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Collecting or Investing in Banknotes?

The following article is written on the basis that the reader realises that a collection of banknotes is not as easily sold as a parcel of shares, Government issued bonds, Premium Bonds or a holiday cottage.

So to “invest” in banknotes, one must first actually want to own a collection because you are interested/fascinated by a piece of paper which grandly states it is ‘worth’ the amount indicated as its denomination, when used as a financial instrument.

Of course, we all know of money which might have started out being worth at least something at one time, – the Greek notes of 1944, for instance –but soon dropped in value quicker than the second hand on a clock until they were below their paper pulp value and were much cheaper than firewood.

Well, this little piece has a choice of titles. There’s:

“INVESTING In Banknotes!!”

Or

“Investing in BANKNOTES????!”

Or

“Investing In Banknotes”

The first title represents a person who can be loosely called a collector. He purchases notes which he feels will “go up” in price over his chosen collecting period, which might be the greater part of his adult life. He tends to collect paper money in an area which, in the past, has shown strong growth when notes become obsolete and demand then markedly exceeds supply. He expects to sell his collection at a handsome profit.

The second title represents a collector who does not believe there is a penny to be made by investing in banknotes and he feels that he would be lucky to get the money paid out back when he sells them. He often buys EF or lower grade notes, if he finds them attractive even when they are only slightly cheaper. When he eventually is no longer keen or able to collect, he puts the notes in an attic and forgets them, or places them with a local coin auctioneer and, actually is quite surprised at the amount the notes fetched eventually. It was more than he paid for them! He was also puzzled that some countries’ notes were more popular at the local auction than others.

The third title depicts a collector who wants to build a lovely collection and intends to enjoy doing it! He buys in all areas which interest him, selecting notes that he likes and that give him pleasure. They may be “hot” areas and/or perhaps they may include some very difficult notes but his main aim is enjoy the pleasure of “the chase”, the beauty, history and the knowledge which comes from researching his collection. He hopes that his collection will fetch a good price when it is time to sell and he will probably break up the collection, selling some notes to specialist dealers whilst some other more specialist and esoteric pieces might be channelled through the IBNS or LANSA auctions et cetera.

He has a lot of fun searching out his ‘quarry’ and is excited when he finds that elusive missing note and the pleasure of meeting and corresponding with many incredible people in the paper money world.

Out of these three, the third person is the one gaining the most “profit” because he seems to make the most from it, along the way. He can still sell his collection when his collecting days are over but he has had, perhaps, the greatest enjoyment. Granted some of his notes might not necessarily sell well because that has not been his main focus but, then again, what has appealed to him, although not “mainstream” at the time of purchase may be the ”In Thing” when he chooses to sell.

There are as many types of collectors as there are people, of course, but I have looked at three well-known types here. All of these types will probably sell their collection for a much bigger number than the sum of their actual cost. But nearly all note issues are fiduciary issues nowadays.

The nature of a fiduciary issue is to constantly lose value (preferably at a slow pace but…!!) When the Japanese Yen went up in value over the years, it worked like a giant vice on their economy and gave them much pain! Normally one’s dear old government spends more money that it’s even collected in taxation on ‘weapons of mass destruction’ hospitals, schools and police forces, et cetera, AND important ‘junkets’ for Members of Parliament Senators and the like.

Ooh, I have digressed a little here, haven’t I! What I really meant to say is, your collection may be badly eroded in value if inflation is too high although that would also depend on the economic environment when you do sell. It’s like selling your final house before you move into the Retirement Flat, I suppose. If house prices are high at the time, you’re laughing but if they are low, you have to console yourself that it was still a better ‘bet‘ than Premium Bonds etc

So I try to avoid saying something is a good investment but if I do, the factor of how high the inflation rate, et cetera, might go in your country would not and could not be in factored into my remark .

Last updated 18/06/2013

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