The pound was a unit of account in Anglo-Saxon England, equal to 240 silver pennies and equivalent to one pound weight of silver. It evolved into the modern British currency, the pound sterling.
The accounting system of 4 farthings = 1 penny, 12 pence = 1 shilling, 20 shillings = 1 pound was adopted from that introduced by Charlemagne to the Frankish Empire (see French livre).
The origins of sterling lie in the reign of King Offa of Mercia, (757–796) who introduced the silver penny. It copied the denarius of the new currency system of Charlemagne's Frankish Empire. As in the Carolingian system, 240 pennies weighed 1 pound (corresponding to Charlemagne's libra), with the shilling corresponding to Charlemagne's solidus and equal to 12d. At the time of the penny's introduction, it weighed 22.5 troy grains of fine silver (32 tower grains; about 1.5 g), indicating that the Mercian pound weighed 5,400 troy grains (the Mercian pound became the basis of the tower pound, which weighed 5,400 troy grains, equivalent to 7,680 tower grains, about 350g).[citation needed]
Medieval
The early pennies were struck from fine silver (as pure as was available). However, in 1158, a new coinage was introduced by King Henry II (known as the Tealby penny) which was struck from 0.925 (92.5%) silver. This became the standard until the 20th century and is today known as sterling silver, named after its association with the currency. Sterling silver is harder than the 0.999 (99.9%) fine silver that was traditionally used and so sterling silver coins did not wear down as rapidly as fine silver coins. The English currency was almost exclusively silver until 1344 when the gold noble was successfully introduced into circulation. However, silver remained the legal basis for sterling until 1816.
During the time of Henry III, the pound Sterling equalled the pound weight Tower.[22] In the 28th year of Edward I, the Tale Pound, or Pound Sterling, first began to differ or come short of the Pound weight Tower, from which it drew its origin and to which until now it was equal, for by indenture of that year the pound weight was to contain twenty shillings and three-pence in Tale.[22]:14 In the 27th year of Edward III, the pound Sterling was now but 4/5 of the pound weight, or 9 oz, 12 dwts Tower.[22]:15By an act of 13 Henry IV. the pound weight of Standard silver was to contain thirty shillings in Tale, or 1-1/2 pound Sterling, therefore the pound Sterling reduced to 2/3 of a pound weight, or 8 oz Tower.[22]:18 The pound Sterling was adjusted in weight several more times thereafter.
In the reign of Henry IV (1399–1413), the penny was reduced in weight to 15 grains (0.97 g) of silver, with a further reduction to 12 grains (0.78 g) in 1464.
Tudor
During the reigns of Henry VIII and Edward VI, the silver coinage was drastically debased, although the pound was redefined to the troy pound of 5,760 grains (373 g) in 1526. In 1544, a silver coinage was issued containing just one third silver and two-thirds copper—equating to .333 silver, or 33.3% pure. The result was a coin copper in appearance but relatively pale in colour. In 1552, a new silver coinage was introduced, struck in sterling silver. However, the penny's weight was reduced to 8 grains (0.52 g), meaning that 1 troy pound of sterling silver produced 60 shillings of coins. This silver standard was known as the "60-shilling standard" and lasted until 1601 when a "62-shilling standard" was introduced, reducing the penny's weight to 7 23⁄31 grains (0.50 g).
Throughout this period, the size and value of the gold coinage fluctuated considerably.
Unofficial gold standard
In 1663, a new gold coinage was introduced based on the 22 carat fine guinea. Fixed in weight at 44 1⁄2 to the troy pound from 1670, this coin's value varied considerably until 1717, when it was fixed at 21 shillings (21/-, 1.05 pounds).[23] However, despite the efforts of Sir Isaac Newton, Master of the Mint, to reduce the guinea's value, this valuation overvalued gold relative to silver when compared to the valuations in other European countries. British merchants sent silver abroad in payments whilst goods for export were paid for with gold. As a consequence, silver flowed out of the country and gold flowed in, leading to a situation where Great Britain was effectively on a gold standard. Aggravating this outflow was the fact that silver was the only commodity accepted by China for exporting goods during this period. From the mid-17th century, around 28 million kilogrammes (62 million pounds) of silver were received by China, principally from European powers, in exchange for Chinese tea and other goods. In order to trade with China, Great Britain had to first trade with the other European nations to receive silver, which led to the East India Company redressing this trade imbalance through the indirect sale of opium to the Chinese.[24]
Domestic offtake further reduced silver in circulation as the improving fortunes of the merchant class led to increased demand for tablewares. Silversmiths had always regarded coinage as a source of raw material, already government verified for fineness. As a result, sterling coins were being melted and fashioned into sterling silverware at an accelerating rate. A 1697 Act of Parliament attempted to stem this tide by raising the minimum acceptable fineness on wrought plate from sterling's 92.5% to a new Britannia silver standard of 95.83%. The product then made solely from melted coins would be found wanting when the silversmith took his wares to the Assay Office, thus discouraging the melting of coins.
