The pound sterling, also called the pound, is the legal tender of the United Kingdom, its Crown Dependencies\u00a0(the\u00a0Isle of Man\u00a0and the\u00a0Channel Islands) and the\u00a0British Overseas Territories\u00a0of\u00a0South Georgia and the South Sandwich Islands, British Antarctic Territory and\u00a0Tristan da Cunha.<\/p>\n
The pound is denoted by symbol \u00a3 and its code in foreign exchange market is GBP.<\/p>\n
A pound is subdivided into 100\u00a0pence<\/em>\u00a0(singular:\u00a0penny<\/em>). \u00a0There are number of countries that do not the sterling but have currencies called pound.<\/p>\n The\u00a0Channel Islands, which include\u00a0Bailiwick of Guernsey\u00a0and the\u00a0Bailiwick of Jersey and the\u00a0Isle of Man, circulate their own local issues of sterling such as the Guernsey pound, Jersey pound\u00a0and\u00a0Manx pound. Some other territories that use their own version of pound alongside the pound sterling include: Gibraltar (Gibraltar pound), the\u00a0Falkland Islands (Falkland pound) and\u00a0Saint Helena and\u00a0Ascension (Saint Helena pound).<\/p>\n Pounds used in all three islands, (Gibraltar, Falkland Islands and Saint Helena) are all separate currencies that are pegged at parity to the pound sterling. In the UK, some banks having operations in Scotland and Northern Ireland make private sterling denominated banknotes.<\/p>\n In the foreign exchange market, the sterling is most traded currency following the U.S. dollar, euro, and Japanese yen. The sterling is also third most favored reserve currency of the global reserves. The sterling along with three other most traded currencies (USD, euro and yen) forms a basket of currencies which\u00a0evaluate the value\u00a0of\u00a0IMF\u00a0special drawing rights, with an 11.3% (GBP) weighting as of 2011\u00a0(USD 41.9\u00a0%, Euro 37.4\u00a0%, Yen 9.4\u00a0%).<\/p>\n Names<\/strong><\/p>\n In official context, it is called by its full name \u2013 pound sterling- to make easier differentiating the United Kingdom pound from other pounds in the foreign exchange market.<\/p>\n The currency name is at times abridged to just\u00a0sterling, mainly in the wholesale financial markets, but not when referring to certain amount; for instance, we can hear people saying “Payment is accepted in sterling” but never get to hear “This costs five sterling”.<\/p>\n In addition to GBP, abbreviations such as \u201cster\u201d or \u201cstg\u201d are also used, and the abbreviations “ster.” or “stg.” are sometimes used. The term\u00a0British pound\u00a0is also frequently used in less formal contexts, although it is not an official name of the currency.<\/p>\n A slang term for Pound sterling is\u00a0quid,\u00a0which is singular and plural.\u00a0 The origin of this term is not known, however the general belief is that it was derived from the Latin ‘quid’ and widely speculated to come from the Latin phrase\u00a0quid pro quo,<\/em>\u00a0which means “something for something.”<\/p>\n There is some ambiguity as to the origin of the term “pound sterling”. According to one source, it origin dates back to\u00a0Anglo-Saxon\u00a0times, when coins dubbed as sterlings were minted from silver; 240 of these sterlings weighed one pound. So in case of large payments were made, people used to refer it as \u201cpounds of sterlings\u201d<\/p>\n Some other references, including the Oxford English Dictionary, point out that sterling was a\u00a0silver penny\u00a0used in England by the Normans, dating back to 1300.<\/p>\n The\u00a0pound sterling\u2019s sign\u00a0is\u00a0(\u00a3), which is generally written with a single cross-bar, as on sterling bank notes, though a double cross-bar (\u20a4) \u00a0version is also occasionally seen. The pound sign originated from the\u00a0black-letter\u00a0“L”, an acronym of\u00a0Librae<\/em>\u00a0in Roman\u00a0\u00a3sd\u00a0units (librae, solidi, denarii<\/em>) used for pounds, shillings and pence in the British pre-decimal\u00a0duodecimal currency system.\u00a0Libra<\/em>\u00a0was the basic Roman unit of weight, coming from the\u00a0Latin\u00a0word for\u00a0scales\u00a0or balance.<\/p>\n Pound sterling\u2019s ISO 4217 currency code\u00a0is GBP. Occasionally, the abbreviation UKP is also used, although this is incorrect as the\u00a0ISO 3166\u00a0country code for (the United Kingdom of) Great Britain and Northern Ireland is GB.<\/p>\n The\u00a0Crown dependencies\u00a0have their own (non-ISO) codes: GGP (Guernsey pound), JEP (Jersey pound) and IMP (Isle of Man pound). \u00a0As stocks are often traded in pence, traders may refer it as pence sterling, GBX (sometimes GBp) when stocks are listed.<\/p>\n The Sterling Area<\/strong><\/p>\n The\u00a0sterling area was formed following the outbreak of\u00a0World War II as a wartime emergency measure. The sterling area prompted cooperation in\u00a0exchange control\u00a0measures between a group of countries which at the time were generally\u00a0dominions\u00a0and\u00a0colonies\u00a0of the\u00a0British Empire\u00a0(later the\u00a0Commonwealth). These countries either issued\u00a0sterling\u00a0as their\u00a0currency, alternatively their own currency was\u00a0pegged to the\u00a0British pound; besides member countries with their independent currency kept large sterling balances in\u00a0London\u00a0for the purposes of conducting international trade. The objective of the sterling area was to guard the external value of the pound sterling. All of the British Empire, apart from for\u00a0Canada,\u00a0Newfoundland\u00a0and\u00a0Hong Kong merged with the sterling area in 1939.<\/p>\n The importance of the sterling area was gravely reduced in June 1972 when the British government (in consultation with the Irish, Manx, and\u00a0Channel Islands\u00a0governments) unilaterally created exchange controls to the other sterling area countries with the exception of\u00a0Ireland, the\u00a0Isle of Man\u00a0and the Channel Islands.