Are old banknotes a secure investment?

Are old banknotes a secure investment?

This is a question I increasingly hear from many of my friends, especially those in the investment community. I have been a collector of antique coins and old banknotes for over 25-years now and my general advice to collectors is to not treat these as an investment. However, it is also true that many of us collectors have spent substantial amounts on our hobby over the years – Can these be liquidated if and when needed/ Would I get the right price for my collection if I were to sell? While collectors and investors have different interests, these are questions that matter to both groups.

The factors that protect the collector also make banknotes attractive to the alternate investor.

Compared to other alternate investments (say real estate or art), banknotes have a smaller ticket size – it can be as small as you wish. You can’t buy real estate or serious art for Rs 50,000. However, you can pick up some interesting banknotes for that amount. For instance, the two notes – the Gulf Rupee and the Burma Rupee in the accompanying image. For a new collector, this means you can start small, and scale up spending as you become better informed. Investments can be spread over a period of time.

The second advantage compared to other alternative investments, which partly derives from the smaller ticket size, is greater liquidity. If you have a large collection, you can sell all of it, a part of it or just a single piece. Many collectors that I know do this all the time – they already have a banknote in their collection, but they get offered a better-quality piece, so they trade up – selling off the older piece. Very often, the dealer selling to them will buy the other piece to resell. You can’t sell 5 square feet of a property or 12 square inches of an artwork.

The third point, very important for the non-expert, is transparency. Unlike art, where each item is unique, banknotes were printed in large numbers and enough pieces remain with dealers and collectors. As a result, there is much greater transparency in pricing, with catalogues and auctions available for ready reference. Even a novice collector can look up the price of, say, a 10-rupee banknote signed by CD Deshmukh in XF grade (Extremely Fine - collector jargon).

In my view, these three factors – the smaller ticket size, greater liquidity and transparent pricing – are resulting in old banknotes become popular not just with collectors, but also some investors.