Comments on "The Decimal Coins of the Sterling Area"

[<k>]

Scotland and Northern Ireland have their own banknotes, while Jersey, Guernsey and the Isle of Man have their own coins and banknotes. While Wikipedia maintains that the Crown Dependencies are part of the sterling system, and that they do not possess their own separate pounds or currencies, this paper reaches the tentative conclusion (due to the lack of transparency of these systems) that their systems are "currency-board-like" - even if they are not orthodox currency boards. I note also that, during the debate about which currency an independent Scotland might use, the UK Chancellor, George Osborne, pointed out that the Channel Isles and the Isle of of Man ran currency boards.

The paper is rather technical in parts, so you may wish to skip to the "Conclusion" on page 39.

The currency systems of the United Kingdom periphery.

[AardHawk]

Scotland and Northern Ireland have their own banknotes

That is not strictly true. They have banks that issue there own banknotes that circulate alongside standard UK banknotes.

[<k>]

That is not strictly true. They have banks that issue there own banknotes that circulate alongside standard UK banknotes.

Well, then it is partly true. They have their own banknotes from their own banks, that circulate alongside Bank of England notes. Strictly speaking, Bank of England notes are only legal tender within England and Wales - but "legal tender" is a narrowly technical term, of course, and which notes people accept is up to them. Scottish and Northern Irish notes are legal tender nowhere - not even in Scotland and Northern Ireland.

Anyway, welcome to the forum, AardHawk. I hope you'll have fun debating things here.

[Alan71]

While Wikipedia maintains that the Crown Dependencies are part of the sterling system, and that they do not possess their own separate pounds or currencies, this paper reaches the tentative conclusion (due to the lack of transparency of these systems) that their systems are "currency-board-like" - even if they are not orthodox currency boards.

The reasoning for Wikipedia stating that, as you will have seen, is this (which has a source listed):
"Whilst ISO 4217 does not include a separate currency code for the Manx / Guernsey / Jersey pound, where code distinct from GBP is desired IMP / GGP / JEP is generally used."

I've always seen the Manx / Guernsey / Jersey pounds as sterling.  Their individual claims to have their own pounds is really just self-importance and vanity isn't it?  Having said that, I don't really understand why the Gibraltar, Falklands and St Helena pounds are considered separate currencies on a par with sterling, and the Crown Dependencies' pounds aren't.  They apply to small populations and could hardly survive as currencies on their own.  It's more of a technicality isn't it?  If the UK adopted another currency (as there was talk of at the turn of this century with the Euro, although the ship has clearly sailed on that now) then these territories would surely follow suit.

[<k>]

Given what George Osborne said, I'd have to concede that the arrangements of the Crown Dependencies are currency boards, all but damn it. Therefore they are separate currencies, which is presumably why they are not legal tender in the UK.

Currency boards are self-financing, and therefore a cheap way for a small state or territory to run its own currency. A currency board backs its currency with someone else's (sometimes maybe a basket of currencies). If somebody banks 1000 UK sterling in a Jersey bank, it will make interest. If they come back later and withdraw 100 pounds, the bank will give them 100 Jersey pounds  - but the 100 UK sterling backing it still stays in the bank and earns interest, while the 100 Jersey pounds circulate around the island. Sneaky, eh? But it's all perfectly legal.

The Crow Dependencies have a large amount of autonomy, so if they decided to use the euro, rather than the pound, the UK government might be displeased but would probably not try to stop it. If, however, they decided to use the renminbi, the UK government would probably bring enough pressure to bear that they dropped the idea.

So, it's a complex situation. Have a read of this:

There are only four basic currency systems in the world.

If you consider that a state currency and a currency union are both run by a single central bank, then you could say that there are only three systems: a central bank currency; a currency board; and dollarisation.

[Figleaf]

I can think of a scenario where the distinction between a currency board and local banknotes of another currency does matter. I'll illustrate it with and example.

Local banknotes: a rogue officer of a banknote-issuing bank prints a few more notes than allowed by the UK exchequer and buys himself a nicer house and a big boat with the extras. He is found out and transferred to the bank's Syria office. The extra banknotes are the responsibility of the bank. It will have to repay them to the UK exchequer. If the bank can't pay, it will be declared bankrupt or taken over by the government. The value of the currency is in no case affected.

Currency board: the authorities are always late transferring subsidies to town governments. They can't pay their civil servants in full. The towns issue credit notes denominated in GBP. While they are illegal, the townspeople have enough trust in the local government and official banknotes are scarce. The credit notes start to circulate. This increases the money supply, while the credit notes are not covered by the reserves of the currency board. The extra banknotes are the responsibility of the towns. They will have to withdraw them against official banknotes. If they can't and the deficit cannot be covered with new government bonds, the currency board system is broken and a local currency reform (read: devaluation) is necessary. The UK exchequer is not concerned and does not need to do anything to restore order.

In case the second scenario looks familiar to you, that is what happened in Argentina when it was on a currency board system, covering their own money with USD reserves. The Fed was of course not concerned. It made no attempt to help Argentina cover the deficit. Chaos, panic and devaluation ensued.

Peter

[AardHawk]

Well, then it is partly true. They have their own banknotes from their own banks, that circulate alongside Bank of England notes.

