PAYING THE BEARER ON DEMAND : THE BROADER PICTURE

AT THE Bank of England's Mutilated Notes Section in Newcastle, the branch manager is just unpacking one of the 150 or so letters and packages which arrive there each day. "I think," she grimaces, "that this may have been through a dog."

The sender of the package has failed to provide explicit details of how its contents - alleged to be banknotes - came to be in this state. But the branch manager (whose name cannot be divulged for security reasons) has strong suspicions. "They look gungy," she says. "Yellow. And there might be a bit of blood as well. I'm afraid some of these jobs can be a bit nasty."

Fortunately, employees at the Mutilated Notes Section tend to have strong stomachs. They have to. Their job is to examine bank-notes that have been accidentally damaged, so that their owners can be refunded their full value. But often the contents of the packages that people send in are more or less unrecognisable, and as disgusting (smelling, rotting, charred, half-digested) as the accompanying explanations are bizarre.

However severe the damage, the Bank of England's promise to "pay the bearer", printed on every note, must be honoured, and the branch manager and her five female employees (they call themselves "The Mutilated Ladies") are expert at identifying and authenticating traces of original notes among the mangled remains. Last year they dealt with some 24,500 applications and paid out £2m in refunds.

Frequent causes of damage include fire, floods, microwaves, washing-machines and animals - mainly but not exclusively pets. One man reported that he had been standing in a field admiring the countryside when a cow removed from his pocket, ate and then spat out a £50 note. The masticated remains were examined by the ladies, the money was found to be legitimate, and he received a cheque for the full amount. Another "customer" found a large cache of pre-war notes under some floorboards; a family of mice had been feeding off them, but enough remained (above) for the Mutilated Ladies to identify most of them. It is too early to say how large a refund that customer will receive, but some finds are substantial. The pile of notes photographed on the right was found in an underground safe into which water had leaked. The customer had no idea what the notes were worth; the Mutilated Notes Section analysed the alloy threads and deduced the value as £16,700. The Bank will refund the full amount.

The Mutilated Notes Section is not widely known, but demand for its services is growing. "People are far keener to hang on to their money these days," says the branch manager. In less severe cases (ie, in which at least half of the note is intact; it is in no more than four pieces; and it contains a complete serial number, the entire "I promise to pay the bearer on demand" sentence and at least a third of the Chief Cashier's signature), notes can be exchanged for new ones at local banks and Post Offices. The Mutilated Ladies restrict themselves to the real detective work, wearing surgical gloves as they pick through the money, sometimes soaking it before pulling out threads with tweezers and using magnifying glasses to identify the serial numbers and values. Occasionally, if the notes' condition is too appalling even for them, they send them to the Bank's printing works in Essex, where a team of technical staff performs forensic tests.

"We do occasionally receive counterfeit money," says the branch manager. "But we know the good from the bad." Most claims are genuine; many result from attempts to keep money in safe hiding-places - in ovens, under floors, or buried in gardens. But the biggest culprits, according to the branch manager, are pets (the Section keeps a "rogues' gallery" of photographs of note-mauling pets) and - often in league with them - children. "They seem to think it's a good idea to give notes to their hamsters, who then mash them up into small pieces." !