So I live in Canada, and work at a currency exchange place. On the British (20, in this case) pound notes it says: “I promise to pay the bearer on demand the sum of twenty pounds” and it’s signed by the Secretary of the Treasury or whoever.
But that note is 20 pounds, no?
So if that’s a promissory note, what are actual pounds? If you went to the Bank of England and asked them to follow through on that promise, what would they give you?
Wiki: “There is some uncertainty as to the origin of the term “pound sterling”. Some sources say it dates back to Anglo-Saxon times, when coins called sterlings were minted from silver; 240 of these sterlings weighed one pound, and large payments came to be made in “pounds of sterlings”. Other references, including the Oxford English Dictionary, say a sterling was a silver penny used in England by the Normans, and date the term to around 1300.”
It’s an interesting question, I’d never thought about it before.
It gets yet more interesting when you factor in the differences between England and Wales on one side, and Scotland and Northern Ireland on the other, which between them have different issuers and rules for what’s considered legal tender as far as banknotes go.
If I remember correctly, a Scottish banknote is a promissary note, and not legal tender (and in fact sometimes you might have a Scottish note refused down here, though generally they’re accepted). And an English banknote isn’t legal tender in Scotland. I can’t even remember how it works with NI in the system. In practice, it doesn’t really seem to matter that much.
I wonder if there are any laws that relieve banks from that particular promise. Would be rather funny if people turned up with fivers demanding five pounds in sterling silver. (Which would probably be worth over 400 British pounds).
A pound sterling is a coin that at one time was the equivalent of a (Troy) pound (12 Troy ounces) of silver. Several hundred years of inflation have reduced that value a bit, of course.
A bank note (paper money) is a piece of paper that says some ogranization – a bank or a government body – will pay to the person holding it, on demand, a given amount, its face value. A pound note would be worth one pound in coins, a 20-pound note, 20 pounds in coins.
All bank notes are promises. Just like I.O.U.'s they have no real value of their own, after all they are just pieces of paper. They were invented as a convenient way to carry capital & purchase goods. A bank note is just a promise from the bank that it will exchange the paper note for it’s monetary value in gold which it held in it’s vaults.
Up until recently (the last 50 or so years i think) you could have taken any bank note to the bank and exchanged it for it’s value in gold or other valuable commodity. It can’t be done now though as there is no longer enough gold in the world’s banks to insure against the amount of cash in circulation. That is why there is more & more cash in circulation every year yet the amount of gold on the planet stays relatively constant. All money now is credit/debt and is accepted purely on faith as it has no real value of its own. If the world lost trust in cash all paper money would be worthless.
Today most ‘money’ doesn’t even exist as cash, its purely virtual credit on computers & credit cards and is mostly created out of thin air. Banks can loan out nine times the amount of money it holds in it vaults. If it loans a portion of that money to another bank then that bank can loan out that portion multiplied by nine and so on! So if you take out a loan from the bank they really aren’t giving you any of their own money at all!
Regarding the UK, I’ll take your word for it. But in the US, they stopped making Gold Certificates and Silver Certificates (which bore wording very similar to that of the OP) several decades ago. Current currency are "Federal Reserve Note"s, which make no such promises at all.
I’m frankly surprised that the promises are still being made on the UK currency. Has anyone tried to redeem them?
It’s more complicated than that. Scottish banks have to have Bank of England cash held to the value of the notes they issue, and IIRC, under Scottish law, only Bank of England banknotes with a value of under five pounds are legal tender. (Yes, I typed that correctly.)
Anyway, legal tender is not synonymous with ‘valid currency’, and any trader anywhere in the UK is entitled to refuse any form of payment they do not wish to deal with. Legal tender is to do with repayments of debt, in that if a payment in legal tender is refused, the debtor cannot be sued for non-payment. If no debt exists, the point is moot. Large quantities of small change are not legal tender, either, to prevent a debtor offering a sack of pennies and the creditor being obliged to accept.
Neither - having been withdrawn, they’re not legal tender at all, although all banknotes of any age can still be exchanged for face value at the Bank of England itself. You picked up on the point, that there’s no legal tender banknotes in Scotland.
As i metioned in my post, you can no longer redeem bank notes for gold in the UK but that was the original promise. Now they just try to tell us that the paper note is the item of value!
Things are only valuable through scarcity, the rarer something is, the more valuable it is. There is more money in the world than ever before so how how can these billions of notes be of any real worth!?
I have a little pebble that I found in my backyard. I guarantee that there is no other quite like it anywhere in the world. It is the only one. You can have it for $1,000,000,000 (although obviously it is worth a lot more than that).