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Pound sterling

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This article covers the history of sterling and the issues of sterling in England, Great Britain and the United Kingdom. For other associated issues see Bermuda pound, Manx pound, Jersey pound and Guernsey pound.
"GBP" redirects here. For other uses, see GBP (disambiguation).
Pound sterling
File:Britishcoins.png
All frequently used coins (coins shown are those before the extensive 2008 redesign)
ISO 4217
CodeGBP (numeric: 826)
Subunit0.01
Unit
Plural 
Symbol£‎
Nicknamequid
Denominations
Subunit
 1/100penny
Plural
 pennypence
Symbol
 pennyp
Banknotes
 Freq. used£5 £10 £20 £50
Coins
 Freq. used1p, 2p, 5p, 10p, 20p, 50p, £1, £2
Demographics
User(s)United Kingdom
Crown dependencies
Certain British Overseas Territories
Issuance
Central bankBank of England
 Websitewww.bankofengland.co.uk
Printer
printers
 Website
websites
MintRoyal Mint
 Websitewww.royalmint.com
Valuation
Inflation3.1% (UK CPI December 2008)
0.9% (UK RPI December 2008)
1.2% (Guernsey RPI December 2008)
3.7% (Jersey 2006)
3.1% (Isle of Man 2006)
 SourceNational Statistics, The World Factbook and Guernsey Government
Pegged byFKP, GIP, SHP
EU Exchange Rate Mechanism (ERM)
Since8 October 1990
Withdrawn16 September 1992 (Black Wednesday)

The pound sterling (/paʊnd 'stɜː.lɪŋ/, symbol: £; ISO code: GBP), subdivided into 100 pence (singular: penny), is the currency of the United Kingdom, its Crown dependencies (the Isle of Man and the Channel Islands) and the British Overseas Territories of South Georgia and the South Sandwich Islands,[1] British Antarctic Territory[2].

The Gibraltar pound, Falkland Islands pound and Saint Helena pound are separate currencies, pegged to the pound sterling.

Sterling is currently the third-largest reserve currency, after the US dollar and the euro.[3] The pound sterling is the fourth-most-traded currency in the foreign exchange market after the US dollar, the euro, and the Japanese yen.[4]

Name

The full, official name, pound sterling, (plural: pounds sterling) is used mainly in formal contexts and also when it is necessary to distinguish the United Kingdom currency from other currencies with the same name. Otherwise the term pound is normally used. The currency name is sometimes abbreviated to just sterling, particularly in the wholesale financial markets, but not when referring to specific amounts; for example, "Payment is accepted in sterling" but never "These cost five sterling".[5] The abbreviations "ster." or "stg." are sometimes used. The term British pound is commonly used in less formal contexts, although it is not an official name of the currency. A common slang term is quid (singular and plural).

There is some uncertainty as to the origin of the term "pound sterling". Some sources say it dates back to Anglo-Saxon times, when coins called sterlings were minted from silver; 240 of these sterlings weighed one pound, and large payments came to be made in "pounds of sterlings".[6] Other references, including the Oxford English Dictionary, say a sterling was a silver penny used in England by the Normans, and date the term to around 1300. For more discussion of the etymology of "sterling" see Sterling silver.

The currency sign is the pound sign, originally ₤ with two cross-bars, then later more commonly £ with a single cross-bar. The pound sign derives from the blackletter "L", an abbreviation of Librae in Roman £sd units (librae, solidi, denarii) used for pounds, shillings and pence in the British pre-decimal duodecimal currency system. Libra was the basic Roman unit of weight, derived from the Latin word for scales or balance.

The ISO 4217 currency code is GBP. Occasionally, the abbreviation UKP is used but this is incorrect. The Crown dependencies use their own (non-ISO) codes: GGP (Guernsey pound), JEP (Jersey pound) and IMP (Isle of Man pound). Stocks are often traded in pence, so traders may refer to pence sterling, GBX (sometimes GBp), when listing stock prices.

Subdivisions and other units

Decimal

Since decimalisation in 1971, the pound has been subdivided into 100 pence (until 1981 described on the coinage as "new pence"). The symbol for the penny is "p"; hence an amount such as 50p (£0.50) is usually pronounced "fifty pee" rather than "fifty pence". This also helped to distinguish between new and old pence amounts during the changeover to the decimal system.

Pre-decimal

Prior to decimalisation, the pound was divided into 20 shillings and each shilling into 12 pence, making 240 pence to the pound. The symbol for the shilling was "s" — not from the first letter of the word, but from the Latin solidus. The symbol for the penny was "d", from the French denier, from the Latin denarius (the solidus and denarius were Roman coins). A mixed sum of shillings and pence such as 3 shillings and 6 pence was written as "3/6" or "3s 6d" and spoken as "three and six". 5 shillings was written as "5s" or, more commonly, "5/-". The stroke, /, indicating shillings, was originally an adaptation of the long s.

Various coin denominations had, and in some cases continue to have, special names — such as "crown", "farthing", "sovereign" and "guinea". See Coins of the pound sterling and List of British coins and banknotes for details.