Establishment of modern currency
The Bank of England was founded in 1694, followed by the Bank of Scotland a year later. Both began to issue paper money.
Currency of Great Britain (1707) and the United Kingdom (1801)[edit]
The pound Scots once had much the same value as the pound sterling, but it suffered far higher devaluation until in the 17th century it was pegged to sterling at a value of 12 pounds Scots = 1 pound sterling.
In 1707, the Kingdom of England and the Kingdom of Scotland merged to form the Kingdom of Great Britain. In accordance with the Treaty of Union, the currency of Great Britain was sterling, with the pound Scots soon being replaced by sterling at the pegged value.
In 1801, Great Britain and the Kingdom of Ireland were united to form the United Kingdom of Great Britain and Ireland. However, the Irish pound continued to exist and was not replaced by sterling until January 1826. The conversion rate had long been thirteen Irish pounds to twelve pounds sterling.
Use in the Empire
Main article: Sterling area
Sterling circulated in much of the British Empire. In some parts, it was used alongside local currencies. For example, the gold sovereign was legal tender in Canada despite the use of the Canadian dollar. Several colonies and dominions adopted the pound as their own currency. These included Australia, Barbados,[25] British West Africa, Cyprus, Fiji, the Irish Free State, Jamaica, New Zealand, South Africa and Southern Rhodesia. Some of these retained parity with sterling throughout their existence (e.g. the South African pound), whilst others deviated from parity after the end of the gold standard (e.g. the Australian pound). These currencies and others tied to sterling constituted the sterling area.
The original English colonies on mainland North America were not party to the sterling area because the above-mentioned silver shortage in England coincided with these colonies' formative years. As a result of equitable trade (and rather less equitable piracy), the Spanish milled dollar became the most common coin within the English colonies.
Gold standard
During the American war of independence and Napoleonic wars, Bank of England notes were legal tender and their value floated relative to gold. The Bank also issued silver tokens to alleviate the shortage of silver coins. In 1816, the gold standard was adopted officially, with the silver standard reduced to 66 shillings (66/-, £3 6s), rendering silver coins a "token" issue (i.e., not containing their value in precious metal). In 1817, the sovereign was introduced, valued at 20 shillings. Struck in 22‑carat gold, it contained 113 grains (7.3 g) of gold and replaced the guinea as the standard British gold coin without changing the gold standard. In 1825, the Irish pound, which had been pegged to sterling since 1801 at a rate of 13 Irish pounds = 12 pounds sterling, was replaced, at the same rate, with sterling.
By the 19th century the pound sterling was widely accepted outside Britain. The American Nellie Bly carried Bank of England notes on her 1889–1890 trip around the world in 72 days.[26] During the late 19th and early 20th centuries, many other countries adopted the gold standard. As a consequence, conversion rates between different currencies could be determined simply from the respective gold standards. The pound sterling was equal to 4.85 United States dollars, 5.25 Canadian dollars, 12.10 Dutch guilders, 26.28 French francs (or equivalent currencies in the Latin Monetary Union), 20.43 German Marks or 24.02 Austro-Hungarian Krones. Discussions took place following the International Monetary Conference of 1867 in Paris concerning the possibility of the UK joining the Latin Monetary Union, and a Royal Commission on International Coinage examined the issues,[27] resulting in a decision against joining monetary union.
The gold standard was suspended at the outbreak of the war in 1914, with Bank of England and Treasury notes becoming legal tender. Prior to World War I, the United Kingdom had one of the world's strongest economies, holding 40% of the world's overseas investments. However, after the end of the war, the country was indebted. Britain owed £850 million (£37.3 billion as of 2015),[28] mostly to the United States, with interest costing the country some 40% of all government spending.[29] In an attempt to resume stability, a variation on the gold standard was reintroduced in 1925, under which the currency was fixed to gold at its pre-war peg, although people were only able to exchange their currency for gold bullion, rather than for coins. This was abandoned on 21 September 1931, during the Great Depression, and sterling suffered an initial devaluation of some 25%.[30]
From Wikipedia: https://en.wikipedia.org/wiki/Pound_sterling#History