Subject/Request details: What is the value of the sterling currency? Bank of England banknotes say promise to pay the bearer on demand, what is it that you would pay upon receipt of one of your banknotes? What gives sterling its value, using the labour theory of value?
Date released: 25 February 2016
Since the Bank of England’s (the ‘Bank’) foundation in 1694 the Bank 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's operation of monetary policy, the object of which, by statute, is price stability.
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the ‘promise to pay’ holds good in perpetuity for the exchange of old series Bank of England notes which have been withdrawn from circulation, as well as mutilated Bank of England notes, provided that certain criteria are met.
Finally, in terms of the labour theory of value, the cost to produce a banknote is minimal, however, its real value lies in the value of the goods and services you can exchange it for.