TNAG-0717-FCO40-914-Banking-and-monetary-matters-in-the-Dependent-Territories-is-1978 — Page 15

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to convert it into external currency has at times been restricted by

exchange control measures, the underlying principle of automatic

convertibility, for a small commission or charge, has remained. Notes

have always, and coins have increasingly, been tokens, with little or no

intrinsic value, and the value of the "backing" assets into which they

could be converted has thus been important. Normal practice has been to

legislate for 100% backing for local currency in liquid and/or marketable

assets in a specified external currency. Often the physical currency is

included as one form of liability in the wider category of the "demand

liabilities" of the issuing authority along with deposits that may be

placed with the issuing authority. Subject to cautiously-worded

provisions a facility is often also given for a proportion of the backing

to be held in specified local securities: so long as there is

redeemability in an external currency this facility must obviously be

limited, though it is normally safe to assume that a "hard core" of local

currency will always remain in circulation.

Reasons for the survey. During 1976 it became increasingly

evident that numismatic coin programmes in certain dependencies (chiefly

in the Caribbean area) were not only of questionable legality but also

constituted a substantial contingent liability for H.M. Government.

It was felt that in some territories the volume of issues was reaching

disturbing proportions, particularly because the total face value of

numismatic coins issued was already several times that of ordinary notes

and coins in circulation. In one case the programme did not conform

with the local Currency Law which required that all notes and coins

issued should be backed fully by assets held in the Currency Fund. The

system of royalty payments and the quantity of coins issued virtually

precluded the possibility of complying with the Law. Apart from any

legal implications the absence of adequate "backing" in foreign exchange

assets posed a potential threat to the financial position of a number of

It was felt that in the event of large-scale redemptions

territories.

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