TNAG-0765-FCO40-969-Minting-of-coins-for-Hong-Kong-1978 — Page 59

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in the Belize Monetary Authority's legislation (1976). is because physical currency is a less important component of the total money supply than formerly, because in practice

exchange control is often a hindrance to automatic convertibility

so far as residents of the territories are concerned, and because

it has increasingly come to be realised that the purchasing power of the monetary assets held by the public does not depend

entirely on the value of the external assets held to back the

physical currency. But the principle is still maintained that physical currencies should be backed 100% by specified assets. These have to be largely in foreign exchange, though most currency authorities now possess, and many have implemented,

powers to "dilute" the backing up to a specified maximum with

approved domestic assets, such as Government securities. But

convertibility, in theory if not in practice, is still assured

by the foreign exchange backing, and it enhances the confidence of holders of the currency: they have the power to exchange

their holdings for an external asset with a value independent

of the local territory.

To renounce the right to redeemability/convertibility of holders

of future numismatic coins would clearly dispense the issuing

authority from all obligation to hold any backing at all in

respect of them. It would be preferable that all legal tender

coins should be treated consistently, and there will probably

be more numismatic coins issued than the circulatory kind;

this renunciation should therefore apply to future issues of circulatory coins as well.

In principle, this course should not affect the legal tender

status of either type of coin. This position has been

achieved already in Bermuda where, however, the Monetary

Authority still provides full backing in foreign exchange for

its circulatory coins.

The immediate problem arising from this course would clearly be

its implications for existing coins of both types and for the

rights of convertibility/redemption attaching to them. It

would doubtless be inequitable to remove existing rights.

But on the assumption that these rights were unchanged, this

course would certainly serve to limit (once for all) the risks

accepted by those issuing authorities that cannot or will not