TNAG-0765-FCO40-969-Minting-of-coins-for-Hong-Kong-1978 — Page 63

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The retention of legal tender status when redeemability is excluded is therefore a course that would present serious difficulties for several of the dependencies.

(9) Guarantees by promotional companies to repurchase redeemed coins.

The extent to which certain companies have already committed

themselves to such a scheme is covered in Section 8.3. With

the exception of Bermuda there appear to have been no formal

agreements, and there is no evidence that the repurchase

clause in their Italcambio contract has so far been activated.

Although such agreements would appear to offer some protection

in the short term, their efficacy in the longer term must be open to doubt. At present the companies would be willing to

repurchase at face value most of the coins offered to them

because if the coins are still in good condition they currently

attract a premium in the secondary market and may frequently

command a price higher than the original price. The critical

moment would be if the coin market should weaken for one reason

or another and the companies should then be unable to dispose

of the coins they have acquired. At such a time their continued existence would in any case be in question, unless they had

been able to diversify their operations and could offset their

losses on the numismatic side against their other business.

It is unlikely that under such conditions any company could

survive payment of anywhere near the total liability that could

be incurred from the coins issued by its clients.

None the less, if redeemability is to be maintained, there is a

case for encouraging such guarantees as they provide at least a

limited safeguard. They may also stimulate the companies to

reconsider some of the aspects of their programmes, particularly

their size. However, it would be necessary to guard against any quid pro quo which the companies may demand, eg a reduction in royalty payments. A formal agreement might not be achieved in the majority of cases as the companies would consider

themselves under no obligation (moral or otherwise) to indemnify

their clients against what is essentially a commercial risk.

The best that might be hoped for is an informal agreement which

would certainly last only as long as it remained profitable for the companies. It is also open to question whether the companies themselves might be bonded or otherwise guaranteed