History

The pound sterling is the world's oldest currency still in use[7] since the replacement of the Greek drachma by the euro in 2002[8].

Anglo-Saxon

Main article: Anglo-Saxon pound

The origins of sterling lie in the reign of King Offa of Mercia, who introduced the silver penny. It copied the denarius of the new currency system of Charlemagne's Frankish Empire. As in the Carolingian system, 240 pennies weighed 1 pound (corresponding to Charlemagne's libra), with the shilling corresponding to Charlemagne's solidus and equal to 12d. At the time of the penny's introduction, it weighed 22.5 troy grains of fine silver (30 tower grains; about 1.5 grams), indicating that the Mercian pound weighed 5,400 troy grains (the Mercian pound became the basis of the tower pound, which weighed 5,400 troy grains, equivalent to 7,200 tower grains). At this time, the name sterling had yet to be acquired. The penny swiftly spread throughout the other Anglo-Saxon kingdoms and became the standard coin of what was to become England.

Medieval

The early pennies were struck from fine silver (as pure as was available). However, in 1158, a new coinage was introduced by King Henry II (known as the Tealby penny) which was struck from .925 (92.5%) silver. This became the standard until the 20th century and is today known as sterling silver, named after its association with the currency. Sterling silver is harder than the fine silver (i.e. 0.999/99.9% pure, etc) that was traditionally used and so sterling silver coins did not wear down as rapidly as fine silver coins. The English currency was almost exclusively silver until 1344, when the gold noble was successfully introduced into circulation. However, silver remained the legal basis for sterling until 1816. In the reign of Henry IV (1412-1421), the penny was reduced in weight to 15 grains (0.97 g) of silver, with a further reduction to 12 grains (0.78 g) in 1464.

Tudor

During the reigns of Henry VIII and Edward VI, the silver coinage was drastically debased, although the pound was redefined to the troy pound of 5,760 grains (373 g) in 1526. In 1544, a silver coinage was issued containing just one third silver and two thirds copper — equating to .333 silver, or 33.3% pure. The result was a coin copper in appearance, but relatively pale in colour. In 1552, a new silver coinage was introduced, struck in sterling silver. However, the penny's weight was reduced to 8 grains (0.52 g), meaning that 1 troy pound of sterling silver produced 60 shillings of coins. This silver standard was known as the "60-shilling standard" and lasted until 1601 when a "62-shilling standard" was introduced, reducing the penny's weight to 7 23⁄31 grains (0.50 g). Throughout this period, the size and value of the gold coinage fluctuated considerably.

Unofficial gold standard

In 1663, a new gold coinage was introduced based on the 22 carat fine guinea. Fixed in weight at 44½ to the troy pound from 1670, this coin's value varied considerably until 1717, when it was fixed at 21 shillings (21/-, 1.05 pounds). However, despite the efforts of Sir Isaac Newton, Master of the Mint, to reduce the guinea's value, this valuation overvalued gold relative to silver when compared to the valuations in other European countries. British merchants sent silver abroad in payments whilst goods for export were paid for with gold. As a consequence, silver flowed out of the country and gold flowed in, leading to a situation where Great Britain was effectively on a gold standard. In addition, a chronic shortage of silver coins developed.[citation needed]

Establishment of modern currency

The Bank of England was formed in 1694, followed by the Bank of Scotland a year later. Both began to issue paper money.

Currency of the United Kingdom

The pound scots had begun equal to sterling but had suffered far higher devaluation until being pegged to sterling at a value of 12 pounds scots = 1 pound sterling. In 1707, the Kingdom of England and the Kingdom of Scotland merged to form the United Kingdom of Great Britain. In accordance with the Treaty of Union, the currency of the 'united kingdom' was sterling with the pound scots being replaced by sterling at the pegged value.

The gold standard

During the Revolutionary and Napoleonic wars, Bank of England notes were legal tender and their value floated relative to gold. The Bank also issued silver tokens to alleviate the shortage of silver coins. In 1816, the gold standard was adopted officially, with the silver standard reduced to 66 shillings (66/-, 2.3 pounds), rendering silver coins a "token" issue (i.e., not containing their value in precious metal). In 1817, the sovereign was introduced. Struck in 22-carat gold, it contained 113 grains (7.3 g) of gold and replaced the guinea as the standard British gold coin without changing the gold standard. In 1825, the Irish pound, which had been pegged to sterling since 1801 at a rate of 13 Irish pounds = 12 pounds sterling, was replaced, at the same rate, with sterling.

During the late 19th and early 20th centuries, many other countries adopted the gold standard. As a consequence, conversion rates between different currencies could be determined simply from the respective gold standards. The pound sterling was equal to 4.85 U.S. dollars, 4.89 Canadian dollars, 25.22 French francs (or equivalent currencies in the Latin Monetary Union), 20.43 German Marks or 24.02 Austro-Hungarian Krones. Discussions took place following the 1865 International Monetary Conference in Paris concerning the possibility of the UK joining the Latin Monetary Union and a Royal Commission on International Coinage examined the issues,[9] resulting in a decision against joining monetary union.

