The oldest currency still in use today is the British pound sterling. The pound traces its origins back to Anglo-Saxon times, over 1,200 years ago. It has gone through many changes over the centuries, but the pound is still one of the most widely-held reserve currencies in the world.
What is Currency?
Currency is a system of money in general use in a particular country. It includes the banknotes and coins that we carry in our wallets and purses. Currency is issued by a government or group of governments and regulated by a central bank or monetary authority. It allows people and businesses to exchange goods and services using a standardized unit of exchange, rather than bartering various items directly.
Some key features of currency include:
- Portable – Currency is designed to be transported and used for transactions easily.
- Durable – Made from materials like paper, plastic, and metal that can withstand regular use.
- Divisible – Currency units can be divided into smaller denominations.
- Fungible – One unit of currency has the same value as any other unit.
- Acceptable – There is widespread trust in the value and authenticity of the currency.
- Limited Supply – Central banks control the amount of currency issued.
- Standard Unit of Account – Prices are quoted in the currency.
Having an established currency simplifies trade and commerce within and between nations. It facilitates economic growth by enabling specialization, investment, and the exchange of goods and services.
History of the British Pound
The origins of the pound sterling date back over twelve centuries to Anglo-Saxon England, when silver pennies known as sterlings were minted. The sterling penny’s value was equivalent to one pound weight of silver. In the centuries that followed, the penny was supplemented with other coinage of varying denominations and materials.
Origins of the Pound
The first pound coin was introduced in England by King Offa of Mercia in 757 AD. It was equivalent to 240 silver pennies and helped facilitate larger transactions as trade increased across the region.
Prior to this the main currencies used were based on the Roman coinage system. As the Anglo-Saxon kingdoms emerged, a new currency system with a pound unit was introduced. It was primarily comprised of small silver coins including pennies, halfpennies, and farthings.
The penny quickly became the dominant circulating coin. One pound sterling initially corresponded to one troy pound of sterling silver. A troy pound equals 5760 grains, about 373 grams.
The pound sterling remained synonymous with weighing a pound of silver. As a unit of currency, the pound has been in continuous use since Anglo-Saxon times.
Unification of England
By the 10th century, the small Anglo-Saxon kingdoms of Britain had unified into the Kingdom of England. Coins were standardized across the kingdom accelerating trade and economic development.
The pound continued to be used as the monetary unit and basis for minting coins. However, the quality and weight of English coins were irregular during this period. This led to periodic reforms aimed at improving quality.
The Silver Standard
England and much of Europe used silver as the basis for its currencies. The first formal silver standard was initiated by King Henry II in 1158 with the “Tealby Penny” a high-quality silver coin. This set a standard of 92.5% silver content and a uniform coin weight.
Over the following centuries, this silver standard was refined further with new royal minting practices:
- 1353 – The first major revision under King Edward III, increasing fineness to sterling silverstandard of 92.5%.
- 1464 – Recoinage under Edward IV to restore monetary stability.
- 1662 – The Great Recoinage by Charles II set sterling silver as the intrinsic value base.
Silver minting continued until the 20th century, setting a backs for the British pound currency.
The Gold Standard
By the 18th century, the gold standard began operating in conjunction with the silver standard in Britain and Europe. Gold coins like the guinea were introduced. And over the following decades, the exclusive use of the gold standard grew.
In 1816, the silver standard effectively ended and the pound became officially backed by gold alone. The link between the pound and gold was interrupted during the Napoleonic Wars in the early 1800s as heavy military spending drove inflation. But Britain returned to the gold standard in 1821, which helped stabilize prices.
The gold backing established a defined value and enhanced confidence in the pound’s value domestically and internationally. It became the dominant global currency in the 19th and early 20th centuries under the gold standard. Britain formally adopted the gold standard in 1844.
World Wars and Interwar Period
World War I put enormous strain on Britain’s finances forcing it to end the gold standard in 1919. After a brief period back on gold in 1925, Britain permanently abandoned the gold standard in 1931.
World War II also strained British government finances. At the same time, the British Empire and the pound’s dominant role in global finance declined. Many countries and central banks held sterling reserves, but the U.S. dollar became the primary reserve currency.
During and after WWII, exchange controls were implemented to restrict the use of foreign currency and protect reserves. The pound became a fiat currency from this point forward.
Decimalization
In 1971, the pound underwent a significant transition – decimalization. For centuries it had been divided into 20 shillings per pound, with each shilling worth 12 pence (penny). But to enable easier conversions, it transitioned to a decimal system divided into 100 pence per pound.
New coins were introduced replacing the old denomination coins. The decimal system has been used since 1971, greatly simplifying pricing and accounting in the modern pound.
Current Status of the Pound
Today the pound retains an important status globally and is the oldest currency still in active use. The Bank of England serves as the central bank overseeing the pound. Banknotes are printed by the Bank of England regulated by British law.
Some key aspects of the modern British pound:
- The pound is a significant global reserve currency, though well behind the U.S. dollar.
- It is the official currency in the United Kingdom, Isle of Man, Jersey, Guernsey, South Georgia, and South Sandwich Islands.
- No longer pegged to precious metals, it operates as a fiat currency.
- The pound uses the ISO code GBP and currency sign £.
- Bank of England notes are legal tender in England and Wales.
- It is subdivided into 100 pence with coins from 1p to £2 and banknotes from £5 to £50.
- Scottish and Northern Irish banknotes are issued by private banks and differ slightly.
The pound has undergone considerable change in its over 1,200 years of usage. It transitioned from a silver-based currency, to one linked to gold, and now operates independently as a floating fiat money overseen by the Bank of England. Despite many challenges over the centuries, the longevity and resilience of the British pound is remarkable. It remains one of the oldest currencies still in use globally.
