What is the Pound Sterling (GBP)?
The Pound Sterling refers to the national currency of the Isle of Man, the United Kingdom, South Sandwich Islands, Gibraltar, South Georgia, and the British Antarctic Territory. It is the oldest currency to be in constant use. It is also known as the sterling or pound and abbreviated as GBP.
GBP is the fourth most commonly exchanged currency on the forex market. Together with the US dollar, Japanese yen, the euro, and the Chinese yuan, the currencies create a basket that measures the worth of the exclusive drawing rights of the International Monetary Fund (IMF).
The Bank of England issues the pound sterling, prints its own banknotes, and controls the issuance of banknotes by private banks in Northern Ireland and Scotland. Sterling notes issued by other jurisdictions are not governed by the Bank of England.
Currently, four denominations of notes are in circulation – 5, 10, 20, and 50 GBP. The polymer printed notes include 5 GBP, 10 GBP, and 20 GBP. Coins come in 1, 2, 5, 10, 20, and 50 pence, 1 GBP and 2 GBP. 100 pence is equivalent to 1 pound.
History of the Pound Sterling
The name of the pound sterling is derived from the Latin word “libra,” which corresponds to balance and weight. The Bank of England first issued the pound banknotes more than 300 years ago, with the notes undergoing several changes over the years. The pound coin first appeared in 1489, during the rule of Henry VII. Pound notes started to circulate in England in 1694, shortly after the establishment of the Bank of England, and the notes were originally handwritten. The pound worked in its complex scheme of pennies and shillings until 1971 when the decimal system was introduced.
Coin minting was mechanized in 1660, and features such as side lettering were introduced in its design to help eliminate money-clipping. GBP continues to exist independently today, although much of the rest of Europe already uses the euro as a common currency.
The United Kingdom allowed the British pound to float freely in 1971, among other currencies. Such a decision allowed market factors to decide the value of the currency rather than artificial pegs. The U.K. considered attaching the value of the British pound to the Deutsche mark in 1990, but soon afterward discarded that notion. In 2002, after the euro became the shared currency of most member states of the European Union, the United Kingdom opted not to follow it. Instead, the U.K. retained GBP as its national currency.
Pound Sterling and Monetary Policy
The Bank of England is authorized by the U.K. government to set the British pound’s monetary policy by regulating the supply of money. It exercises control over the issuance of banknotes in Wales and England and controls the flow of banknotes issued by seven approved banks in Northern Ireland and Scotland.
Apart from banknotes minted by separate issuers in Northern Ireland and Scotland, the Royal Mint issues all the U.K. coins and coins of other nations as well. The Royal Mint, an independent organization, is owned by the Treasury.
In the U.K. Crown Dependencies, the Bank of England does not govern the Jersey pound, the Manx pound, and the Guernsey pound and are distributed separately. However, they are held at a set exchange rate by their national governments, and the Bank of England notes remain in use on the islands, creating a kind of one-way legally recognized currency union.