TNAG-0717-FCO40-914-Banking-and-monetary-matters-in-the-Dependent-Territories-is-1978 — Page 146

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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