TNAG-0765-FCO40-969-Minting-of-coins-for-Hong-Kong-1978 — Page 57

-

52

It would go beyond the scope of this survey to consider whether notes need 100% cover; but there is a case for

avoiding as far as possible the creation of two classes of coins for legal and balance sheet purposes. Indeed the adoption of less than 100% cover for circulatory coins may

arguably present less of a risk than it does for numismatic

coins: circulatory coins are (in some cases) fewer, they have no large denominations and a hard core of them is always likely to be needed locally as small change. The chances of large- scale redemptions in their case are small, whereas the circulation of notes is normally subject to greater fluctuation

both seasonally and in accordance with economic activity, so

that a pattern of both issues and redemptions is usual. (b) is

thus, on the whole, the best form this option could take.

There is a general case for avoiding differential treatment for

notes and coins: both are in a sense interchangeable as legal tender, and the distinction between them in that respect concerns their endurance and handling qualities. It is not a matter of principle. But, on the one hand there is the example

of British practice (as described in Section 6 above) in issuing

and accounting for them, which differs markedly for largely

historical reasons from that of notes; and, on the other hand,

the growth of the numismatic coin market has produced a large

class of distinctive coins. It is a matter for judgment whether

the dictinction between two categories of currency should be

widened further.

+

(6) Inclusion of bullion content as backing asset. A partial

remedy to achieve a 100% backing requirement would be to allow

for the inclusion as an asset in the issuing authority's

balance sheet of the bullion content of the coins. However,

in the case of those programmes which give most cause for

concern (BVI, Cayman Islands, Turks and Caicos Islands), the

bullion value is very considerably lower than face value, and even when combined with the royalties (from US companies) it would be inadequate to provide full cover. This approach has

been provided for in recent legislation (in the Gilbert Islands,

Tuvalu and the Solomon Islands and in the Falkland Islands

draft currency legislation) to help to satisfy the provisions for backing. It is not mandatory. (In the Solomons example