Pound sterling
| Pound sterling | |||
| |||
| ISO 4217 Code | GBP | ||
|---|---|---|---|
| User(s) |  United KingdomCrown dependencies Certain British Overseas Territories | ||
| Inflation | 2.2% (UK CPI, January 2008) 4.1% (UK RPI January 2008) 3.4% (Guernsey 2006) 3.7% (Jersey 2006) 3.1% (Isle of Man 2006) | ||
| Source | Bank of England, 14 November 2007, National Statistics and The World Factbook | ||
| ERM | |||
| Since | 8 October 1990 | ||
| Withdrawn | 16 September 1992 (Black Wednesday) | ||
| Pegged by | FKP, GIP, SHP | ||
| Subunit | |||
| 1/100 | penny | ||
| Symbol | £ | ||
| penny | p | ||
| Nickname | quid | ||
| Plural | |||
| penny | pence | ||
| Coins | |||
| Freq. used | 1p, 2p, 5p, 10p, 20p, 50p, £1, £2 | ||
| Rarely used | £5 (commemorative) | ||
| Banknotes | |||
| Freq. used | £5, £10, £20 | ||
| Rarely used | £1 (Scotland only), £50, £100 (Scotland & Northern Ireland only) | ||
| Central bank | Bank of England | ||
| Website | www.bankofengland.co.uk | ||
| Printer | |||
| Website | |||
| Mint | Royal Mint | ||
| Website | www.royalmint.com | ||
The pound sterling (symbol: £; ISO code: GBP), subdivided into 100 pence (singular: penny), is the currency of the United Kingdom, its Crown dependencies (the Isle of Man and the Channel Islands) and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and British Indian Ocean Territory.[1][2][3]
This article covers the history of sterling and the issues of sterling in England, Great Britain and the United Kingdom. For other associated issues see Manx pound, Jersey pound and Guernsey pound. The Gibraltar pound, Falkland Islands pound and Saint Helenian pound are separate currencies, pegged to pound sterling.
Sterling currently makes up the third largest portion of global currency reserves after the US dollar and the euro.[4] The pound sterling is the fourth most-traded currency in the foreign exchange market after the US dollar, the euro, and the Japanese yen[citation needed].
Contents
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Name
The full, official name pound sterling (plural: pounds 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 — but not the names of its units — is sometimes abbreviated to just "sterling", particularly in the wholesale financial markets; 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 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 black-letter "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, which in turn derived from the Latin word for scales or balance. The ISO 4217 currency code is GBP (Great Britain pound). Occasionally the abbreviation UKP is seen but this is incorrect. The Crown dependencies use their own (non-ISO) codes. Stocks are often traded in pence, so traders may refer to Pence sterling, GBX (sometimes GBp), when listing stock prices.
Subdivisions and other units
Prior to 1971, the pound was divided into twenty shillings, with each shilling equal to twelve pence, making a total of 240 pence to the pound. The symbol for the shilling was "s" — not from the first letter of the word, but rather from the Latin word solidus. The symbol for the penny was "d", from the French word denier, which in turn was from the Latin word denarius (the solidus and denarius were Roman coins). A mixed sum of shillings and pence such as 3 shillings and 6 pence would be written as "3/6" or "3s 6d" and spoken as "three and six". 5 shillings would be written as "5s" or, more commonly, "5/-". There were also coins called crowns, worth 5 shillings, and half crowns, worth 2 shillings 6 pence, florins worth 2 shillings and farthings worth ¼ penny. The guinea was a gold coin which, between 1717 and 1817 circulated at a value of 21 shillings. Consequently, even after its replacement with the 20 shilling sovereign, an amount of 21 shillings was referred to as "one guinea". Nicknames for other amounts included tanner for 6 pence, bob for 1 shilling and dollar for 5 shillings.
At decimalisation in 1971, the pound was subdivided into 100 new pence, with the word "new" being used on coins until 1981. The symbol for the penny is "p"; hence an amount such as 50p (£0.50) is usually pronounced "fifty p (pee)" rather than "fifty pence". This also helped to distinguish between new and old pence amounts during the changeover to the decimal system.
