The pound sterling, also known as the pound or British pound, is the official currency of the United Kingdom and several U.K. Crown Dependencies and territories. The pound sterling is a decimal currency with one pound equal to 100 pence. However, prior to decimalization, the pound sterling was equal to 20 shillings, and each shilling was further divided into 12 pence. For 10 years after the decimal conversion, pence were distinguished by calling them old pence and new pence. The history of the pound sterling goes back to the late 800s A.D. when King Offa of Mercia began minting the silver penny, copying a currency system put into place by Charlemagne for his Frankish Empire. In this system, 240 pennies weighed a pound, so 240 pennies was equal to one pound of fine silver. Under the reign of King Henry II, fine silver was replaced by the harder sterling silver to reduce coin wear. This monetary system remained relatively unchanged until an unofficial gold standard, the guinea, was adopted alongside the silver standard in 1663.
The currency system and economy of the United Kingdom has been one of the most stable in the world for several centuries. During World War I and World War II, the silver and gold systems were suspended for a floating system using banknotes issued by the Bank of England and the U.K. Treasury. During World War II, the U.K. assumed the Bretton Woods system for currency stability by pegging the pound sterling to the U.S. dollar. As the Bretton Woods system began to break down, the pound sterling was decimalized, and it has remained a floating currency since 1971. As part of the European Union, the U.K. was obliged to adopt the Euro with other eligible countries, but due to the political controversy with the people of Great Britain, the country successfully lobbied for an exemption.
Today, the U.K. pound sterling is the fourth most-traded currency in the world with 12.9 percent of the daily market share. The GBP fluctuates against the value of the Euro, but the values of both remain highly influential on one another. The internal value of the pound sterling is influenced by actions of the Bank of England. One such recent action was the creation of up to 150 billion GBP, which was then inserted into circulation through the government’s purchase of bonds and other assets. Pounds sterling is used by several countries as a reserve currency. It is the third most-held currency for world reserves.