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==The question of legal tender==
==The question of legal tender==
The concept of "[[legal tender]]" is a narrow technical definition that refers to the settlement of debt, and it has little practical meaning in everyday transactions such as buying goods in shops (but does apply to the settling of a restaurant bill, where the food has been eaten prior to demand for payment).
The concept of "[[legal tender]]" is a narrow technical definition that refers to the settlement of debt, and it has little practical meaning in everyday transactions such as buying goods in shops (but does apply to the settling of a restaurant bill, where the food has been eaten prior to demand for payment.{{fact}})


Banknotes do not have to be classed as legal tender to be acceptable for trade; millions of retail transactions are carried out in the UK using cheques, or debit or credit cards, none of which is a payment using legal tender. Acceptability as a means of payment is essentially a matter for agreement between the parties involved.<ref name="bankofengland_faqs">{{cite web
Banknotes do not have to be classed as legal tender to be acceptable for trade; millions of retail transactions are carried out in the UK using cheques, or debit or credit cards, none of which is a payment using legal tender. Acceptability as a means of payment is essentially a matter for agreement between the parties involved.<ref name="bankofengland_faqs">{{cite web

Revision as of 19:32, 4 June 2008

Banknotes of the pound sterling
File:Pound sterling banknotes fan.png
Pound sterling banknotesthe British Islands
ISO 4217
CodeGBP (numeric: 826)
Subunit0.01
Unit
Symbol£‎
Denominations
Subunit
 1/100penny
Symbol
 pennyp
Banknotes
 Freq. used£1 (Channel Islands, Scot. only),
£5, £10, £20
 Rarely used£50,

£100 (Scot., N. Ire. only),

higher values exist such as £100,000,000 (Titan) bank note, however, usage is restricted[1]
Demographics
User(s) England,  Wales,
 Scotland, Northern Ireland
 Jersey,  Guernsey,
 Isle of Man
 Falkland Islands,  Gibraltar,  Saint Helena
Issuance
Central bankBank of England
 Websitewww.bankofengland.co.uk
PrinterIssuing banks:

English (inc.Wales) notes:

Bank of England

Scottish notes:

Bank of Scotland
Royal Bank of Scotland
Clydesdale Bank

Northern Irish notes:

Northern Bank
First Trust Bank
Ulster Bank
Bank of Ireland

Crown dependencies:

States of Guernsey
States of Jersey
Isle of Man Government

Note printer:

De La Rue

Sterling banknotes are the banknotes of the United Kingdom and British Islands, denominated in pounds sterling (symbol: £; ISO 4217 currency code GBP). One pound is equivalent to 100 pence.

The pound is the official currency of the United Kingdom, the Crown dependencies of Britain and three British Overseas Territories. In these areas, seven retail banks have the right to print their own banknotes in addition to the Bank of England and the dependency and territorial governments. Unlike most other countries, banknote issue in Britain is not automatically tied in with one national identity or the activity of the state.

History

Until the middle of the nineteenth century, privately owned banks in Great Britain and Ireland were free to issue their own banknotes and money issued by provincial English,[2][3][4] Welsh,[5] Scottish[6] and Irish banking companies circulated freely as a means of payment. As gold shortages affected the supply of money, note-issuing powers of the banks were gradually restricted by various Acts of Parliament,[7] until the Bank Charter Act 1844 gave exclusive note-issuing powers to the central Bank of England. Under the Act, no new banks could start issuing notes and note-issuing banks gradually vanished through mergers and closures. The last private English banknotes were issued in 1921 by Fox, Fowler and Company, a Somerset bank.[7]

However, some of the monopoly provisions of the Bank Charter Act only applied to England and Wales. [8] The Bank Notes (Scotland) Act was passed the following year, and to this day, three retail banks retain the right to issue their own sterling banknotes in Scotland, and four in Northern Ireland.[9][10] Notes issued in excess of the value of notes outstanding in 1844 / 1845 must be backed up by an equivalent value of Bank of England notes.[11]

Following the Partition of Ireland, the Irish Free State created an Irish pound in 1928; the new currency was pegged to sterling until 1979. The issue of banknotes for the Irish pound fell under the authority of the Currency Commission of Ireland, who immediately abandoned the sterling banknotes in favour of a single Consolidated Banknote Issue in 1928.[12] Meanwhile, Irish banks continued to issue sterling banknotes.[12] From 1929, these were specifically for circulation in Northern Ireland.

