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The retention of legal tender status when redeemability is excluded is therefore a course that would present serious difficulties for several of the dependencies.
(9) Guarantees by promotional companies to repurchase redeemed coins.
The extent to which certain companies have already committed
themselves to such a scheme is covered in Section 8.3. With
the exception of Bermuda there appear to have been no formal
agreements, and there is no evidence that the repurchase
clause in their Italcambio contract has so far been activated.
Although such agreements would appear to offer some protection
in the short term, their efficacy in the longer term must be open to doubt. At present the companies would be willing to
repurchase at face value most of the coins offered to them
because if the coins are still in good condition they currently
attract a premium in the secondary market and may frequently
command a price higher than the original price. The critical
moment would be if the coin market should weaken for one reason
or another and the companies should then be unable to dispose
of the coins they have acquired. At such a time their continued existence would in any case be in question, unless they had
been able to diversify their operations and could offset their
losses on the numismatic side against their other business.
It is unlikely that under such conditions any company could
survive payment of anywhere near the total liability that could
be incurred from the coins issued by its clients.
None the less, if redeemability is to be maintained, there is a
case for encouraging such guarantees as they provide at least a
limited safeguard. They may also stimulate the companies to
reconsider some of the aspects of their programmes, particularly
their size. However, it would be necessary to guard against any quid pro quo which the companies may demand, eg a reduction in royalty payments. A formal agreement might not be achieved in the majority of cases as the companies would consider
themselves under no obligation (moral or otherwise) to indemnify
their clients against what is essentially a commercial risk.
The best that might be hoped for is an informal agreement which
would certainly last only as long as it remained profitable for the companies. It is also open to question whether the companies themselves might be bonded or otherwise guaranteed