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Essentially, the position created by these provisions is that those banks that can currently issue banknotes may continue to do so, but new ones cannot. Why not?
What is the Governments assessment of the value to each of the issuing banks of their having the authority to issue banknotes? Assessments have been made and have been disputed by the Government, but what is their assessment of the global value of all those banks that have the right to issue banknotes, broken down into the separate constituent parts of the individual bank?
The hon. Member for South-West Hertfordshire asked, Why no new issuers? As I said in my prefacing remarks about part 6, banknote issuance is usually a function reserved for central banks. The UK is almost, but not quite, uniqueif we count Hong Kongin allowing a number of commercial banks to issue their own banknotes. Under the existing legislation, only the banks that had issuing rights at the time of the enactment of the legislation in 1845 that sought the necessary certifications to continue issuing in accordance with those enactments may issue banknotesand only in Scotland and Northern Ireland. As I said earlier, only seven of the original 21 entities remain after 160 years of commercial operation. That is the attrition rate.
The Government support the continuation of this tradition of commercial issuance, simply because it is a
A tradition that does no particular harm and is particularly welcome in Scotland. A different debate goes on in Northern Ireland about the practice. The Government do not wish to see that tradition draw to a close by enacting legislation that would ban it; it is appreciated particularly in Scotland. We are not seeking to discourage note-issuing commercial banks from continuing to issue their own banknotes, but it is a privilege and is not a right that should be open to all. It is not a commodity that should be bought and sold. It is an historical quirk that we can support, but for obvious reasons, we would not seek to revive or expand it. The hon. Member for Dundee, East is getting to his feet.
It is certainly historical, but I think that it is more than a quirk. Perhaps I can help the hon. Member for Gosport with his question. Although the value may be modest in cash terms, the promotional value is enormous, not only for Scotland, but particularly for the banking sector in Scotland. It is probably an incalculable amount of money. This is rather more than an historical quirk.
Well, it is an historical quirk in that it has survived through the ages and not been centralised as has happened in every other country except Hong Kong. There are costs for banks that issue their own notesnot least the costs of printing, safeguarding, designing and ensuring that backing assets are kept to back up the cost of note issuance. I assure the Committee that the Government do not seek to extend the right to issue to any new institutions. The original issuing legislation was careful to close down that eventualityit applied only to the commercial banks that existed at the time and since then, their number has gradually declined.
In her earlier remarks, the Minister said that the decline was partly due to mergers and that is why those involved dropped out. There is a massive merger at the moment regarding one of those banks. We must follow the consequences of what the Minister was saying, namely that we do not want to expand the right to issue notes to different banks. However, lawyers will get involved with the bank that does issue them. If we follow the logic of the argument, would that not be a reason for stopping it at that stage?
It depends on how the merger is done. As I said earlier, issuing rights are vested in the underlying corporate entity. If that corporate entity were to disappear in a merger with another institution, its issuing rights would go. In the case of Lloyds TSB-HBOS, the Bank of Scotlanda subsidiary of HBOSis the issuing bank. A change of ownership at Bank of Scotland, as long as it remains an entity, will not affect its issuing rights. If Lloyds TSB was going to take over and extinguish the Bank of Scotland, I am sure that the hon. Member for Dundee, East would have a few words to say. If the Bank of Scotland ceased to exist, that would extinguish its issuing rights. However, the fact that it remains a subsidiary means that that is not an issue in this case.
The hon. Member for Gosport asked what the value of the authorisation to issue was. This is a commercial matter. During three rounds of consultation about the changes that are now in part 6, no bank responded that the right to issue caused distortion or unfair competitive advantage. That issue was not raised. I do not have the figures that the hon. Gentleman requested to handas I said, this is a commercial matter. However, I think that £3.5 billion of Scottish banknotes and £1.6 billion of Northern Irish banknotes are in circulation. To the value of £40 billion of Bank of England notes are in circulation. That will at least give the hon. Gentleman a view about the larger part of the circulating currency that we are talking about.
I hope that with those answers, the Committee will support clause 199.