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15.1 The present units of money in the currency of the United Kingdom are the pound sterling and the penny or new penny,1 the values of which are supported by government decree and public faith in their worth. Paper money issued by the Bank of England is no longer convertible into gold at the demand of the holder, but derives its value in England and Wales by having been designated as legal tender.2 As such, it is fiat or fiduciary money, having no, or a negligible, intrinsic worth.3 Similarly, as seen in Chapter 3, whereas for many centuries international exchange rates reflected the fact that the coins of different countries were in essence just different names for various quantities and grades of precious metal, nowadays sterling coins in daily use are no longer composed of precious metals, nor are they backed by a physical commodity.4 Their practical value arises in the same way as with banknotes, as a medium of exchange enabling their owner to acquire goods and services, because other people also see them as desirable for the same reason; and
because, within specified limits for certain coins, they have been designated as legal tender. Similar considerations apply to the official currencies of all other nations, A Bank of England note bears a promise, signed by the Chief Cashier on behalf of the Governor and Company of the Bank, to pay the bearer on demand the sum in pounds specified on the note’s face. But in whatever way such promise is fulfilled, the bearer will simply receive another form of fiat money. In effect, the promise amounts to a statement that the note is legal tender. A consequence is that day-today payments made in sterling bank notes entail the transfer of bearer rights against the Bank of England.
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