Pound sterling
All frequently used coins except the £2 coin (coins shown are those after the extensive 2008 redesign)
All frequently used coins except the £2 coin (coins shown are those after the extensive 2008 redesign)
ISO 4217 code GBP
Official user(s)  United Kingdom
Unofficial user(s)  Zimbabwe[1]
Inflation 4.0% (UK CPI March 2011)
4.8% (UK RPI December 2010)
−1.2% (Guernsey RPI September 2009)
−0.6% (Jersey RPI September 2009)
3.3% (Isle of Man CPI December 2009)
Source BBC News, States of Guernsey, States of Jersey and Isle of Man Government'
ERM
Since 8 October 1990
Withdrawn 16 September 1992 (Black Wednesday)
Pegged by Falkland Islands pound (at par)
Gibraltar pound (at par)
Saint Helena pound (at par)
Jersey pound (local issue)
Guernsey pound (local issue)
Manx pound (local issue)
Scotland notes (local issue)
Northern Ireland notes (local issue)
Subunit
1/100 penny
Symbol £
penny p
Plural  
penny pence
Coins
Freq. used 1p, 2p, 5p, 10p, 20p, 50p, £1, £2
Rarely used £5
Banknotes
Freq. used £5, £10, £20, £50
Rarely used £1 (Scot. only), £100 (Scot. & N. Ireland only)
Central bank Bank of England
Website www.bankofengland.co.uk
Printer
Website
Mint Royal Mint
Website www.royalmint.com

The pound sterling (symbol: £; ISO code: GBP), commonly called the pound, is the official 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,[2] British Antarctic Territory[3] and Tristan da Cunha.[4] It is subdivided into 100 pence (singular: penny).

The Channel Islands (the Bailiwick of Guernsey and the Bailiwick of Jersey) and the Isle of Man produce their own local issues of sterling; see Guernsey pound, Jersey pound and Manx pound. The pound sterling is also used in Gibraltar (alongside the Gibraltar pound), the Falkland Islands (alongside the Falkland Islands pound) and Saint Helena[5] and Ascension[6] (alongside the Saint Helena pound). Gibraltar, Falkland Islands and Saint Helena pounds are separate currencies, pegged at parity to the pound sterling. Some Scottish and Northern Irish banks produce private banknotes.

Sterling is the fourth most traded currency in the foreign exchange market, after the US dollar, the euro and the Japanese yen. Together with those three currencies it forms the basket of currencies which calculate the value of IMF Special Drawing Rights, with an 11.3% weighting as of 2011. Sterling is also the third most held reserve currency in global reserves.

Contents

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".[7][8] 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, except in the common phrase "Quids in!"). The etymology of the term is unknown, although it might derive from the Latin 'quid' and widely speculated to come from the Latin phrase "quid pro quo".[9]

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".[10] 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 (£), which is usually written with a single cross-bar, as on sterling bank notes, though a version with a double cross-bar () is also sometimes seen. The pound sign derives from the black-letter "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 because the ISO 3166 country code for (the United Kingdom of) Great Britain and Northern Ireland is GB (see Terminology of the British Isles#Terminology in detail). 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 coinage

Since decimalisation in 1971 (see Decimal Day), the pound has been divided 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) properly pronounced "fifty pence" is more colloquially, quite often, pronounced "fifty pee". This also helped to distinguish between new and old pence amounts during the changeover to the decimal system. A decimal halfpenny was issued until 1984.

Pre-decimal

The Mad Hatter's hat shows an example of the old pre-decimal system: the hat costs 10 shillings and 6 pence.

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" (except for "1/1," "2/1" etc., which were spoken as "one and a penny," "two and a penny," etc.). 5 shillings was written as "5s." or, more commonly, "5/-". The stroke (/) indicating shillings is also known as a solidus and was originally an adaptation of the long s which represented that word.

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.

By the 1950s, coins of George III, George IV and William IV had disappeared from circulation, but coins (at least the penny) bearing the head of any British king or queen from Queen Victoria onwards could be found in circulation. Silver coins were replaced by those in cupro-nickel in 1947 and by the 1960s the silver coins were rarely seen. Silver/cupro-nickel shillings (from any period after 1816) and florins (2 shillings) remained as legal tender after decimalisation (as 5p and 10p respectively); the sixpences of 1816 and after remained legal tender until 1980 (as two and a half new pence).

