55
maintain adequate backing. It could also relieve HMG from
any increase in its contingent liability. It does not imply that currency authorities now adequately covered must adopt the new arrangement; but it might well encourage some to make a
change in order to increase their income.
There are other factors to consider.
Although promotional companies assert that few collectors purchase coins with an eye
to their redeemability, it is a quality that is stressed in
some of the advertising see Annex 6(3) and its removal may
weaken demand in the market for coins issued without it. And
particularly if, as has been suggested might be desirable, new circulatory coins were also declared irredeemable there could
be some undermining of confidence in the local currency as a
whole as well as confusion about which coins were in fact
redeemable. These possibilities should probably not be
exaggerated, but if there were already some suspicion of, or
dissatisfaction with, numismatic coins, the market value of
new issues lacking redeemability could be more volatile, and
more likely to drop quickly to face value: and more of such coins would then be returned to the territory of origin to be
used at face value as legal tender. The volume of coins
available would tend to exceed the local demand for them.
Without any "buyer of last resort", however, they could soon
become unusable at face value and be dealt in at a discount, or
sold for their metal content. In order to avoid a fall in
value, therefore, it might become necessary to issue such
coins in the first place with a higher bullion proportion, because intrinsic value would become a more important support
for their market value. This is turn would probably be less attractive to the promotional companies.
(8) Removal of legal tender status and demonetisation. This course
would relate primarily to existing coin issues though it would
necessarily apply to future issues too. Its main objective
would be to limit convertibility/redeemability by deliberately
shortening the periods during which particular coin issues were
legal tender or redeemable.
Under existing legislation those territories with their own
domestic currency are required to exchange at face value all
notes and coins which cease (by their decision) to be legal
tender, and, subject to local variations, must continue to do
Page 60Page 61