Historical Sketch

England and Scotland had been separate kingdoms since the Middle Ages, with state traditions dating to the 9th century. England conquered Wales and Ireland in the 12th and 13th, the formal unification was concluded in 1536. With the end of the English Tudor dynasty and the accession to the English throne of the Scottish Stuarts the two kingdoms became dynastically united. The political union, creating Great Britain took another century to come true. The Act of Union of 1707 achieved this, and the separate kingdoms of England and Scotland became history. In 1801, Ireland was elevated to a separate kingdom and incorporated into a political union, creating the United Kingdom of Great Britain and Ireland. The Irish partition of 1922 reduced the British part to Northern Ireland, comprising most of the Irish county of Ulster.

Monetary History Overview

The Pound Sterling goes back to the Carolingian pound of the 9th century. In the 12th century, King Henry II issued a new coin, called Penny Sterling. Over the centuries, the Pound was never minted, but constituted a unit of account at 240 Pence Sterling. A multitude of coins in both gold and silver were issued in different denominations. Debasing and revaluations were common such that the coinage situation in the British Isles had become confusing.

The dynastic change that came with the accession of king James I to the English throne (already James VI, king of Scots) brought along currency union in the British Isles. The British Pound (or "Pound Sterling") of 1603 remained merely a unit of account for another two centuries. The English coinage law of September 1601 had already reduced the weight of the silver Shilling Sterling by about 3%. The April 1603 proclamation linked the English and Scottish currencies at a ratio of 1-to-12. Both kingdoms continued to issue distinct gold and silver coins in a multitude of sizes and denominations. The gold-to-silver ratio fluctuated regionally and over time until it got fixed in 1717, when the English Guinea of 1661 got pegged at 21 Shillings Sterling. In 1695, England underwent a comprehensive recoinage in which the hammered (often trimmed) domestic and all foreign coins were withdrawn and replaced by a new set of milled coins. In the same year, the Bank of England was founded as a commercial bank and granted the privilege of issuing paper money. The Scottish coinage was withdrawn after the 1707 Union and demonetized until 1709. In 1816, Great Britain abandoned bimetallism in favour of a gold standard. The June 1816 coinage act created a gold coin, called Sovereign, in the value of a Pound Sterling that replaced the heavier Guinea. For the first time, the Pound Sterling had ceased to be a mere unit of account. The new standard was also introduced in Ireland that had become part of the United Kingdom in 1801 and whose accounting was aligned until 1826 at a ratio of 14 Irish Shillings to the Pound Sterling. In 1833, the Bank of England obtained the exclusive privilege to issue paper money in England and Wales. In 1844, the issue right was extended to Scotland and Ireland, but without monopoly such that until today commercial banks' paper money is circulating in Scotland and (Northern) Ireland. In the run-up to the First World War, the gold standard was suspended in 1914. The post-war economic stabilisation lasted until 1925, when the previous gold parity got reinstated. However only for a few years, since in the 1931 economic crisis, the gold standard had to be abandoned for good. In early 1940, the Pound could get stabilized against the US Dollar and remained so until after the Second World War. In September 1949, a 30.5% devaluation was carried out, another one in November 1967, this time by 14%. In February 1971, the subunit went decimal such that 100 New Pence went to the Pound Sterling instead of 240, a counting that dated back to ancient times. Great Britain floated its currency in mid-1972 and followed the development of the European Currency System but without joining the Monetary Union in 1995. The decision to leave the European Union has triggered a 15% drop of the Pound against the Euro.

The United Kingdom joined the International Monetary Fund (IMF) on 27.12.1945 as a founding member.

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