The pound was originally composed of 20 shillings (s.) of 12 pence (d. for denarii, Latin for "pence") each. At one time, the British monetary unit was a troy pound of silver, which became known as a pound sterling. The term sterling stems from "Easterlings," the name given to North German merchants who established a Hansa, or trade guild, in England in the thirteenth century. Their coins were noted for their uniform reliability as to weight and fineness.
During most of the eighteenth century, England was legally on a bimetallic standard which overvalued silver. As the result of Gresham's law, it was in fact on the gold standard. The one pound coin then became the gold sovereign, so called because the King's bust appeared on its face. During the Napoleonic Wars the British Government resorted to credit expansion with the result that the Bank of England suspended the gold redemption of its Notes from 1797 to 1821. The gold standard was legally adopted in 1816 and went into effect in 1821.
From 1821 until the outbreak of World War I in 1914, the Bank's Notes and gold sovereigns were interchangeable except for short suspensions in 1847, 1857 and 1866. The gold standard was again resumed in 1925 at the pre-war parity rate of $4.86, or .2568 troy ounces of gold, for one paper pound. In 1931 the gold standard was dropped and the value of the pound fell to $3.27 by the end of 1932. The American devaluation of 1933-1934 raised its dollar value to $5.15, but its value continued to fall until 1940 when it was officially declared to be worth $4.03. In 1949, it was further devalued to $2.80, or .08 troy ounces of gold, for one pound sterling. The pound has since been further devalued and is no longer officially tied to gold.
In 1971, the decimal system was adopted and the pound was then subdivided into 100 new pence.
- Percy L. Greaves, Jr. "Mises Made Easier ", 1974. Referenced 2014-08-20.