History
Following the adoption of the euro by several countries, sterling became the world's oldest currency still in use.[citation needed]
Anglo-Saxon
The 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 12 pence. At the time of the penny's introduction, it weighed 22.5 troy grains of fine silver (30 tower grains)(c. 1.5 g), indicating that the Mercian pound weighed 5400 troy grains (the Mercian pound became the basis of the Tower Pound, which weighed 5,400 Troy grains, equivalent to 7200 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.
Medieval
The 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 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 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.
Tudor
During 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. 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 23⁄31 grains. Throughout this period, the size and value of the gold coinage fluctuated considerably.
Expanding to Scotland
In 1603, the crowns of England and Scotland were joined but the governments and currencies remained separate. However, 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 standard
In 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. 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.
Establishment of a modern currency
The Bank of England was formed in 1694, followed by the Bank of Scotland a year later. Both began to issue paper money, with the issues of the Bank of England gaining greater importance after 1707. During the Revolutionary and Napoleonic wars, Bank of England notes were legal tender and their value floated relative to gold. The Bank also issued silver tokens to alleviate the shortage of silver coins.
The gold standard
In 1816, the gold standard was adopted officially, with the silver standard reduced to 66 shillings, rendering silver coins a "token" issue (i.e., not containing their value in precious metal). In 1817, the sovereign was introduced. Struck in 22 carat gold, it contained 113 grains of gold and replaced the guinea as the standard British gold coin without changing the gold standard. In 1825, the Irish pound, which had been pegged to sterling since 1701 at a rate of 13 pounds Irish = 12 pounds sterling, was replaced, at the same rate, with sterling.
During the 19th and early 20th centuries, many other countries adopted the gold standard. As a consequence, conversion rates between different currencies could be determined simply from the respective gold standards. The pound sterling was equal to 4.886 U.S. dollars, 25.22 French francs (or equivalent currencies in the Latin Monetary Union), 20.43 German Marks or 24.02 Austro-Hungarian Krones. Discussions took place following the 1865 International Monetary Conference in Paris concerning the possibility of the UK joining the Latin Monetary Union and a Royal Commission on International Coinage examined the issues,[5] resulting in a decision against joining monetary union.
The gold standard was suspended at the outbreak of the war, with Bank of England and Treasury notes becoming legal tender. Prior to World War I, the United Kingdom had one of the world's strongest economies, holding 40% of the world's overseas investments. However, by the end of the war the country owed £850 million, mostly to the United States, with interest costing the country some 40% of all government spending. In an attempt to resume stability, a variation on the gold standard was reintroduced in 1925, under which the currency was fixed to gold at its pre-war peg, although people were only able to exchange their currency for gold bullion, rather than for coins. This was abandoned on 21 September 1931, during the Great Depression, and sterling suffered an initial devaluation of some 25%.[6]
Use in the Empire
Sterling 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 include the Australian, British West African, Cypriot, Fijian, Jamaican, New Zealand, South African and Southern Rhodesian pounds. Some of these pounds 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 Woods
-
- See also:Economic history of Britain 1945–1959
In 1940, an agreement with the U.S.A. pegged the pound to the U.S. dollar at a rate of 1 pound = 4.03 dollars. 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 2.8 dollars. 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 2.4 dollars on 18 November 1967.
Decimalisation
On 15 February 1971, the U.K. decimalized, replacing the shilling and penny with a single subdivision, the “new penny”. The word "new" was used on coins until 1981.
The free-floating pound
With the break down 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 US$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 US$1.05 in February 1985, before returning to the US$2 level in the early 1990's.
Following the Deutsche Mark
In 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 Ted 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 DM 2.95. However, the country was forced to withdraw from the system on “Black Wednesday” (16 September 1992) 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 12%, and then finally 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.[7]
The euro
As a member of the European Union, the United Kingdom has the option of adopting the euro as its currency. However, the subject remains politically controversial, not least since[citation needed] the United Kingdom was forced to withdraw from its precursor, the European Exchange Rate Mechanism (see above), having entered the system at the wrong fixed exchange rate.[citation needed] The Prime Minister, Gordon Brown, when Chancellor of the Exchequer ruled out membership for the foreseeable future, saying that the decision not to join had been right for Britain and for Europe[8].