<\/p>\n The sterling area did not formally cease to exist on an exact date, but vanished in phases between June 1972 and 1979. Ireland took the decision itself to impose exchange controls on the UK in 1978 and, in 1979, the British government totally lifted all of the 1939 exchange controls.<\/p>\n Purpose and Benefits of Sterling Area<\/strong><\/p>\n Prior to the First World War, the British\u00a0pound sterling\u00a0was by far the most popular international currency, and the City of London was by far the world’s most famous financial centre. More than 60% of international trade was financed, invoiced and settled in sterling, and the largest proportion of official reserves, apart from gold, was kept in sterling. Although not all the territories within the British Empire used sterling as their local currency, many among them pegged their local currency at a fixed rate to sterling, as well as many foreign countries outside the Empire.<\/p>\n Following Britain’s exit from the gold standard in 1931, many countries that had pegged their currencies to gold pegged their currencies to sterling as an alternative; this group of countries became known as the “sterling bloc”. While the Second World War broke out, the sterling bloc countries within the British Empire shared a desire to guard the external value of sterling; legislation was thus passed throughout the Empire formalizing the British sterling bloc countries into a single exchange control area.<\/p>\n The benefits of the sterling area<\/strong><\/p>\n Following the end of the Second World War, the sterling area was the biggest and most stable currency bloc in the world, and it offered its members with full freedom of payments. Members benefitted from the stable exchange rates and assured access to the financial resources of the City of London. In the meantime, the British government was able to use the collected reserves of the entire area’s membership to support sterling at times when there was a US dollar shortage.<\/p>\n Subdivisions and Other Units<\/strong><\/p>\n Decimal coinage<\/strong><\/p>\n After the\u00a0decimalization in 1971, the pound was divided into 100\u00a0pence (until 1981 illustrated on the coinage as “new pence”). The sign for the penny is “p”; therefore an amount such as 50p (\u00a30.50) correctly pronounced “fifty pence” is more informally, fairly regularly, pronounced “fifty pee”.<\/p>\n The new symbol helped distinguishing between new and old pence amounts during the switch over to the decimal system. \u00a0Until 1984, a decimal halfpenny was issued.<\/p>\n Prior to decimalization, the pound was divided into 20\u00a0shillings\u00a0with each shilling divided into 12\u00a0pence, making 240 pence to the pound. The sign used to denote a shilling was \u201cs<\/em>\u201d\u2014 not from the initial letter of the word, but from the Latin\u00a0solidus<\/em>.<\/p>\n A penny was denoted by a symbol \u201cd<\/em>.”, from the French\u00a0denier<\/em> and from the Latin\u00a0denarius<\/em> (both solidus and denarius were Roman coins). An assorted amount of shillings and pence, such as 3 shillings and 6 pence, was written as “3\/6” or “3s<\/em>. 6d<\/em>.” 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 were denoted as “5s<\/em>.” or, more commonly, “5\/-“. The stroke (\/) indicating shillings is also known as a solidus and was initially an adaptation of the\u00a0long s\u00a0which symbolized that word.<\/p>\n A range of coin denominations had, and in some cases continue to have, unique names\u2014such as\u00a0crown,\u00a0farthing,\u00a0sovereign\u00a0and\u00a0guinea.<\/p>\n In the 1950s, coins of George III, George IV and William IV had vanished from circulation; except for coins (at least the penny) depicting the head of any British king or queen from\u00a0Queen Victoria\u00a0onwards could be found circulating in the monetary system.<\/p>\n Silver coins were substituted by those in cupro-nickel in 1947 and by the 1960s the silver coins were hardly in circulation. Silver\/cupro-nickel shillings (from any period after 1816) and florins (2 shillings) continued as the official currency after decimalization (as 5p and 10p respectively); the sixpences of 1816 remained legal tender until 1980 (as two and a half new pence).<\/p>\n History of pound sterling<\/strong><\/p>\n Pound sterling is one of the oldest currencies used to date.<\/p>\n The\u00a0pound<\/em>\u00a0was the unit of account in\u00a0Anglo-Saxon\u00a0England, comparable to 240 silver\u00a0pennies\u00a0and equivalent to one\u00a0pound weight of silver. Later it evolved into the modern British\u00a0currency, the pound sterling.<\/p>\n The accounting structure of 4\u00a0farthings\u00a0= 1\u00a0penny, 12 pence = 1\u00a0shilling, 20 shillings = 1 pound was adopted after Charlemagne introduced it to the\u00a0Frankish Empire.<\/p>\n The foundation of sterling dates back to the period of King\u00a0Offa of Mercia, (757\u201396) who introduced the\u00a0silver penny. It imitated the\u00a0denarius<\/em>\u00a0of the new currency structure of\u00a0Charlemagne’s\u00a0Frankish Empire. \u00a0Similar to the Carolingian system, 240 pennies weighed 1\u00a0pound (equivalent to Charlemagne’s\u00a0libra<\/em>), with the shilling equivalent to Charlemagne’s\u00a0solidus<\/em>\u00a0and equal to 12d.<\/p>\n When the penny was introduced, it weighed 22.5 troy\u00a0grains\u00a0of fine silver (32 tower grains is approximately 1.5 g), indicating that the Mercian pound weighed 5,400 troy grains (the Mercian pound became the foundation of the\u00a0tower pound, which weighed 5,400 troy grains, equivalent to 7,680 tower grains). At this moment, the name sterling had not yet emerged. The penny rapidly reached throughout the other Anglo-Saxon kingdoms and turned into the standard coin of what was to become England.<\/p>\n Medieval<\/strong><\/p>\n In earlier times, pennies were socked from fine silver (as uncontaminated as was obtainable). Nevertheless,\u00a0in 1158, King Henry\u00a0II, introduced a new coinage\u00a0(called as the\u00a0Tealby penny<\/em>) which was socked from 0.925 (92.5%) silver.