Negative interest rates and what it means

The Bank of Scotland is only one year younger than the Bank of England with both over 3 centuries old. They have a special arrangement where they are permitted to print their own banknotes in honor of their heritage. They do print a 100 pound note, but the majority of people in the UK have never seen a Scottish banknote, let alone a £100.

Prior to WWII, the Bank of England issued some notes as high as £1,000 but SS Major Bernhard Krüger set up a team of 142 counterfeiters from inmates at concentration camps. By April 1945 the printing press had produced 8,965,080 banknotes with a total value of £134,610,810. The notes are considered among the most perfect counterfeits ever produced, being almost impossible to distinguish from the real currency.

Fear of these notes caused the government to remove all banknotes higher than £5 from circulation in the UK. A new £5 banknote colored blue was issued on 21 February 1957 and the other denominations were reintroduced on February 21, 1964 (£10), July 9, 1970 (£20) and March 20, 1981 (£50).

The first series of £50 banknotes with Sir Christopher Wren (20 March 1981 - 20 September 1996) was never circulated above 60 million notes. They were so rare especially outside of London that many people didn't accept them. The second series of £50 banknotes with with Sir John Houblon (20 April 1994- 30 April 2014) were a little more common and released in larger numbers when the depression of 2007 hit. The third series with Matthew Boulton and James Watt released on 2 November 2011 was produced in a larger quantity (440 million) and is currently circulating at above 260 million pieces.

Since the government has not announced a date when the £50 banknotes will be replaced with polymer ones, there is some speculation that the government will not replace the paper ones and return to the days when the £20 is the highest denomination.

However, UK Canada and Australia have a fairly small amount of currency relative to GDP in circulation. Furthermore the ratio has been fairly steady for a five year period. Most other currencies are increasing their supply relative to GDP.



If the UK leaves the EU and Sweden follows, there is some speculation that they more form a currency union with the "Northern alliance". The UK would be the largest economy (but not the richest per person) of potential candidates like Sweden, Norway, Iceland, Canada, New Zealand and Australia. A unified currency with even a few of these candidates would represent a GDP larger than Japan, and would be more impervious to currency speculators

Quote: Pacomartin

They do print a 100 pound note, but the majority of people in the UK have never seen a Scottish banknote, let alone a £100.

I saw a Scottish 5 lb note when I attended language school (unnecessarily) in Cambridge in 1985.

One of my classmate somehow was given one in change, and he traded it in at the bank for a UK one.

Quote: Nareed

I saw a Scottish 5 lb note when I attended language school (unnecessarily) in Cambridge in 1985.

One of my classmate somehow was given one in change, and he traded it in at the bank for a UK one.

It was a UK bank note already. Scotland is part of the UK.

The Scots held on to their one pound notes as well. There are three banks that print Scottish note: Royal Bank of Scotland, Bank of Scotland and the Clydesdale Bank. When I'm up there, I always try to spend the Scots notes before I had to London... solves any issues of arguing about it being legal tender or not.

I didn't know they had hundreds though.

Northern Ireland banks also print bank notes. I think I've seen one a couple of times.

Quote: TheCesspit

Northern Ireland banks also print bank notes. I think I've seen one a couple of times.

There are seven banks in all, 3 in Scotland and 4 in Northern Ireland. Personally, it seems stupid to me. The production of banknotes, the problems of counterfeiting, and the collection and destruction of old notes seems like an expensive process. Why would you go through all that trouble if your banknotes are not widely accepted? In particular there are fewer than 2 million people in Northern Ireland.






Before the Euro there was a Belgian Franc & Luxembourgish Franc where the two countries were in a currency union. Luxembourg used to be a portion of the Belgian Empire. Population ratio was about 23:1. Luxembourg wanted to print their own currency which total was worth less than 1% of the Belgian currency.
The Begian franc came in denominations 100, 200, 500, 1000, 2000, 10,000 fr., but the Luxembourgish franc 100, 1000, 5000, fr., So the unique denominations was 5000 francs = €123.95. The Belgian banknotes went up to €247.89 . But for the most part it was difficult to spend Luxembourgish currency in Belgium.