The gold standard was suspended at the outbreak of the war, with Bank of England and Treasury notes becoming legal tender. Prior to World War I, the United Kingdom had one of the world's strongest economies, holding 40% of the world's overseas investments. However, by the end of the war the country owed £850 million, mostly to the United States, with interest costing the country some 40% of all government spending. In an attempt to resume stability, a variation on the gold standard was reintroduced in 1925, under which the currency was fixed to gold at its pre-war peg, although people were only able to exchange their currency for gold bullion, rather than for coins. This was abandoned on 21 September 1931, during the Great Depression, and sterling suffered an initial devaluation of some 25%.[10]

Use in the Empire

Main article: Sterling area

Sterling circulated in much of the British Empire. In some parts, it was used alongside local currencies. For example, the gold sovereign was legal tender in Canada despite the use of the Canadian dollar. Several colonies and dominions adopted the pound as their own currency. These included Australia, Barbados[11], British West Africa, Cyprus, Fiji, Irish Free State, Jamaica, New Zealand, South Africa and Southern Rhodesia. Some of these retained parity with sterling throughout their existence (e.g. the South African pound), whilst others deviated from parity after the end of the gold standard (e.g. the Australian pound). These currencies and others tied to sterling constituted the Sterling Area.

Bretton Woods

See also:Economic history of Britain 1945–1959

In 1940, an agreement with the U.S.A. pegged the pound to the U.S. dollar at a rate of £1 = $4.03. This rate was maintained through the Second World War and became part of the Bretton Woods system which governed post-war exchange rates. Under continuing economic pressure, and despite months of denials that it would do so, on 19 September 1949 the government devalued the pound by 30.5% to $2.80. The move prompted several other currencies to be devalued against the dollar.

In the mid-1960s, the pound came under renewed pressure since the exchange rate against the dollar was considered too high. In the summer of 1966, with the value of the pound falling in the currency markets, exchange controls were tightened by the Wilson government. Among the measures, tourists were banned from taking more than £50 out of the country, until the restriction was lifted in 1979. The pound was eventually devalued by 14.3% to $2.40 on 18 November 1967.

Decimalisation

Main article: Decimal Day

On 15 February 1971, the UK decimalised, replacing the shilling and penny with a single subdivision, the new penny. The word "new" was omitted from coins after 1981.

The free-floating pound

With the breakdown of the Bretton Woods system — not least because mainly British currency dealers had created a substantial Eurodollar market which made the U.S. dollar's gold standard harder for its government to maintain — the pound was floated in the early 1970s and so became subject to a market appreciation. The Sterling Area effectively ended at this time when the majority of its members also chose to float freely against the pound and the dollar.

A further crisis followed in 1976, when it was apparently leaked that the International Monetary Fund (IMF) thought that the pound should be set at $1.50, and as a result the pound fell to $1.57, and the government decided it had to borrow £2.3 billion from the IMF. In the early 1980s the pound moved above the $2 level as interest rates rose in response to the monetarist policy of targeting money supply and a high exchange rate was widely blamed for the deep recession of 1981. At its lowest, the pound stood at just $1.05 in February 1985, before returning to the US$2 level in the early 1990s.

Following the Deutsche Mark

In 1988, Margaret Thatcher's Chancellor of the Exchequer Nigel Lawson decided that the pound should "shadow" the West German Deutsche Mark, with the unintended result of a rapid rise in inflation as the economy boomed due to inappropriately low interest rates. (For ideological reasons, the Conservative Government declined to use alternative mechanisms to control the explosion of credit. Former Prime Minister Edward Heath referred to Lawson as a "one club golfer".)

Following the European Currency Unit

On 8 October 1990 the Conservative government decided to join the European Exchange Rate Mechanism (ERM), with the pound set at DM2.95. However, the country was forced to withdraw from the system on “Black Wednesday” (16 September 1992) as Britain’s economic performance made the exchange rate unsustainable. Speculator George Soros famously made approximately US$1 billion from shorting the pound.

Black Wednesday saw interest rates jump from 10% to 15% in an unsuccessful attempt to stop the pound from falling below the ERM limits. The exchange rate fell to DM2.20. Proponents of a lower GBP/DM exchange rate were vindicated as the cheaper pound encouraged exports and contributed to the economic prosperity of the 1990s.

Following inflation targets

In 1997, the newly-elected Labour government handed over day-to-day control of interest rates to the Bank of England (a policy that had originally been advocated by the Liberal Democrats). The Bank is now responsible for setting its base rate of interest so as to keep inflation in the consumer price index very close to 2%. Should CPI inflation be more than one percentage point above or below the target, the governor of the Bank of England is required to write an open letter to the Chancellor of the Exchequer explaining the reasons for this and the measures which will be taken to bring this measure of inflation back in line with the 2% target. On 17 April 2007, CPI inflation was reported at 3.1% (inflation of the retail price index was 4.8%). Accordingly, and for the first time, the Governor had to write publicly to the government explaining why inflation was more than one percentage point higher than its target.[12]

The euro

As a member of the European Union, the United Kingdom could adopt the euro as its currency. However, the subject remains politically controversial. Gordon Brown when Chancellor of the Exchequer ruled out membership for the foreseeable future, saying that the decision not to join had been right for Britain and for Europe[13].

