Below is my response the recent JEP article regarding the £100 pound note fore the Queen’s Diamond Jubilee celebrations, found in part here.
Dear Sirs,
Yesterday’s JEP article on the new £100 pound note started by saying “A new £100 note – costing more than £250,000 to the taxpayer – is to be printed to mark the Queen’s Diamond Jubilee”.
There is no ‘cost’ to the taxpayer, it is the opposite. The £256,000 will be an income-producing investment, which is made by a separate and profit making Currency Fund. As shown in States accounts, at the end of 2010, there was over £96 million of Jersey cash in circulation, which produced a return of £1.8 million, in the year, even at current low investment returns. The new note will add to this. On even the most modest estimates of less than five thousand £100 notes issued, this investment will produce a positive return for taxpayers.
It is shame that the £100 note, which forms part of a series of initiatives to mark the Queen’s Diamond Jubilee was portrayed in a way that may raise concerns with Islanders. The issuance of the £100 note, the design of which includes Equanimity, the holographic portrait of Her Majesty, will be released shortly. It will produce an investment return for taxpayers, not a loss.
Yours sincerely,
Senator Philip Ozouf
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£1.8m / £96m = 1.875% return
5,000 * £100 note = £500,000
£500,000 * 1.875% = £9,375 return
Net loss = £9,375 – £256,000 = £(246,625)
Dear Amateur Mathematician,
Below are some additional points with regards to how the calculations work:
- The increase in circulation is multiplied by the expected yield to generate an expected annual return. I expect the return on a permanent increase to be in perpetuity, and therefore a perpetuity calculation is applied. This calculation also takes into account the time value of money and uses a ‘discount’ rate to do so.
The perpetuity calculation is:
Annual return
Nominal interest rate (discount rate)
- The nominal interest rate is the States of Jersey real interest rate adjusted for expected long term inflation. The States of Jersey sets it’s real interest rate in line with UK policy as set out in HM Treasury’s Green Book and the Treasurer has taken a formal decision to adopt the same rate of 3.5%. To create the nominal rate for discounting, the real rate is adjusted for inflation, using the Jersey long-term inflation forecast of 2.5%.
1+ nominal rate = (1 + real rate) (1 + inflation)
Please also see below supporting documentation and notes:
£100 Note General Information</a
Response to CSSP
Draft Currency Notes
Break even calculations
Kind Regards,
Philip
Thanks
Those additional assumptions allowed me to get my head around the figures.
AM
Philip.
You and Freddie have done something to p1ss the JEP off. Even people who can’t stand either of you feel you are both getting a raw deal from the JEP!
Care to enlighten us as to what you’ve done?
Dear VFC,
I can’t understand the JEP’s take on this and I would hope this is just a genuine mistake. But added to the prominence given to the unfair accusation of an £8.5 million “loss” on Lime Grove, I am beginning to wonder…
Kind Regards,
Philip
Dear Philip,
The Treasury has a strange way of calculating/presenting the break even point.
All you need to do is divide the cost (£256,000) by the return per note (£57.38), and the correct answer is 4462. No need to employ an assumed 5,000 notes and then refine the guesswork.
Kind regards,
Ian
Dear Philip,
On reflection, my remarks are not quite valid. What I should have said is:
The Treasury has a strange way of calculating/presenting the break even point.
All you need to do is divide the cost (£256,000) by the return per note (£57.38), and the correct answer is 4462.
The book cost per note should not be subtracted from the return per note, because it is what you are covering in the break-even calculation. In any event, it is misleading, because if only 5000 of the 100,000 notes are circulated, the remainder are waste-paper, and the true book cost per note is 256,000/5000 = £51.20 !