1 Horse Guards Road, 
Information Rights Unit 
London. 
 
SW1A 2HQ 
Tel: 020 7270 4558 
 
Fax: 020 7451 4861 
angie of the  elder family 
[email address]  
 
 www.hm-treasury.gov.uk 
By email:  
 
[FOI #10899 email]  
Our refs:  
IRU/9/385 
Email/18970/2009 
 
 
 
22nd May 2009 
Dear Angie, 
 
ELECTRONIC MONEY 
 
 
Thank you for your enquiry dated 23rd April 2009, which we received on 24th April 
2009.   
 
You asked: 
 
1)  Is electronic currency legal tender in the UK?  
 
2) When electronic money is loaned, for example in the instance of on-line loan 
applications, is there a creation of physical paper money to correspond with the 
initial e-currency lent, and a physical creation of paper money that corresponds to 
the interest charged on e-money loaned sufficient to pay the debt back? If so, at 
what point does the paper money go into circulation? 
 
You asked these questions under the Freedom of Information (FoI) Act 2000, 
however, as the Act provides a right of access to  recorded information.  The only 
relevant information we hold is in connection with the issue of currency and with 
monetary policy; we do not hold information about the theoretical basis of money.   
 
In general, the Bank of England is better placed to address enquiries about the 
mechanics of the monetary system because of their executive responsibility for 
monetary policy and financial stability.  There is a wealth of material on their 
website1.   
 
To be helpful and on the assumption that what you are seeking from us is an 
acknowledgment that money supply is increased by new borrowing, the closest I can 
offer in terms of information we hold, is a speech made by Paul Tucker from the Bank 
of England and included in the Bank’s Quarterly Bulletin for 2008 Q1.  Below is a link 
to the speech and the crucial excerpt.   
 
http://www.bankofengland.co.uk/publications/quarterlybulletin/qb080110.pdf  
 
Subject only but crucially to confidence in their soundness, banks extend credit 
by simply increasing the borrowing customer’s current account, which can be 
paid away to wherever the borrower wants by the bank ‘writing a cheque on 
                                            
1 http://www.bankofengland.co.uk  
 
 

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itself’. That is, banks extend credit by creating money. This ‘money creation’ 
process is constrained: by their need to manage the liquidity risk  â€“ from the 
withdrawal of deposits and the draw-down of back-up lines â€“ to which it exposes 
them. 
 
Against that background, government monetary policy is aimed at ensuring that 
money remains sound.  It seeks to achieve this, partly by regulation of banking 
activity but mainly by using interest rates to indirectly control inflation.  Inflation arises 
when too much money is chasing too few goods and services  â€“ which is a useful 
reminder that the value of money reflects the confidence that it can be exchanged at 
relatively stable values, for goods and services.  Changes to the money supply do 
not generally take place in the abstract but are a reflection of the vigour of the 
economy in terms of the production of valuable goods and services: people take out 
loans in order to purchase goods and services; and they are granted loans on the 
basis of their ability to repay, frequently from hiring out their labour.  
 
I hope this commentary and the web links provide some help to you.  If you have any 
queries about this letter, please contact us at the email account given in the header 
to this letter.  It would help us, if you could remember to quote the IRU reference 
number (also in the header) in any future communications.   
 
Yours sincerely, 
 
 
 
Information Rights Unit  
On behalf of HM Treasury 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Your right to complain under the Freedom of Information Act 2000 
If you are not happy with this reply, you may request a review by writing to HM Treasury, Information Rights Unit, 
2/S2, 1 Horse Guards Road, London SW1A 2HQ. Email [email address].   
Any review request must be made within 2 months of the date of this letter.   
It would assist our review if you set out which aspects of the reply concern you and why you are dissatisfied.   
 
If you are not content with the outcome of your complaint, you may apply directly to the Information Commissioner for 
a decision. Generally, the ICO cannot make a decision unless you have exhausted the complaints procedure 
provided by the Treasury.  The Information Commissioner can be contacted at: The Information Commissioner’s 
Office, Wycliffe House, Water Lane, Wilmslow, Cheshire SK9 5AF. 
 
 
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