You were implying that Scotland authorised the issuance of banknotes in Scotland. That is not true. The Bank of England controls the supply of banknotes through out the United Kingdom. They instruct the three Scottish and four NI banks to issue banknotes. Its not those banks who make the decision. Refer here for details ==> http://www.bankofengland.co.uk/banknotes/Pages/about/scottish_northernireland.aspx

As you point out the term Legal Tender has no meaning in Scotland. Refer here for details ==> http://www.scotbanks.org.uk/legal_position.php 

Thanks for the welcome.

[<k>]

I wrote that "Scotland and Northern Ireland have their own banknotes", and if you go there, you'll find that's true. It was too general a statement to imply very much, though it's good to have a clearer definition. You yourself referred to "standard UK banknotes", though technically there are no such things, but I knew what you meant. Perhaps Figleaf could enlighten us on the technicalities of the banknotes that are issued by separate individual banks.  Are you a Scot yourself, BTW?

[AardHawk]

Are you a Scot yourself, BTW?

Why do you ask? Do you think I'm likely to be trouble?

With regard to the banknotes, the point I was poorly making, was that I interpreted from your original statement that, that you thought, that the ONLY banknotes in circulation were those that were issued by the authorities in those respective regions of the UK. I was simply stating that that was not the case. The Bank of England, as the agent for the United Kingdom government, is responsible for the issuance of banknotes for the whole of the UK. It issues the standard banknotes though out the UK. If it feels that the supply of banknotes has fallen in Scotland and/or NI it can issue more standard UK banknotes in those regions directly, or it can ask the local banks to arrange for the issuance of more banknotes of their own design. in those regions.

Just to really annoy the Scots, you can look at their local issues, in a similar vain to commemorative £2 coins, that just happen to be issued, more in one region than another. 

[<k>]

All clear, then. 

Why do you ask? Do you think I'm likely to be trouble?

I said nothing about trouble. Scots come in all flavours, like everybody else. I am English but have Scottish and Irish blood in me, and goodness knows what else.

[eurocoin]

* Tristan da Cunha has in recent years issued COLLECTOR sets in its own name, and in the name of three of its uninhabited islands: Gough Island, Nightingale Island, and Stoltenhoff Island. The three islands have no legal autonomy, and the collector sets issued in their name (which do NOT circulate) are to be regarded as legally authorised collector coins of Tristan da Cunha.

According to someone from Tristan da Cunha:

"We use UK currency and we also have a Tristan Da Cunha £5 coin currently in circulation. We can also accept any Tristan coins produced by the Commonwealth Mint as legal tender on the island. We also accept SAR (Rands), Euros and American Dollars."

[<k>]

Thank you, Niels. According to Wikipedia:

Tristan da Cunha is both a remote group of volcanic islands in the south Atlantic Ocean and the main island of that group. It is the most remote inhabited archipelago in the world, lying 2000 kilometres (1200 miles) from the nearest inhabited land, Saint Helena, and 2400 kilometres (1500 miles) from the nearest continental land, South Africa.

You will notice that the statement did NOT say that TDC uses the banknotes and coinage of St Helena and Ascension - and precisely because it does not!

More from Wikipedia:

Saint Helena, Ascension and Tristan da Cunha is a British Overseas Territory in the southern Atlantic Ocean, consisting of the island of Saint Helena, Ascension Island and the archipelago of Tristan da Cunha. It was known as Saint Helena and Dependencies until 1 September 2009, when a new constitution came into force giving the three islands equal status within the territory.

Given the distance of TDC from St Helena and Ascension, it is perhaps not surprising that TDC does not use the St Helena and Ascension banknotes or coinage - and in fact the coinage carries the legend "ST. HELENA + ASCENSION"; Tristan da Cunha is not included.

It's interesting to read that a TDC 5 pound coin is in circulation. Recently there has been controversy in the UK, because some shops and banks have refused to accept 5 pound coins and collector coins of even higher denominations. The population of TDC is currently only 267.

[<k>]

Here is a list of the main countries / dependencies / territories that I have included in this topic:

UK
Isle of Man
Jersey
Guernsey
Gibraltar
Falkland Islands
St Helena-Ascension
Ireland

Only the Royal Mint has produced UK coins, but Pobjoy Mint and the Tower Mint have sometimes produced coins for the territories and/or dependencies. Have any other mints besides these done so? I am referring mainly to circulation coins, but you may wish to mention collector pieces. Ireland's pre-euro coins were produced both at the Royal Mint and in Ireland, of course.

[eurocoin]

Jersey: Some collectors coins at the York Mint
Saint Helena and Ascension: At least 1 collectors coin at the Valcambi Mint
Ireland: 1 circulating coin at the Hungary State Mint
Gibraltar: At least 1 collectors coin at the Royal Canadian Mint

[<k>]

Jersey: Some collectors coins at the York Mint
Saint Helena and Ascension: At least 1 collectors coin at the Valcambi Mint
Ireland: 1 circulating coin at the Hungary State Mint
Gibraltar: At least 1 collectors coin at the Royal Canadian Mint

I can't find a link to York - is it still going? And Hungary, indeed - that's a surprise.