I'm applying to the Bank of England for a licence to print money
CHRISTOPHER FILDES
This is the opportunity of a lifetime. I am going to buy the Bank of England's printing works at leafy Debden, in Essex. It will be a licence to print money. How am I going to pay for it? Cash down, in banknotes, of course. I shall run some more off. Having struggled for centuries to establish this lucrative monopoly, the Bank may be ready to part with it, for it is too good not to share. We have kept the costs down, says Mike Thompson, who runs the works, but what we have not been able to do is increase volume. The presses at Debden can produce more notes than their only customer needs, and Mr Thompson is not allowed to fill them up by competing for work in the open market against other printers. So the Bank is wondering whether the presses should be privatised. Then they could go on printing notes for the Bank, under contract, but would be free to get new orders from new customers — running off prospectuses, freesheets, soap coupons and so on. None of these would be anything like so well worth printing as banknotes. Tucked away in the Bank's published accounts, the results of the Issue Department tell the story of Britain's most profitable nationalised industry. They show an income of £1,635 million and expenses of £51 million — the cost of printing the notes, issuing them, looking after them, paying them and burning them. (The furnaces heat the premises.) Net proceeds: £1,584 million. If this business was valued on a par with De La Rue, the banknote printer, it would be worth £12 billion, but I hope to get it for less.
Gross profits
YOU may wonder how any business can operate with such a truly gross margin. Easy, really. A note is a promise to pay, and therefore a liability of the bank that issues it, but, of course, it is interest-free. So the Bank of England sells notes to the High Street banks, invests the proceeds in government stock, and watches the dividends roll in. When the notes come back to the Bank it issues new ones to replace them. The profit from these operations is called seignorage. This is how the European Central Bank still hopes to make a good thing of its lacklustre currency. Its notes are now in circulation, they cannot be expensive to print, and the top-of-the-range 500-euro notes will disappear into the cash economies of Eastern Europe, never to return. The ECB will keep 8 per cent of its seignorage and distribute the rest among its squabbling shareholders. The Bank of England is less fortunate, having been outmanoeuvred by Sir Robert Peel, whose Act of 1844 requires it to pay every penny of the Issue Department's profits to the Treasury. This obsolete statute will now need amending.
What Europe needs
THE man who rumbled seignorage was Friedrich Hayek, who denounced it as a monopoly profit. Governments and their agents in the central banks use it to exploit their citizens. We can see that the note issue is costing us £1.5 billion more than it costs to operate, which is as good or bad as a penny on income tax. The cure for monopoly is competition, and Hayek wanted to open the business up to all comers. Then we could decide for ourselves whose promises we trusted, and good money (Hayek's Law being Gresham's Law in reverse) would drive out bad. From that point of view a single currency is a bad currency and Europe's need is for multiple currencies. When I buy the Bank's printing presses, I shall do my best to supply it.
Beckford's Phenomenon
ALDERMAN William Beckford made so much money in the sugar trade that the City fathers raised a statue to him in Guildhall, where he remains in effigy, alongside Pitt, Wellington, Nelson and Churchill. His son William inherited the money and set out to spend it, his taste running, as he admitted, to dark lacquer and fair boys. (His collection, or some of it, can now be seen at the Dulwich Picture Gallery.) He was a spectacular instance of a recurrent phenomenon: the man or the family so used to riches as to be shocked to
learn that they are finite. We tend to feel the same way about our pension funds. How awful to be told, as the Institute of Fiscal Studies has now told us, that we may not be able to retire early if we want to — not on full pension, anyway. How disturbing to find companies giving up on the idea of paying pensions linked to final salaries. They know, because the courts have told them, that pension contributions are a form of deferred pay. Their auditors have done the sums again and have made the pension funds' riches look finite. Others are closing these schemes to all corners. Shock, horror. There ought to be a law. In fact, there is one.
Chappell's Law
THE law that counts was laid down by Philip Chappell, the father of personal pensions. There is only (so he used to say) so much rice in the rice-bowl. Final-salary schemes stir the rice around and redistribute it — typically, from women to men, from the young to the old, and from everybody else to the directors — but what they cannot do is to make the rice multiply. Meanwhile there seem to be more open mouths and more demands for second helpings. The point is that if we want unlimited rice in our rice-bowls, we may have to put it there. Who else will look after us in our retirement? Our employers? Well, maybe. The government? Grow up.
Sniff for yourself
IT makes for a bad day at the bank when you find that your assets add up to 5750 million less than you thought they did. You believed that your systems were flawless, but some foreign exchange dealer in distant Baltimore still found a way to cover up his losses and collect his bonus. Dealers do that, from time to time, and some of them must get away with it. The lesson learned at such expense by Allied Irish Banks is that the best of systems is no substitute for experience, or for seeing and listening and sniffing for yourself. Sensitive shoulderblades help, too. A City banker once credited with them likes to warn his younger colleagues that their assets will not all turn out to be worth 100 pence in the pound, but their liabilities will.
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