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Originally Posted by Nodrog
Presumably if 5% of all pound sterling notes were bad, people would be more likely to use pound sterling notes than anything else since that would make it more likely they were geting rid of notes that could be forged.
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The UK's position is slightly different from other countries though in that (ignoring the Scotland/England thing) it's still relatively rare for places to take any other note but sterling. Prior to the Euro places like Austria or border towns between France/Germany/Holland had much more regular experience with multi-currency exchanges. In the rest of the world today it's normal for people to deal with US dollars in addition to their own countries currency. You're right - here if fivers started getting a bad reputation I'd just avoid them, switching to dollars wouldn't be feasible because it's rare I see a dollar, let alone have an opportunity to use it. There is a de-facto monopoly of legal tender, basically.
Elsewhere it's not so clear cut. And if confidence in your own currency was falling (for whatever reason - uncertain political future, inflation, counter-fitting, chance of government default) then where possible you'd go for non-native currency, worsening the problem.
In this country we're more likely to be stuck with sterling for longer - but given the large exchange of people with the continent I suspect Euro's will be more common over the next few years.
(I did also recently meet a fellow the other day who spoke excitedly about a deal he had exchanging some scrap metal for drugs, although I confess that's hardly likely to become the norm...)
p.s. Do you still have pound notes in Scotland? I vaguely remember them being withdrawn as a child in England and being under the impression that all notes were to be abolished.