The government of former Prime Minister, Tony Blair, had pledged to hold a public referendum for deciding membership should "five economic tests" be met to ensure that adoption of the euro would be in the national interest. In addition to this own internal (national) criteria, the UK has to meet the EU's economic convergence criteria (Maastricht criteria), before being allowed to adopt the euro. Currently, the UK's annual government deficit to the GDP is above the defined threshold. As of February 2005, more than half (55%) of the UK were against adopting the currency (with 30% in favour).[9] The idea of replacing the pound with the euro has been controversial with the British public because of its identity as a symbol of British sovereignty[10] and because it would, according to some critics[attribution needed], lead to suboptimal interest rates, harming the British economy.
The pound did not join the Second European Exchange Rate Mechanism (ERM II) after the euro was created. Denmark and the UK have unique opt-outs from entry to the euro. Technically, every other EU nation must eventually sign up; however, this can be delayed indefinitely (as in the case of Sweden) by refusing to join ERM II.
The Scottish Conservative Party claims that there is an issue in Scotland that the adoption of the euro would mean the end of regionally distinctive banknotes, as the European Central Bank do not permit national or sub-national designs of the banknotes.[11] The Scottish National Party does not see this as a significant issue[citation needed], since an independent Scotland would have nationally distinctive coins, and its party policy includes entry into the single currency.
On 1 January 2008, the British sovereign bases on Cyprus (Akrotiri and Dhekelia) began using the euro (along with the rest of the Republic of Cyprus).[12]
Current strength
Although the pound and euro are not fixed to one another, there are often long periods where the pound and the euro move in sync, 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.[13] Since then the pound has continued to strengthen against the dollar, as have many other world currencies, and hit a new 26 year high of $2.11610 on November 07, 2007.
Coins
Pre-decimal
The 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 4 pence 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 shillings 8 pence (⅓ pound, 80 pence), 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 shillings and the angel introduced at the noble's old value of 6 shillings 8 pence.
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 shillings and 2 shillings 6 pence. 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 1, 2, 3, 4 and 6 pence, 1, 2½ and 5 shillings. The reign of Elizabeth I (1558-1603) saw the addition of silver ¾ and 1½ penny 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 shillings), the unite (20 shillings) and the rose ryal (30 shillings). The laurel, worth 20 shillings, 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 1, 2, 3, 4 and 6 pence, 1, 2½ and 5 shillings. 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 1750's, the 6 pence and shilling stopping production in the 1780's. One response was the introduction of the copper 1 and 2 penny coins and the gold ⅓ guinea (7 shillings) 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 shillings 9 pence for the 8 reales. After 1800, a rate of 5 shillings for the 8 reales was used. The Bank then issued silver tokens for 5 shillings (struck over Spanish dollars) in 1804, followed by tokens for 1½ and 3 shillings between 1811 and 1816.
In 1816, a new silver coinage was introduced in denominations of sixpence, 1, 2½ and 5 shillings. The crown was only issued intermittently until 1900. It was followed by a new gold coinage in 1817 consisting of 10 shillings and 1 pound coins, known as the half sovereign and sovereign. The silver fourpenny coin was reintroduced in 1836, followed by the threepence in 1838, with the fourpenny coin only issued for colonial use after 1855. In 1848, the 2 shilling 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 threepenny coin was introduced, with the last silver threepenny 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
| £1 coin (Welsh design, 2000) | |
|---|---|
  | |
| Queen Elizabeth II | Welsh dragon |
The first decimal coins were introduced in 1968. These were cupro-nickel 5 and 10 new pence coins which were equivalent to and circulated alongside the 1 and 2 shilling coins. The curved equilateral heptagonal, cupro-nickel 50 new pence coin replaced the 10 shilling note in 1969. The decimal coinage was completed when decimalisation came into effect in 1971 with the introduction of the bronze ½, 1 and 2 new pence coins and the withdrawal of the 1 and 3 "old" pence coins. 6 pence coins circulated at a value of 2½ new pence until 1980. In 1982, the word "new" was dropped from the coinage and a 20 pence coin was introduced, followed by a 1 pound coin in 1983. The ½ penny 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 5, 10 and 50 pence coins. The old 1 shilling coins, which had continued to circulate with a value of five decimal pence, were demonetized in 1991 following the reduction in size of the 5 new pence coin, and 2 shilling coins were similarly demonetized in 1993. The bi-metallic two pound coin was introduced in 1998.
