The Bank of England is probably familiar to the public as the name on the banknotes. The Bank is the sole issuer of currency notes in England and Wales and although Scottish and Northern Irish banks issue their own notes they must be backed pound for pound by Bank of England notes. (Coin is issued by the Royal Mint on behalf of the Treasury, and is not a responsibility of the Bank of England). The net profits from the note issue (which are considerable) are paid over to the Government.

The notes are designed and produced at the Bank’s own Printing Works. The Bank issues its notes mainly through the commercial banks’ branch networks. The Bank remains responsible for taking in old notes for destruction. The average life of a Bank of England note ranges from a year for a £5 note to 3-4 years for a £50 note. Banknotes are printed on special watermarked paper with a metal security strip and much technical and design effort goes into making them difficult to counterfeit. The present series of banknotes was introduced between 1990 and 1994.

The Bank’s notes originally represented deposits of gold coin and bullion with the Bank and, until 1931, when Britain finally came off the gold standard, could be exchanged for gold at a fixed rate - hence the words “I promise to pay” on the face of the notes. Since 1844, the Bank has been authorised to issue notes against securities - the fiduciary issue of notes - instead of just gold or silver. After 1939, only a nominal amount of gold was held and today the note issue is wholly backed by securities.

A monetary union is usually defined as a currency area where there are either locked exchange rates or a single currency, and in which monetary policy is managed centrally to achieve common macro-economic objectives. The main argument in support of European monetary union is that the permanent elimination of exchange rate fluctuations between participating countries would reduce risks and costs for inter-European Union trade and thus help to promote greater economic prosperity. The principal drawback is perceived to be the loss of national sovereignty over a part of economic policy: individual states are subject to the same monetary policy and to a centrally determined interest rate.

The creation of an Economic and Monetary Union (EMU) in Europe is envisaged in the Maastricht treaty on European Union and is timetabled to begin on 1 January 1999. A result of this will be that exchange rates between participating countries will be fixed and a single interest rate will be set for all participants by a European Central Bank (ECB). The euro will become a currency in its own right and will be used in the banking system but there will be no physical euro bank notes or coin until the beginning of 2002. The UK has said that it will not participate in EMU at the outset but companies trading with Europe will, nevertheless, have to adjust their banking and payment systems to deal with the new ‘foreign currency’. If the UK joins EMU at a later date, the pound will be replaced by the euro. This will mean new notes and coin together with a major operation to convert prices, switch bank accounts and re-denominate everything with a monetary value into the new currency.