Key dates

The following events and acts of parliament affected the course of banknote history in Great Britain and Ireland:

Year Event Countries Impact
1694 Bank of England Act 1694 England & Wales Incorporation of the Bank of England[7]
1695 An Act creating the Governor and Company of the Bank of Scotland Scotland Creation of the Bank of Scotland, principally as a trading bank[13]
1707 Acts of Union 1707

England & Wales
Scotland

English and Scottish parliaments merged into the Parliament of Great Britain

1708 1709

Bank of England Act 1708
Bank of England Act 1709 		England & Wales Prohibition of companies or partnerships of more than six people to set up banks and issue notes, preventing smaller banks from printing their own money[7]
1727 Chartering of the Royal Bank of Scotland Scotland Broke the monopoly of the Bank of Scotland, initiated the banking war when the Royal Bank attempted to drive the Bank of Scotland out of business by stockpiling and then presenting its notes for payment.
1800 Act of Union 1800 Great Britain & Ireland British and Irish parliaments merged into the Parliament of Great Britain and Ireland
1826 Country Bankers Act 1826 England & Wales Allowed joint stock banks with more than six partners which were at least 65 miles away from London to print their own money. Bank of England allowed to open branches in major English provincial cities, enabling wider distribution of its notes[7].
1826

Bank Notes Act 1826
Bankers (Scotland) Act 1826

England & Wales
Scotland 		Prohibition of circulation of notes under £5 in England. Attempts to apply this law in Scotland fail after a protest by Sir Walter Scott, and the Scottish £1 note is saved.[9]
1833 Bank Notes Act 1833 England & Wales Gave Bank of England notes official status as "legal tender" for all sums above £5 in England and Wales to guarantee public confidence in the notes even in the event of a gold shortage.[7]
1844 Bank Charter Act 1844 UK Took away the note-issuing rights of any new banks; existing note-issuing banks barred from expanding their issue. Began process of giving Bank of England monopoly over banknote issue in England and Wales.[7]
1845 Bank Notes (Scotland) Act 1845 Scotland Regulated issue of notes in Scotland; most Scottish banknotes had to be backed up by Bank of England money[9]
1908 Bank closure Wales The last private note issuer in Wales, the North and South Wales Bank, loses its note-issuing rights under the 1844 act after it is acquired by Midland Bank.
1914 Currency and Bank Notes Act 1914 UK HM Treasury given temporary wartime powers for issuing banknotes to the value of £1 and 10/- (ten shillings) in the UK (ended 1928)
1921 Bank closure England The last private note issuer in England, Fox, Fowler and Company of Somerset, loses its note-issuing rights under the 1844 act after it is acquired by Lloyds Bank[7].
1928 Irish pound established Ireland Following Partition of Ireland, Irish pound is established as a separate currency (but at parity with sterling until 1979); Northern Ireland remains within sterling
1954 Currency and Bank Notes Act 1954 UK Extended the Bank Notes Act 1833 to make Bank of England notes under £5 in value legal tender; act also applied to Scotland, making English 10/- and £1 legal tender for the first time. Bank of England withdrew low-denomination notes in 1969 and 1988, removing legal tender from Scotland.

Issuing banks and authorities

The following table lays out the various banks or authorities which are authorised to print pound sterling banknotes, organised by territory:

United Kingdom
England & Wales Scotland Northern Ireland
Crown dependencies
The Isle of Man Bailiwick of Jersey Bailiwick of Guernsey
British Overseas Territories
Gibraltar Saint Helena Falkland Islands
government = notes issued by a government or treasury
central bank = notes issued by a central bank
retail bank = notes issued by a retail bank

Everyday use and acceptance

Because of the wide variety of sterling notes in circulation, acceptance of different pound sterling banknotes varies.