History

The pound sterling is the world's oldest currency still in use.[11]

Anglo-Saxon

The pound was a unit of account in Anglo-Saxon England, equal to 240 silver pennies and equivalent to one pound weight of silver. It evolved into the modern British currency, the pound sterling.

The accounting system of 4 farthings = 1 penny, 12 pence = 1 shilling, 20 shillings = 1 pound was adopted from that introduced by Charlemagne to the Frankish Empire (see French livre).

The origins of sterling lie in the reign of King Offa of Mercia, (757–96) 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 g), 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 .999 (99.9%) fine silver 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 (1399–1413), 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 2331 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).[12] 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]. This shortage was aggravated by the fact that silver was the only commodity accepted by China for exporting goods during this period. From the mid-17th century, around 28 million kilograms of silver was received by China, principally from European powers, in exchange for Chinese goods. see 1.3 British trade and the Canton System in Opium Wars

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 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 Irish pound was replaced by sterling in January 1826 at the value 13 Irish pounds = 12 pound sterling.

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/-, £3 6s), rendering silver coins a "token" issue (i.e., not containing their value in precious metal). In 1817, the sovereign was introduced, valued at 20 shillings. 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, 5.25 Canadian dollars, 12.10 Dutch guilders, 26.28 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 International Monetary Conference of 1867 in Paris concerning the possibility of the UK joining the Latin Monetary Union, and a Royal Commission on International Coinage examined the issues,[13] resulting in a decision against joining monetary union.

The gold standard was suspended at the outbreak of the war in 1914, 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 (£30.7 billion as of 2011),[14] 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%.[15]

Use in the Empire

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,[16] 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

In 1940, an agreement with the U.S.A. pegged the pound to the U.S. dollar at a rate of £1 = $4.03. (Only the year before, it had been $4.86.)[17] 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 1961, 1964 and 1966, 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

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.

Free-floating pound

With the breakdown of the Bretton Woods system, the pound floated from August 1971 onwards. It at first appreciated a little, rising to almost $2.65 in March 1972, from 2.42 when it had been fixed. 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.

The 1976 sterling crisis

James Callaghan came to power in 1976. He was immediately told the economy was facing huge problems, according to documents released in 2006 by the National Archives.[18] The effects of the 1973 oil crisis were still being felt, with inflation rising to over 27% in 1975.[19] Financial markets were beginning to believe the pound was overvalued and in April of that year The Wall Street Journal advised the sale of sterling investments in a story titled "Good-bye Great Britain". At the time the UK government was running a budget deficit and Labour's strategy emphasised high public spending. Callaghan was told there were three possible outcomes: a disastrous free fall in Sterling, an internationally unacceptable siege economy or a deal with key allies to prop up the pound while painful economic reforms were put in place. The US government feared the crisis could endanger NATO and the EEC and in light of this the US Treasury set out to force domestic policy changes. In November 1976 the IMF announced the conditions for a loan, including deep cuts in public expenditure.[20]

1979–1989

The Conservatives arrived in power in 1979, on a programme of fiscal austerity. Initially, the pound rocketed, moving above the $2.40 level, as interest rates rose in response to the monetarist policy of targeting money supply. The high exchange rate was widely blamed for the deep recession of 1981. Sterling fell sharply after 1980; at its lowest, the pound stood at just $1.03 in March 1985, before returning to the US$1.70 level in December 1989.

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. For this reason, former Prime Minister Edward Heath referred to Lawson as a "one club golfer").[21]

Following German re-unification in 1990, the reverse held true, as high borrowing costs to fund Eastern reconstruction, a need exacerbated by the political choice to make the Ostmark equivalent to the Deutsche Mark (DM), meant rates in other countries shadowing the DM, especially the UK, were far too high relative to domestic circumstances, leading to a housing decline and recession.

