The pound sterling

The pound is one of the top five currencies in the world, having the third largest currency reserve after the United States Dollar and the Euro. On the Forex is the fourth most traded currency. Also the pound sterling is the oldest currency in the world still in use.

The official name is pound sterling but is referred as pound or just sterling. Having the £ symbol and GBP code, the sterling is the currency of the United Kingdom. The sterling subdivision is penny and is divided in 100 pence. Sterling is also the currency of the Isle of Man and the Channel Islands, the British Overseas Territories of South Georgia and the South Sandwich Islands and of the British Antarctic Territory.

The name sterling originates from around 1300 when sterling was a silver penny used in England by the Normans. Until 1971 the pound was divided into 20 shillings and each shilling into 20 pence. Until 1344 when the golden noble (the first English gold coin) was introduced, pennies were made of pure silver.

In the 1694 the Bank of England was founded, followed one year later by Bank of Scotland. Both of them started to issue paper money. A year after Britain adopted officially the gold standard (1816) a golden coin named sovereign was introduces and is still in production today. In the 19th century other countries adopted the gold standard, which brought the opportunity to obtain conversion rates between different currencies. At that time the pound sterling was equal to 4.85 U.S. dollars, 25.22 French francs and 20.43 German Marks.

Before the First World War the United Kingdom had one of the greatest economies in the world holding approximately 40% of the overseas investments. After the war the country was indebted £850 million, mostly to the United States. In 1940 an agreement with United States set the exchange rate of £1 = $4.03. This rate was kept through the World War II and become part of the Bretton Woods Agreement.

After the Second World War the sterling started to lose its value on the currency markets. Trying to help sterling the Wilson government decided in 1966 that tourists cannot take more than £50 out of the country.  The restriction was lifted in 1979. In this period of time the pound fell below $1.60 (1976).

In the 80’s the pound fell reaching its lowest ever rate: $1.05 in February 1985. After that weak period the pound had ups and downs and eventually hit a 26-year high of $2.1161 on 7 November 2007.

Since the global financial crisis in 2008 the pound depreciated at one of the fastest rates in the history, reaching a 24 year low of $1.35 per £1 on 23 January 2009. In the recent months the pound slightly went up as the Bank of England announced a quantitative easing by pumping £75 billion of new capital into the British economy. This measure is expected to show its results in the long term.