Amount and control of currency in circulation (FOI)
Amount and control of currency in circulation (FOI)Produced by the Freedom of Information office
Authored by States of Jersey and published on 24 November 2015.
Prepared internally, no external costs.
How is money released into circulation and who controls the amount?
It has been assumed that the question relates only to 'Jersey' currency. The Bank of England should be contacted regarding arrangements for Sterling.
Jersey Currency is released into circulation by the retail banks on the Island. They do this through issuing notes to their customers who draw from their accounts (ie via cash points etc). The amount of Jersey currency in circulation is therefore determined purely by public demand.
The States cannot simply 'create' currency. For every pound of Jersey money in issue a pound of sterling must be retained by the Treasury. This cash is retained in the Jersey Currency Fund. In this way Jersey currency is fully 'backed' by an equivalent value of Sterling.
To obtain Jersey notes, the banks ‘purchase’ them from the States Treasury with sterling (electronically). The banks are free, at any time, to return any Jersey notes in their possession to the Treasury and request Bank of England notes in exchange.
Consequently, the States of Jersey cannot influence the total currency amount in circulation, as for every Jersey £1 issued, a sterling £1 is withdrawn (net nil impact).
Jersey has no independent control over the monetary policy implemented by the Bank of England. The States cannot impact the underlying money supply nor do they have any power to set rates.
If the States ceased issuing Jersey notes to the banks, they would simply issue Sterling notes instead.
Legally, Jersey limits itself by law to how much Jersey currency the States can issue into circulation. This limit is currently £100 million but is planned to be increased shortly to £125 million.
The relevant law is the Currency Notes (Jersey) Law 1959 which grants the Minister for Treasury and Resources the power to issue currency notes but requires States approval for the maximum amount that can be issued.