When the Central Bank of Zimbabwe began issuing One Hundred Trillion Dollar notes in 2009, during a period of extended hyper-inflation, a British traveller to the country could have exchanged one note for the equivalent of 30p.
Today, if you want to buy the same note, it would set you back £126 (uncirculated) on Amazon; a truly remarkable return in 10 years.
Yet, collecting banknotes which are unusual and interesting is predominantly seen as a hobby; something in which collectors spend their leisure time tracking down sought-after banknotes to add to their portfolio.
However, this level of return puts the ‘hobby’ under the spotlight and potentially becomes of interest to first time investors as well as collectors; and increasingly collecting banknotes is seen as an alternative investment to equities or bonds.
Collecting banknotes as both a hobby and potentially an investment arguably entered the public consciousness with the launch of first polymer (plastic) £5 note by the Bank of England (BoE) in September 2016.
Significant and innovative new design changes will always be of interest to collectors and £5 notes from the first few print runs, with lower serial numbers are even more desirable.
The BoE held a charity auction and a price of £4,150 was achieved for the £5 note with the lowest available serial number (AA01 000017). Out of interest, the first polymer £5 banknote was gifted to the Queen.
What’s the appeal of collecting banknotes?
The study and collection of paper currency and banknotes is known as Notaphily and the individuals participating in the study or collecting the notes are known as notaphilists and they become involved in collecting for many diverse reasons.
The banknote can be seen as another form of historical document and the surface area or subject matter of each note can depict anything from portraits of famous people to records of victorious battles or artistic impressions of great monuments or buildings.
Every banknote has a story to tell about a country’s past (or even present) and provides the collector with an opportunity to learn more about the issuing country’s history or culture. In some cases, banknotes are seen as small works of art in their own right.
They are collected as much for their artistic beauty or iconic graphic design as they are for what they say about the history of an individual country’s civilisation.
Building a collection of banknotes
The world of banknotes and paper money is diverse, complex and full of intrigue. Foreign governments have been known to forge the banknotes of their enemies. The German government did with the banknotes of the Bank of England (BoE) during the second world war, in an effort to destabilise the British economy.
Although these notes are known forgeries, they are highly collectable and illustrate how wide-ranging the world of banknote collecting is.
Collecting themes for example can be built around new banknote issues from specific countries, or banknotes of countries that no longer exist (Yugoslavia) or even notes with quirky serial numbers (coinciding with an individual’s date of birth or other significant commemorative dates).
Printing errors, obscure exotic notes or notgeld (emergency money issued during a war or because of lack of official currency or other economic disruption) are other potential collecting themes.
Rules of buying
There are a number of reputable auction houses including Spink & Son and banknote dealers such as Colin Narbeth & Son through which a collector or investor can acquire banknotes.
However, the difficulty with buying banknotes or other paper currency is not the lack of opportunities or outlets to do so but how the condition of banknotes are graded.
The leading authority on all aspects of the banknote universe is the International Bank Note Society (IBNS) – a non-profit educational organisation with over 2,000 members – and it has set the benchmark on how the condition of banknotes should be classified.
The IBNS use 9 classifications for grading banknotes ranging from “Uncirculated” which is ‘best-in-class’ and is defined as “a perfectly preserved note, never mishandled by the issuing authority, a bank teller, the public or a collector….”.
At the opposite end of grading is “poor” classification which is defined as severely damaged “because of wear, staining, pieces missing, graffiti…”.
Somewhere in the middle is “Uncirculated Fine “which is defined as showing “considerable circulation with many folds, creases and wrinkling”.
The differences between each classification can have a meaningful impact on the price achieved, so understandably there will be some difference of opinion around grading, not helped by the fact that different grading standards are applied between say the USA and UK.
The right price
The uncertainty caused by different grading standards combined with the increasing interest in collecting banknotes has led to the formation of independent, third-party valuation services companies.
One of the leading specialists in providing banknote values is Paper Money Guaranty and while they use a different grading system to IBNS they do remove some of the ambiguity and nervousness for buyers and ultimately provide reassurance that the price paid has been independently substantiated.
Of course, collectors can always undertake their own research around the appropriate price to pay for a banknote by comparing prices offered for similar notes by different dealers or by checking the price guides in auction catalogues or in some cases realised prices posted by the auctioneer.
When selling a banknote, obtaining quotes from dealers, auction houses and indeed other collectors or investors (who may have previously expressed an interest) is recommended and free appraisals can be offered by auctioneers like Dix Noonan Webb.
Anything else to think about?
Obviously, having built up a collection of banknotes it is important that the collection is protected and stored in the right way.
The advice from IBNS is that banknotes should be held in specifically designed albums containing archival or inert plastic sleeves. To avoid damage or discolouration they should be kept away from direct light, heat and moisture.
If you are going to buy one piece of kit, then it should probably be an ultra violet lamp which will show up fluorescent features, staining or even processed (‘doctored’) banknotes that have been cleaned, pressed or repaired.
If you do find yourself buying and selling banknotes in greater volumes and with increasing frequency (and at a profit) then you may want to consider turning your hobby into a business.
Further information
For anyone interested in learning more about collecting banknotes, the IBNS whose website contains a comprehensive database of information and knowledge offers membership including a quarterly 80–page journal for a fee of £28 per annum.
To explore other hobby investment ideas please click here.