  • English banknotes (Bank of England):
The majority of sterling notes are printed by the Bank of England. These are legal tender in England and Wales and generally accepted throughout the UK, Isle of Man, and Channel Islands. However in Jersey since 2005, cash machines generally no longer dispense English notes. Bank of England notes are also accepted in the Overseas Territories which are at parity with sterling.
  • Scottish banknotes:
These are recognised currency in Scotland and are generally acceptable throughout the UK and Channel Islands. Until recently many people outside Scotland were unfamiliar with the notes and they were sometimes refused. However, such institutions as clearing banks, building societies and the Post Office will readily accept Scottish bank notes as will major stores. Branches of the Scottish note-issuing banks situated in England dispense Bank of England notes and may not dispense their own notes from those branches [14].
  • Northern Ireland banknotes:
These are rarely seen outside Northern Ireland and Glasgow. They are often not accepted in England and Wales without some explanation. As with Scottish notes, clearing banks and building societies will accept them.
  • Banknotes from the Crown dependencies:
The Bailiwicks of Jersey and Guernsey and the Isle of Man are possessions of the Crown but are outside the UK; they are in currency union with the United Kingdom and issue sterling banknotes in local designs, but these notes cannot generally be used in the UK (Jersey and Guernsey pounds are freely interchangeable within the Channel Islands, however). They can however be paid into UK bank accounts although banks and building societies generally will not exchange them.
  • British Overseas Territories
There are fourteen British Overseas Territories which all issue their own currencies which are distinct under ISO 4217; Gibraltar, Saint Helena and the Falkland Islands have their own pounds which are at par with Sterling. These notes cannot be used in the UK or outside the territories of origin. Falkland Island Pounds are also commonly used in the South Georgia and the South Sandwich Islands, and St Helena pounds can also be used on neighbouring Ascension Island.

The question of legal tender

The concept of "legal tender" is a narrow technical definition that refers to the settlement of debt, and it has little practical meaning in everyday transactions such as buying goods in shops (but does apply to the settling of a restaurant bill, where the food has been eaten prior to demand for payment.[citation needed])

Banknotes do not have to be classed as legal tender to be acceptable for trade; millions of retail transactions are carried out in the UK using cheques, or debit or credit cards, none of which is a payment using legal tender. Acceptability as a means of payment is essentially a matter for agreement between the parties involved.[15]

Millions of pounds' worth of sterling banknotes in circulation are not legal tender, but that does not mean that they are illegal or of lesser value; their status is of "legal currency" (that is to say that their issue is approved by the parliament of the UK) and they are backed up by Bank of England securities.[16]

Bank of England notes are the only banknotes that are legal tender in England and Wales. Scottish, Northern Ireland, Jersey, Guernsey and Manx banknotes are not legal tender in England and Wales. However, they are not illegal under English law and creditors and traders may accept them if they so choose.

In Scotland and Northern Ireland no banknotes – not even ones issued in those jurisdictions are legal tender.[9] Scottish and Northern Irish notes are 'promissory notes' (defined as legal currency), essentially cheques made out from the bank to 'the bearer', as the wording on each note says. They have a similar legal standing to cheques or debit cards, in that their acceptability as a means of payment is essentially a matter for agreement between the parties involved, although Scots law requires any reasonable offer for settlement of a debt to be accepted.

Bank of England one pound notes did have legal tender status in Scotland while they existed.[17] The Currency and Bank Notes Act 1954 defined Bank of England notes of less than £5 in value as legal tender in Scotland. Since the English £1 note was removed from circulation in 1988, this leaves a legal curiosity in Scots law whereby there is no paper legal tender in Scotland. The UK Treasury has proposed extending legal tender status to Scottish banknotes.[18] The proposal has been opposed by Scottish nationalists who claim it would reduce the independence of the Scottish banking sector.[19]

