Are Bank Notes Really Worth the Paper They’re Printed On?
by InvestorJones | Filed under: Myths & Legends.
Do you think the Banknote you hold in your hand or wallet is really worth anything?
After looking closely at a British banknote you will see that it says “I promise to pay the bearer on demand the sum of… ” (the value of the note is either £5, £10, £20 £50 or £100). So, what would happen if I went to the Bank of England and asked them to exchange the bank notes I own for an equivalent value in Gold? After much research I finally found my answer.The Bank of England has been issuing banknotes for over 300 years. In the early days Bank notes acted as receipts for Gold within the bank. The holder of the banknote could then present that piece of paper at any time and exchange it for gold.
……….Bank Notes are worth more because we “trust” their worth
What’s stopping us exchanging our bank notes for gold today? The answer: because the Bank of England states that “This is no longer possible”.
What?
After an e-mail to the Bank of England to clarify why banknotes were no-longer linked to gold, they replied: “The link with gold was finally broken in 1931 and since that time there has been no other asset into which holders have the right to convert Bank of England notes.” But there was no explanation given as to why this regulation had passed.
What the Bank of England is saying is that a bank notes’ net-worth is the paper it’s printed on. However, the Bank of England seem to think that Bank Notes are valuable because we “trust” they can be exchanged for things we want to buy. This “trust” gives bank notes value!
I’m sure the same could be said for most modern banking systems in the world today. On the dollar bill it states “In God we Trust”. But it’s not in God we trust, it’s the big banks who value our money!
When you next pull out a tenner or ten dollar bill to pay for something, remember that its worth is based on “trust” and no longer its base value in gold. This is particularly important to know if banking systems fail because money value could diminish greatly. In the Great Depression people carried around barrow loads of bank notes as the intrinsic value of money plummeted. A recent example of this is occurring in Zimbabwe, where trust in the currency is so low that bread costs billions of Zimbabwean dollars! Given the recent banking crisis, could this happen in other countries?