Thread by @gro_tsen

I just watched this video on why England has £1M (“giant”) and £100M (“titan”) banknotes, and I'm left with nothing but questions. •1/14

Their explanation is basically that Scottish and Northern banks are still allowed to print their own notes, but they are required to deposit the same amount at the Bank of England as security, to ensure that these private banknotes keep their value in case of collapse. •2/14

Superficially this makes sense. But the more I think about it, the more absurd and confusing it becomes. First, why store it in paper form and deposit it in high security vaults… at the Bank of England itself? Why not store it electronically? •3/14

Paper banknotes might make sense if we wish this value to be stored anonymously, or somewhere else than at the Bank of England. But for the Bank of England to print these notes internally and store them itself is the weirdest possible form of accounting! •4/14

Second, what does it even have to do with the fact that Scottish and Northern Irish banks can print their own notes? EVERY commercial bank can create money (by lending it): that's the very point of a bank in the debt-base monetary system (money is a debt owed by a bank). •5/14

The only difference in Scotland and Northern Ireland is that commercial bank money can take physical form whereas in other countries it only exists only as numbers in computers and balance sheets. But why should it mean that the corresponding security has to be physical? •6/14

(PS: I'm using the word “security” here to denote “the thing you deposit in care of a person of trust to back a debt” but it's probably not the right one. Should I say “escrow”? “collateral”? I have no idea. If you know, please tell me, but it's not my main question.) •7/14

So, every bank in the Euro zone area, for example, has an account at the ECB or the relevant ESCB NCB, and I guess English banks have one at the Bank of England, allowing them to create euros or pounds by giving out loans. They don't need it in the form of physical notes! •8/14

But even if it takes physical form, why would you make it in the form of an anonymous note which the video suggests is legal tender for anyone and therefore needs to be heavily guarded? Why not have a paper saying that the BoE owes whatever sum of money to THAT bank? •9/14

I really don't understand the concept: if a “titan” banknote is really, in principle, worth £100M to ANYONE who holds it, which seems like a ludicrously absurd idea, how can one have sold for mere tens of thousands of pounds like the video suggests. Was it cancelled? •10/14

Lastly, how does seigniorage work on banknotes issued by commercial (i.e., non-central) banks? For central bank money, IIUC, the central bank derives revenue from banknotes because it's not paying interest on a debt it owes and which the banknote materializes. •11/14

Now the same could work for commercial banks if they print their own banknotes, and I suppose the whole point of doing so is to earn the seigniorage. But if they have to deposit the same sum of money at the Bank of England in the form of banknotes, how does this work? •12/14

(I mean, they are indeed not paying interest on their debts which is materialized as banknotes they printed, but they are also not getting any interest on the corresponding security at the Bank of England, so it would seem to me that their net interest is zero.) •13/14

There's probably a lot that I didn't understand in all of this. Truth is, modern monetary theory is incredibly badly explained in every source I could find: I think I grasped the vague general idea, but details such as these are still incredibly confusing to me. •14/14