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BANKNOTES' VALUES AS COLLECTABLES

(c) International Copyright A.Ackroyd, 1999-2004. All rights reserved.

The world’s most comprehensive reference work on values, the Standard Catalog of World Paper Money. is still referred to by some as the ‘Pick’ after its original editor, but we’ll refer to it here as ‘SCWPM’. Its three volumes together list the vast majority of banknotes ever produced - well over 45,000.

New editions of each volume are issued periodically to keep abreast of new issues, and changes in the values given in previous editions. The editors do a remarkably good job, considering the large number of banknotes and the diversity of factors that can affect their value at any time. However, the values given are based mainly on the American market, which is one reason why they often seem inaccurate to collectors in Europe and elsewhere. There also seems to be some ambiguity as to what the values represent. They are supposed to represent end-user prices. However, many, especially for some of the very cheap notes, seem clearly to represent the sort of wholesale prices a dealer would pay if he were buying a hundred or more pieces.

Since banknote values are subject to change, each volume of the SCWPM is most reliable when a new edition has just been published. In particular, this applies to Volume 3 which covers recent issues. However, most experts agree that even new editions usually contain many unrealistic values. To some extent, this is inevitable, because there are many factors that can unexpectedly alter a note’s market value. In addition, of course, the catalog editors can only spend a limited amount of time researching each note.

Let’s consider the main reasons for the inaccuracies…

INFLATION

Some of the wildest discrepancies, particularly with recent issues, are due to inflation in the country of issue. In some countries, inflation is so severe that even if the SCWPM gives an accurate valuation of a note at the time of editing, it is often already wildly out by the time the catalog reaches the collector. Occasionally, inflation can strike suddenly, as in the case of Iraq after the Gulf war. The Saddam Hussein portrait note, Iraq P73, used to cost collectors nearly £30. Then when the trade sanctions and other effects of the war took their toll on Iraq, inflation quickly set in. Suddenly P73, together with most Iraqi currency, could be obtained for a fraction of its previous value. Collectors who follow world news and economics have an important advantage: they are better equipped to foresee changes in values, and to judge whether an apparent bargain note really is a bargain - or whether it should be considered with caution.

DEMONETIZATION

Here’s another thing to watch out for, particularly regarding countries with high inflation: Governments occasionally demonetize a banknote (annul its validity as currency). This happened recently in Croatia. P27 was issued in 1993, and the SCWPM subsequently valued it at $50 in uncirculated condition. A few months later, the Croatian government demonetized it, and suddenly it could be obtained for next to nothing. As I write, the Malaysian Government plans to demonetize their RM500 and RM1,000 notes. Thankfully, this does not often happen. Even so, the more cautious collectors steer clear of countries with high inflation - or limit themselves to buying only the cheapest notes from these countries.

MARKET FLOODING

Occasionally, someone discovers a quantity of a certain note which was previously considered relatively scarce. This happened recently in the case of the Jersey £5 of 1840, PA1. These used to be valued at around $320 in VF. Then, in the early 1990s a hoard turned up, and they could suddenly be obtained for £35 or so. The universal law of supply and demand manifests itself again. As most people know, the more easily available something is, the less one has to pay for it. Consider the air we breathe…

CURRENT AFFAIRS & MARKET TRENDS

Prominent political and national events and crises can affect banknote values in either direction. Occasionally something will arouse world interest in a country - banknote collectors included. When a country features prominently in world news, its banknote supply is not effected. The demand however, is. Consider the take-over of Hong Kong by China. The world held its breath, wondering what would become of the region. Collectors anticipated the dissolution of the Hong Kong note-issuing banks. As the big event drew near, collectors world-wide began frantically buying every Hong Kong note they could find, even if they had to pay two or three times SCWPM values. Later, when the frenzy subsided, banknote values settled down somewhat. However, Hong Kong is still an area of speculation.

LACK OF INFORMATION

One very important factor to remember is that when the editors of SCWPM are preparing a new edition, if they have no new data on the current value of a note, its estimated value will remain unaltered. Unless someone draws their attention to an inaccuracy, they have no way of knowing about it.

THE AMERICAN FACTOR

It is important to bear in mind that the SCWPM is an American publication. Its editors assess the values of banknotes based on their own experience and that of a limited number of dealers, most of whom are based in America, dealing to the American collector. Even so, it is often slow to recognise obvious changes in values and buying trends even within America itself. Confederate States notes, for example continue to appreciate, yet the SCWPM always seems to lag behind in bringing its valuations of these notes up to date. Nevertheless, the SCWPM is undoubtedly more reliable within the boundaries of North America than anywhere else. Let’s look at some of the reasons why its values can sometimes be inaccurate for collectors outside America:

National Interests.

The USA, like all countries, has its own unique history, its own interests and its own set of friends and neighbours. Banknotes of certain countries are of more interest to the average American collector than, say, his British counterpart. Vietnamese notes, for example, are more popular in the USA, due to the war it fought there. There is evidently more demand in the USA for expensive notes - especially, of course, expensive American notes. For one thing, there are many more wealthy collectors in the USA than elsewhere. When a British dealer chances upon a high-valued foreign rarity, he may offer it at below ‘Pick’ value if he wants to make a quick sale within Britain. Likewise, you’ll find that ‘Pick’ values for most British notes are generally low compared with the values given in Duggleby’s English Paper Money (a British publication reflecting British market values).

Local Availability

Some banknotes are inevitably easier to obtain in the USA than in Europe. Obvious examples are the notes of Canada and Latin America, along with the Bahamas, St. Pierre & Miquelon, Hawaii, etc. Others are harder to obtain there, and the American collector will have to pay more for these than he would in the continent of origin. To some extent, this effect is balanced out by the fact that a country tends to be more interested in the banknotes of its neighbouring countries than anyone else is. So although the demand is higher there, so is the supply.

Economies of Scale

Compared to most countries, there are more dealers in the USA, and in particular, more dealers with substantial buying-power. If you are a collector in the USA and you want a certain note, you have a better chance of finding a dealer who has been able to buy a quantity of that note. When a dealer buys in quantity, he usually pays a low price, and is therefore sometimes willing to sell at a lower price. Unfortunately for the European collector, many of these dealers will only sell in quantity also, and will not get involved in small orders - especially if they come from overseas. In any case, when you consider the additional cost and risk of transatlantic delivery, it usually makes sense to pay a little extra and buy from a competitive dealer in your own country.

Differences in Collecting Styles

The average American collector tends to be very keen on obtaining scarce banknotes in the highest possible grade - even if it means paying inflated prices. Collectors from most other countries tend to be less particular, adopting a more down-to-earth "you get what you pay for" approach. This doesn’t mean that either approach is right or wrong. It’s just a difference in style. The SCWPM tends to reflect the American style - especially for high-value notes.

CONCLUSION

There is no instant shortcut to becoming an expert in assessing the value of banknotes. However, we’ve covered some of the important things to bear in mind. The more knowledge you gain about banknotes, the economic situations in their countries of issue, and the prices people are actually paying for them, the more adept you will become.

Above all, remember: the true value of a banknote is what the individual is willing to pay for one - which may not necessarily be the same as what some dealer is asking - or what the SCWPM suggests.

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This page originates from: www.aanotes.com
A. ACKROYD is a longstanding I.B.N.S. member