The pound sterling (GBP), commonly called the pound, is the official 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 Tristan da Cunha. It is subdivided into 100 pence (singular: penny).
Scotland, the Channel Islands (the Bailiwick of Guernsey and the Bailiwick of Jersey) and the Isle of Man produce their own local issues of sterling; see Guernsey pound, Jersey pound and Manx pound. The pound sterling is also used in Gibraltar (alongside the Gibraltar pound), the Falkland Islands (alongside the Falkland Islands pound) and Saint Helena and Ascension (alongside the Saint Helena pound). Gibraltar, Falkland Islands and Saint Helena pounds are separate currencies, pegged at parity to the pound sterling.
Sterling is the fourth most traded currency in the foreign exchange market, after the US dollar, the euro and the Japanese yen. Together with those three currencies it forms the basket of currencies which calculate the value of IMF Special Drawing Rights, with an 11.3% weighting as of 2011. Sterling is also the third most heldreserve currency in global reserves.
The full, official name, pound sterling, (plural: pounds sterling) is used mainly in formal contexts and also when it is necessary to distinguish the United Kingdom currency from other currencies with the same name. Otherwise the term pound is normally used. The currency name is sometimes abbreviated to just sterling, particularly in the wholesale financial markets, but not when referring to specific amounts; for example, “Payment is accepted in sterling” but never “These cost 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 (singular and plural, except in the common phrase “Quids in!”) which is thought to derive from the Latin phrase “quid pro quo”.
There is some uncertainty as to the origin of the term “pound sterling”. Some sources say it dates back to Anglo-Saxon times, when coins called sterlings were minted from silver; 240 of these sterlings weighed one pound, and large payments came to be made in “pounds of sterlings”. Other references, including the Oxford English Dictionary, say a sterling was a silver penny used in England by the Normans and date the term to around 1300. For more discussion of the etymology of “sterling”, see Sterling silver.
The currency sign is the pound sign (£), which is usually written with a single cross-bar, as on sterling bank notes, though a version with a double cross-bar (₤) is also sometimes seen. The pound sign derives from the black-letter ”L”, an abbreviation of Librae in Roman £sd units (librae, solidi, denarii) used for pounds, shillings and pence in the British pre-decimal duodecimal currency system. Libra was the basic Roman unit of weight, derived from the Latin word for scales or balance.
The ISO 4217 currency code is GBP. Occasionally, the abbreviation UKP is used but this is incorrect because the ISO 3166 country code for (the United Kingdom of) Great Britain and Northern Ireland is GB (see Terminology of the British Isles#Terminology in detail). The Crown dependencies use their own (non-ISO) codes: GGP (Guernsey pound), JEP (Jersey pound) and IMP (Isle of Man pound). Stocks are often traded in pence, so traders may refer to pence sterling, GBX (sometimes GBp), when listing stock prices.
Current exchange value
The pound and the Euro fluctuate in value against one another, although there may be correlation between movements in their respective exchange rates with other currencies such as the US dollar. Inflation concerns in the UK led the Bank of England to raise interest rates in late 2006 and 2007. This caused the pound to appreciate against other major currencies and, with the US dollar depreciating at the same time, the pound hit a 15-year high against the US dollar on 18 April 2007, reaching US$2 the day before, for the first time since 1992. The pound and many other currencies continued to appreciate against the dollar; sterling hit a 26-year high of US$2.1161 on 7 November 2007 as the dollar fell worldwide. From mid-2003 to mid 2007, the Pound/Euro rate remained rangebound (within ± 5%) of €1.45. Following the global financial crisisin late 2008, however, the pound has since depreciated at one of the fastest rates in history, reaching a 24-year low of $1.35 per £1 on 23 January 2009 and falling below €1.25 against the Euro in April 2008. A further decline was seen during the remainder of 2008; most dramatically in December when its Euro rate hit an all-time low at €1.0219 (29th), while its US dollar rate depreciated to $1.37 on 24 January 2009. The Pound appreciated in early 2009 reaching a peak against the Euro in mid-July of €1.17. The following months the pound remained broadly steady against the Euro, with the Pound’s current (27 May 2011) value at €1.15 and US$1.65.
On 5 March 2009, the Bank of England announced that they would pump £75 billion of new capital into the British economy, through a process known as quantitative easing. This is the first time in the United Kingdom’s history that this measure has been used, although the Bank’s Governor Mervyn King suggested it was not an experiment.
The process sees the Bank of England creating new money for itself, which it then uses to purchase assets such as government bonds, bank loans, or mortgages. The initial amount stated to be created through this method was £75 billion, although Chancellor of the Exchequer Alistair Darling had given permission for up to £150 billion to be created if necessary. It is thought the process is likely to occur over a period of three months with results only likely in the long term. By 5 November 2009, some £175 billion had been injected using quantitative easing and the effectiveness of the process remains questionable.
The Bank of England has stated that the decision has been taken to prevent the rate of inflation falling below the two percent target rate. Mervyn King, the Governor of the Bank of England, also suggested there were no other monetary options left as interest rates have already been cut to their lowest level ever (0.5%) and it was unlikely that they would be cut further.