The government of former Prime Minister Tony Blair had pledged to hold a public referendum for deciding membership should "five economic tests" be met to ensure that adoption of the euro would be in the national interest. In addition to this own internal (national) criteria, the UK has to meet the EU's economic convergence criteria (Maastricht criteria), before being allowed to adopt the euro. Currently, the UK's annual government deficit to the GDP is above the defined threshold. In February 2005, 55% of British citizens were against adopting the currency, with 30% in favour.[14] The idea of replacing the pound with the euro has been controversial with the British public because of its identity as a symbol of British sovereignty[15] and because it would, according to critics, lead to suboptimal interest rates, harming the British economy. In December 2008 the results of a BBC poll of 1000 people suggested that 71% would vote "no", 23% would vote "yes" to joining the European single currency, while 6% said they were unsure. [16] The pound did not join the Second European Exchange Rate Mechanism (ERM II) after the euro was created. Denmark and the UK have unique opt-outs from entry to the euro. Technically, every other EU nation must eventually sign up.

The Scottish Conservative Party claims that there is an issue in Scotland that the adoption of the euro would mean the end of regionally distinctive banknotes, as the euro banknotes do not have national designs.[17] The Scottish National Party does not see this as a significant issue[citation needed], since an independent Scotland would have nationally distinctive coins, and its party policy includes entry into the single currency.

On 1 January 2008 the British sovereign bases on Cyprus (Akrotiri and Dhekelia) began using the euro (along with the rest of the Republic of Cyprus).[18]

Current value

Main article: Economy of the United Kingdom § Exchange rates

The pound and euro fluctuate in value against one another, although there may be correlation between movements in their respective exchange rates with other currencies such as the US dollar. Inflation concerns in the UK led the Bank of England to raise interest rates in late 2006 and 2007. This caused the pound to appreciate against other major currencies, and with the US dollar depreciating at the same time, the pound hit a 15-year high against the US dollar on 18 April 2007, having reached US$2 for the first time since 1992 the day before.[19] The pound and many other currencies continued to appreciate against the dollar, and sterling hit a 26-year high of $2.1161 on 7 November 2007. However, since the global financial crisis in late 2008, the pound has since depreciated at one of the fastest rates in the history, reaching an all-time low of $1.35 per £1 on January 23, 2009[2]. In addition, since late 2007 the pound has weakened against the euro, falling below €1.25 in April 2008.[20] A further decline was seen during the remainder of 2008; most dramatically in December when the rate hit an all-time low at €1.0219 (29/12).[21] The pound appreciated in early 2009 and, as of mid-January, is at €1.07.

Coins

Main article: Coins of the pound sterling

Pre-decimal

The silver penny was the principal and often sole coin in circulation from the 8th century until 13th century. Although some fractions of the penny were struck (see farthing and halfpenny), it was more common to find pennies cut into halves and quarters to provide smaller change. Very few gold coins were struck, with the gold penny (worth 20 silver pence) a rare example. However, in 1279, the groat, worth 4d was introduced, with the half groat following in 1344. 1344 also saw the establishment of a gold coinage with the introduction (after the failed gold florin) of the noble worth 6/8, together with the half and quarter noble. Reforms in 1464 saw a reduction in value of the coinage in both silver and gold, with the noble renamed the ryal and worth 10/- and the angel introduced at the noble's old value of 6/8.

The reign of Henry VII saw the introduction of two important coins, the shilling (known as the testoon) in 1487 and the pound (known as the sovereign) in 1489. In 1526, several new denominations of gold coins were added, including the crown and half crown worth 5/- and 2/6. Henry VIII's reign (1509-1547) saw a high level of debasement which continued into the reign of Edward VI (1547-1553). However, this debasement was halted in 1552 and a new silver coinage was introduced, including coins for 1d, 2d, 3d, 4d and 6d, 1/-, 2/6 and 5/-. The reign of Elizabeth I (1558-1603) saw the addition of silver ¾d and 1½d coins, although these denominations did not last. Gold coins included the half crown, crown, angel, half sovereign and sovereign. Elizabeth's reign also saw the introduction of the horse-drawn screw press to produce the first "milled" coins.

Following the succession of the Scottish King James VI to the English throne, a new gold coinage was introduced, including the spur ryal (15/-), the unite (20/-) and the rose ryal (30/-). The laurel, worth 20/-, followed in 1619. The first base metal coins were also introduced, tin and copper farthings. Copper halfpenny coins followed in the reign of Charles I. During the English Civil War, a number of siege coinages were produced, often in unusual denominations.

