By Currency Research

From the moment a greater European Union (EU) was envisioned, the introduction of a common currency was viewed as integral to fostering unity and stability among member nations. National currencies in the individual countries were perceived as an obstacle to increased economic and political unity. The solution to this fragmentation was one potent economic and political symbol: the euro. The design of the euro required careful consideration to ensure representation of transnational symbols (e.g., bridges) rather than country-specific depictions (e.g., national leaders or iconic monuments). The European Commission comments on the symbolic role of a single currency within the EU:

The introduction of the euro in 1999 was a major step in European integration. It has also been one of its major successes: more than 333 million EU citizens now use it as their currency and enjoy its benefits, which will spread even more widely as other EU countries adopt the euro… the euro gives the EU’s citizens a tangible symbol of their European identity.34

But even the Euro zone acknowledges the continued role of national symbols in currency with each nation being allowed to produce its own reverse design of coin.

The 2012 release of the South African Mandela banknote series is a powerful demonstration of currency as a unifying national symbol:

MANDELA BANKNOTES TO REFLECT SA PRIDE

The South African Reserve Bank has launched a communication campaign to introduce the new Nelson Mandela banknotes, which will come into circulation before the end of the year.

“We hope the new note will be something we all like to have,” Reserve Bank governor Gill Marcus said at the launch in Pretoria on Tuesday. “We are pleased to issue this new series of banknotes which reflect South Africa’s pride as a nation and pays tribute to a much loved world icon.”

“A country’s currency is a fundamental component of its national identity. It should be a reflection of its cultural heritage,” Marcus said.35

South Africa’s City Press comments on the national and cultural significance of the introduction of the series:

STRIKING THE RIGHT NOTE FOR ALL OF US
New banknotes reflect national pride

A country’s currency is a tangible reflection of cultural heritage and pride, second only to the national flag.

It makes a physical and emotional connection with each of us, as citizens, every day of our lives as we go about our business at home or at work, making our daily transactions.

As people do business with our currency, it makes tangible the country’s standing in the international business community and on the world economic stage.

For many, it is their first encounter with our national brand. It is, therefore, both appropriate and highly relevant that the SA Reserve Bank is issuing a new series of banknotes that personify South Africa’s pride as a nation and, at the same time, pays tribute to a much-loved global icon and the country’s first democratically elected president, Nelson Rolihlahla Mandela.36

The concept of national pride also motivated the UK release of the new £10 Jane Austen banknote specimen, targeted for issue in 2017. In a 2013 speech at the Bank of England, Governor Carney comments on the note’s significance:

We also recognise that banknotes are an important national symbol and a source of national pride.

The depiction of historical characters will remain an integral feature of our banknotes, providing an opportunity to celebrate individuals that have shaped the United Kingdom. In order to ensure public confidence in banknotes, it is essential that the choice of characters commands broad public respect and legitimacy.37

In 2013, the BBC reported on the significance of the Bank of England’s decision to feature Austen on the banknote:

JANE AUSTEN TO BE FACE OF THE BANK OF ENGLAND £10 NOTE
Author Jane Austen is to feature on the next £10 note, the Bank of England says, avoiding a long-term absence of women represented on banknotes.

Mr. Carney started discussions about female representation on banknotes on his first day in office.

“Jane Austen certainly merits a place in the select group of historical figures to appear on our banknotes. Her novels have an enduring and universal appeal and she is recognised as one of the greatest writers in English literature,” Mr Carney said.38

Banknotes and national flags both serve an important role in identifying a country and its citizens. The Russian flag and the Russian ruble were the two most visible national symbols introduced immediately following the recent annexation of Crimea by the Russian Federation. The Russian news agency, Itar-Tass, comments on Crimea’s 2014 transition to the ruble:

CRIMEA GOES FOR RUBLE EARLIER THAN PLANNED
From June 1, the Russian ruble is the only official currency in the peninsula. Parallel use of the ruble and the Ukrainian hryvnia was initially planned to be prolonged until January 1, 2016, but on May 6, the National Bank of Ukraine instructed Ukrainian banks to sever relations with financial organizations operating in Crimea, and the peninsula became part of the ruble zone earlier than expected.39

Russia announced its intention to further recognize the Crimea annexation with this July 2014 announcement:

CRIMEA-THEMED BANKNOTE TO APPEAR IN RUSSIA

Russia plans to issue a banknote dedicated to Crimea, a senior Central Bank official said Wednesday, the latest show of national pride over Moscow’s annexation of the Black Sea peninsula from Ukraine.

“We plan to issue a banknote dedicated to Crimea, but it will be a banknote of the denominations already in circulation,” Georgy Luntovsky, the regulator’s first deputy chairman, told journalists at a banking conference in St. Petersburg.40

The role of banknotes as a source of national pride is again underscored in an official notice about currency defacement from the Bank of Canada’s Bank Note Communication and Compliance Team:

… the mutilation and defacement of notes is not condoned as Canadian currency is a symbol and source of national pride.41

Emotions can run high when governments design and introduce new national currencies. The main issues in designing, producing, and printing new banknotes are discussed in Richard K. Adams’ working paper for the International Monetary Fund (IMF), excerpted below:

THE DESIGN AND PRINTING OF BANK NOTES; CONSIDERATIONS WHEN INTRODUCING A NEW CURRENCY
The design of a national currency is important for many reasons, ranging from the philosophical to the pragmatic. Those in charge of designing a new currency must realize that many people see the national currency as a symbol of national independence or a reflection of their political philosophy.