At present, the oldest circulating coins in the U.K. are the 1 and 2 new pence 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.
Banknotes
The first sterling notes were issued by the Bank of England shortly after its foundation in 1694. Denominations were initially written on the notes at the time of issue. From 1745, the notes were printed in denominations between 20 and 1000 pounds, with any odd shillings added in hand. 10 pound notes were added in 1759, followed by 5 pounds in 1793 and 1 and 2 pounds in 1797. The lowest two denominations were withdrawn following the end of the Napoleonic wars. In 1855, the notes were converted to being entirely printed, with denominations of 5, 10, 20, 50, 100, 200, 300, 500 and 1000 pounds issued.
The Bank of Scotland began issuing notes in 1695. Although the pound scots was still the currency of Scotland, these notes were denominated in sterling in values up to 100 pounds. From 1727, the Royal Bank of Scotland also issued notes. Both banks issued some notes denominated in guineas as well as pounds. In the 19th century, regulations limited the smallest note issued by Scottish banks to be the 1 pound denomination, a note not permitted in England.
With the extension of sterling to Ireland in 1825, the Bank of Ireland began issuing sterling notes, later followed by other Irish banks. These notes included the unusual denominations of 30 shillings and 3 pounds. The highest denomination issued by the Irish banks was 100 pounds.
In 1826, banks at least 65 miles (105 km) from London were given permission to issue their own paper money. From 1844, new banks were excluded from issuing notes in England and Wales but not in Scotland and Ireland. Consequently, the number of private banknotes dwindled in England and Wales but proliferated in Scotland and Ireland. The last English private banknotes were issued in 1921.
In 1914, the Treasury introduced notes for 10 shillings and 1 pound to replace gold coins. These circulated until 1928, when they were replaced by Bank of England notes. Irish independence reduced the number of Irish banks issuing sterling notes to five operating in Northern Ireland. The Second World War had a drastic effect on the note production of the Bank of England. Fearful of mass forgery by the Nazis (see Operation Bernhard), all notes for 10 pounds and above ceased production, leaving the bank to issue only 10 shillings, 1 and 5 pounds notes. Scottish and Northern Irish issues were unaffected, with issues in denominations of 1, 5, 10, 20, 50 and 100 pounds.
The Bank of England reintroduced 10 pound notes in 1964. In 1969, the 10 shilling note was replaced by the 50 new pence coin as part of the preparation for decimalization. 20 pound Bank of England notes were reintroduced in 1970, followed by 50 pounds in 1982. Following the introduction of the 1 pound coin in 1983, Bank of England 1 pound notes were withdrawn in 1988. Scottish and Northern Irish banks followed, with only the Royal Bank of Scotland continuing to issue this denomination.
Legal tender and regional issues
- See also: Banknotes of the pound sterling
Legal tender in the UK means (according to the Royal Mint) "that a debtor cannot successfully be sued for non-payment if he pays into court in legal tender. It does not mean that any ordinary transaction has to take place in legal tender or only within the amount denominated by the legislation. Both parties are free to agree to accept any form of payment whether legal tender or otherwise according to their wishes. In order to comply with the very strict rules governing an actual legal tender it is necessary, for example, actually to offer the exact amount due because no change can be demanded."