<\/p>\n This standard was maintained until the 20th century and is today called as\u00a0sterling silver, named after its association with the currency. Sterling silver is harder than the 0.999 (99.9%)\u00a0fine silver\u00a0that was usually used; and, therefore, sterling silver coins did not corroded as quickly as fine silver coins. The English currency was roughly made of entire silver until 1344, when the gold\u00a0noble\u00a0was successfully introduced into circulation.<\/p>\n Nonetheless, silver continued as the legal basis for sterling until 1816. During the reign \u00a0of\u00a0Henry IV (1399\u20131413), the penny \u2018s \u00a0weight was reduced \u00a0to 15 grains (0.97\u00a0g) of silver, with a further reduction to 12 grains (0.78\u00a0g) in 1464.<\/p>\n Tudor<\/strong><\/p>\n Throughout the reigning period of\u00a0Henry VIII and\u00a0Edward VI the silver coinage was considerably debased, even though the pound was redefined to the\u00a0troy pound\u00a0of 5,760 grains (373\u00a0g) in 1526. In 1544, a silver coinage was circulated having just one third silver and two thirds copper\u2014equating to .333 silver, or 33.3% pure. The end result was a coin copper in exterior, but moderately pale in color. Then in 1552, a new silver coinage was introduced, socked in\u00a0sterling silver. However, the penny’s weight went down to 8 grains (0.52\u00a0g), indicating that 1 troy pound of sterling silver represented 60 shillings of coins. This silver standard was called as the “60-shilling standard” and remained until 1601 when a “62-shilling standard” was established, reducing the penny’s weight to 7\u00a023<\/sup>\u204431<\/sub>\u00a0grains (0.50\u00a0g).<\/p>\n Throughout this period, the size and value of the gold coinage fluctuated considerably.<\/p>\n Unofficial gold standard<\/strong><\/p>\n Later in 1663, a new\u00a0gold coinage\u00a0was introduced based on the 22\u00a0carat\u00a0fine\u00a0guinea. The weight of the coinage was fixed at 44\u00bd\u00a0to\u00a0the\u00a0troy pound, then from 1670, this coin’s value differed greatly until 1717, when it was fixed at 21\u00a0shillings (21\/-, 1.05\u00a0pounds).<\/p>\n Nevertheless, in spite of the efforts of Sir\u00a0Isaac Newton, Master of the\u00a0Mint, to decrease the guinea’s value, this valuation overvalued gold relative to silver when measured up to the valuations in other\u00a0European\u00a0countries.<\/p>\n While British merchants used to send silver in the foreign markets for payments, goods for export were paid for with gold. As a result, silver flowed out of the country and gold flooded in, which in turn led \u00a0to a situation where Great Britain was effectively on a\u00a0gold standard. \u00a0Furthermore, an unceasing shortage of silver coins developed. This scarcity was further increased by the fact that silver was the only commodity acknowledged by China for exporting goods during this period. From the mid-17th century, roughly 28 million kilograms (62 million pounds) of silver was received by China, primarily from European powers, in return for Chinese goods.<\/p>\n Establishment of modern currency<\/strong><\/p>\n The\u00a0Bank of England\u00a0was established in 1694, followed by the\u00a0Bank of Scotland\u00a0a year after. Both banks began to issue\u00a0paper money.<\/p>\n Currency of the United Kingdom<\/strong><\/p>\n At the beginning, the\u00a0pound scots\u00a0traded at par to sterling but later it suffered far higher devaluation. Consequently, the pound scots was pegged to sterling at a value of 12 pounds scots = 1 pound sterling. In 1707, the Kingdom of England\u00a0and the\u00a0Kingdom of Scotland\u00a0merged to form the\u00a0Kingdom of Great Britain. \u00a0According to the new treaty, known as the\u00a0Treaty of Union, the currency of the ‘united kingdom’ was sterling with the pound scots being replaced by sterling at the pegged value.<\/p>\n In January 1826, the\u00a0Irish pound\u00a0was also replaced by sterling at the value 13 Irish pounds = 12 pound sterling.<\/p>\n Gold standard<\/strong><\/p>\n During the period of the revolutionary and Napoleonic wars, Bank of England notes were\u00a0official currencies and their value floated relative to gold. The Bank also circulated silver tokens to ease the shortage of silver coins. In 1816, the\u00a0gold standard\u00a0was implemented formally, with the silver standard reduced to 66\u00a0shillings (66\/-, \u00a33 6s), rendering silver coins a “token” issue (i.e., not containing their value in precious metal).<\/p>\n In 1817, the\u00a0sovereign\u00a0was introduced which was valued at 20\u00a0shillings. Socked in 22\u2011carat gold, it had 113 grains (7.3\u00a0g) of gold and replaced the guinea as the standard British gold coin without changing the gold standard. In 1825, the\u00a0Irish pound, which had been pegged to sterling since 1801 at a rate of 13\u00a0Irish\u00a0pounds\u00a0=\u00a012\u00a0pounds\u00a0sterling, was changed, at the same rate, with sterling.<\/p>\n Between the late 19th and early 20th\u00a0centuries, many other countries accepted the gold standard. As a result, conversion rates between different currencies were easily determined from the varied gold standards. The pound sterling\u00a0 traded equivalent to 4.85\u00a0U.S. dollars, 5.25\u00a0Canadian dollars, 12.10\u00a0Dutch guilders, 26.28\u00a0French francs\u00a0(or equivalent currencies in the\u00a0Latin Monetary Union), 20.43\u00a0German Marks\u00a0or 24.02\u00a0Austro-Hungarian Krones.<\/p>\n Following the\u00a0International Monetary Conference of 1867\u00a0in\u00a0Paris, speculation was doing the rounds that United Kingdom will possibly join the Latin Monetary Union. However, after Royal Commission on international coinage examined the issue, the possibility of entering the Monetary Union faded.