Following the restoration of the monarchy in 1660, the coinage was reformed, with the ending of production of hammered coins in 1662. The guinea was introduced in 1663, soon followed by the ½, 2 and 5 guinea coins. The silver coinage consisted of denominations of 1d, 2d, 3d, 4d and 6d, 1/-, 2/6 and 5/-. Due to the widespread export of silver in the 18th century, the production of silver coins gradually came to a halt, with the half crown and crown not issued after the 1750s, the 6d pence and 1/- stopping production in the 1780s. One response was the introduction of the copper 1d and 2d coins and the gold ⅓ guinea (7/-) in 1797. The copper penny was the only one of these coins to survive long.

To alleviate the shortage of silver coins, between 1797 and 1804, the Bank of England counterstamped Spanish dollars (8 reales) and other Spanish and Spanish colonial coins for circulation. A small counterstamp of the King's head was used. Until 1800, these circulated at a rate of 4/9 for 8 reales. After 1800, a rate of 5/- for 8 reales was used. The Bank then issued silver tokens for 5/- (struck over Spanish dollars) in 1804, followed by tokens for 1/6 and 3/- between 1811 and 1816.

In 1816, a new silver coinage was introduced in denominations of 6d, 1/-, 2/6 and 5/-. The crown was only issued intermittently until 1900. It was followed by a new gold coinage in 1817 consisting of 10/- and £1 coins, known as the half sovereign and sovereign. The silver 4d coin was reintroduced in 1836, followed by the 3d in 1838, with the 4d coin issued only for colonial use after 1855. In 1848, the 2/- florin was introduced, followed by the short-lived double florin in 1887. In 1860, copper was replaced by bronze in the farthing, halfpenny and penny.

During the First World War, production of the half sovereign and sovereign was suspended and, although the gold standard was restored, the coins saw little circulation again. In 1920, the silver standard, maintained at .925 since 1552, was reduced to .500. In 1937, a nickel-brass 3d coin was introduced, with the last silver 3d coins issued seven years later. In 1947, the remaining silver coins were replaced with cupro-nickel. Inflation caused the farthing to cease production in 1956 and be demonetized in 1960. In the run up to decimalization, the halfpenny and half-crown were demonetized in 1969.

Decimal

£1 coin (Welsh design, 2000)
File:1pound2000front.jpg[[|110px]]
Queen Elizabeth II Welsh dragon

The first decimal coins were introduced in 1968. These were cupro-nickel 5p and 10p coins which were equivalent to and circulated alongside the 1/- and 2/- coins. The curved equilateral heptagonal, cupro-nickel 50p coin replaced the 10/- note in 1969. The decimal coinage was completed when decimalisation came into effect in 1971 with the introduction of the bronze ½p, 1p and 2p coins and the withdrawal of the 1d and 3d coins. 6d coins circulated at a value of 2½p until 1980. In 1982, the word "new" was dropped from the coinage and a 20p coin was introduced, followed by a £1 coin in 1983. The ½p coin was last produced in 1983 and demonetized in 1984. The 1990s saw the replacement of bronze with copper-plated steel and the reduction in size of the 5p, 10p and 50p coins. The old 1/- coins, which had continued to circulate with a value of 5p, were demonetized in 1991 following the reduction in size of the 5p coin, and 2/- coins were similarly demonetized in 1993. The bi-metallic British two pound coin#The modern circulating coin (1997–present £2 coin) was introduced in 1998.

At present, the oldest circulating coins in the U.K. are the 1p and 2p copper coins introduced in 1971. Before decimalisation, change could contain coins aged one hundred years or more, with any of five different monarchs' heads on the obverse.

In 1992 the composition of the 1p and 2p was changed from bronze to copper clad steel. By 2007 the value of copper in the pre 1992 1p/2p coins (Bronze is 97% copper) exceeded the value to such an extent that melting down the coins by entrepreneurs was becoming worthwhile (with a premium of up to 11%, with smelting costs reducing this to around 4%) - although this is illegal. The new steel core coins can be sorted by use of a magnet and one assumes the Royal Mint will gradually withdraw the pure Bronze coins over time. In the meantime Britain must be one of the few countries in modern times where a large number of coins have an intrinsic value - similar to the "gold" guarantee of the old gold sovereigns.

In April 2008 an extensive redesign of the coinage was unveiled, to be issued in summer 2008. The new reverses of the 1p, 2p, 5p, 10p, 20p and 50p coins feature parts of the Royal Shield, and the new pound coin depicts the whole shield. The coins are of the same specifications as those with the old designs (which will continue to circulate). No hints have been given whether Britain will follow Australia and New Zealand and withdraw the 1p and 2p coins - or have a half way house which allows shop pricing to the penny (and payment by credit/debit card to the odd penny) but the final total to be rounded for cash purposes to the nearest 5p (or 10p).

Banknotes

Main article: Banknotes of the pound sterling
File:Bank Of England10.gif
£10 Series E Bank of England note.

