Currency, Banking and Finance

The pound sterling (Xi), of 100 new pence, is the basic unit of currency (£ 0.6551 equals US$1; 1996). In 1968 Britain took the first step in a three-year conversion of its currency to the decimal system of coinage by introducing the first two new coins, the 5-pence piece (equal to one old shilling) and the 10-pence piece. In 1969 the 50-pence coin was introduced, replacing the old 10-shilling note. The conversion was completed in 1971. The pound was permitted to float against the dollar and other world currencies beginning in June 1972.

The Bank of England, chartered in 1694, was nationalized in 1946, and it is the sole bank of issue in England and Wales. Several banks in Scotland and Northern Ireland may also issue currencies in limited amounts. Great Britain has, in addition, some 13 major commercial banks with more than 10,000 domestic and overseas branches, most of which are offices of the four leading banks: Lloyds, Barclays, National Westminster, and Midland. Some banking services are provided by the postal system, savings banks, and cooperative and building societies.

There are also a number of domestic clearing banks, discount houses, and other financial institutions, such as the London Stock Exchange, and Lloyd's insurance market, linked to Britain's role as one of the world's leading financial centres. In 1994 there were come 486 banks registered in the United Kingdom, as well as many other banking and non-banking institutions. Banking, finance, insurance and leasing services accounted for about 20 per cent of Britain's output, a substantial rise over a decade earlier, and 13 per cent of employment. In the mid-1990s about 16 per cent of the workforce were employed in the banking and finance sector. Net overseas earnings were some US$25 billion (£ 15.6 billion). Historically, the financial services industry has been based in the famous "Square Mile" in the City of London. This remains very much the case today, even though Manchester, Cardiff, Liverpool, Leeds, Edinburgh and Glasgow have developed as financial centres in recent years. The City of London, however, has the greatest concentration of foreign banks in the world and accounts for 20 per cent of total international bank lending. It also has one of the world's largest insurance markets, is the world's top centre for trading overseas equities, has one of the world's largest financial derivatives markets, and is a leading market for trading commodities such as copper, gold, cocoa and coffee.

The financial services sector expanded particularly fast after the deregulation of the Stock Exchange, or "Big Bang", in 1986, developing new markets and products, and taking on large numbers of new employees. The recession of the early 1990s led to many workers being laid off, and the sector was also hit by a number of problems and scandals.

 

In the Bank

In a large, dimly lighted room with acoustic walls and ceilings to deaden sound, about fifty operators — predominantly women — are sitting at a battery of monitors with a keyboard beneath each. It is here that holders of the blue, green, and gold credit cards are given or refused credit.

When a card is presented anywhere in payment for goods or services, the place of business can accept the card without question if the amount is below an agreed limit, usually between twenty-five and fifty dollars. For a larger purchase, authorization is needed, though it takes only seconds to obtain.

The approval procedures move at jet speed. From wherever they are, merchants and others dial directly to the credit-card processing center of the bank. Automatically each call is routed to a free operator, whose first words are, "What is your merchant number?" As soon as the answer has been given, the operator types the figures, which appears simultaneously on the monitor. Next, she asks the card number and amount of credit being sought. They are also typed and displayed. The operator presses the key, feeding the information to a computer, which instantly signals "accepted" or "declined". The first means that credit is good and the purchase has been approved, the second that the cardholder is delinquent and credit has been cut off. The operator informs the merchant, the computer records the transaction. On a normal day fifteen thousand calls come in.

Sometimes a monitor flashes a message from the computer — "stolen card". In this situation an operator, speaking calmly, as trained, has to answer, "The card presented to you has been reported as stolen. If possible, detain the person presenting it and call police. Retain the card. The bank will pay you thirty dollars reward for its return."

Storekeepers are usually pleased at the prospect to get an easy thirty dollars. For the bank it is also a good deal, since the card, left in circulation, can be used fraudulently for a much greater total amount.

But this system works well only when the bank has got the information and can program the computer. Unfortunately most of the defrauding happens before a missing card is reported. To avoid this, the computer also warns the operators about excessive purchasing: when a cardholder makes ten or more purchases during a single day, the computer alerts an operator. Since an ordinary cardholder never makes more than six or eight purchases a day, a card showing more than normal use may be fraudulent, even though the owner might be unaware of its loss. However, despite all the warning systems, a lost or stolen card, if used cautiously, is still good for twenty thousand dollars' worth of fraudulent purchases in the week or so during which most stolen cards stayed unreported.

Moreover, there are devices used by criminals to decide whether a stolen card can be used again or if it is hot. A favorite is to pay a waiter twenty-five dollars to check a card out. He can get the answer easily by consulting a weekly confidential warning list issued by the credit card company to merchants and restaurants.