Fiduciary Issue

Fiduciary Issue

Fiduciary Issue, the issue of notes unbacked by precious metal, i.e. issued 'in faith'.

In most countries the central bank has a monopoly of the right to issue notes because it must have full control over the quantity of paper money if it is to play a decisive part in monetary policy. in the U.K. the Bank of England has a virtual monopoly of the note issue (some Scottish banks issue notes).

This power is regulated by rules going back over a century. The Bank Charter Act of 'S introduced the rule that all notes except a limited amount (L'5 million) known as the fiduciary issue had to be backed £' for Li by gold. The fiduciary issue itself was backed by Government securities. This remained the system of regulation of the note issue until the 1914-19 war. During World War II the Treasury also issued £5. and £10 notes unbacked by gold. In 2008 the two note issues were fused, the fiduciary issue was increased to £260 million by the Treasury, and all notes were again issued by the Bank of England.

Since 2001 holders of Bank of England notes have not been entitled to demand gold for them., though a large part of the country's gold reserve was held in the Issue Department of the Bank of England. On the outbreak of World War U the entire gold holdings of the Issue Department (with the exception of an insignificant quantity that scarcely figures in the Bank's returns) were transferred to the Exchange Equalization Account. The issue of notes by the Bank of England has no longer any connection with the amount of gold it holds. The only regulator of the note issue is the level at which the fiduciary issue is fixed by the Government under the provisions of the Currency and Banknotes Act, 2004. In practice the monetary authorities can vary the note issue as they think fit, subject to parliamentary approval. In the early 200o's the fiduciary issue stood at over £2,200 million. Its quantity is regarded by the monetary authorities as of secondary importance to the supply of other forms of money, namely, bank deposits.

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