British Pound of Sterlings free essay sample

If you had 240 of them, you had one pound in weight a vast fortune in the 8th century. A century and a half later Athelstan, the first King of England, founded a series of mints and made sterling a national currency in 928. In 1124, a disgusted Henry I had 94 mint workers castrated for producing bad coins. Sterling retained importance through the middle ages. Before the foundation of the Bank of England, the Tower of London was the store for spare money. Silver penny were the only coins right through until the 13th century and silver was the currency standard till the 18th century, when gold became the basis of the pound. The Bank of England and paper money In 1694 King William III established the Bank of England to fund his fight with France. Goldsmiths had issued bank notes promises to pay set against gold deposits from the 16th century, but although the Bank of England was the first central bank in history, it has not always had exclusive control over the pound. But crime arrived quick on the banknotes tail. By 1695 the first fraud happened. The authorities fined one Daniel Perrismore for forging 60 ? 100 notes a lot of money in the late 17th century. Than the bank introduced a watermark to stop fraud, and the crown introduced the death penalty for counterfeiting. The Bank provided stability, but the pound still suffered from market ups and downs. The first ? 10 note was printed in 1759, when the Seven Years War caused severe gold shortages. Inflation fears of war with France led to the first ? 5 note in 1793. Sterling banknotes were originally handwritten, although the notes were part printed from 1725. The Bank began to print the notes in 1855, no doubt to the relief of their workers. The Gold Standard and Sterlings Supremacy The principle of the standard, that a nation must back its banknotes with the equivalent in gold, established exchange rate stability. Sterlings strength was the basis of the gold standard, and was behind a sustained period of global growth right up until to 1914. Stability based on gold helped British investors and traders. Global finance took off, ushering in an era of gentlemanly capitalism when British investors poured money into offshore investments, protected by the immense strength of sterling and the might of the British Empire. Sterling was the global economys lifeblood. During the 1890s and 1900s the outflow of capital reduced Britains productivity and contributed to a slow decline in sterlings face value. World War One The rate of exchange for sterling had been unchanged since Sir Isaac Newton set it in the 18th century, when he was Master of the Mint. The value was very out of date. However, during the War the pound was overvalued by 10 per cent, when Winston Churchill returned sterling to the gold standard in 1925. The End of the Gold Standard By the end of 1925 the economics of the coal industry had collapsed, and 1926 brought not stability, but a six-month coal strike, that’s why the standard broke down globally between 1930-1933. The pound remained afloat until 1939 and the outbreak of World War Two. World War saw a great increase in forgery, as Germanys Nazi government sought to weaken sterling by spreading counterfeit notes. To counter the fraud, the Bank introduced the metal thread during the war to differentiate its issue from Germanys, and stopped producing some of the higher denomination notes. Reconstruction at Bretton Woods The Bretton Woods conference in 1944 heralded the end of sterlings predominance in international trade, and the triumph of the American dollar. But each country, including Britain, would define the value of its currency in dollars, and the U. S. would tie the value of the dollar to gold. The world simply did not have enough gold for every currency to hold reserves. In theory there was still a link to gold to impose a discipline on the system, but the pound was not a popular reserve currency. After the war, rumours swirled that sterling was to devalue, and so many countries converted their pounds to dollars. The pound was devalued by 30 per cent in 1949. The enormous postwar balance of payments deficit was just too much for the UK. Sterlings weakness and decline became too obvious. National banks wanted dollars not pounds. Not a penny less: the 1967 Devaluation In 1967 the currency wasdevalued again, this time by 14 per cent. Overseas, the sterling currency was of lesser importance. Dollars were more alluring and as many thought stable. But in 1971 President Nixon devalued the dollar a response to damage done by the Vietnam War and opened the gates to a new era of floating exchange. The stability of the postwar settlement was over. The currency snake Meanwhile 1972 saw the first efforts to fix the pound to other European currencies. At the start of the year the four major European Economic Community currencies sterling, the deutschemark, the French franc and the Italian lira formed the so-called snake. The economic bloc then floated their currencies together on the markets, each country having responsibility for the stability of its currency within parameters. The experiment failed, though, not long off the ground. Sterling dropped out after only six weeks, weaker than ever, bowing to the dictates of the markets. ERM to today Since 1992 the pound has floated free although the Government has tried, and succeeded, in maintaining an inflation rate broadly in line with Europe. In October 1992 this target range was initially set at zero to four per cent, but later revised to 2. 5 per cent with a one per cent band on either side by Tony Blairs New Labour government. This is a remarkable achievement given how prone the UK is to inflation and appears to herald a new economic convergence with Europe and maybe a new currency, but it remains to be seen wheteher the euro will herald the end of the worlds oldest currency.