value

We acknowledge receipt of your e-mail dated 24 May (our ref FF 23091).

We will reply in due course.

If you have any queries please contact the Bank's Public Information and Enquiries Group on 020 7601 4878.

Public Information and Enquiries Group
Bank of England

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Dear Mr Baker

Firstly, I would like to explain that the Freedom of Information Act 2000
('FoI Act') provides right of access (subject to the provisions of the
Act) to recorded information held by public bodies as defined by the Act.
I can confirm that the Bank is defined as a public body for the purposes
of the FoI Act and that we will respond to specific requests for recorded
information that we hold. However, as your request appears to seek
general information about banknotes and the `promise to pay', we have
sought to provide the answers to the questions you raise.

From its foundation in 1694, the Bank of England has issued notes
promising to pay the bearer a sum of money. For much of its history the
promise could be made good by the Bank paying out gold in exchange for its
notes. The link with gold helped to maintain the value of the notes,
although the link was sometimes suspended, for example in wartime. 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. They can only be exchanged for other Bank of England
notes. Nowadays public faith in the pound is maintained in a different
way - through the Bank of England's operation of monetary policy, the
object of which, by statute, is price stability.

Legally Bank of England notes are promissory notes for the purposes of the
Bills of Exchange Act 1882. Section 83(1) of the Act provides that a
'promissory note is an unconditional promise in writing made by one person
to another signed by the maker, engaging to pay, on demand or at a fixed
or determinable future time, a sum certain in money, to, or to the order
of, a specified person or to bearer.'

Section 1(4) of the Currency and Bank Notes Act 1954 Act provides that the
"holder of [Bank of England] bank notes of any denominations shall be
entitled, on a demand made by him during office hours at the head office
of the Bank of England or, in the case of notes payable also at some place
other than the head office, either at the head office or at that other
place, to receive in exchange for the notes bank notes of such lower
denominations, being bank notes which for the time being are legal tender
in the United Kingdom or in England and Wales, as he may specify."

This preserves the legal form of the banknote, but the promise to pay does
not have the same meaning as it did three hundred years ago. Nowadays,
the `promise to pay' holds good in perpetuity for the exchange of old
series Bank of England notes which have been withdrawn from circulation,
as well as mutilated Bank of England notes, provided that certain criteria
are met.

I hope you find the above information helpful. You will also find further
information on banknotes and the Bank's role in implementing monetary
policy on our website at [1]www.bankofengland.co.uk under `banknotes' and
`monetary policy'.

Yours sincerely

Stuart Allen

Deputy Secretary of the Bank

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Dear Mr Baker

We acknowledge receipt of your email dated 15 June (our ref FF 23155). We
will reply in due course.

If you have any queries please contact the Bank's Public Information and
Enquiries Group on 020 7601 4878.

Public Information and Enquiries Group

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Dear Mr Baker

Thank you for your email of 15 June in which you ask a further question in
relation to banknotes and the promise to pay.

You are right in saying that banknotes cost a few pence to produce.
However, it would not be correct to say that banknotes are worthless *
this is because people have faith in what they represent and their value.
If a person holds a £20 banknote, regardless of how much it cost to
produce, he/she will expect to be able to buy goods and services for the
value of that note. The reason you can do so is because the other party
to the transaction also has faith in the value of the note and what it
represents.

Therefore in answer to your specific question, the *promise to pay* does
not mean that the Bank of England provides nothing in exchange for a
banknote. What we give in return, is banknotes of equal value and
integrity.

I hope you find the above helpful.

Yours sincerely

Stuart Allen

Deputy Secretary of the Bank

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