Its origin dates back to the 8th century and it is the oldest currency still in use today. It is subdivided into 100 pence, or pennies. The British pound is the fourth most traded currency in foreign exchange markets, after the US dollar, the Euro and the Japanese yen.
The origin of the term pound sterling is not known for certain, though tales allude to middle age silver coins called sterlings of which 240 sterlings equaled a pound. The pound sterling evolved from the silver penny which began circulating in the 8th century at the hands of King Offa of Mercia. This silver penny weighed 22.5 troy grains of fine silver, equal to approximately 1.5 grams. The silver penny became the de-facto currency in Anglo-saxon lands.
Henry II introduced the Tealby penny in 1158 struck from .925 silver. This penny eventually evolved into the modern-day pound Sterling. The lower purity of the silver prevented the coins from wearing out too quickly. A gold penny also circulated around this time, equal to 20 silver pence, but quantities were scarce and it was rarely used. The gold noble was introduced in 1344.
At the turn of the fifteenth century the penny was lowered to 15 grains of silver (or 0.97 grams) only to be further debased in 1464 by reducing its weight to 12 grains (or 0.78 grams).
Henry VIII and Edward VI succeeded in further debasing of the currency. New silver coins were issued in 1544 with a low purity of only 0.333 fine, the other 66% of the coin being made up of copper. The coinage was altered again in 1552 with a new sterling silver penny whose weight was reduced to 8 grains (or 0.52 grams). This debasement equated one pound sterling with 60 shillings and the resulting silver standard was referred to as the sixty-shilling standard. A further devaluation in 1601 reduced the penny’s weight to half a gram which in turn equaled 62 shillings. Thus, the modified silver standard was termed the 62-shilling standard.
A brief gold standard was ushered in by the guinea, albeit unintentionally. Britain issued a new coinage in 1663. One troy pound was set to equal 44.5 guineas, or 20 shillings. However, the value of the guinea fluctuated wildly and ended up gaining so much in value due to its gold content that it had become difficult for British merchants to trade with the rest of the world. Silver flowed out of Britain for liquidating imports, while gold entered Britain in payment for English exports.
British currency was struck with silver and gold until the Bank of England was established in 1694. The pound was then issued as paper currency backed by precious metals. The bank notes floated freely against gold, thus providing an important safeguard against monetary inflation. Gold and silver coins continued to be minted and circulated together with the paper bank notes. The gold standard was officially adopted in 1816 and the silver standard was heavily devalued, rendering the coins a token of their former glory. The new standard had converted the silver coin to 66 shillings causing the coins to contain significantly less silver value in their content than what the official denomination of the coin was. The gold sovereign was introduced the following year and replaced the guinea at par (20 shillings or 7.3 grams of gold). The sovereign also replaced the Irish pound in Northern Ireland at par with sterling. The pound sterling was used in much of the world at the height of the British Empire.
The outbreak of WWI in 1914 had disastrous consequences for British money. The gold standard was promptly discarded in order to finance the war with treasury notes. England was converted from the most powerful economy on Earth to a debtor nation by the end of the war. A return to the gold standard with parallel exchange rates (one rate for banks and government agencies and another rate, unfavorable to the individual). Gold was abandoned altogether once again in 1931 at the height of the Great Depression and the sterling was promptly devalued by 25%. The pound was pegged to the US dollar at £1=$4 in 1940 under the Breton Woods treaty. The pound was under constant pressure due to the strength of the dollar and was devalued 30% in 1949. Devaluatory pressures continued until the pound sterling was converted to pure fiat money in 1971 with the cancellation of the Bretton Woods treaty.
The pound sterling is one of a handful of European Union member currencies that has not succumbed to the Euro, although politicians have promised to eventually join the monetary union.
Modern data shows the gold price in pounds sterling at its low point in 1973 at a rate of £17.16 per ounce and a high of £1,500 in august 2020.
The United Kingdom holds 310 tonnes of gold reserves, representing approximately 17% of its foreign exchange reserves.
The Bank of England is the central bank of the United Kingdom.
Leave a Reply