Other Historic Currencies
The British pound is undoubtedly the oldest currency still in active use today. But it is not the only centuries-old currency that has stood the test of time. Some other long-running historic currencies include:
U.S. Dollar
- First authorized by Congress in 1785, replacing an informal Continental Currency used during the American Revolution.
- Gradually expanded in usage, backed by gold and silver.
- Became dominant global reserve currency in the 20th century.
- Removed its gold standard backing completely in 1971.
- Remains the most widely held and traded currency today.
Japanese Yen
- Origins as a currency trace back to feudal Japan in the 15th century with old coinage like Mon and Koban silver coins.
- Yen banknotes began issuance in 1871, with decimalization in 1881.
- Yen followed the gold standard until 1914.
- After WWII, the modern yen emerged and greater regulation was introduced.
- It has grown into the third most traded currency behind USD and euro.
Swiss Franc
- The Swiss Franc traces origins back to the early 19th century, following the Napoleonic era.
- The Swiss Federal Constitution of 1848 established the Swiss National bank and currency.
- In the 1870s the franc transitioned to the gold standard.
- It has operated as a safe haven currency, retaining over time a reputation for stability.
Canadian Dollar
- First introduced in 1841 at the time Canada became a country.
- Replaced the Canadian Pound which had been used as currency before this period.
- The Bank of Canada now oversees the currency, issuing banknotes.
- It has evolved to become a major global reserve currency.
So while the British pound stands out for its longevity of over 1200 years, a few other modern-day currencies can also trace origins back centuries with interesting histories of their own. They may be younger than the pound, but have still demonstrated durability.
Factors in the Pound’s Long-Term Survival
What has enabled the British pound to remain in use for over a millennium? Historians point to a number of key factors that have contributed to its incredible longevity as a currency.
Stable British Nation and Economy
The relative continuity and stability of the British state and institutions has provided ongoing support for the sustained use of the pound. Despite setbacks, the British economy has retained a leading global role. Britain industrialized early and built a strong commercial and financial sector boosting economic output.
Adapting and Evolving Over Time
The pound was able to incorporate new minting technologies over the centuries. It moved progressively to more standardized denominations. And it made key changes like decimalization to align with modern needs. This ability to adapt has helped keep it relevant.
Retaining Trust and Prestige
Even when not on precious metal standards, the pound has largely maintained confidence in its value domestically and internationally. The Bank of England and British institutions upheld monetary discipline and prestige for the pound as a trusted store of value.
Geopolitical Power and Influence
The British Empire gave the pound outsized geopolitical importance and exposure globally for centuries. Its influence has diminished, but status as a reserve currency persists.
Network Effects and Inertia
Being deeply entrenched and embedded in British and global finance gives the pound natural inertia. Its established role creates self-reinforcing network effects that sustain its central position.
Unique Differentiation from Key Currencies
The fact that symbols like £ and terminology like pound sterling remain distinct from dollars, euros, yen etc. has avoided confusion and allowed ongoing strong identification with the currency domestically.
Threats and Challenges to the Pound
Despite its longevity, the British pound has faced challenges in recent decades and has some vulnerabilities that raise questions about its future status.
Reduced Global Role
The pound is now far behind the U.S. dollar as the leading global reserve and transactions currency. Its diminished role has opened it up more to volatility and speculation.
Loss of National Competitiveness
Long-term decline in British manufacturing and industry has impacted economic output and strength. The sizable services sector remains competitive, but lack of diverse exports is an issue.
Inflationary Pressures
Inflation has reached very high levels at times over the past half-century, periodically devaluing the pound’s real purchasing power domestically and internationally.
Financial Crises
Crises like Black Wednesday in 1992 and the 2008 global financial crash inflicted damage on the pound and British financial stability.
Scottish Independence Movement
If Scotland were to break from the UK, uncertainty around future of the pound and impacts on Britain would grow.
European Integration and Brexit
Joining the European Exchange Rate Mechanism proved flawed. More uncertainty followed from Brexit and remains around future European integration.
Future Trajectory
Given its history and challenges, what might the long-term future look like for the British pound?
Continued Reserve Currency Status
Though well behind the dollar, the pound should continue holding significant global reserve currency status even as its relative share declines. No major displacement of the pound is expected near-term unless China makes a major move.
Greater Exchange Rate Flexibility
The pound exchange rate will likely grow more responsive to economic factors and market shifts as active intervention fades. This volatility can have trade-offs.
Push Toward Digital Currency
Like other currencies, the Bank of England will need to consider introducing a Central Bank Digital Currency (CBDC) to reflect trends toward electronic money. A digital pound may emerge in coming years.
Staying Power in Britain
Despite pressures, the pound is deeply ingrained within British finance and society. It will certainly remain the primary legal tender and unit of account. But occasional calls for currency reform or euro integration could grow.
Role in Rebuilding UK’s Economy
Post-Brexit and post-COVID, the government faces major decisions on economic policy that could influence investment flows and the pound’s strength as a reflection of national economic health.
Conclusion
The British pound sterling stands as the world’s oldest currency still actively used today dating back over 1,200 years to Anglo-Saxon Britain. It emerged from humble silver pennies and evolved into the stable backbone of British and international finance and trade.
The pound pioneered metallic standards, embraced decimalisation, and made major transitions in its governance and valuation. Despite pressures faced today, it still maintains global reserve currency status and should continue well into the 21st century. With its storied history and evolving path forward, the resilient British pound remains one of the most fascinating and enduring currencies in world history.
