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Pound sterling
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NameThe full, official name pound sterling is used mainly in formal contexts and also when it is necessary to distinguish the currency used within the United Kingdom from others that have 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 in amounts; so "payment accepted in sterling" but never "that costs five sterling". 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 (plural quid).
The term sterling is derived from the fact that, about the year of 775, silver coins known as “sterlings” were issued in the Saxon kingdoms, 240 of them being minted from a pound of silver, the weight of which was probably about equal to the later troy pound.
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NameThe full, official name pound sterling is used mainly in formal contexts and also when it is necessary to distinguish the currency used within the United Kingdom from others that have 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 in amounts; so "payment accepted in sterling" but never "that costs five sterling". 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 (plural quid).
The term sterling is derived from the fact that, about the year of 775, silver coins known as “sterlings” were issued in the Saxon kingdoms, 240 of them being minted from a pound of silver, the weight of which was probably about equal to the later troy pound. Because of this, large payments came to be reckoned in "pounds of sterlings", a phrase that was later shortened to "pounds sterling". After the Norman Conquest, the pound was divided for simplicity of accounting into 20 shillings and into 240 pennies, or pence. For a 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", from the abbreviation LSD – librae, solidi, denarii – used for the pounds, shillings and pence of the original 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 (Great Britain pound). Occasionally, the abbreviation UKP is used but this is incorrect. The Crown dependencies use their own (non-ISO) codes: GGP, JEP and IMP. 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.
HistoryFollowing the adoption of the euro by a number of European countries, sterling became the world's oldest currency still in use.
Anglo-SaxonThe 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.
MedievalThe 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 of silver, with a further reduction to 12 grains in 1464.
TudorDuring the reigns of Henry VIII and Edward VI, the silver coinage was drastically debased, although the pound was redefined to the troy pound of 5760 grains 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, 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 grains. Throughout this period, the size and value of the gold coinage fluctuated considerably.
Expanding to ScotlandIn 1603, the crowns of England and Scotland were joined but the governments and currencies remained separate. The pound scots, which had begun equal to sterling but had suffered far higher devaluation, was pegged to sterling at a value of 12 pounds scots = 1 pound sterling. In 1707, with the union of the two kingdoms to form Great Britain, the pound scots was replaced by sterling at the same value.
Unofficial gold standardIn 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.
Use in the EmpireSterling 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, 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 WoodsSee also:
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.
DecimalisationOn 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 poundWith 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 1980's 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 MarkIn 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” 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. Since early 2005, the £/€ rate has returned to an average of about £1.00:€1.46, which is equivalent to DM2.85.
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.
Current strengthAlthough the pound and euro are not fixed to one another, there are often long periods where they move together, although since the middle of 2006 this correlation has weakened. Inflation concerns in the UK led the Bank of England to hike interest rates in late 2006 and during 2007, causing sterling to rise to its highest rate against the euro since January 2003. This has had a knock on effect versus other major currencies, and the pound hit a 15-year high against the US dollar on April 18, 2007, having gone through the US$2 level for the first time since 1992 the day before. Since then the pound has continued to strengthen against the dollar, as have many other world currencies, and hit a 26-year high of $2.11610 on November 07, 2007. However, since late 2007 the pound began to weaken considerably against the euro, albeit less sharply than the dollar, falling below the €1.25 border for the first time in April 2008.
Coins
Pre-decimalThe 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 ? 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
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).
On the value of British moneyIn 2006 the House of Commons Library published a documentding 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.
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 currenciesThe 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. On July 24, 2008, £1 was worth US$1.98 or €1.26.
The pound as a major international reserve currencySterling 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. Analysts say this resurgence is caused by carry-trade investors considering the pound as a stable high-yield proxy to the euro.
For exchange rate trends since 1990, see Economy of the United Kingdom#Exchange rates.
See also
, for the accepted standard on how to format amounts in pounds sterling in Wikipedia articles
External links
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