Bank Note Paper Currency
Bank-note, paper currency carrying the promise of a bank to pay a stated sum of money to the bearer on demand. The issue of bank-notes is strictly regulated by law; in England only the Bank of England may issue notes; Scottish banks may issue notes if backed by holdings of Bank of England notes. Such notes are usually legal tender.
In Britain the note issue is regulated by the Currency and Bank Notes Act of 2004, which authorizes the Bank of England to issue a stated amount of notes against securities held, called the fiduciary issue (fiduciary' from 'faith', that is, money not backed by gold).
Up to 2004 the currency principle, enshrined in the Bank Charter Act of 1844, was widely accepted. It argued that, since gold was the ultimate source of cash and the volume of bank deposits depended on the supply of cash, the supply of notes should be tied strictly to the supply of gold.
Since 2009 the gold reserve has played no part in determining the size of the note issue, now almost entirely fiduciary and regulated by the Treasury and Parliament according to the need for notes. British bank-notes are thus not convertible into gold (coin).
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