<\/p>\n The gold standard was temporarily halted at the outbreak of the war in 1914, with Bank of England and Treasury notes becoming official exchange. Prior to\u00a0World War\u00a0I, the United Kingdom was considered as one of the world’s strongest economies, holding 40%\u00a0of\u00a0the world’s overseas investments. However, by the end of the world war, the country owed \u00a3850\u00a0million (\u00a330.7\u00a0billion as of 2012) mostly to the United States, with interest payables totaling to some 40%\u00a0of\u00a0all government spending.<\/p>\n In an effort to start again with stability, a deviation from the earlier gold standard was reintroduced in 1925, under which the currency was fixed to gold at its pre-war peg, even though people were only allowed to exchange their currency for gold bullion, rather than for coins. This system was discontinued on September 21, 1931, during the\u00a0Great Depression, and sterling had to be devalued by 25%.<\/p>\n Use in the Empire<\/strong><\/p>\n The Sterling was circulated virtually in every part of the\u00a0British Empire. \u00a0However, in some parts, it was used together with local currencies. For instance, while Canada used the Canadian dollar, the sovereign was a legal tender over there. \u00a0There were many colonies and dominions that adopted the pound as their own currency.<\/p>\n Those colonies that adopted pound included:\u00a0Australia,\u00a0Barbados, British West Africa,\u00a0Cyprus,\u00a0Fiji, the\u00a0Irish Free State,\u00a0Jamaica,\u00a0New Zealand,\u00a0South Africa\u00a0and\u00a0Southern Rhodesia.<\/p>\n Whereas some of these local pounds retained parity with sterling throughout their existence (e.g. the\u00a0South African pound), others diverged from parity after the end of the gold standard (e.g. the\u00a0Australian pound). \u00a0All these currencies and others pegged to sterling made up the\u00a0Sterling Area.<\/p>\n Bretton Woods<\/strong><\/p>\n In 1940, an accord with the U.S.A. pegged the pound to the\u00a0U.S. dollar\u00a0at a rate of \u00a31 = $4.03. (a year earlier a pound traded at \u00a0$4.86). \u00a0This rate was continued throughout the\u00a0Second World War\u00a0and became part of the\u00a0Bretton Woods system\u00a0which administered post-war exchange rates. Under ongoing financial pressure and despite months of refusals to do so, on September 19, 1949 the government devalued the pound by 30.5% to $2.80. The move forced many other currencies to be devalued against the dollar.<\/p>\n Later in 1961, 1964 and 1966, the pound came under renewed pressure as the exchange rate against the dollar was regarded as too high. Then during the summer of 1966, with the value of the pound dropping in the currency markets, exchange controls were made tighter by the\u00a0Wilson government.<\/p>\n Some of the measures included: a ban on taking more than \u00a35 by tourists out of the country; later in 1979, the restrictions were lifted. \u00a0The pound was ultimately devalued by 14.3% to $2.40 on 18 November 1967.<\/p>\n Decimalization<\/strong><\/p>\n On 15 February 1971, the UK\u2019s currency system was decimalized.\u00a0 Both shilling and penny were replaced with a single subdivision, the new penny.\u00a0 From 1981 onwards, the word “new\u201d from coins was omitted.<\/p>\n Free-floating pound<\/strong><\/p>\n After the collapse of the\u00a0Bretton Woods system, the pound\u00a0floated\u00a0from August 1971 onwards. Shortly after the float, the currency appreciated a little, climbing to almost $2.65 in March 1972, down from 2.42- a rate which was initially fixed at the time of the float. Subsequently, the\u00a0Sterling Area also\u00a0ended the currency peg as most countries choose to float their currencies against the dollar and the pound.<\/p>\n 1976 sterling crisis<\/strong><\/p>\n In 1976, James Callaghan\u00a0came to power. After joining the office, he was immediately cautioned that the economy was facing huge problems, according to documents released in 2006 by the\u00a0National Archives. Following 1973 oil crisis, after effects\u00a0were still being felt, with inflation rising above 27% in 1975.\u00a0There were widespread fears in the financial markets the pound was overvalued and in April of that year\u00a0The Wall Street Journal\u00a0recommended the sale of sterling investments in a story titled “Good-bye Great Britain”.<\/p>\n While the UK government was running a high budget deficit at that time, the Labor party\u2019 strategy emphasized high public spending. Callaghan was briefed there were three likely outcomes: a catastrophic free fall in Sterling, an internationally unacceptable cordoned economy or a deal with key allies to bolster the pound while painful economic reforms were put in place.<\/p>\n Meanwhile, the US government appreciated the crisis could jeopardize NATO and the\u00a0EEC, and in light of this the US Treasury started to force domestic policy changes. In November 1976 the\u00a0IMF\u00a0announced the conditions for a loan, together with massive cuts in\u00a0public expenditure.<\/p>\n 1979\u20131989<\/strong><\/p>\n In 1979, the Conservatives came to power, with an aim to follow fiscal austerity measures. Initially, the pound leaped, moving higher than the $2.40 level, as interest rates rose in reaction to the monetarist\u00a0policy of targeting\u00a0money supply. The pound\u2019s high exchange rate was generally blamed for the deep\u00a0recession\u00a0of 1981. Sterling dropped sharply after 1980; at its lowest level, the pound touched $1.03 level in March 1985, before retreating to the US$1.70 level in December 1989.<\/p>\n Following the Deutsche Mark<\/strong><\/p>\n Soon after in 1988,\u00a0Margaret Thatcher’s\u00a0Chancellor of the Exchequer\u00a0Nigel Lawson\u00a0decided that the pound should “shadow” the West German\u00a0Deutsche Mark, with the unintended consequence of a swift rise in inflation as the economy performed strongly due to inappropriately low interest rates. (For ideological reasons, the Conservative Government refused to use other mechanisms to control the explosion of credit. For this reason, former Prime Minister\u00a0Edward Heath\u00a0dubbed Lawson as a “one club golfer”).