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[who?] of a lower GBP/DM exchange rate were vindicated as the cheaper pound encouraged exports and contributed to the economic prosperity of the 1990s.[citation needed]

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.[22] The Bank is now responsible for setting its base rate of interest so as to keep inflation in the Consumer Price Index (CPI) 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 Prices 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.[23]

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, then 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.[24]

The government of former Prime Minister Tony Blair had pledged to hold a public referendum to decide on membership should "five economic tests" be met, to ensure that adoption of the euro would be in the national interest. In addition to these internal (national) criteria, the UK would have to meet the EU's economic convergence criteria (Maastricht criteria), before being allowed to adopt the euro. The Conservative/Liberal Democrat coalition ruled out joining the euro for the parliamentary term. Currently, the UK's annual government deficit, as a percentage of the GDP, is above the defined threshold. In February 2005, 55% of British citizens were against adopting the currency, with 30% in favour.[25] The idea of replacing the pound with the euro has been controversial with the British public, partly because of the pound's identity as a symbol of British sovereignty[26] 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.[27] The pound did not join the Second European Exchange Rate Mechanism (ERM II) after the Euro was created. Denmark and the UK have 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 for Scotland in that the adoption of the Euro would mean the end of regionally distinctive banknotes, as the Euro banknotes do not have national designs.[28] The Scottish National Party have not yet confirmed what the national currency of Scotland would be should Independence be realized.

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).[29]

Current exchange value

Most traded currencies by value
Currency distribution of global foreign exchange market turnover[30]
Rank Currency ISO 4217 code
(Symbol)
 % daily share
(April 2010)
1
United StatesUnited States dollar
USD ($)
84.9%
2
European UnionEuro
EUR (€)
39.1%
3
JapanJapanese yen
JPY (¥)
19.0%
4
United KingdomPound sterling
GBP (£)
12.9%
5
AustraliaAustralian dollar
AUD ($)
7.6%
6
SwitzerlandSwiss franc
CHF (Fr)
6.4%
7
CanadaCanadian dollar
CAD ($)
5.3%
8
Hong KongHong Kong dollar
HKD ($)
2.4%
9
SwedenSwedish krona
SEK (kr)
2.2%
10
New ZealandNew Zealand dollar
NZD ($)
1.6%
11
South KoreaSouth Korean won
KRW (₩)
1.5%
12
SingaporeSingapore dollar
SGD ($)
1.4%
13
NorwayNorwegian krone
NOK (kr)
1.3%
14
MexicoMexican peso
MXN ($)
1.3%
15
IndiaIndian rupee
INR (INR)
0.9%
Other 12.2%
Total[31] 200%

The pound and the 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, reaching US$2 the day before, for the first time since 1992.[32] The pound and many other currencies continued to appreciate against the dollar; sterling hit a 26-year high of US$2.1161 on 7 November 2007 as the dollar fell worldwide. From mid-2003 to mid 2007, the Pound/Euro rate remained rangebound (within ± 5%) of €1.45.[33] Following the global financial crisis in late 2008, however, the pound has since depreciated at one of the fastest rates in history, reaching a 24-year low of $1.35 per £1 on 23 January 2009[34] and falling below €1.25 against the Euro in April 2008.[35] A further decline was seen during the remainder of 2008; most dramatically in December when its Euro rate hit an all-time low at €1.0219 (29th),[36] while its US dollar rate depreciated to $1.37 on 24 January 2009.[37] The Pound appreciated in early 2009 reaching a peak against the Euro in mid-July of €1.17. The following months the pound remained broadly steady against the Euro, with the Pound's current (27 May 2011) value at €1.15 and US$1.65.

On 5 March 2009, the Bank of England announced that they would pump £75 billion of new capital into the British economy, through a process known as quantitative easing. This is the first time in the United Kingdom's history that this measure has been used, although the Bank's Governor Mervyn King suggested it was not an experiment.[38]

The process sees the Bank of England creating new money for itself, which it then uses to purchase assets such as government bonds, bank loans, or mortgages.[39] The initial amount stated to be created through this method was £75 billion, although Chancellor of the Exchequer Alistair Darling had given permission for up to £150 billion to be created if necessary.[40] It is thought the process is likely to occur over a period of three months with results only likely in the long term.[38] By 5 November 2009, some £175 billion had been injected using quantitative easing and the effectiveness of the process remains questionable.

