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The Pound Sterling

 

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This article is about Sterling or Pound Sterling, the currency of the United Kingdom and its dependencies.

The basic currency unit of Sterling is now the pound - hence Pound Sterling, which strictly speaking refers to the currency unit rather than the currency.

The Standard ISO 4217 currency code is GBP.

Sign: £ (or "L"; both from Latin libra = pound). £1 = 100 pence (p) (singular penny). Pre-1971 £1 = 20 shillings (s.; colloquially "bob"), 1 shilling = 12 pence (d.); hence "Lsd" as shorthand for predecimalisation values. Note that the pre- and - post decimalisation penny had different values (the pound was constant), so the latter were known as "new pence" for their first few years. UKP is a non-standard abbreviation.

In modern times the pound has become the basic unit of currency. Inflation has steadily eroded the value of currency. The basic unit was once the penny. Originally a silver penny of 1.555 grams (1/240 pound troy) had the purchasing power of slightly less than a modern "pound".

In the UK, to distinguish the currency from the weight, and from other currencies, a pound is often referred to as a pound sterling or sometimes just sterling. The sterling was originally an old English silver coin made of sterling silver and weighing 1.555 grams (1/240th of a troy pound).

History

As a unit of currency, the term pound originates from the value of a Troy pound weight of high purity silver known as sterling silver.

Sterling (with a basic currency unit of the Tealby Penny, rather than the pound) was introduced as the English currency by King Henry II in 1158, though the name Sterling wasn't acquired until later.

Sterling unofficially moved to the gold standard from silver in 1717 thanks to Sir Isaac Newton, who was Master of the Royal Mint, and the use of silver declined until the official adoption of the gold standard following the end of the Napoleonic Wars, in 1821. This lasted until Britain, in common with many other countries, abandoned the standard during World War I, in 1919.

A variation on the gold standard was re-introduced in 1926, under which the currency was pegged to the gold price, although people were only able to exchange their currency for gold bullion, rather than for coins. This was abandoned on September 21, 1931, and Sterling devalued 20%. In common with all other world currencies, there is no longer any link to precious metals. The US dollar was the last to leave gold, in 1971.

As a member of the European Union, the UK has the option of adopting the euro as its currency. However the subject remains politically controvesial, not least since the UK was forced to withdraw from its precursor, the European Exchange Rate Mechanism (ERM) on Black Wednesday (September 16, 1992). Black Wednesday saw interest rates from 10% to 12%, and then to 15% in a futile attempt to stop the pound falling below the ERM limits, costing the country tens of billions of pounds.

On the value of British money
In 1999 the House of Commons Library published a research paper (PDF document) which included an index of the value of the Pound for each year between 1750 and 1998, where the value in 1974 was indexed at 100.

Reading this document, one is struck by the fact that the value of the Pound remained remarkably constant for the whole of the period until the First World War, allowing for inflationary fluctuations in wartime and with many periods when prices declined. The value of the index in 1750 was 5.0, increasing to a peak of 16.0 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 9.6 in 1914 and peaked at 24.8 in 1920, before declining again to 15.5 in 1933 and 1934 i.e prices were only about three times higher than they had been 180 years earlier.

Inflation really kicked off during and after the Second World War - the index was 20.0 in 1940, 32.9 in 1950, 46.4 in 1960, 68.2 in 1970, 243.0 in 1980, 458.5 in 1990, and 592.3 in 1998.

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