TNAG-0765-FCO40-969-Minting-of-coins-for-Hong-Kong-1978 — Page 56

51

form a clear enough picture of the market, to justify easily a particular proportion. Some countries have adopted a proportion on, presumably, a "best guess" principle, and this

might be the most that could be done. It would not seem

reasonable simply to calculate as the required backing whatever proportion accumulated royalty income happened to form to the actual liability unless that income was a fairly high proportion of face values (as under the Royal Mint contracts). Clearly, cover of, say, 70% would look reasonably satisfactory, even if this was not combined with bullion content to produce 100% (or more) cover see Course 6 below.

It is also for consideration whether 100% cover in foreign

exchange is needed (in cases where a domestic currency exists).

Most issuing authorities now hold a proportion of assets other

than external ones to back currency and other liabilities.

But the more explicit is the liability to redeem in foreign exchange, and the greater a country's general reliance on its external transactions, the more need to keep a high proportion of foreign exchange assets in the backing.

This course would do nothing to reduce the liability to redeem,

where this exists: but it should be more than a device merely

to regularise the practice in those territories which cannot hold 100% cover because the royalties are too low a proportion of face value. To achieve a higher proportion, there would again be the problem of finding funds from other sources, while cover is built up over a period from other income.

This course also raises the question whether there should be

separate treatment for numismatic and circulatory coins (and notes). Traditionally, it has been the practice to make no distinction, for balance sheet purposes, between notes and coin with the important exceptions of the UK itself, Bermuda

and, of course, those territories such as Gibraltar and the Falkland Islands where only the notes are at present issued locally. It would be possible to have either:

G

(a)

100% cover for the circulatory notes and coins and X%

cover for numismatic coins;

(b) 100% cover for circulatory notes and X% cover for

circulatory and numismatic coins;

(c) X% cover for all notes and coins.