The highs and lows of the pound in its 1260 year history

The world's oldest working currency, the pound, is on a roll just in time for this year's holiday season.

by Andrew Saunders
Last Updated: 10 Jul 2014

Formative years

Although the word 'pound' is pre-Christian, the English version of the Latin libre (the Roman Empire's unit of account), the currency itself has been in continuous use for a mere 1,260 years, dating from the eighth century and the Saxon king Offa of Mercia. He it was who introduced a new silver penny, 240 of which could be struck from a single Troy pound's weight of fine silver.

The pennies themselves were called sterlings, which some believe is the origin of the quid's full monicker, pound sterling.

By the late 19th century, the pound was the world's strongest currency, worth nearly five US dollars, 20 German marks or 26 French francs. Isn't nostalgia wonderful?

Recent history

It's hard to argue that the combined effects of two world wars, post-industrial decline and the 2008 crash has had anything but a withering effect on the status and value of the pound. Between 1974 and 2012, the pound is reckoned to have lost no less than 92% of its buying power. Ouch.

The last trace of silver in our coins vanished in 1946 and even copper-nickel alloy has now been supplanted by cheap, plated steel for 2p and 1p coins. What next? Plastic banknotes? Yep, due in 2016.

But decimalisation made mental arithmetic much easier and dodging the euro must count as one of the best (or at any rate luckiest) macro-economic decisions of late. Besides, a weaker pound makes exports more competitive and is a relatively painless way of reducing the burden of our staggering £1.3trn national debt.

Who's in charge?

The Bank of England, of course, and its superstar governor, Mark Carney. Way back when, money was backed by physical assets such as gold, but modern fiat currencies are issued and controlled entirely by government (and central bank) say-so. This is a neat way to boost the money supply, provided that nobody loses confidence in the ability of the government in question to honour its guarantees ...

The secret formula

The pound is the fourth most popular denomination on the money markets (after the dollar, euro and yen), accounting for around 12% of trading. In 2009, it hit lows of a dismal $1.36 and 1.05, leading to an enforced revival of the staycation as no one could afford foreign holidays. amid warnings that interest rates may rise shortly, at the time of writing,it's back up to $1.69/1.25 - less painful but still way off pre-2008 levels.

Don't mention

Scottish independence. If Scots vote 'Yes' in September, one of the thorniest resulting problems will be whether or not and under what circumstances they keep the pound. Perhaps the groat will make a reappearance, with Alex Salmond's head on it?

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