Its a fucking fantasy, a piece of paper. Take out a note and read along the top "Bank of England, I promise to pay the bearer on demand, the sum of XX(whatever the note is). I read recently someone actually went in and demanded his twenty pounds "sterling", the cashiers needless to say didnt have the silver on hand
This is true. I recall that in recent years figures at the Bank of England have given interviews and released statements in an attempt to clarify the nature of their promise and the exchangeability of their promissory notes.
Broadly speaking they describe the notes as a "claim" on the resources of the Bank of England. They can of course be deposited with financial institutions with little difficulty, for electronic credit in a current or savings account. And exchanged for goods and services readily and easily throughtout the UK economy. And exchanged worldwide in banks, bureau de change and such like for local currency issued by central banks and private banks elseswhere.
Most commercial banks and savings institutions that people transact business with or are customers of, will - with relative ease - also exchange Bank of England notes, into "coin of the realm", issued by The Royal Mint (1p, 2p, 5p, 10p, 20p, 50p, £1, £2 coins etc)
However, if I recall correctly, the promise on the Bank of England note, indicates that to ultimately transact and achieve fulfillment of the promise directly with them, you must visit (or write using an insured means?) the Bank of England in person at their HQ in London. However, you are quite right, not even the Bank of England will exchange it for (silver) sterling. They will not even exchange it for Royal Mint coin. All they will do is exchange it for another note, or combination of notes (i.e. a £20 for a new £20 note, or 4 £5 notes). In other words, to fulfill a promise to pay they are issuing more promises to pay. So while the notes may be a "claim" on the resources of the Bank of England, it is a claim that is never, and can never really be fulfilled in practice.
This is the nature of the fiat currency system. The notes have value because the government and the central bank 'decree' they have value, thus engendering confidence and universal public backing for the currency. Thus, the promise behind the notes is not really fulfilled by the issuing institutions, but by people that accept the notes in exchange for goods and services, and later spend them, exchanging them for more goods and services. Thus there is no gold or even silver standard, but what could perhaps be best described as a 'consumer standard'. The claim that the notes are a claim on the resources of the Bank of England is thus somewhat misleading. In actual day-to-day practice if the banknotes can't be exchanged for anything of any real or tangible value there, ultimately bank notes become a claim on both solid and human resources belonging to the average citizen. Interestingly, even coin of the realm - in terms of it's scrap value - is only worth a fraction of it's stated value (roughly 1/10, depending on the scrap metal value of the coin). The only way to realise the promise to pay and the value of the note is to spend it and turn into a good or service of some utility and usefulness to the spender.
Hence this is why there will never be any sincere or lasting efforts to tackle poverty or inequality in the world. For currency in the current system to have value it requires that some people have a lot, and others have less, in stratified layers of economic wealth, advantage, plenty and class. It is a nonsense that we live in a class-less society, a monstrous lie and an errant fiction. Money becomes valueless if there is no class advantage, no class leverage within our society. If everyone has enough money that they have no interest or need to exchange any goods, services or labour to obtain it, the current mercantilist global economic system would grind to a halt. Some greens argue that this would be no bad thing, helping as it would to cause a massive reduction in man-made global greenhouse gas emmissions. However when it comes to protecting the planet, the needs of protecting the environment and the people need to be finely balanced. A world with insufficient trade and commerce would be just as dystopian as a world with too much of it, particularly the environmentally destructive varieties of trade and commerce.
That is the challenge of the generation of young people living now and all thinkers in these dawning years of the 21st century. Devising a more honest system that fulfills peoples needs around the globe, and that isn't predicated, doesn't require inequality as the foundation for it's success and efficacy.
But back to fiat currency, I have noticed in recent years that the promise to pay aspect has become watered down even in Scotland. Our Scottish banknotes state that the promise to pay can be fulfilled at the headquarters of the banks (RBS and BofS in Edinburgh & Clydesdale Bank in Glasgow). However in reality you can go into any branch of the bank anywhere, like Bank of England notes, deposit the notes in an account for electronic credit, or exchange them for coin. Interestingly, some of the banks have watered down the promise, and insist that you must have an account with the bank to exchange it directly for coin. Clydesdale Bank religiously enforce this policy, which is most odd, as the promise to pay on the notes states nothing about having to bank with the institution to see the promise fulfilled. It hardly engenders confidence in a bank when it waters down it's promise in such a way. Royal Bank of Scotland is patchy, some of their staff - with their Jobsworth of the year hat on - point blank refuse to fulfill the promise and exchange for coin, insisting you must open an account with them first, others exchange with a smile and no fuss. Only the Bank of Scotland and Lloyds Bank (BofS's parent company) seem to exchange their notes at any branch, for smaller value notes or coins, without any fuss whatsoever and attempting to impose additional, contractual conditions.
Interestingly, a very strange quirk with Scottish banknotes is that they have no 'legal tender' status in law. While Bank of England notes have legal tender status, Scottish ones, which are issued by commercial and not central banks, have none. They only have tender status by general convention, not through law or government decree, which is the benchmark requirement for a fiat currency. While personally I prefer them to BofE notes, Scottish banknotes are a sort of non-fiat paper currency, hence this is why Scots probably sometimes experience problems trying to spend them in England or exchange them abroad. I heard that there was once moves to change the law to give them legal tender status, but I don't think it ever got anywhere.
Paying attention to such considerations and practices might seem a trifle petty, but such are the uproarious and incredible times of global financial collapse, wealth destruction and potentially looming geoeconomic and geopolitical chaos in which we all live now, it's not in the least trifling to turn up at a bank and find it's doors closed, or be informed by a government that it's notes are worthless and no longer legal tender. Yes, following the worldwide bank run which ensued after the collapse of Lehman Brothers and the near collapse of many other US financial institutions, in October 2008 the UK was within hours of a crisis of that magnitude happening to our banks. Major UK banks not opening their doors. Cash machines not working. Internet and telephone banking operations all closed down. The government was even on the verge of fleeing London and retreating to the bunkers!
It has happened before. It will happen again somewhere. It always does. We all know the score. Wealthy elites would much rather the little man in the street absorb their losses, than their rich croneys. They've already achieved that by getting their way with all these austerity measures. Fiat currency default is one other way historically they have often achieved that. I doubt that this will ever happen in the west though, but it pays to hedge your bets.
After all when it comes to bloody revolutions it looks inevitable we will see a few more of them somewhere in the world before the global financial system implosion fully runs its course - much as though most people are generally against such things. Intra governmental revolutions (i.e. the Thatcher revolution) and those with oligarchical leanings, often get given free rein and support, given their loyalty to the powerful diktats of international capital. Extra governmental democratic revolutions, are often a much messier and more violent affair.
The currency system of an outgoing government is often the first to go, the banknotes replaced with the visage of some other leader in waiting. Defaults of this nature are thankfully rare, but remain distinct, low probability possibilities.
Interestingly though, the think tank, the Center for Economics and Business Research - in it's annual predictions for the year ahead - are predicting a 1 in 5 chance that the Euro wont survive the decade in it's current form. Note, the caveat "current form". It isn't a prediction that there is a 1 in 5 chance of the Euro collapsing, only that that there is a 1 in 5 chance of it being adjusted, recalibrated, reformulated in some way. However, given the Euro is the currency system of the entire continental Europe trading bloc, I find those incredibly high odds.