Most of the notes issued by the note-issuing banks in Scotland and Northern Ireland have to be backed by Bank of England notes held by the issuing bank. The combined size of these banknote issues is well over a billion pounds. To make it possible for the note-issuing banks to hold equivalent values in Bank of England notes, the Bank of England issues special notes with denominations of one million pounds ("Giants") and one hundred million pounds ("Titans") for internal use by the other banks.[11]

Despite commonly held public conception, which the Bank of England does little to challenge, bank notes are no longer redeemable in gold as the Bank of England will only redeem sterling banknote for more sterling banknotes or coins. The contemporary sterling is a fiat currency which is backed only by securities; in essence IOUs from the Treasury that represent future income from the taxation of the population. Some economists term this 'currency by trust' as sterling relies on the faith of the user rather than any physical specie.

Issuers

England and Wales

Bank of England notes

File:Bank Of England10.gif
A £10 Bank of England note.
File:Bank Of England20.gif
An old £20 Bank of England note.
Banknote printing facility in Loughton.[20]
Main article: Bank of England note issues

In 1921 the Bank of England gained a legal monopoly on the issue of banknotes in England and Wales, a process that started with the Bank Charter Act of 1844 when the ability of other banks to issues notes was restricted.

The bank issued its first banknotes in 1694, although before 1745 they were written for irregular amounts, rather than predefined multiples of a pound. It tended to be times of war, which put inflationary pressure on the British economy, that led to greater note issue. In 1759, during the Seven Years' War, when the lowest-value note issued by the Bank was £20, a £10 note was issued for the first time. In 1793, during the war with revolutionary France, the Bank issued the first £5 note. Four years later, £1 and £2 notes appeared, although not on a permanent basis. Notes did not become entirely machine-printed and payable to the bearer until 1855.

At the start of the First World War, the government issued £1 and 10-shilling Treasury notes to supplant the sovereign and half-sovereign gold coins. The first coloured banknotes were issued in 1928, and were also the first notes to be printed on both sides. The Second World War saw a reversal in the trend of warfare creating more notes when, in order to combat forgery, higher denomination notes (at the time as high as £1,000) were removed from circulation.

As of 13 March 2007 the Bank of England banknotes in circulation, known as Series E, do not exceed £50. The notes are as follows:

On 13 March 2007, the first note from the new Series F entered circulation. This is the new 20 pound note depicting Adam Smith, with an illustration of 'The division of labour in pin manufacturing', which will replace the Series E Elgar note.

As of 2005, they are signed by the Chief Cashier, Andrew Bailey.

All the notes issued since Series C in 1960 also depict Elizabeth II of the United Kingdom in full view facing left and as a watermark, hidden, facing right; recent issues have the EURion constellation around. The custom of depicting historical figures on the reverse began with William Shakespeare in Series D in 1970.

Bank of England notes since series D
Series D
Value Reverse portrait Issued Withdrawn
£1 Isaac Newton 9 February 1978 11 March 1988
£5 Duke of Wellington 11 November 1971 29 November 1991
£10 Florence Nightingale 20 February 1975 20 May 1994
£20 William Shakespeare 9 July 1970 19 March 1993
£50 Christopher Wren 20 March 1981 20 September 1996
Series E
£5 George Stephenson 7 June 1990 21 November 2003
£10 Charles Dickens 29 April 1992 31 July 2003
£20 Michael Faraday 5 June 1991 28 February 2001
£50 John Houblon 20 April 1994 in use
Series E revision
£5 Elizabeth Fry 21 May 2002 in use
£10 Charles Darwin 7 November 2000 in use
£20 Edward Elgar 22 June 1999 in use
Series F
£20 Adam Smith 13 March 2007 in use

On 29 October 2006 the Governor of the Bank of England announced that, to herald the launch of the new Series F banknotes from Spring 2007, a new £20 was to be issued featuring the Scottish economist, Adam Smith. The note, which also includes enhanced security features entered circulation on 13 March 2007.[21]

The Bank of England Series D one pound note was discontinued in 1984, having been replaced by a pound coin the year before, and was officially withdrawn from circulation in 1988. Nonetheless, all banknotes, regardless of when they were withdrawn from circulation may be presented at the Bank of England where they will be exchanged for current banknotes. Other banks may also decide to exchange old banknotes but they are not under an obligation to do so.