Quote: Pacomartin

.... Why would you go through all that trouble if your banknotes are not widely accepted? In particular there are fewer than 2 million people in Northern Ireland.

That is a pretty sweet deal if you can get it. They have two million people that will let them kite cheques? I will take that deal. What can I buy with my freshly printed moolah? Real estate, gold, power, nice cars, loose women, smooth whiskey?

Quote: TheCesspit

It was a UK bank note already. Scotland is part of the UK.

Potato, tomato :)

Quote: Pacomartin

Why would you go through all that trouble if your banknotes are not widely accepted? In particular there are fewer than 2 million people in Northern Ireland.

I think all cultures develop an irrational belief about currency eventually. In the US it's the $2 note, and reluctance to accept $1 coins. In Mexico the government runs ads letting people know a torn or damaged bill is still legal tender. I'm sure things like this are common rather than rare in most places. So maybe having a built-in aversion to currency works best :)

Quote: Nareed

I think all cultures develop an irrational belief about currency eventually.

Irrationality is common
The US government printed 8.4 billion $100 big headed Benjamins under the following series: 1996, 1999, 2001, 2003, 2003A

On 2 October 2004 the container ship Ever Unique was raided and they found the dreaded "super notes". A crate full of counterfeit $100 banknotes, so well made that they were virtually undetectable except to the most rigorous tests. They were widely credited to the North Koreans. For foreign use of the c-note, especially in Asia and Africa those five series of notes were starting to be refused. However, the USA's planned color replacement notes were not ready.
So the US government printed 8.0 billion $100 banknotes of the 2006 and 2006A series, but they had no new anti-counterfeit devices, just a new serial number.

The irrational part is that anyone would think that if you could print a super-note, then you would be unable to change the serial number.

But, it worked. The faith in the Benjamins lasted long enough until they could come out with the color Benjamins.

Quote: Nareed

In the US it's the $2 note, and reluctance to accept $1 coins.

The USA has possibly the most irrational cash and coin system in the world. Pennies and Nickels are pointless,and cost more to make than they are worth. Dimes and Quarters makes sense. Half Dollars are way oversized. Dollar banknotes are criminal abuse of the environment. Hoarding over a billion $2 banknotes in the belief that they will be worth something someday. The overuse of the $20 instead of the $50. And the massive number of Benjamins.

While no country uses all denominations equally, Norway and Denmark come the closest to rational. They each have five denominations with the same units in crowns. They each have about five million people. Each denomination is circulated between 5 and 9 pieces per person.


Asian countries have a deep fear of counterfeiting so the value of their banknotes is very small. It is difficult to put your money into a wallet.

Bric country's tired of petro dollar. http://www.bloomberg.com/news/articles/2016-04-28/putin-s-decade-old-dream-realized-as-russia-to-price-its-own-oil

It's a decades old effort to price oil in something other than US dollars.

The massive production of Benjamins which means the growth of currency in circulation far outstrips growth in GDP is hurting us, I think. It is creating some world wide resentment towards the dollar. I think it is helping to fuel this kind of anger.

Remember that most of the currencies in the Arab world are pegged to the dollar. They really don't want to undermine the dollar. It is mostly the BRIC countries which want to replace the petrodollar.

US Currency as a percent of US GDP
1980 4.19%
1981 3.98%
1982 4.08%
1983 4.18%
1984 4.05%
1985 4.02%
1986 4.06%
1987 4.18%
1988 4.22%
1989 4.11%
1990 4.27%
1991 4.48%
1992 4.63%
1993 4.86%
1994 5.05%
1995 5.09%
1996 5.10%
1997 5.11%
1998 5.23%
1999 5.44%
2000 5.31%
2001 5.50%
2002 5.77%
2003 6.09%
2004 5.96%
2005 5.89%
2006 5.73%
2007 5.53%
2008 5.78%
2009 6.16%
2010 6.37%
2011 6.73%
2012 7.03%
2013 7.26%
2014 7.56%
2015 7.75%