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Home > News and Publications > Promise to pay on Bank of England banknotes
 

Promise to pay on Bank of England banknotes

Subject/Request details: Promise to pay on Bank of England banknotes
 
Date Released: 23 March 2011

Disclosure: Since 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[1].
 
Legally Bank of England notes might be viewed as promissory notes within the meaning 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.'  However, the status of Bank of England notes also needs to be read in the light of other statutory provisions [2].
 
In this respect section 1(4) of the Currency and Bank Notes Act 1954 is particularly important.  This 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."
 

 

[1] For information and further references, see the Bank of England’s website at www.bankofengland.co.uk. The framework for the operation of monetary policy and the remit for price stability is explained in the section on Monetary Policy. The section on Banknotes includes a summary of the development of the note issue.
 

 

[2] Other legislation relevant to notes and currency include the Bank Charter Act 1844, the Currency and Bank Notes Acts 1928 and 1954 and the Currency Act 1983.  These Acts provide for the establishment of a distinct Department within the Bank of England – the Issue Department – for the issue of banknotes. They also require notes issued by the Bank to be backed by securities held in the Issue Department, confer legal tender status on Bank of England notes and contain provisions relating to the issuing and writing off of banknotes. 
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