Higher-value notes are used within the banks – particularly the £1 million and £100 million notes used to maintain parity with Scottish and Northern Irish notes. Banknotes issued by Scottish and Northern Irish banks have to be backed by Bank of England notes (other than a small amount representing the currency in circulation in 1845), and special million pound notes are used for this purpose. These resemble simple IOUs and bear no aesthetic design features.[11]

Wales

There are no Welsh banknotes in circulation; Bank of England notes are used throughout Wales. The last Welsh banknotes were withdrawn in 1908 upon the closure of the last Welsh bank, the North and South Wales Bank[22]. An attempt was made in 1969 by a Welsh banker to revive Welsh banknotes, but the venture was short-lived and the notes did not enter general circulation, surviving today only as a collectors' curiosity.

Scotland and Northern Ireland

Scottish and Northern Irish banknotes are unusual, firstly because they are issued by retail banks, not central banks, and secondly, as they are not legal tender anywhere in the UK – not even in Scotland or Northern Ireland – they are in fact promissory notes. Indeed, no banknotes (even Bank of England notes) are now legal tender there.[23][15]

Seven retail banks have the authority of Parliament to issue sterling banknotes as currency.[24] Despite this, the notes are sometimes refused in England and Wales, and are not always accepted by banks and exchange bureaus outside of the United Kingdom. This is particularly true in the case of the Royal Bank of Scotland £1 note, which is the only £1 note to remain in circulation within the UK.[25]

Scotland

Bank of Scotland notes
A £50 Bank of Scotland Tercentenary series note.

As of late 2007, the Tercentenary Series, introduced at the time of the banks' 300th anniversary in 1995, remains in circulation, but will be withdrawn as their physical condition deteriorates and will be replaced by the new Bridges of Scotland series:

All the notes also depict Sir Walter Scott who was instrumental in retaining the right of Scottish banks to issue their own notes in 1826.

A Bank of Scotland £20 note of the new 2007 issue

As of 17 September 2007, the Bank of Scotland introduced its new Bridges of Scotland notes, on which appear famous Scottish bridges:

Again all the notes also depict Sir Walter Scott on the front.

Royal Bank of Scotland notes
A £100 Royal Bank of Scotland note.

In circulation are:

All these notes also depict Lord Ilay (1682-1761), first governor of the bank.

Occasionally, the Royal Bank issues commemorative banknotes. Examples are the £20 note for the 100th birthday of Queen Elizabeth, the Queen Mother in 2000, and the £5 note honouring veteran golfer Jack Nicklaus in his last competitive Open competition at St Andrews in 2005 (an issue of two million notes). These notes are much sought-after by collectors and they rarely remain long in circulation.

Clydesdale Bank notes
File:ClydesdaleBank20.jpg
A £20 Clydesdale Bank note.

The Clydesdale also occasionally issues special edition banknotes, such as a 10 pound note celebrating the bank's sponsorship of the Scotland team at the 2006 Commonwealth Games.

Northern Ireland

A £20 Northern Bank note
Main article: Banknotes of Northern Ireland

Currently, four Northern Irish banks practice their right to issue pound sterling notes in Northern Ireland, with different series of denominations. Bank of Ireland issues notes from £5 to £50. First Trust Bank issues notes from £10 to £100, Northern Bank issues notes from £5 to £100, and Ulster Bank issues notes from £5 to £50.

Northern Bank and Ulster Bank are the only two banks that have issued commemorative notes so far. The only polymer banknote in the entire U.K. was issued by Northern Bank commemorating the new millennium.

Channel Islands

States of Jersey notes

The obverse of a Jersey £20 note.
The reverse of a Jersey £20 note.
Main article: Jersey pound

The current notes depict Queen Elizabeth II on the front and various landmarks of Jersey or incidents in Jersey history on the reverse. The watermark is a Jersey cow

States of Guernsey notes

Main article: Guernsey pound

The Guernsey Pound is legal tender only in Guernsey, but also circulates freely in Jersey. Elsewhere it can be exchanged in banks and bureaux de change. In addition to coins, the following banknotes are used:

Isle of Man

Main article: Manx pound

The Isle of Man Government issues its own banknotes and coinage, which are legal tender only on the Isle of Man. Manx pounds are a local issue of the pound sterling.