The first sterling notes were issued by the Bank of England shortly after its foundation in 1694. Denominations were initially written on the notes at the time of issue. From 1745, the notes were printed in denominations between £20 and £1000, with any odd shillings added in hand. £10 notes were added in 1759, followed by £5 in 1793 and £1 and £2 in 1797. The lowest two denominations were withdrawn following the end of the Napoleonic wars. In 1855, the notes were converted to being entirely printed, with denominations of £5, £10, £20, £50, £100, £200, £300, £500 and £1000 issued.

A £20 note of the 2007 issue from the Bank Of Scotland

The Bank of Scotland began issuing notes in 1695. Although the pound scots was still the currency of Scotland, these notes were denominated in sterling in values up to £100. From 1727, the Royal Bank of Scotland also issued notes. Both banks issued some notes denominated in guineas as well as pounds. In the 19th century, regulations limited the smallest note issued by Scottish banks to be the £1 denomination, a note not permitted in England.

With the extension of sterling to Ireland in 1825, the Bank of Ireland began issuing sterling notes, later followed by other Irish banks. These notes included the unusual denominations of 30/- and £3. The highest denomination issued by the Irish banks was £100.

In 1826, banks at least 65 miles (105 km) from London were given permission to issue their own paper money. From 1844, new banks were excluded from issuing notes in England and Wales but not in Scotland and Ireland. Consequently, the number of private banknotes dwindled in England and Wales but proliferated in Scotland and Ireland. The last English private banknotes were issued in 1921.

In 1914, the Treasury introduced notes for 10/- and £1 to replace gold coins. These circulated until 1928, when they were replaced by Bank of England notes. Irish independence reduced the number of Irish banks issuing sterling notes to five operating in Northern Ireland. The Second World War had a drastic effect on the note production of the Bank of England. Fearful of mass forgery by the Nazis (see Operation Bernhard), all notes for £10 and above ceased production, leaving the bank to issue only 10/-, £1 and £5 notes. Scottish and Northern Irish issues were unaffected, with issues in denominations of £1, £5, £10, £20, £50 and £100.

The Bank of England reintroduced £10 notes in 1964. In 1969, the 10/-note was replaced by the 50p coin as part of the preparation for decimalization. £20 Bank of England notes were reintroduced in 1970, followed by £50 in 1982. Following the introduction of the £1 coin in 1983, Bank of England £1 notes were withdrawn in 1988. Scottish and Northern Irish banks followed, with only the Royal Bank of Scotland continuing to issue this denomination.

The £5 Polymer banknote, issued by Northern Bank in 2000, is the only polymer note currently in circulation, although Northern Bank also produces paper-based £10, £20 and £50 notes.

in 2007, a commemorative George Best £5 note was issued by Ulster Bank. These notes were limited edition and many were presented in frames from the Ulster Bank Head Office in Belfast. These notes are rarely seen in circulation.

See also: Banknotes of the pound sterling

Legal tender in the UK means (according to the Royal Mint) "that a debtor cannot successfully be sued for non-payment if he pays into court in legal tender. It does not mean that any ordinary transaction has to take place in legal tender or only within the amount denominated by the legislation. Both parties are free to agree to accept any form of payment whether legal tender or otherwise according to their wishes. In order to comply with the very strict rules governing an actual legal tender it is necessary, for example, actually to offer the exact amount due because no change can be demanded."

Throughout the U.K., £1 and £2 coins are legal tender for any amount, with the other coins being legal tender only for limited amounts. In England and Wales, Bank of England notes are also legal tender for any amount. In Scotland and Northern Ireland, no banknotes are currently legal tender, although Bank of England 10/- and £1 notes were legal tender, as were Scottish banknotes, during World War II (Currency (Defence) Act 1939; this status was withdrawn on 1 January 1946). However, the banks made deposits with the Bank of England to cover the bulk of their note issues. In the Channel Islands and Isle of Man, the local variations on the banknotes are legal tender in their respective jurisdictions.

Scottish, Northern Irish, Channel Islands and Manx notes are sometimes rejected by shops when used in England and Wales. British shopkeepers can choose to reject any payment, even if it would be legal tender in that jurisdiction, because no debt exists when the offer of payment is made at the same time as the offer of goods or services. When settling a restaurant bill after consuming the meal, or other debt the laws of legal tender do apply, but usually any reasonable method of settling the debt (such as credit card or cheque) will be accepted.

Commemorative £5 and 25p ("crown") coins, rarely seen in circulation, are legal tender, as are the bullion coins issued by the Mint.

Coin Maximum usable as legal tender[22]
£5 (post-1990 crown) unlimited
£2 unlimited
£1 unlimited
50p £10
25p (pre-1990 crown) £10
20p £10
10p £5
5p £5
2p 20p
1p 20p

On the value of British money

In 2006 the House of Commons Library published a document[23] which included an index of the value of the pound for each year between 1750 and 2005, where the value in 1974 was indexed at 100. (This was an update of earlier documents published in 1998 and 2003.)

Regarding the period 1750–1914 the document states: "Although there was considerable year on year fluctuation in price levels prior to 1914 (reflecting the quality of the harvest, wars, etc.) there was not the long-term steady increase in prices associated with the period since 1945". It goes on to say that "Since 1945 prices have risen in every year with an aggregate rise of over 27 times."