The Bank of England has stated that the decision has been taken to prevent the rate of inflation falling below the two percent target rate.[39] Mervyn King, the Governor of the Bank of England, also suggested there were no other monetary options left as interest rates have already been cut to their lowest level ever (0.5%) and it was unlikely that they would be cut further.[40]

Coins

Pre-decimal coins

The silver penny (plural: pence; abbreviation: d) 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 six shillings and eight pence ('6/8') (i.e. 3 to the pound), 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/- (i.e. 2 to the pound) 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 (abbr.: s; known as the testoon) in 1487 and the pound (known as the sovereign, abbr.: £ or L) in 1489. In 1526, several new denominations of gold coins were added, including the crown and half crown worth five shillings (5/-), and two shillings and six pence (2/6, two and six) respectively. 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 (half-crown) and 5/- (crown). 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 ("thruppence") 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 (quarter penny, ¼d), 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 thereafter. In 1920, the silver standard, maintained at .925 since 1552, was reduced to .500. In 1937, a nickel-brass 3d coin was introduced; the last silver 3d coins were 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 demonetised in 1960. In the run-up to decimalisation, the halfpenny and half-crown were demonetised in 1969.

Decimal coins

£1 coin (Welsh design, 2000)
1pound2000front.jpgUk1pnd2000.jpg
Elizabeth II Welsh dragon

British coinage timeline:

  • 1968: The first decimal coins were introduced. These were cupro-nickel 5p and 10p coins which were equivalent to and circulated alongside the 1/- and 2/- coins.
  • 1969: The curved equilateral heptagonal cupro-nickel 50p coin replaced the 10/- note.
  • 1971: 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.
  • 1980: Withdrawal of 6d coins, which had circulated at a value of 2½p.
  • 1982: The word "new" was dropped from the coinage and a 20p coin was introduced.
  • 1983: A £1 coin was introduced.
  • 1983: The ½p coin was last produced.
  • 1984: The ½p coin was demonetised
  • 1990s: The 5p, 10p and 50p coins became smaller.
  • 1991: The old 1/- coins, which had continued to circulate with a value of 5p, were demonetised in 1991 after the 5p coin became smaller.
  • 1992: Bronze was replaced with copper-plated steel
  • 1993: The 2/- coins were similarly demonetised.
  • 1998: The bi-metallic £2 coin was introduced.
  • 2007: By now the value of copper in the pre-1992 1p/2p coins (which are 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, and the market value of copper has subsequently fallen dramatically from these earlier peaks.

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 monarchs' heads on the obverse.

In April 2008 an extensive redesign of the coinage was unveiled. The new designs were issued gradually into circulation, starting 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).

Banknotes

£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 decimalisation. £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 and, interestingly, notes named "Titan". A Titan is a £100,000,000 (one hundred million pound) bank note,[41] of which there are only 40 in existence. Titans are only used within the banking system and are unobtainable by the general public.

Legal tender and regional issues

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 UK, £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[citation needed]. 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 can be used anywhere in the UK as a means of payment. Guernsey, Jersey, the Isle of Man are in currency union with the United Kingdom and these currencies are not a separate currency from the British pound but are just a local issue of banknotes and coins denominated in pound sterling.

It is legal for shopkeepers to choose to reject any payment, even if it would be legal tender in that jurisdiction, but not in their interest 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 settling another debt, the laws of legal tender do apply and the payment can not be rejected. But usually any reasonable method of settling the debt (such as by credit card) 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[42]
£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

Further, any coin or bank note ceases to be legal tender if it is 100× the amount of the debt (for example, offering a £20 note to settle a 20p debt).

Value

In 2006, the House of Commons Library published a document[43] which included an index of prices in pounds for each year between 1750 and 2005, where 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 1751 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.[44]

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.

The following table shows the equivalent amount of goods that, in a particular year, could be purchased with £1.[45] The table shows that from 1971 through 2009 the British Pound has lost about 90% of its buying power.

Buying power of one British Pound compared to 1971 GBP
 Year   Equivalent  buying power  Year   Equivalent  buying power  Year   Equivalent  buying power  Year   Equivalent  buying power
1971  £1.00 1981  £0.271 1991  £0.152 2001  £0.117
1972  £0.935 1982  £0.250 1992  £0.146 2002  £0.115
1973  £0.855 1983  £0.239 1993  £0.144 2003  £0.112
1974  £0.735 1984  £0.227 1994  £0.141 2004  £0.109
1975  £0.592 1985  £0.214 1995  £0.136 2005  £0.106
1976  £0.510 1986  £0.207 1996  £0.133 2006  £0.102
1977  £0.439 1987  £0.199 1997  £0.123 2007  £0.0980
1978  £0.407 1988  £0.190 1998  £0.125 2008  £0.0943
1979  £0.358 1989  £0.176 1999  £0.123 2009  £0.0952
1980  £0.303 1990  £0.161 2000  £0.119 2010 £0.113

Exchange rate

The pound is freely bought and sold on the foreign exchange markets around the world, and its value relative to other currencies therefore fluctuates. It has been among the highest-valued currency units in the world. As of 2 November 2011 (2011 -11-02), £1 was worth US$1.60, 1.16, ¥125, CHF 1.41, A$1.55, or C$1.63.