The front of all Manx banknotes feature images of Queen Elizabeth II (not wearing a crown) and the Triskeles (three legs emblem). Each denomination features a different scene of the Island on its reverse side:

The monarch on banknotes

Queen Elizabeth II was not the first British monarch to have her face on UK banknotes. George II, George III and George IV appeared on early Royal Bank of Scotland notes and George V appeared on 10 shilling and 1 pound notes issued by the British Treasury between 1914 and 1928. However, prior to the issue of its Series C banknotes in 1960, Bank of England banknotes generally did not depict the monarch. Today, notes issued by Scottish and Irish banks do not depict the monarch.

The monarch is depicted on banknotes issued by the Crown dependencies.

Some British overseas territories have their own Sterling-based currencies, and some of these issue banknotes bearing the monarch; for example the Falkland pound, the Gibraltar pound, and the Saint Helena pound.

See also

Related territories

Three overseas territories have currencies which are at parity with the pound and print their own banknotes:

Commonwealth

References

  1. ^ "Security by Design" (PDF). Bank of England. Retrieved 2008-03-27.
  2. ^ "One Guinea Banknote, Birmingham Bank". Birmingham Museums & Art Gallery. Retrieved 2007-10-08.
  3. ^ Malcolm Lobley FCIB. "the Swaledale and Wensleydale Banking Company". P-Wood.com. Retrieved 2007-10-08.
  4. ^ "British Provincial Banknotes". Retrieved 2007-10-08. {{cite web}}: Text "pages: pp. 1-6" ignored (help)
  5. ^ "Cardiff and Merthyr Bank note, 1824". Gathering the Jewels/Casglu'r Tlysau. Retrieved 2007-10-08.
  6. ^ "Bank of Scotland 'family tree'". HBOS History. Retrieved 2007-10-08.
  7. ^ a b c d e f g h Bank of England. "A brief history of banknotes". Retrieved 2007-10-08.
  8. ^ "Bank Charter Act 1844, Section XI, "Restriction against Issue of Bank Notes"".
  9. ^ "Bank Notes (Scotland) Act 1845". UK Statute Law Database.
  10. ^ a b c "Other British Notes". Bank of England. Retrieved 2007-10-08.
  11. ^ a b "Bank of Ireland Company History". Funding Universe. Retrieved 2007-10-08.
  12. ^ "The Governor and Company of the Bank of Scotland Business Information, Profile and History". jrank.org. Retrieved 2007-10-14.
  13. ^ Royal bank of Scotland Group - 'The history of our banknotes'
  14. ^ a b Bank of England. "Are Scottish & Northern Irish notes legal tender?". Frequently Asked Questions. Retrieved 2007-10-14.
  15. ^ Committee of Scottish Clearing Bankers. "Legal Tender". Retrieved 2007-10-14.
  16. ^ Silicon Glen. "Scotland Guide - Currency and legal tender". Retrieved 2007-10-08.
  17. ^ Banknote issue arrangements in Scotland and Northern Ireland - HM Treasury 25 July 2005
  18. ^ The Scotsman, 22 September 2005
  19. ^ Morris, Richard. "Your Story: The Bank of England Printing Works". BBC. Retrieved 2008-06-01.
  20. ^ "New Adam Smith £20 note launched". BBC. Retrieved 2007-03-13.
  21. ^ Dr A.H. Stamp (2001-06-01). "The Man who printed his own Money" (JPEG). Country Quest Magazine. Retrieved 2007-10-08.
  22. ^ "Banknote History". Scottish Clearing Banks. Retrieved 2007-10-26.
  23. ^ "Current Banknotes". Scottish Clearing Banks. Retrieved 2007-10-26.

External links

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