The value of the index in 1750 was 5.1, increasing to a peak of 16.3 in 1813 before declining very soon after the end of the Napoleonic Wars to around 10.0 and remaining in the range 8.5–10.0 at the end of the nineteenth century. The index was 9.8 in 1914 and peaked at 25.3 in 1920, before declining to 15.8 in 1933 and 1934—prices were only about three times as high as they had been 180 years earlier.[24]

Inflation had a dramatic effect during and after World War II—the index was 20.2 in 1940, 33.0 in 1950, 49.1 in 1960, 73.1 in 1970, 263.7 in 1980, 497.5 in 1990, 671.8 in 2000 and 757.3 in 2005.

Value against other currencies

The pound is freely bought and sold on the foreign exchange markets around the world, and its value relative to other currencies therefore fluctuates (rising when traders buy pounds, falling when traders sell pounds). It has traditionally been among the highest-valued base currency units in the world. As of 29 December 2008, £1 was worth US$1.451 or €1.023.

The pound as a major international reserve currency

Sterling is used as a reserve currency around the world and is presently ranked third in amount held as reserves. The percentage which pounds make up of total reserves has increased over recent years, due in part to the stability of the British economy and government, gradual increase in value against many currencies and relatively high interest rates compared to other major currencies such as the dollar, euro and yen. As from mid 2006 it is the third most widely held reserve currency, having seen a resurgence in popularity in recent years.[25] Analysts say this resurgence is caused by carry-trade investors considering the pound as a stable high-yield proxy to the euro.[26]

Currency composition of official foreign exchange reserves (1965–2023, fourth quarters)
2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1995 1990 1985 1980 1975 1970 1965
US dollar 58.41% 58.52% 58.80% 58.92% 60.75% 61.76% 62.73% 65.36% 65.73% 65.14% 61.24% 61.47% 62.59% 62.14% 62.05% 63.77% 63.87% 65.04% 66.51% 65.51% 65.45% 66.50% 71.51% 71.13% 58.96% 47.14% 56.66% 57.88% 84.61% 84.85% 72.93%
Euro (until 1999—ECU) 19.98% 20.40% 20.59% 21.29% 20.59% 20.67% 20.17% 19.14% 19.14% 21.20% 24.20% 24.05% 24.40% 25.71% 27.66% 26.21% 26.14% 24.99% 23.89% 24.68% 25.03% 23.65% 19.18% 18.29% 8.53% 11.64% 14.00% 17.46%
Japanese yen 5.70% 5.51% 5.52% 6.03% 5.87% 5.19% 4.90% 3.95% 3.75% 3.54% 3.82% 4.09% 3.61% 3.66% 2.90% 3.47% 3.18% 3.46% 3.96% 4.28% 4.42% 4.94% 5.04% 6.06% 6.77% 9.40% 8.69% 3.93% 0.61%
Pound sterling 4.84% 4.92% 4.81% 4.73% 4.64% 4.43% 4.54% 4.35% 4.71% 3.70% 3.98% 4.04% 3.83% 3.94% 4.25% 4.22% 4.82% 4.52% 3.75% 3.49% 2.86% 2.92% 2.70% 2.75% 2.11% 2.39% 2.03% 2.40% 3.42% 11.36% 25.76%
Canadian dollar 2.58% 2.38% 2.38% 2.08% 1.86% 1.84% 2.03% 1.94% 1.77% 1.75% 1.83% 1.42%
Chinese renminbi 2.29% 2.61% 2.80% 2.29% 1.94% 1.89% 1.23% 1.08%
Australian dollar 2.11% 1.97% 1.84% 1.83% 1.70% 1.63% 1.80% 1.69% 1.77% 1.59% 1.82% 1.46%
Swiss franc 0.23% 0.23% 0.17% 0.17% 0.15% 0.14% 0.18% 0.16% 0.27% 0.24% 0.27% 0.21% 0.08% 0.13% 0.12% 0.14% 0.16% 0.17% 0.15% 0.17% 0.23% 0.41% 0.25% 0.27% 0.33% 0.84% 1.40% 2.25% 1.34% 0.61%
Deutsche Mark 15.75% 19.83% 13.74% 12.92% 6.62% 1.94% 0.17%
French franc 2.35% 2.71% 0.58% 0.97% 1.16% 0.73% 1.11%
Dutch guilder 0.32% 1.15% 0.78% 0.89% 0.66% 0.08%
Other currencies 3.87% 3.48% 3.09% 2.65% 2.51% 2.45% 2.43% 2.33% 2.86% 2.83% 2.84% 3.26% 5.49% 4.43% 3.04% 2.20% 1.83% 1.81% 1.74% 1.87% 2.01% 1.58% 1.31% 1.49% 4.87% 4.89% 2.13% 1.29% 1.58% 0.43% 0.03%
Source: World Currency Composition of Official Foreign Exchange Reserves. International Monetary Fund.
Current GBP exchange rates
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For exchange rate trends since 1990, see Economy of the United Kingdom#Exchange rates.