Throughout the U.K., 1 and 2 pound coins are legal tender for any amount, with the other coins being legal tender only for limited amounts. In England and Wales, Bank of England notes are also legal tender for any amount. In Scotland and Northern Ireland, no banknotes are currently legal tender, although Bank of England 10 shilling and 1 pound notes were legal tender, as were Scottish banknotes during World War II (Currency (Defence) Act 1939; this status was withdrawn on January 1, 1946). However, the banks have made deposits with the Bank of England to cover the bulk of their note issues. In the Channel Islands and Isle of Man, the local variations on the banknotes are legal tender in their respective jurisdictions.
Scottish, Northern Irish, Channel Islands and Manx notes are sometimes rejected by shops when used in England. British shopkeepers can choose to reject any payment, even if it would be legal tender in that jurisdiction, because no debt exists when the offer of payment is made at the same time as the offer of goods or services. When settling a restaurant bill after consuming the meal, or other debt the laws of legal tender do apply, but usually any reasonable method of settling the debt (such as credit card or cheque) will be accepted.
Commemorative five pound and twenty-five pence ("crown") coins, rarely seen in circulation, are legal tender, as are the bullion coins issued by the Mint.
| Coin | Maximum usable as legal tender[14] |
|---|---|
| £5 (post-1990 crown) | unlimited |
| £2 | unlimited |
| £1 | unlimited |
| 50p | £10 |
| 25p (pre-1990 crown) | £10 |
| 20p | £10 |
| 10p | £5 |
| 5p | £5 |
| 2p | 20p |
| 1p | 20p |
On the value of British money
In 2006 the House of Commons Library published a document[15] which included an index of the value of the pound for each year between 1750 and 2005, where the value in 1974 was indexed at 100. (This was an update of earlier documents published in 1998 and 2003.)
Regarding 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 again 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 currencies
The 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 of all base currency units in the world. On 28 February 2008, one pound was worth US$1.99 or €1.31.
- Historical exchange rates (since 1990) are given in Exchange rates section of the Economy of the United Kingdom entry.
- Current wholesale exchange rates between sterling and other currencies can be viewed here.
The pound as a major international reserve currency
Sterling 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.
 | '95 | '96 | '97 | '98 | '99 | '00 | '01 | '02 | '03 | '04 | '05 | '06 | '07* |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| US dollar | 59.0% | 62.1% | 65.2% | 69.3% | 70.9% | 70.5% | 70.7% | 66.5% | 65.8% | 65.9% | 66.4% | 65.7% | 63.8% |
| Euro | 17.9% | 18.8% | 19.8% | 24.2% | 25.3% | 24.9% | 24.3% | 25.2% | 26.4% | ||||
| German mark | 15.8% | 14.7% | 14.5% | 13.8% | |||||||||
| Pound sterling | 2.1% | 2.7% | 2.6% | 2.7% | 2.9% | 2.8% | 2.7% | 2.9% | 2.6% | 3.3% | 3.6% | 4.2% | 4.7% |
| Japanese yen | 6.8% | 6.7% | 5.8% | 6.2% | 6.4% | 6.3% | 5.2% | 4.5% | 4.1% | 3.9% | 3.7% | 3.2% | 2.7% |
| French franc | 2.4% | 1.8% | 1.4% | 1.6% | |||||||||
| Swiss franc | 0.3% | 0.2% | 0.4% | 0.3% | 0.2% | 0.3% | 0.3% | 0.4% | 0.2% | 0.2% | 0.1% | 0.2% | 0.2% |
| Other | 13.6% | 11.7% | 10.2% | 6.1% | 1.6% | 1.4% | 1.2% | 1.4% | 1.9% | 1.8% | 1.9% | 1.5% | 2.2% |
| Sources: 1995-1999, 2006-2007 IMF: Currency Composition of Official Foreign Exchange ReservesPDF (84 KB) Sources: 1999-2005, ECB: The Accumulation of Foreign ReservesPDF (816 KB) *Q3 only. | |||||||||||||
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For exchange rate trends since 1990, see Economy of the United Kingdom#Exchange rates.
