Interesting update to this post stephankinsella/2010/03/the-bank-of-england-and-me/: *** I just received (Jan 24, 2015) an interesting bit of correspondence about this: Dear Mr Kinsella, I was just reading an excellent Economist article [1] that pointed me to your own article [2]: [1] economist/blogs/freeexchange/2015/01/switzerlands-monetary-policy -- 21Jan15, by Simon Cox [2] stephankinsella/2010/03/the-bank-of-england-and-me -- 21Mar10, by you In Sep10, I wrote to Andrew Bailey, (BoE Chief Cashier at the time), along the same lines: ... On every banknote, you make a promise to pay the bearer on demand the sum of... pounds. Which begs the question: how could I take you up on this promise?? If I walked into the Bank of England (well I dont suppose I would get through security, but lets ignore that practical detail for a moment) with a tenner say, and asked to call in that particular promise, the what would you do? Hand me another tenner in exchange for mine I suppose? Remarkably, Mr Bailey took the time and trouble to reply. In case you are interested, I have appended our correspondence below. Yours sincerely, [A.] ... -------- 27 Sep 10 -------- Subject: How could I take you up on your promise?? Mon, 27 Sep 2010 14:40 From: [A.] To: Andrew Bailey Dear Mr Bailey, I just enjoyed your short interview The man who signs your banknotes on BBC News (news.bbc.co.uk/1/hi/business/7883393.stm). I am very glad to hear you would like to see more fivers in circulation:-) Anyway, there is a conundrum that probably has no sensible answer, but if anyone has one it surely must be you... On every banknote, you make a promise to pay the bearer on demand the sum of... pounds. Which begs the question: how could I take you up on this promise?? If I walked into the Bank of England (well I dont suppose I would get through security, but lets ignore that practical detail for a moment) with a tenner say, and asked to call in that particular promise, the what would you do? Hand me another tenner in exchange for mine I suppose? It all seems rather circular and pointless. Yes I know a little about the gold standard. It just tickles me that the most(?) widely published promise is, actually, meaningless (unless I am missing something). Regards, [A.] -------- 30 Sep 10 -------- Thu, 30 Sep 2010 07:34 From: Andrew Bailey Dear [A.] Thanks for getting in touch. There is a point to the Promise to Pay but it isnt quite the purpose that my forebears had in mind. You are correct that in the past, the Promise was a commitment to convert into gold. Convertibility came to an end around eighty years ago, and hence the Promise is today a commitment to exchange one banknote for another. There is however one area where the Promise has real meaning. A Bank of England note can always be exchanged at the Banks counter. From time to time we withdraw a note design from circulation and issue a new more secure design. After a period of co-circulation while the changeover takes place, we withdraw legal tender status from the old design. A fairly small proportion of the old notes are not returned before legal tender status is withdrawn. However, all Bank of England notes, however old, will always be honoured and exchanged by the Bank. In this sense the Promise is a commitment to exchange at all times for a current note. I hope this helps Andrew 11:47 From: [A.] Dear Andrew, Thank you very much for taking the time to reply, which I read with much interest. It certainly does help, and I must say I am very happy to hear that it isn’t actually meaningless! Regards, [A.] *** Further comments from the same correspondent: They probably get asked a few times. After all, when you print something a billion times, thats somewhat meaningless, it isnt really surprising. And theres no really good answer to the question: fiat money is based on trust, belief and credibility. Hence the imposing (physical) architecture of the BoEs premises. And another from one of his ccs: About a dozen years ago, I remember reading about a student art project called the monetary inquiry association by Simon Goldin. The student asked the BoE to make good on its promise of ten pounds. The results were amusing. He also wrote to a bunch of experts asking them to define money. Most provided boring textbook answers. One economist however explained that money was memory. Anthony Horsley of LSE also gave a thoughtful reply if I recall correctly. Youve just prompted me to look it up on the interweb. Its still there. Heres the link: library.uniteddiversity.coop/Money_and_Economics/MIA_Progress_Report.pdf stephankinsella/2010/03/the-bank-of-england-and-me/
Posted on: Sat, 24 Jan 2015 21:40:42 +0000
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