<\/p>\n After the German re-unification in 1990, the opposite held true, as high borrowing costs to fund Eastern reconstruction, a need aggravated by the political choice to make the Ostmark equivalent to the Deutsche Mark (DM), meant rates in other countries shadowing the DM, particularly the UK, were far too high compared to domestic circumstances, leading to a housing decline and recession.<\/p>\n Following the European Currency Unit<\/strong><\/p>\n On October 8, 1990 the Conservative government decided to join the\u00a0European Exchange Rate Mechanism (ERM), with the pound set at DM2.95. However, the country was prompted to pull out from the system on \u201cBlack Wednesday\u201d (September 16, 1992) as Britain\u2019s economic performance made the exchange rate untenable. \u00a0Currency speculator\u00a0George Soros famously made about US$1 billion from\u00a0shorting\u00a0the pound.<\/p>\n Following the ‘Black Wednesday\u2019, interest rates climbed up from 10% to 15% amid an ineffective attempt to stop the pound from falling below the ERM limits. The exchange rate dropped to\u00a0DM2.20. Those who argued in favor\u00a0of a lower GBP\/DM exchange rate were justified as the cheaper pound encouraged exports and contributed to the economic prosperity of the 1990s.<\/p>\n Following inflation targets<\/strong><\/p>\n In 1997, the newly elected\u00a0Labor\u00a0government passed the day-to-day responsibility of controlling interest rates to the\u00a0Bank of England\u00a0(a policy that was earlier had been advocated by the\u00a0Liberal Democrats).<\/p>\n The Bank is now in charge for setting its base rate of interest so as to maintain inflation in the\u00a0Consumer Price Index\u00a0(CPI) very close to 2%. In case of CPI inflation is more than one percentage point above or below the target, the governor of the Bank of England will need to write an open letter to the\u00a0Chancellor of the Exchequer\u00a0explaining the reasons for the variance and suggest actions needed to help bringing this measure of inflation back in line with the 2% target.<\/p>\n On April 17, 2007, CPI inflation stood at 3.1% and inflation of the\u00a0Retail Prices Index\u00a0was 4.8%) As a result, and for the first time, the Governor had to write publicly to the government explaining why inflation climbed up more than one percent over the target.<\/p>\n Euro<\/strong><\/p>\n Since United Kingdom is the member of European Union, it can adopt euro as its official currency. However, this remains a politically contentious issue.\u00a0Gordon Brown, then Chancellor of the Exchequer, ruled out entering the monetary union for the near future, saying that the decision not to join had been right for Britain and for Europe.<\/p>\n The government of former Prime Minister\u00a0Tony Blair\u00a0had vowed to hold a public referendum to decide on membership should “five economic tests” sufficed; ensuring that adoption of the euro would be in the national interest. Apart from these internal (national) criteria, the UK would have to meet the\u00a0Eu\u2019s \u201ceconomic\u00a0convergence criteria\u201d\u00a0(Maastricht criteria), before being permitted to adopt the euro.<\/p>\n Nevertheless, the Conservative\/Liberal Democrat coalition ruled out entering the euro zone for the parliamentary term. At present, the UK’s annual\u00a0government deficit, as a percentage of the\u00a0GDP, is above the defined limit.<\/p>\n Back in February 2005, 55% of British citizens were against adopting the currency, with only 30% in favor of joining the euro zone. The proposal of substituting the pound with the euro has been controversial with the British public, mainly because of the pound’s identity as a symbol of British sovereignty. The other argument against joining the currency bloc is it would, according to critics, lead to suboptimal interest rates, hurting the British economy.<\/p>\n In December 2008 a poll conducted among 1000 people by the BBC showed that 71% were not in favor of euro, 23% said that they would vote yes to joining the European single currency, even as 6% said they were unsure.\u00a0As result Britain refused to join the Second European Exchange Rate Mechanism (ERM II) after the Euro was created.\u00a0Both Denmark\u00a0and the UK have opted out from entering into the Euro. In principle, every other EU nation must sooner or later have to sign up.<\/p>\n The\u00a0Scottish Conservative Party\u00a0is also against entering the euro zone. For them there is a concern that the adoption of the Euro would almost mean an end of regionally distinctive banknotes, as the Euro banknotes do not have national designs.<\/p>\n The\u00a0Scottish National Party\u00a0have not so far established what the national currency of Scotland would be should independence be realized.<\/p>\n From January 1, 2008 onwards, the British sovereign bases on Cyprus (Akrotiri and Dhekelia) started using the Euro (together with the rest of the\u00a0Republic of Cyprus).<\/p>\n Current Exchange value<\/strong><\/p>\n Both pound and the Euro fluctuate against each another, even if there may be some correlation between price movements in their respective exchange rates with other currencies such as the US dollar. Inflation worries in the UK prompted the Bank of England to hike interest rates in late 2006 and 2007. As a consequence, the pound appreciated strongly against the basket of major currencies while the US dollar simultaneously depreciated. On April 18, 2007, the pound touched a 15 year high against the U.S. dollar, touching USD 2, for the first time since 1992.<\/p>\n The pound along with some other major currencies continued to appreciate against the dollar; sterling touched a 26-year high of US$ 2.1161 on November 7, 2007 as the dollar dropped worldwide. Between mid-2003 and mid 2007, the Pound\/Euro rate stayed range bound (within \u00b1 5%) of \u20ac1.45.