Current GBP exchange rates
From Google Finance: AUD CAD CHF EUR HKD JPY USD
From Yahoo! Finance: AUD CAD CHF EUR HKD JPY USD
From OzForex: AUD CAD CHF EUR HKD JPY USD
From XE.com: AUD CAD CHF EUR HKD JPY USD
From OANDA.com: AUD CAD CHF EUR HKD JPY USD

Reserve

Sterling is used as a reserve currency around the world and is currently ranked third in value held as reserves.

See also

Notes

  1. ^ Alongside Zimbabwean dollar (suspended indefinitely from 12 April 2010), euro, US dollar, South African rand and Botswana pula. The US dollar has been adopted as the official currency for all government transactions.
  2. ^ "Foreign and Commonwealth Office country profiles: South Georgia and the South Sandwich Islands". British Foreign & Commonwealth Office. 2007-09-06. http://www.fco.gov.uk/en/about-the-fco/country-profiles/south-america/south-georgia-south-sandwich. Retrieved 2010-04-17. 
  3. ^ "Foreign and Commonwealth Office country profiles: British Antarctic Territory". British Foreign & Commonwealth Office. 2010-03-25. http://www.fco.gov.uk/en/about-the-fco/country-profiles/south-america/british-antarctic-territory. Retrieved 2010-04-17. 
  4. ^ "Foreign and Commonwealth Office country profiles: Tristan da Cunha". British Foreign & Commonwealth Office. 2010-02-12. http://www.fco.gov.uk/en/travel-and-living-abroad/travel-advice-by-country/country-profile/south-america/tristan-da-cunha. Retrieved 2010-04-17. 
  5. ^ Fast Facts on St Helena, St Helena Tourism
  6. ^ www.ascension-island.gov.ac, Ascension Island Currency
  7. ^ 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.
  8. ^ In Ireland it is quite common to use terms such as this
  9. ^ "Why is Quid Slang For Pound?". Straight Dope Message Board. http://boards.straightdope.com/sdmb/archive/index.php/t-552692.html. Retrieved 2011-11-06. 
  10. ^ Pound sterling, Encyclopaedia Britannica
  11. ^ news.bbc.co.uk 'Economic terms explained' BBC News
  12. ^ Bloy, Marjie (2006-06-20). "British Currency before 1971". The Victorian Web. http://www.victorianweb.org/economics/currency.html. Retrieved 2010-12-28. 
  13. ^ http://www.gold.org/value/reserve_asset/history/monetary_history/vol2/1868feb18.html
  14. ^ UK CPI inflation numbers based on data available from Lawrence H. Officer (2010) "What Were the UK Earnings and Prices Then?" MeasuringWorth.
  15. ^ The Board of Trade Journal, 7 January 1932
  16. ^ "The Central Bank of Barbados: Students' Centre – Money: Bits and Pieces". Centralbank.org.bb. http://centralbank.org.bb/WEBCBB.nsf/webpage/580B8A7909CC2876042573650078A7A3?OpenDocument. Retrieved 2010-04-17. 
  17. ^ A History of the Canadian Dollar, p. 51.
  18. ^ Casciani, Dominic (2006-12-29). "BBC". BBC News. http://news.bbc.co.uk/2/hi/uk_news/politics/6212557.stm. Retrieved 2010-04-17. 
  19. ^ "The Cabinet Papers - Global oil shortage". http://www.nationalarchives.gov.uk/cabinetpapers/themes/global-oil-shortage.htm. Retrieved 2010-12-22. 
  20. ^ "Good-bye Great Britain": 1976 IMF Crisis, K Burk, ISBN 0-300-05728-8
  21. ^ Sometimes it can pay to break the rules Victor Keegan (Economics Editor) The Observer
  22. ^ "WINDFALL TAX (Hansard, 2 July 1997)". Hansard.millbanksystems.com. http://hansard.millbanksystems.com/commons/1997/jul/02/windfall-tax. Retrieved 2011-11-06. 
  23. ^ "Business | Rate hike fear as inflation jumps". BBC News. 2007-04-17. http://news.bbc.co.uk/2/hi/business/6562723.stm. Retrieved 2010-04-17. 
