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I agree that advertising is a key motivation. There is a secondary
point though.
Under banking legislation a private bank with a license to issue
bank notes only needs to hold bank of england notes or deposits
for those notes that it actually issues.
This means that the reserve notes held in branches of the
Bank of Scotland, the Clydesdale Bank etc do not need backing
by bank of england deposits until they are actually issued.
A bank with no such license, Barclays for instance, has to hold
bank of england notes in all of its branches sufficient to cover
all likely withdrawals. Since no interest is earned on this money
it is a cost to the bank. The bank of Scotland holds its cash reserves
mainly in its own notes which cost it nothing. It can at the end of
the day adjust its holdings of Bank of England deposits to equal
the notes actually issued by buying or selling treasury bills.
It should be noted, that the origin of bank notes in the west starts
with the Bank of Scotland shortly followed by the Bank of England,
both of which were created as formally private institutions whose
purpose was to facilitate state finance. The issue of bank notes
in the West did not arise through the private issue of certificates
for raw bullion as would be implied by the commodity theory of money.
I am not sufficiently aware of the monetary history of china to say
if the same applied there.
----- Original Message -----
From: <P.J.Wells@OPEN.AC.UK>
To: <ope-l@galaxy.csuchico.edu>
Sent: Wednesday, January 12, 2000 8:54 AM
Subject: [OPE-L:2102] RE: Re: State theory of money
> Fair enough (I'd rather suspected something of the sort), but the obvious
> next question is "So why do they do it?"
>
> "Advertising" would be my first guess -- what would a US commercial bank
be
> willing to pay to get its name on every dollar bill, I wonder?
>
> Julian
>
> > -----Original Message-----
> > From: Allin Cottrell [SMTP:cottrell@ricardo.ecn.wfu.edu]
> > Sent: Tuesday, January 11, 2000 10:03 PM
> > To: ope-l@galaxy.csuchico.edu
> > Subject: [OPE-L:2094] Re: State theory of money
> >
> > On Tue, 11 Jan 2000 P.J.Wells@open.ac.uk wrote:
> >
> > > Paul C will not need reminding that in Scotland some private
> > > banks still retain the privilege of issuing legal tender
> > > bank notes. How does this fit in?
> >
> > The privilege doesn't amount to much: the Scottish banks must
> > hold Bank of England notes to the full value of any of their own
> > that they issue.
> >
> > Allin Cottrell.
>
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