<\/p>\n After the\u00a0global financial crisis\u00a0in late 2008, though, the pound has since tumbled at one of the fastest rates in history, touching $1.38 per \u00a31 on January 23 2009 and falling below \u20ac1.25 against the Euro in April 2008. More downslide was seen during the remainder of 2008; most severely in December when its Euro rate touched an all-time low at \u20ac1.0219 (29th), even as its US dollar rate also declines.<\/p>\n Then in mid July of 2009,\u00a0the Pound bounced back, reaching its highest level against the Euro at \u20ac1.17. In subsequent months the pound remained mainly steady against the Euro.<\/p>\n On March 5, 2009, the\u00a0Bank of England\u00a0had announced that they would infuse \u00a375 billion of new\u00a0capital\u00a0into the British economy, through a procedure known as\u00a0quantitative easing. In United Kingdom\u2019s history this was first ever time where such a drastic measure was being used, even though the Bank’s\u00a0Governor\u00a0Mervyn King\u00a0suggested it was not an experiment.<\/p>\n By employing this new measure, the Bank of England was creating new money for the financial system which was used to purchase assets\u00a0such as\u00a0government bonds,\u00a0bank loans, or\u00a0mortgages. The initial amount declared to be created through this method stood at \u00a375 billion, even as Chancellor of the Exchequer\u00a0Alistair Darling\u00a0had given permission for up to \u00a3150 billion to be created if required.<\/p>\n By November 5, 2009, some \u00a3175 billion were pumped in using quantitative easing; nonetheless, the effectiveness of the process remained wasn\u2019t fruitful in the long term.<\/p>\n Annual inflation rate<\/strong><\/p>\n The Bank of England had announced (2009) that the decision had been made to prevent the rate of\u00a0inflation from falling below the two percent target rate. \u00a0Mervyn King, the Governor of the Bank of England, also had cautioned there were no other monetary options left as\u00a0interest rates have already been cut to their lowest level ever (0.5%) and it was implausible that they would be cut further.<\/p>\n The 2009 quantitative easing measures from Bank of England were unprecedented in Britain\u2019s economic history.\u00a0 Later in October, inflation rate per annum was estimated at about 5% for October 2011 and \u00a05.2% in September 2011.<\/p>\n Coins<\/strong><\/p>\n Pre-decimal coins<\/strong><\/p>\n The silver penny (plural:\u00a0pence<\/em>; abbreviation:\u00a0d<\/em>) was the official and only single coin in circulation between the 8th\u00a0century and 13th\u00a0century. Although some portions of the penny were clouted (farthing\u00a0and\u00a0halfpenny), it was more usual to find pennies cut into halves and quarters to give smaller change. Very few gold coins were struck, with the\u00a0gold penny\u00a0(worth 20\u00a0silver pence) an uncommon example.\u00a0 In 1279, the\u00a0groat<\/em>, worth 4d was launched, with the half groat introduced in 1344. 1344 also saw the introduction of a gold coinage with the establishment (after the failed\u00a0gold florin) of the\u00a0noble<\/em>\u00a0worth six shillings and eight pence (‘6\/8’) (i.e. 3\u00a0to\u00a0the\u00a0pound), along with the half and quarter noble.<\/p>\n Reforms in 1464 saw a fall in value of the coinage in both silver and gold, with the noble renamed the\u00a0ryal<\/em>\u00a0and worth 10\/- (i.e. 2\u00a0to\u00a0the\u00a0pound) and the\u00a0angel<\/em> introduced at the noble’s old value of 6\/8.<\/p>\n While Henry\u00a0VII was in power,\u00a0 two important coins were introduced, the\u00a0shilling\u00a0(abbreviation:\u00a0s<\/em>; known as the\u00a0testoon<\/em>) in 1487 and the pound (known as the\u00a0sovereign<\/em>, abbr.:\u00a0\u00a3<\/em>\u00a0or\u00a0L<\/em>) in 1489.<\/p>\n In 1526, many new denominations of gold coins were added, including the\u00a0crown<\/em>\u00a0and\u00a0half crown<\/em>\u00a0worth five shillings (5\/-<\/em>), and two shillings and six pence (2\/6<\/em>,\u00a0two and six<\/em>) respectively.\u00a0Henry\u00a0VIII\u2019s reign (1509\u20131547) saw a high level of\u00a0ignominy which continued into the reign of\u00a0Edward\u00a0VI\u00a0(1547\u20131553). However, this debasement was stopped in 1552 and a new silver coinage was introduced, including coins for 1d, 2d,\u00a03d, 4d and\u00a06d, 1\/-, 2\/6 and 5\/-. The reign of\u00a0Elizabeth\u00a0I\u00a0(1558\u20131603) saw the introduction of silver \u00bed and 1\u00bdd coins, even though these denominations did not last. Gold coins comprised of half crown, crown, angel, half sovereign and sovereign. Elizabeth’s reign also saw the introduction of the horse-drawn screw press to create the first “milled” coins.<\/p>\n After the succession of the Scottish King\u00a0James\u00a0VI to the English throne, a new gold coinage was launched, including the\u00a0spur ryal<\/em> (15\/-), the\u00a0unite<\/em> (20\/-) and the\u00a0rose ryal <\/em>(30\/-). The\u00a0laurel<\/em> worth 20\/-, was introduced in 1619. The first base metal coins were also introduced,\u00a0tin\u00a0and\u00a0copper farthings. Copper\u00a0halfpenny\u00a0coins followed during the reign of\u00a0Charles\u00a0I. At the time of the\u00a0English Civil War, varied siege coinages were produced, often in abnormal denominations.<\/p>\n Following the reinstatement of the monarchy in 1660, the coinage was changed, with the end of production of hammered coins in 1662. The\u00a0guinea<\/em>\u00a0was introduced in 1663, later followed by the \u00bd, 2 and 5\u00a0guinea coins. The silver coinage included the denominations of 1d, 2d, 3d, 4d and 6d, 1\/-, 2\/6 and 5\/-. Due to the extensive export of silver in the 18th\u00a0century, the production of silver coins slowly came to a halt, even as the half crown and crown were not issued after the 1750s, and the production of \u00a06d\u00a0pence and 1\/- stopping in the 1780s. One solution was the usage of the copper 1d and 2d coins and the gold \u2153\u00a0guinea (7\/-) in 1797. However, copper penny was the only one of these coins to last for a long times.