issuing authorities that cannot or will not