i promise to pay the bearer on demand the sum of...

Generali

I have sent the following email to the Bank of England:

British bank notes have the words, “I promise to pay the bearer on demand” on them. If I want paying, what do I get in return for a five pound note please?

I will let you know their response.

Fiddlestick

Generali wrote: »

Lots of people in internet land will tell you that there is some intrinsic value to land or gold or silver or cigarettes or shells, all of which have been used as money down the ages. There isn't.

I'm not so sure about that.

The value in land is what you can do with it and any mineral or fishing rights that come with it.

With regards to gold, the value is that it's pretty and it's scarce.

ninky_2

i would say with money the value it represents is likely to fluctuate to a greater extent than other concrete assests like land. just in terms of bartering, land is likely to hold its value against food for example. it's not like everyone has to be confident in land for it to be worth something (although obviously you need to be confident in the laws of the land to a certain extent). with currency it really could just become worthless overnight. the lopinion of the ikelihood of this happening probably depends how many tin foil hats you have in your wardrobe.

ninky_2

Generali wrote: »

I have sent the following email to the Bank of England:



I will let you know their response.

i hope you mentioned it was of pressing interest to a forum user on mse and an inadequate response could lead to dire consequences.

ninky_2

this suggests that the gold standard was a way to stop inflation running out of control. since there is no longer any gold standard that must mean there is not proper safety net for inflation running out of control (and money becoming effectively worthless).

http://www.advfn.com/currencies/gbp/about/BritishPound.html

Having learned from the effects that inflation had on the financial market from the Restriction Period the Bank of England began to control the production of banknotes. This ensured that banknotes were only produced when there were gold reserves to back them. ......... The Bank of England tried to return to gold standard after the war, but gold standard could no longer continue to work in the growing financial market. From 1932 to the present day, the only limitation on issuing bank notes is that of the UK Parliament's approval.

FTBFun

This is really how money works:

(Homer finds $20 under the couch) "Twenty dollars? I wanted a peanut!" Brain: "Twenty dollars can buy many peanuts." Homer: "Explain..." Brain: "Money can be exchanged for goods and services" Homer: "... Woohoo!"

ninky_2

FTBFun wrote: »

This is really how money works:

what happens if homer finds the peanut first?

gagahouse

Radiantsoul wrote: »

Money isn't worthless. Or no more worthless than anything else. And whilst it may have value only based on confidence the same is true of gold.

And in reality the bank is a safe to store money.

Only if you deposit it as cash in a safe deposit box. If you deposit into a checking or savings account, it is no longer your money, you have loaned the money to the bank, your deposit is their liability on the balance sheet.

Your deposit in turn is lent out and becomes an asset of the bank until it is paid back. All very well and good if it stayed like that, but because of fractional reserve banking that deposit can be lent out up to 9 times depending the bank's reserve ratio requirement. This is what is known as leverage in the bank system.

Then with the invention of off balance sheet instruments like derivatives, the banks could circumvent the reserve ratio and got levered up to 30 times before they blew up.

It is because of this leverage that the banks had to be bailed out, else you would have all discovered that your "safe" deposits had actually been lent out many times over and couldn't be paid back.

I don't think many of you would have been happy to discover this and would have been out on the streets sharpish, the govt had to bail the banks out to bail you and themselves out of a very ugly situation.

Radiantsoul

gagahouse wrote: »

Only if you deposit it as cash in a safe deposit box. If you deposit into a checking or savings account, it is no longer your money, you have loaned the money to the bank, your deposit is their liability on the balance sheet.

Yes, yes. Franctional banking all very good.
But in reality how many people in the UK have actually lost money sticking it in a deposit account. And nothing is 100% safe.

Generali

ninky wrote: »

this suggests that the gold standard was a way to stop inflation running out of control. since there is no longer any gold standard that must mean there is not proper safety net for inflation running out of control (and money becoming effectively worthless).

http://www.advfn.com/currencies/gbp/about/BritishPound.html

Having learned from the effects that inflation had on the financial market from the Restriction Period the Bank of England began to control the production of banknotes. This ensured that banknotes were only produced when there were gold reserves to back them. ......... The Bank of England tried to return to gold standard after the war, but gold standard could no longer continue to work in the growing financial market. From 1932 to the present day, the only limitation on issuing bank notes is that of the UK Parliament's approval.

It does suggest that.

There is an historical idea that says that when the Conquistadores (sp) went to South America and brought back a load of Gold that created inflation and wrecked the Spanish economy. I have my doubts but it is a commonly held theory.

The way I see it is that economies will do well and they'll do badly from time to time. People will see an economy doing badly or well and try to fit a theory backwards to what happened.

Generally speaking, Government imposing too many taxes will ruin an economy. Then again, too little Government is also a mess in the end. Government isn't snake oil.

The Government can take taxes from you under threat of imprisonment and spend it how you see fit, remembering that every pound that the Government takes makes the economy a few pence less efficient as it messes with price signals in the market.