<\/p>\n To ease the shortage of silver coins, between 1797 and 1804, the Bank of England counter stamped\u00a0Spanish dollars\u00a0(8\u00a0reales) and other\u00a0Spanish\u00a0and\u00a0Spanish colonial\u00a0coins for circulation. King’s head was depicted with help of small counter stamp. By 1800, this coinage circulated at a rate of 4\/9 for 8\u00a0reales.\u00a0 Following 1800, a rate of 5\/- for 8\u00a0reales was used. The Bank then introduced silver tokens for 5\/- (struck over Spanish dollars) in 1804, followed by tokens for 1\/6 and 3\/- between 1811 and 1816.<\/p>\n In 1816, a new silver coinage was launched with denominations of 6d, 1\/-, 2\/6 (half-crown) and 5\/- (crown). The crown was only issued occasionally until 1900. It was followed by a new gold coinage in 1817 with the introduction of 10\/- and \u00a31 coins, called as the half sovereign and\u00a0sovereign. The silver 4d coin was reissued in 1836, followed by the 3d (“thruppence”) in 1838, with the 4d coin circulated only for colonial use after 1855. In 1848, the 2\/-\u00a0florin<\/em>\u00a0was launched, followed by the brief usage of\u00a0double florin\u00a0in 1887. In 1860, copper was substituted by bronze in the farthing (quarter penny, \u00bcd), halfpenny and penny.<\/p>\n At the time of the\u00a0First World War, production of the half sovereign and sovereign was temporarily halted and, although the gold standard was re-established, the coins saw little circulation subsequently. In 1920, the silver standard, kept at .925 since 1552, was lowered to .500. In 1937, a nickel-brass 3d coin was launched; the last silver 3d coins were introduced seven years later. In 1947, the remaining silver coins were substituted with\u00a0cupro-nickel. Inflation prompted the farthing to end production in 1956 and be demonetized in 1960. During the process of decimalization, the halfpenny and half-crown were demonetized in 1969.<\/p>\n Decimal coins<\/strong><\/p>\n At present, the earliest circulating coins in the U.K. are the 1p and 2p copper coins issued in 1971. Before decimalization, coins aged one hundred years or more remained in circulation after any of five monarchs’ heads on the obverse was depicted.<\/p>\n In April 2008 an extensive redesign of the coinage was revealed. The new designs were introduced slowly into circulation, starting in summer 2008. The backside of the new 1p, 2p, 5p, 10p, 20p and 50p coins feature parts of the\u00a0Royal Shield, and the new pound coin portrays the whole shield. The coins are of the same measurements as those with the old designs (which will continue to circulate).<\/p>\n Banknotes<\/strong><\/p>\n The first sterling notes were introduced by the\u00a0Bank of England\u00a0immediately after its establishment in 1694. Denominations were at first written on the notes at the time of issue. Since 1745, the notes were printed in denominations between \u00a320 and \u00a31000, with any extra shillings added in writing. \u00a310 notes were issued in 1759, which was followed by \u00a35 in 1793 and \u00a31 and \u00a32 in 1797. The lowest two denominations were taken off from the circulation following the end of the\u00a0Napoleonic wars. In 1855, the notes were transformed to being entirely printed, with denominations of \u00a35, \u00a310, \u00a320, \u00a350, \u00a3100, \u00a3200, \u00a3300, \u00a3500 and \u00a31000 introduced.<\/p>\n The\u00a0Bank of Scotland\u00a0started issuing notes in 1695. Even though the pound scots continued to be the official currency of Scotland, these notes were denominated in sterling in values up to \u00a3100. Then from 1727 onwards, the\u00a0Royal Bank of Scotland\u00a0also issued notes. Both banks issued some notes denominated in guineas and pounds. In the 19th century, set of laws restricted the smallest note issued by Scottish banks to be the \u00a31 denomination, a note not acceptable in England.<\/p>\n With the expansion of sterling to Ireland in 1825, the\u00a0Bank of Ireland\u00a0started issuing sterling notes, soon followed by other Irish banks. These notes consisted some unusual denominations of 30\/- and \u00a33. The highest denomination introduced by the Irish banks was \u00a3100.<\/p>\n In 1826, banks that were no less than 65 miles (105\u00a0km) from London were given permission to issue their own paper money. Since 1844, new banks were barred from issuing notes in England and Wales except for both in Scotland and Ireland. As a result, the number of private banknotes declined in England and Wales but multiplied in Scotland and Ireland. The last English private banknotes were introduced in 1921.<\/p>\n In 1914, the\u00a0Treasury\u00a0issued notes for 10\/- and \u00a31 to substitute gold coins. These were distributed until 1928, when they were replaced by Bank of England notes. Irish independence reduced the number of Irish banks dealing in sterling notes to five operating in\u00a0Northern Ireland. Then, the\u00a0Second World War\u00a0had a severe effect on the note production of the Bank of England. Scared of mass counterfeit by the\u00a0Nazis, the production of all \u00a310 notes ended, leaving the bank to issue only 10\/-, \u00a31 and \u00a35 notes. Scottish and Northern Irish issues were unaltered, with issues in denominations of \u00a31, \u00a35, \u00a310, \u00a320, \u00a350 and \u00a3100.<\/p>\n The Bank of England reissued \u00a310 notes in 1964. In 1969, the 10\/- note was substituted by the 50p coin as part of the preparation for decimalization. Then in 1970, \u00a320 Bank of England notes were reintroduced, which was followed by \u00a350 in 1982.