The design of new banknotes or coins tends to be emotionally charged.42

A May 2013 article published in Currency News comments extensively on the multiple roles, whether symbolic or functional, that banknotes play in society:

A BANKNOTE IS MORE THAN JUST A BANKNOTE

Banknotes play an important psychological as well as a functional role.

They underpin national pride and sovereignty and reinforce cultural tradition and identity.

A banknote, as defined by the Oxford English Dictionary, is ‘a banker’s (especially a central banker’s) promissory note, payable to the bearer on demand and serving as money.’ … Of course this elemental description belies not only the complexity of the banknote itself, but also the critical role that it plays in society. By enabling transactions to take place between and among individuals and organisations, it is one of the building blocks for commerce, trade and hence economic development and empowerment.

Wider Macroeconomic Role

And according to Benoît Coeuré of the ECB, it has a wider macroeconomic role too – demand providing a key variable for measuring economic activity and a key driver of liquidity required by banks. Seigniorage, meanwhile, provides an important source of revenue for central banks and, by association, the taxpayer.

Not bad for a simple piece of paper!

The functional role of banknotes aside, they also play an important psychological role. As is so often said, banknotes act as a ‘calling card’ for nations, underpinning national pride and sovereignty, binding together countries that are part of monetary or political unions, reinforcing cultural traditions and providing an emotional bridge between state and citizen.

A number of examples of this wider dimension to banknotes is provided in this issue alone. Canada’s pride in, and tradition of, scientific endeavour is demonstrated in both the designs that it has revealed this month. Winston Churchill – a political giant of the 20th century in the UK whose appeal bridges the political and generational divide – is a popular choice for the next £5 note. Israel’s new notes featuring poets cast the spotlight on a literary heritage often overlooked in the current political climate. Even the ECB, which has to navigate a minefield of national sensitivities within the eurozone, has succeeded in drawing on a symbol of unity for the new series in the form of the mythical goddess who gave her name to the continent.

Scottish Independence

Another good example is provided by the article on the future of banknotes in Scotland, which is currently part of the UK but where a referendum on independence will be held next year.

A complex number of issues need to be clarified first regarding an independent Scotland vis-à-vis, for example, membership of such organisations as NATO, the IMF and the EU, the division of the UK national debt, allocation of oil and gas resources etc. The nationalists are currently making claims on such positions, the most contentious of which is proving to be the currency.

The pro-independence movement is claiming that Scotland would simply enter into a currency union with the UK, with all current arrangements – including the issue of Scottish notes – continuing as before. A claim which has had cold water poured over it by the UK government.

The Scots treasure their banknotes, and no UK government in the three centuries since the Act of Union has attempted to get rid of this anomaly in currency issue. The same sensitivities can be seen in the low-key, conciliatory approach that the current government has taken towards the question of independence, to avoid fanning further the flames of nationalism.

Gloves Come Off

But now, for the first time, the gloves are coming off – with the UK government stating that there is no guarantee that it would enter into such a union, and that – even if it did – historical arrangements governing the issue, and underwriting, of Scottish notes would be extinguished.

The irony of a potential situation in which Scotland becomes independent, only to see its cherished banknotes disappear and replaced by those bearing the name of the country from which it has just severed its ties, is not lost on those on either side of the debate.

More to the point, as one leading Scottish newspaper commented: ‘of all the arguments for and against Scottish independence, this must be one of the most arcane’. In other words, ‘given all that is at stake, why all the fuss over what, after all, is just a banknote.’

Except that, as we all know, a banknote is so very much more than just a banknote.43

This article has been posted with permission from Currency Research and is excerpted from The Case for Cash Part 2: The Justification. To request a copy of the full report or to learn more about Currency Research, please click here

34 http://ec.europa.eu/economy_finance/euro/index_en.htm
35 http://www.southafrica.info/services/banknotes-060912.htm#.VH5DxGTF9rl
36 http://www.citypress.co.za/columnists/striking-the-right-note-for-all-of-us-20121020/
37 http://www.bankofengland.co.uk/publications/Documents/speeches/2013/speech700.pdf
38 http://www.bbc.com/news/business-23424289
39 http://itar-tass.com/en/opinions/763301
40 http://www.themoscowtimes.com/business/article/crimea-themed-banknotes-to-appear-in-russia/502865.html
41 http://www.cdn-money.ca/cdnmoney/servlet/cmtHelp?help=bill-faq#illegal
42 https://ideas.repec.org/p/imf/imfwpa/95-26.html
43 http://www.currency-news.com/a-banknote-is-more-the-just-a-banknote-may-2013

Cash imparts a sense of national pride