TNAG-0717-FCO40-914-Banking-and-monetary-matters-in-the-Dependent-Territories-is-1978 — Page 143

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notes in circulation; and these funds of course provide a

source of revenue for the governments concerned from the interest

earned on the securities that constitute the funds.

However,

the basis on which numismatic coins have been marketed through

the US companies, ie, with royalty payments representing a relatively low proportion of face value, virtually precludes

any attempt to provide substantial backing in these cases.

Those territories for which the discrepancy between face value

and royalty receipts is largest are the most prolific suppliers of the coin market so far as our survey is concerned. Had the

number (and value) of coins been relatively low it might have been possible to provide adequate cover by pooling the royalty receipts and funds transferred from, say, the ordinary

operating profits of the issuing authority (in those cases

where such an institution exists); but it would be an incongruous

and unsatisfactory use of separate funds to divert them for such

a purpose. Further, in all but Tuvalu, Belize and Falkland

Islands the shortfall between royalty receipts and the face

value liability is now almost certainly too large for the diversion of assets from elsewhere to form an adequate backing

fund unless this was achieved over an unsatisfactorily long

period. Moreover, the setting aside of even the royalty

payments, let alone additional funds, even though they may

earn interest, may be argued to defeat the object of the

numismatic issues, namely to maximise revenue for the issuing

authority concerned.

The adoption of this course for the future (contractual ties

would in most cases prevent it happening quickly) would imply a

movement to the "Royal Mint" type of contract (see Section 8.4). This would involve probably both lower royalties (in an

absolute sense) and lower incomes because most or all of the

royalty would have to be invested to constitute the backing

fund. Subject to this, several dependencies would have to

amend their legislation or introduce new legislation in order

to comply: in the former category would be Bermuda and the

Solomons, in the latter BVI, the Turks and Caicos and

Gibraltar.

(5) Provide for some cover against redemption, but less than 100%.

This course relies on an assessment of acceptable risk. We do not have enough evidence from actual redemptions, nor can we