Money in circulation (FOI)

​​Request

In relation to another request.

1.Thank you for your reply it was very informing and a great help, in it, It states that ALL "Jersey currency is fully backed by the equivalent value of Sterling". In this case I would like to bring to your attention a request made to HM treasury dated 26th February 2009 REF 9/96. In it, it states "The link with Gold was fully broken in 1931 and since that time there has been no other asset". In relation to Jersey does this mean that all Jersey currency is in fact, absolutely worthless and is worth nothing more than an empty promise?

2.You also stated that the limit on Jersey currency is currently £100 million but is planned to be increased shortly to £125 million may I ask why this is?

3. Is there a date it is to go up? A date made for a debate for the states approval?

4.Will the people of jersey have a say in this? What was the previous amount before
£100 million? and when did it increase to £100 million?

Response

1. Each Jersey note issued is backed by an equivalent value of Sterling held by the States Treasury and can, at any time, be exchanged for its face value in Sterling.

2. As previously corresponded, the amount of Jersey Currency in circulation is driven by demand from the retail banks on the Island who purchase it (one pound Jersey for one pound sterling) from the Treasury. 

Demand from retail banks is driven by their customers (both individuals and companies) as they withdraw physical cash from their accounts. 

These banks could import sterling to the Island for this purpose but this would be logistically cumbersome and potentially expensive. 

As an alternative, Treasury are able to issue physical Jersey notes in exchange for electronic transfer of sterling from the banks. 

This serves to ensure the smooth running of the local economy as physical cash can be made available to those who need it quickly and efficiently.

The level of Jersey issued currency follows a fairly predictable pattern, with a large increase in notes demanded over the Christmas period as the public go about their Christmas shopping. 

The number of notes in issue falls after Christmas when banks return surplus notes to Treasury and redeem sterling.

The value of the peak drawdown has typically increased every year driven by a number of factors including, for example, inflation.

In 2014, the peak value of Jersey currency in circulation was around £95m. 

Based on current projected demand provided by the banks, we expect the 2015 value of Jersey notes in circulation to increase to around £98m; though this is subject to change as banks vary their requests. 

The reason for seeking to increase the limit to £125m is to ensure the States Treasury are able to fulfil the demands of the retail banks. 

Should banks seek notes in excess of £100m, under the current law the States Treasury would be unable to fulfil demand due to the legal limit. 

This could potentially result in note shortages and limitations on the amount of cash available at cash points or at retailers which would be detrimental to the Island’s economy.

3. The States Treasury only issues notes as banks demand them. 

Any increase in circulation would be incremental as banks draw down cash to meet their customers’ requirements, not a lump sum movement.

The change to the law was scheduled to be taken to the States on 19 January 2016. However, the minister has requested that the debate be brought forward to 15 December 2015 to be absolutely sure that Christmas demand for Jersey cash from the banks can be met.

4. Elected representatives in the States Assembly will be asked to vote on the change to the law before it can be enacted. 

The last change to the law was in 2009 when it was amended to increase the value of currency which could be issued into circulation from £75m to £100m.