Daily Archives: April 9, 2008

Money, Money, Money…

The pound sterling is used in Northern Ireland with individual notes available from all the major banks acceptable. This can be confusing for the visitor as not only will you find English notes in circulation but also Sterling Bank of Ireland, First Trust Bank, Northern Bank and Ulster Bank and Scottish Bank notes along with occasional Bank of Isle of Man all of which are accepted in general exchange. This can mean up to half a dozen different notes of the same denomination. The picture below gives you a clue of what to expect. All the notes shown are £10 Sterling.

Northern Ireland has had its own distinctive banknotes under provisions of the Banknotes (Scotland and Ireland) Acts of 1845. Following partition a special Act of parliament – the Bankers (Northern Ireland) Act 1928 – was passed to allow trading in sterling but using notes designed for Northern Ireland. Since then famous faces and places from the province have adorned the banknotes. Traders in Great Britain often turn the notes down; they do not have to take them as they are not legal tender over there. This is something seldom mentioned or recognised here in Northern Ireland.

I read somewhere a couple of months ago that some £1,607 million of locally-issued banknotes were in circulation on 24th November 2007! To avail of this privilege, an issuing bank must lodge enough money with the Bank of England to cover the value of its banknotes, but only from Friday to Monday. On the other four days of the week these funds, known as note-covering assets, can be invested elsewhere. Investing the money raises around £45 million a year for the four banks together.

At the end of January this year The Treasurer decided that this gave the banks involved an unfair advantage over other institutions, as well as cutting into revenues. The Treasury proposes a Bill to oblige all eight of the Scottish and Northern Irish banks to back their own notes with Bank of England notes at all times. That would also hand supervision of the arrangements to the Bank of England, rather than the Revenue Commissioners who now police them.

If this happened, the banks would not be able to invest their note-covering assets during the week. The result will be poorer service for their customers. It will, for example, take away the banks’ current incentive to offer ATM withdrawals of their own notes free of transaction charges (fees are currently zero because the banks want the float from non-interest-bearing notes in circulation).

Under the present arrangements if a Northern Ireland bank collapsed during the week, its money would become worthless. The banks are not commenting on the proposals at the moment and have until 23rd of April to make their views known. New laws to put the proposals into practice are expected later in the year.