Pound Sterling

Pound Sterling

The pound sterling is the currency unit for the United Kingdom and has a longer continuous history than any other currency. For 1,300 years the pound has been the currency unit of England, never replaced by a “new pound” or any other change of name signifying a break with the past. Even the French franc, dating back to 1803, is a youngster compared to the pound sterling. The German Deutsche Mark came into being immediately following World War II.

Around the time of William the Conqueror, the English government began striking coins from a silver alloy containing 925 parts of pure silver per 1,000. Debased coins appeared occasionally, but Norman and English kings always returned to the silver alloy containing over 92 percent pure silver, which came to be known as the “ancient right standard of England.” Early in the twelfth century the English called their silver pennies sterling. The reputation of the English silver coinage for consistent fineness gave rise to the term sterling silver.

The English currency system traces its ancestry directly to the Carolingian currency reform. Charlemagne’s father, Pepin, established a silver standard that made one livre (pound) equal to a pound weight of silver. Also, 240 silver denarii (pennies) equaled a pound, and 20 shillings equaled a pound. In the English version of the Carolingian system, one pound equaled 20 shillings, which equaled 240 pence. The Carolingian system did not remain intact long on the Continent, particularly regarding the silver content of the pound, but it came to England with the Norman Conquest, where it survived longer than anywhere else. Only in 1971 did the United Kingdom decimalize its currency, making 100 pence equal to a pound.

Over the first eight centuries of its existence, the pound lost two-thirds of its silver content, averaging a depreciation of 0.13 percent per annum. After 1696 the silver content of the pound remained steady until 1817 when England officially adopted the gold standard, and silver coinage became only subsidiary. During the nineteenth century the pride of the British currency was the gold sovereign, equal to 20 shillings or 1 pound. The sovereign and half sovereign continued in circulation until 1914.

During the nineteenth century the pound sterling began to wear the aspect of an international currency. Although the pound sterling played no special role on continental Europe, the currencies of other European countries financed trade only within colonial empires, leaving the field free for the pound sterling to become the dominant international currency.

After World War I England made a frantic, and briefly successful, effort to return to the gold standard at the prewar parity, which was 3 pounds, 17 shillings, and 10 1/2 pence per fine ounce. In truth, England needed to devalue the pound sterling, and failure to do so helped usher in the Great Depression in England. In the Gold Standard Amendment Act of 1931 England abandoned the gold standard, and other countries had to decide to keep their currencies tied to the pound sterling, remain on the gold standard, or follow an independent policy. The Commonwealth countries, excepting Canada, the English colonies, Portugal, and the Scandinavian countries, elected to keep their currencies linked to the pound sterling, and these areas became known as the sterling area.

The pound sterling emerged from World War II as second only to the United States dollar as an international currency. In the post–World War II era the prestige of the pound sterling suffered from currency devaluation, and the United States’ vast gold stock, combined with production facilities undamaged by war, gave the U.S. dollar the preeminent position as the international currency.

England’s long history of conservatism in monetary matters may explain why the United Kingdom has been slow to participate in the European movement toward monetary union. In May 1998 members of the European Union announced plans to launch a European currency to replace the national currencies of several European countries, including France and Germany. Britain refused to go along and currently plans to retain its own national currency, the pound sterling.