<\/p>\n After the introduction of the \u00a31 coin in 1983, Bank of England \u00a31 notes ceased to exist in 1988. Later, Scottish and Northern Irish banks followed, with only the Royal Bank of Scotland continuing to distribute this denomination.<\/p>\n The \u00a35\u00a0polymer banknote, distributed by\u00a0Northern Bank\u00a0in 2000, is the only polymer note at present in circulation, although Northern Bank also manufacture paper-based \u00a310, \u00a320 and \u00a350 notes and, amusingly, notes named “Titan”. A Titan is worth \u00a3100,000,000 (one hundred million pound) bank note,\u00a0only 40 among them are in existence. Titans are only used within the\u00a0banking system\u00a0and are unavailable by the\u00a0general public.<\/p>\n Legal tender and regional issues<\/strong><\/p>\n According to the Royal Mint, Legal tender\u00a0in the\u00a0UK means \u201cthat a debtor cannot successfully be sued for non-payment if he pays into court in legal tender.” It does not mean that any normal transaction has to take place in legal tender or only within the amount denominated by the legislation.<\/p>\n Both parties are free to be in agreement to accept any form of payment whether legal tender or otherwise according to their wishes. In order to comply by with the very stringent rules governing an actual legal tender it is essential, for instance, actually to present the exact amount due because no change can be demanded.<\/p>\n All over the\u00a0UK, \u00a31 and \u00a32 coins are legal tender for any amount, with the other coins being legal tender only for certain amounts. In\u00a0England and Wales,\u00a0Bank of England\u00a0notes are also considered as legal tender for any amount. \u00a0In Scotland and\u00a0Northern Ireland, no banknotes are at present legal tender, even though Bank of England 10\/- and \u00a31 notes were legal tender, so were Scottish banknotes, during\u00a0World War II\u00a0(Currency (Defence) Act 1939; this status was stopped on January 1, 1946). Nevertheless, the banks made deposits with the\u00a0Bank of England\u00a0to cover up the bulk of their note issues. In the\u00a0Channel Islands\u00a0and\u00a0Isle of Man, the local divergences on the banknotes are legal tender in their respective jurisdictions.<\/p>\n Everywhere in the U.K., Scottish, Northern Irish, Channel Islands and Manx notes\u00a0can be used as a means of payment. Guernsey, Jersey, the Isle of Man , all are in\u00a0currency union with the United Kingdom and these currencies are not any different from the British pound, but are considered a local issue of banknotes and coins denominated in\u00a0pound sterling.<\/p>\n It is lawful for shopkeepers to decide to reject any payment even though 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 paying a restaurant bill after having the meal, or settling another debt, the laws of legal tender do apply and the payment cannot be rejected. But generally any sensible method of settling the debt (such as by credit card) will be accepted.<\/p>\n Commemorative\u00a0\u00a35\u00a0and\u00a025p\u00a0(crown) coins, hardly ever seen in circulation, are legal tender, as are the bullion coins issued by the Mint.<\/p>\n Value<\/strong><\/p>\n In 2006, the\u00a0House of Commons Library\u00a0unveiled a document which consisted of an index of prices in pounds for each year between 1750 and 2005, where 1974 was indexed at 100. (The document included updated version from the earlier data)<\/p>\n Concerning the period between 1750 and 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.”<\/p>\n The value of the index in 1751 stood at 5.1, climbing to a peak of 16.3 in 1813 before falling very soon after the end of the\u00a0Napoleonic Wars\u00a0to about 10.0 and remaining in the range 8.5\u201310.0 at the end of the nineteenth century. The index was 9.8 in 1914 and hit the peak at 25.3 in 1920, before falling to 15.8 in 1933 and 1934\u2014prices were only about three times as high as they had been 180 years prior.<\/p>\n Inflation\u00a0had a significant effect during and after\u00a0World War II\u2014the 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.<\/p>\n Bank of England<\/strong><\/p>\n The\u00a0Bank of England\u00a0(earlier referred to as the Governor and Company of the Bank of England) is the\u00a0central bank\u00a0of the\u00a0United Kingdom and the model upon which most contemporary central banks have been modeled. Established in 1694, The Bank of England is the second oldest central bank in the world (the oldest being the\u00a0Sveriges Riksbank\u00a0(Bank of Sweden<\/em>), established in 1668). It was set up to act as the\u00a0English\u00a0Government’s banker, and to this day it still serves as the banker for\u00a0HM Government. \u00a0Since its inception in 1964, the Bank was privately owned and operated. It was subordinated to the Treasury from 1931 in creating policy and was nationalized in 1946.<\/p>\n From 1998, it developed into an independent public organization, completely owned by the Treasury Solicitor on behalf of the Government, with autonomy in setting monetary policy.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" The pound sterling, also called the pound, is the legal tender of the United Kingdom, its Crown Dependencies\u00a0(the\u00a0Isle of Man\u00a0and […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[156],"tags":[99],"class_list":["post-381","post","type-post","status-publish","format-standard","hentry","category-currency","tag-forex"],"_links":{"self":[{"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/posts\/381","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/comments?post=381"}],"version-history":[{"count":0,"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/posts\/381\/revisions"}],"wp:attachment":[{"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/media?parent=381"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/categories?post=381"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/tags?post=381"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n