The British pound sterling (GBP) is regarded as the oldest currency in use, with a rich history dating back to 775 AD, when sterling silver pennies were first used in Britain.
The Bank of England was established in 1694, and till today still serves as a model for most central banks. Since then, the GBP has seen its fair share of ups and downs, finally abandoning the gold standard in 1931, during the Great Depression. Today, the GBP is the fourth most-traded currency on the foreign exchange market and remains one of the most important currencies to the stability of the global economy.
Like most currencies in the world, the GBP is a highly centralized affair under the sole control of the British government. As we enter into a new technological era, however, the once-evident benefits of a currency controlled by a central authority are starting to break down, and the vulnerability of this system is becoming more apparent.
One of the main roles of the Bank of England since the abandonment of the gold standard has been to minimize inflation by keeping the supply of currency on par with economic growth measured in GDP. The British government has shown itself to be highly capable of this issue, successfully reducing inflation in recent years to settle at a comfortable 2% in 2018 — exactly where all central banks strive to be.
This stability in inflation contributes in turn to the overall strength of the GBP, partly by driving up confidence. Relatively high demand for the GBP also keeps Britain’s currency strong.
The future, however, belongs to digitization, and debit, credit, or smart-cards have already become a more popular form of payment than cash in the UK. Riding this wave of digitization, there are three bank transfer schemes in the UK, allowing bank account owners to electronically transfer funds from one to the other with ease.
This includes Bankers’ Automated Clearing Services (BACS), one of the cheapest transfer option and how many employees are paid in the UK, the Clearing House Automated Payment System (CHAPS), good for large, immediate payments like the down payment on a house, and Faster Payments, which is far quicker than BACS, and cheaper than CHAPS, making it ideal for small, quick transactions.
The most recent global financial crisis known as the Subprime Mortgage Crisis pulled the British economy into recession, cut GDP and increase unemployment while devaluing the GBP.