Generally known as the Pound, GBP is the official currency of the United Kingdom. It is the worlds oldest currency still in circulation right from the time of its inception. Other regions that use GBP as their official currency are Jersey, Guernsey, the Isle of Man, Sourth Georgia, the South Sandwich Islands, the British Antarctic territory, and Tristan da Cunha. The GBP is fourth most traded currency in the forex market preceded by the USD, Euro, and Yen. With the given top 3 traded currencies, GBP forms a basket for currencies? utilised to calculate the IMF value for drawing rights. There are many other countries in the world that use pound as their currencies however, none of these have any official relation to the GBP.
Other countries that accept the Pound include:
- Botswana
- Malawi
- Rwanda
- Sierra Leone
- Tanzania
- Uganda
- Zambia
- Zimbabwe
Some Facts That You Ought To Know About The British Currency:
- The short name for the Great Britain Pound is GBP currency.
- The nickname for this currency is Farthing, Pence, Quid, Ster, Sterling, and Stg.
- The most frequently used coins are £1, £2, 1P, 2P, 5P, 10P, 20P, and 50P.
- The most commonly used banknotes include £5, £10, £20, and £50.
History of Great Britain Pound
The Great British Pound has a long and storied history, stretching back centuries with its strong foundations in continental Europe. It is one of the oldest currencies still in use today, having been introduced to England during the Anglo-Saxon period in around 775 AD. Read on to further explore how this currency became so influential over time.
The name of the currency is derived from the Latin word "libra," referring to "weight and balance." The Bank of England was used for handwriting all notes until 1855 when it started manufacturing British pound notes over three centuries now. Since then, plenty of major alterations have been implemented to these banknotes.
Throughout its history, the Britain pound has played an important role in both international and domestic economic affairs, thereby serving as a safe haven for investors and a reliable source of stability for citizens.
When England and Scotland joined to establish the United Kingdom in 1707, the pound was adopted as the UK's official currency, but it was in the year 760 that it became an authorised currency. The majority of the former colonies of the British Empire, including Australia, New Zealand, and Canada, alongside the U.K., once recognised the British pound as their official currency.
Many nations adopted policies in the latter part of the 19th and early 20th centuries to link the intrinsic worth of their banknotes to the value of gold. The gold standard provided a consistent method for estimating the monetary value of different currencies back then. The British pound's value was determined using the gold standard before World War I by the United Kingdom. However, the nation gave up the gold standard at the onset of World War I and restored it back in 1925 after the war, only to give it up once more amid the Great Depression.
The British pound was allowed to fluctuate freely against foreign currencies in 1971 by the United Kingdom. Due to this, the value of the currency was determined by market forces instead of arbitrary pegs. The United Kingdom briefly contemplated linking the value of the British pound to the Deutsche mark in 1990 but swiftly dropped the proposal. The majority of the European Union (EU) members switched to using the Euro as their primary currency in 2002, but the United Kingdom was determined to continue using the pound sterling (GBP) as its official reserve currency.
Factors affecting Great Britain's pound currency:
The most ancient currency that continues to be acknowledged as legitimate is the British pound. However, a few factors affect the Great Britain Pound currency.
1. Inflation Levels:
A major factor affecting the value of the GBP includes inflation levels. Countries with high rates of inflation in comparison to other nations typically experience a dramatic drop in the value of their currencies.
The Consumer Price Index (CPI), which tracks fluctuations in the cost of goods and services consumers bought over a specific time period, and the Producer's Price Index (PPI), which tracks inflationary shifts in raw materials, can both be used for calculating levels of inflation in the UK. This report is significant because the Bank of England (BOE) utilises it as the benchmark for its inflation objective. Any CPI amendments that stray from the BOE's inflation objective might indicate significant future monetary policy actions that could further have a major influence on the GBP.
2. Oil Prices:
It goes without saying that the oil industry plays a significant role in the UK economy and has a significant influence on the current account balance of the nation. The Great British Pound may decrease as a result of falling oil prices and slowing oil production, especially given the high cost of drilling for Brent Crude offshore.
3. Political Instability:
Political instability is inevitably awful for any home currency. The Brexit episode over the past three years has had a significant negative impact on the pound sterling. Following that, it has fallen to multi-year lows in relation to the Euro and the US Dollar. Prior to the Brexit vote, the GBP was trading at about $1.50 to the USD. After the British referendum on exiting the EU and again with the re-election of Labour Party leader Jeremy Corbyn, who had previously supported Brexit, it faced two major setbacks in 2016.
4. Monetary Policy:
In order to curb inflation, the Bank of England (BOE) will either raise or lower interest rates. They will drop interest rates to boost growth if the country experiences low inflation (reduced economic growth), which will lead to more affordable loans and more consumer spending, among other effects. On the contrary, if inflation rises above the BOE target of 2%, the BOE will increase interest rates to lower inflation.
Any choices made by the BOE regarding interest rates may, and almost always will, have an impact on the pound. The Monetary Policy Committee (MPC) sets the rate decisions on a monthly basis; it can be viewed on the Bank of England website.
5. Economic Growth/GDP:
Another significant factor that influences the value of the Pound is the overall level of economic activity in the UK. The gross domestic product (GDP) is the major indicator of economic activity in the United Kingdom and many other nations. Traders need to be mindful of three different GDP reports: Preliminary GDP, Revised GDP, and Final GDP. The Preliminary GDP estimate is the first to be delivered and has a tendency to have the greatest influence. This is because it provides traders with an early indication of the U.K.'s economic health. The Preliminary GDP is also not particularly precise and is usually updated in the Final GDP and the revised GDP reports that follow.
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