  24. ^ Puritanism comes too naturally for 'Huck' Brown—Times Online
  25. ^ "EMU Entry And EU Constitution". MORI. 2005-02-28. http://www.mori.com/polls/2005/citigroup-feb.shtml. 
  26. ^ Should Britain join the euro? – Telegraph[dead link]
  27. ^ "Most Britons 'still oppose euro'". BBC News. 2009-01-01. http://news.bbc.co.uk/1/hi/uk/7806936.stm. Retrieved 2010-04-17. 
  28. ^ "SCOTLAND | Protesters pursue Hague". BBC News. 2000-05-19. http://news.bbc.co.uk/1/hi/scotland/755013.stm. Retrieved 2010-04-17. 
  29. ^ Euro reaches field that is for ever England – The Times[dead link]
  30. ^ "Report on global foreign exchange market activity in 2010" (PDF). Triennial Central Bank Survey. Basel, Switzerland: Bank for International Settlements. December 2010. p. 12. http://bis.org/publ/rpfxf10t.pdf. Retrieved 2 May 2011. 
  31. ^ The total sum is 200% because each currency trade always involves a currency pair.
  32. ^ "Business | Pound reaches 26-year dollar high". BBC News. 2007-04-18. http://news.bbc.co.uk/1/hi/business/6566715.stm. Retrieved 2010-04-17. 
  33. ^ FXGraph: Graphical Display of Currency Rates OANDA.COM
  34. ^ "GBPUSD=X: Basic Chart for GBP/USD - Yahoo! Finance". Finance.yahoo.com. http://finance.yahoo.com/q/bc?s=GBPUSD=X&t=3m&l=on&z=m&q=l&c=. Retrieved 2010-04-17. 
  35. ^ "ECB ratings: Pound sterling in Euros". Ecb.int. http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-gbp.en.html. Retrieved 2010-04-17. 
  36. ^ "Business | Pound hits new low against Euro". BBC News. 2008-12-29. http://news.bbc.co.uk/1/hi/business/7802981.stm. Retrieved 2010-04-17. 
  37. ^ "Historical rates". Oanda.com. 2011-04-16. http://www.oanda.com/currency/historical-rates. Retrieved 2011-11-06. 
  38. ^ a b "Bank to pump £75bn into economy". BBC News. 2009-03-05. http://news.bbc.co.uk/1/hi/business/7927100.stm. Retrieved 2009-03-05. 
  39. ^ a b "ECB, Bank of England cut rates to record lows". CNN. 2009-03-05. http://edition.cnn.com/2009/BUSINESS/03/05/uk.interest.rate/index.html. Retrieved 2009-03-05. 
  40. ^ a b Duncan, Gary (2009-03-05). "Bank ‘prints’ £75bn and cuts interest rates in half". London: The Times. http://business.timesonline.co.uk/tol/business/economics/article5854896.ece. Retrieved 2009-03-05. 
  41. ^ "Security by Design - A closer look at Bank of England notes" (PDF). http://www.bankofengland.co.uk/education/museum/exhibitions/securitybydesign.pdf. Retrieved 2011-11-06. 
  42. ^ "British Royal Mint – Frequently Asked Questions". http://www.royalmint.gov.uk/home/frequentlyaskedquestions.aspx. Retrieved 2009-02-24. 
  43. ^ "New Research Paper 2005 template" (PDF). http://www.parliament.uk/commons/lib/research/rp2006/rp06-009.pdf. Retrieved 2010-04-17. 
  44. ^ 2003 article on price inflation and see this
  45. ^ "Measuring Worth - Purchasing Power of Money in the United Kingdom from 1971 to 2009". http://www.measuringworth.com/ukcompare/index.php. Retrieved 2010-04-22. 

References

  • "Bank of England Banknotes FAQ". http://www.bankofengland.co.uk/banknotes/about/faqs.htm. Retrieved 2006-05-07. 
  • The Perspective of the World, Vol III of Civilisation 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 Centralised 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. and Clifford Mishler (1991). Standard Catalog of World Coins: 1801–1991 (18th ed. 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. 

External links


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