Pound (currency)

Pound (currency) or Pound Sterling, monetary unit of the United Kingdom, represented by the symbol £. On the basis of gold content, the pound as represented by a gold coin, the sovereign, contains 113.001 grains, or 7.32238 grams, of fine gold. Because of the position that Britain holds in world trade and as a major international banking center, the pound has been a major currency of foreign exchange. A sterling area or sterling zone designation indicates those countries, either former members of the British Empire or current members of the Commonwealth of Nations or countries that maintain a high percentage of their foreign trade with the United Kingdom, that hold substantial amounts of pounds as exchange reserves.

Historically, the terms pound and pound sterling originated in Anglo-Saxon Britain during the 8th century when the basic monetary unit, called a “sterling,” was made equivalent to 1/240 of a pound of silver and 240 sterlings became known as a “pound of sterling.” The pound was convertible into silver until 1717, when the British government substituted gold in the amount cited above. In 1797 the government abandoned the gold standard; it was restored at the old rate in 1816. The gold standard was abandoned again during World War I, restored at the old rate in 1925, and finally abandoned in 1931.

Periodically, as the British economy fluctuated, the value of the paper pound was altered with respect to its parity with other currencies. In 1939, at the outbreak of World War II, the exchange value was $4.03, $0.73 less than the exchange value during World War I. In 1949 the pound was devalued to an exchange rate of $2.80, in 1967 to $2.40, and in 1971 officially pegged at $2.60. Since June 1972, the pound has floated free from its official parity at a rate determined by supply and demand. By 1985 the fluctuating pound had lowered to the $1.00 mark, but it regained strength later in the decade. By 2009 it was about $1.40.

On February 15, 1971, the pound’s coinage equivalent was changed to the decimal system, from 20 shillings to 100 pennies, replacing the traditional shillings and pence that had been used since 11th-century Anglo-Norman times.