See also

Notes

  1. ^ Foreign and Commonwealth Office country profiles: South Georgia and the South Sandwich Islands
  2. ^ Foreign and Commonwealth Office country profiles: British Antarctic Territory
  3. ^ Pan, Aaron (2006-12-28). "Pound set for biggest annual gain since 1990". International Herald Tribune. Retrieved 2007-02-27. {{cite news}}: Check date values in: |date= (help)
  4. ^ Triennial Central Bank Survey (April 2007), Bank for International Settlements.
  5. ^ Interestingly, this, as in the phrase "cinque sterline", would be the case in Italy, a country whose previous currency, the lira, derived from the Roman libra and was denoted by the same symbol.
  6. ^ Pound sterling, Encyclopaedia Britannica
  7. ^ http://news.bbc.co.uk/1/hi/programmes/bbc_parliament/7090665.stm 'Economic terms explained' BBC News
  8. ^ http://www.highbeam.com/doc/1P1-51066089.html
  9. ^ http://www.gold.org/value/reserve_asset/history/monetary_history/vol2/1868feb18.html
  10. ^ The Board of Trade Journal, 7 January 1932
  11. ^ The Central Bank of Barbados: Students' Centre - Money: Bits and Pieces
  12. ^ BBC NEWS | Business | Rate hike fear as inflation jumps
  13. ^ Puritanism comes too naturally for 'Huck' Brown - Times Online
  14. ^ "EMU Entry And EU Constitution". MORI. 2005-02-28. {{cite web}}: Check date values in: |date= (help)
  15. ^ Should Britain join the euro? - Telegraph
  16. ^ [1]
  17. ^ BBC News | SCOTLAND | Protesters pursue Hague
  18. ^ Euro reaches field that is for ever England - The Times
  19. ^ BBC NEWS | Business | Pound reaches 26-year dollar high
  20. ^ ECB ratings: Pound sterling in euros
  21. ^ BBC NEWS | Business | Pound hits new low against euro
  22. ^ ""British Royal Mint - Frequently Asked Questions"". Retrieved 2007-01-23.
  23. ^ Template:PDFlink
  24. ^ 2003 article on price inflation
  25. ^ Blackden, Richard (2007-01-23). "Sterling surges to 14-year high". The Daily Telegraph. Retrieved 2007-01-24.
  26. ^ "Currency Strategists: Morgan Says Pound Is Euro Proxy". xak.com. Bloomberg. 2006-02-08.

References

  • "Bank of England Banknotes FAQ". Retrieved 2006-05-07.
  • The Perspective of the World, Vol III of Civilization and Capitalism, Fernand Braudel, 1984 ISBN 1-84212-289-4 (in French 1979).
  • A Retrospective on the Bretton Woods System : Lessons for International Monetary Reform (National Bureau of Economic Research Project Report) By Barry Eichengreen (Editor), Michael D. Bordo (Editor) Published by University of Chicago Press (1993) ISBN 0-226-06587-1
  • The political pound: British investment overseas and exchange controls past-- and future? By John Brennan Published By Henderson Administration (1983) ISBN 0-9508735-0-0
  • Monetary History of the United States, 1867-1960 by Milton Friedman, Anna Jacobson Schwartz Published by Princeton University Press (1971) ISBN 0-691-00354-8
  • The international role of the pound sterling: Its benefits and costs to the United Kingdom By John Kevin Green
  • The Financial System in Nineteenth-Century Britain (The Victorian Archives Series, By Mary Poovey Published by Oxford University Press (2002) ISBN 0-19-515057-0
  • Rethinking our Centralized Monetary System: The Case for a System of Local Currencies By Lewis D. Solomon Published by Praeger Publishers (1996) ISBN 0-275-95376-9
  • Politics and the Pound: The Conservatives' Struggle With Sterling by Philip Stephens Trans-Atlantic Publications (1995) ISBN 0-333-63296-6
  • The European Monetary System: Developments and Perspectives (Occasional Paper, No. 73) by Horst Ungerer, Jouko J. Hauvonen Published by International Monetary Fund (1990) ISBN 1-55775-172-2
  • The floating pound sterling of the nineteen-thirties: An exploratory study By J. K Whitaker Dept. of the Treasury (1986)
  • World Currency Monitor Annual, 1976-1989: Pound Sterling : The Value of the British Pound Sterling in Foreign Terms Published by Mecklermedia (1990) ISBN 0-88736-543-4
  • Krause, Chester L.; Clifford Mishler (1991). Standard Catalog of World Coins: 1801–1991 (18th ed.). Krause Publications. ISBN 0873411501.
  • Pick, Albert (1994). Standard Catalog of World Paper Money: General Issues. Colin R. Bruce II and Neil Shafer (editors) (7th ed.). Krause Publications. ISBN 0-87341-207-9.
  • Pick, Albert (1990). Standard Catalog of World Paper Money: Specialized Issues. Colin R. Bruce II and Neil Shafer (editors) (6th ed.). Krause Publications. ISBN 0-87341-149-8.

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