Pound Sterling – Currency Overview
Historical Overview
The origins of pound sterling can be traced to the reign of King Offa of Mercia,
who issued silver coins known as “sterlings” in the Saxon kingdoms. 240 of these
coins weighed a pound; because of this large payments came to be settled in "pounds
of sterlings," a phrase that was in later days abbreviated to "pounds sterling."
The pound sterling quickly became widespread in all the Anglo-Saxon kingdoms and
became the standard coin of what was later to become England. After the Norman Conquest,
the pound sterling was divided into 20 shillings and into 240 pennies, or pence,
in order to simplify accounting. In 1971, the UK switched to the decimal system
and replaced the shilling and penny with a single coin subdivision, the penny, of
which there were 100 in a single pound sterling.
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Following the adoption of the euro by a large number of European countries as a
result of their joining the European Economic and Monetary Union (EMU), the pound
sterling became the oldest currency in the world that is still in use.
The pound sterling is popularly nicknamed "quid" , a name possibly derived from
the Royal mint located at Quidhampton, but most likely from the Latin phrase 'Quid
pro quo' which denotes an exchange of goods. In dealer slang the pound sterling
is nicknamed "cable".
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Current Global Status
The pound sterling is used as a reserve currency around the world and is currently
ranked third in amount amongst currencies held as reserves. The percentage that
pounds constitute of total global reserves has increased in recent years, mainly
due to the stability of the British government and economy, its gradual increase
in value against many currencies and its high interest rates relatively to other
major currencies such as the euro, the US dollar, and the yen.
Against the Euro
The pound and euro are not fixed to one another, however there are often significant
periods of time where they correlate. Since the middle of 2006 the link between
the two currencies has been steadily weakening. In late 2006 and throughout 2007,
inflation concerns led the Bank of England to increase interest rates, causing the
pound to rise to its highest rate against the euro since January 2003. However,
in late 2007 the pound has begun to weaken substantially against the euro, falling
below the €1.25 level for the first time in April 2008.
Against the US Dollar
The dramatic rise of the pound against the euro in late 2006 had a secondary effect
against other major currencies, and the pound reached a 15-year high against the
US dollar in April 2007, rising above the $2 level for the first time since 1992.
Thereafter the pound continued to strengthen against the dollar, as have many other
world currencies as a result of the US Dollars plummet in 2007, and reached a 26-year
high of $2.11610 in November 2007. Since the beginning of 2008, the pound has been
in a general down trend, albeit this trend has expressed itself less sharply against
the US Dollar.
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