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Last Updated: Friday, 22 June 2007, 15:18 GMT 16:18 UK
Bank acts on 5 note distribution
Bank of England Governor Mervyn King
Mervyn King says many 5 notes have become "scruffy"
The Bank of England is to look at how it can encourage banks to issue more 5 notes, the number of which has fallen compared with other denominations.

Bank governor Mervyn King said it had 1bn worth of 5 notes in its vault but high street banks did not want them.

They found it cheaper to issue 10 and 20 notes and the shortage of "fivers" in circulation led to their "noticeably soiled and scruffy" condition, he said.

The British Bankers' Association said it was happy to discuss the issue.

'Remarkable decade'

Its chief executive Angela Knight was speaking to BBC Five Live after Mr King's speech to financiers at London's Mansion House.

Be cautious about how much you borrow
Mervyn King, Bank of England Governor

But she added that with 100 being the average amount taken out of ATMs at one visit, it seemed "safer" to stock higher denominations, so cutting the number of trips to fill up the machines.

During his speech, Mr King also praised Chancellor Gordon Brown for his contribution to a "remarkable decade for the British economy".

He called Mr Brown's decision to grant independence to the Bank of England 10 years ago as a "fundamental improvement" to the conduct of economic policy in the UK.

But Mr King suggested the chancellor had failed to adequately address the imbalance between responsibilities and powers in the oversight of payment and settlement systems - crucial to maintaining financial stability.

The promise of more specific regulation comes as the development of complex financial instruments and the spate of loan arrangements from institutional lenders without traditional covenants has hugely increased credit risk.

"Be cautious about how much you borrow," Mr King warned, particularly in cases where one lender knows little of the activities of the borrower.

"It may say champagne - AAA - on the label of an increasing number of structured credit instruments.

"But by the time investors get to what's left in the bottle, it could taste rather flat."

'Ample supply'

On the issue of 5 notes, Mr King noted that their circulation had not increased in 15 years and that over that period the average time they remained in the banking system had doubled.

"The problem is not at the production end - we have an ample supply of new 5 notes waiting to be used," he said.

"There is a need for an adequate supply of low denomination notes that can be used for small transactions."

However, he accepted that the public convenience might not "correspond to the private interests of commercial banks".

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