GBP

What Is GBP?

GBP is the abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories of South Georgia, the South Sandwich Islands, and British Antarctic Territory and the U.K. crown dependencies the Isle of Man and the Channel Islands. Many other currencies are pegged to the British pound, including the Falkland Islands pound, Gibraltar pound, Saint Helena pound, Jersey pound (JEP), Guernsey pound (GGP), Manx pound, Scotland notes, and Northern Ireland notes.

The penny sterling (plural: pence) is 1/100 of a pound. Many stocks are traded in pence rather than in pounds; in these cases, stock exchanges may use GBX to indicate the distinction between pence and pounds (GBP). Though the official name of GBP is pound sterling, "sterling" or STG may be used more commonly in accounting or foreign exchange settings.

Key Takeaways

  • GBP is the abbreviation for the British pound sterling, the official currency of the United Kingdom and its territories.
  • The British pound sterling is symbolized by the pound sign (£) and is sometimes referred to simply as "sterling" or by the nickname "quid."
  • The most common currency pairs involving the British pound are the euro (EUR/GBP) and the U.S. dollar (GBP/USD).

Understanding the GBP

The British pound has one of the highest trading volumes in the world, trailing only the U.S. dollar (USD), euro (EUR), and Japanese yen (JPY) in daily volume. The British pound accounts for roughly 13% of the daily trading volume in foreign exchange markets.

The most common currency pairs involving the British pound are the euro (EUR/GBP) and the U.S. dollar (GBP/USD). GBP/USD is referred to as "cable" by foreign exchange traders.

The GBP, or British pound sterling, is the oldest currency in the world that's still in active use.

The British pound sterling is symbolized by the pound sign (£) and is sometimes referred to simply as "sterling" or by the nickname "quid." Because stocks are traded in pence, the British term for pennies, investors may see stock prices listed as pence sterling, or GBX.

History of the GBP

The British pound became the official currency of the United Kingdom when England and Scotland united to form a single country in 1707. However, the British pound was first created as a form of money in the year 760. The British pound is the oldest currency in the world that is still used as legal tender.

In addition to the United Kingdom, the British pound has previously served as currency in many of the colonies of the British Empire, including Australia, New Zealand, and Canada. Prior to 1855, when it began printing British pound notes, the Bank of England wrote all notes by hand.

In the late 19th and early 20th centuries, many countries enacted measures to tie the value of their currencies to the price of gold. The gold standard offered a uniform way to determine value among world currencies. Prior to World War I, the United Kingdom used the gold standard to set the value of the British pound. At the outbreak of World War I, the country abandoned the gold standard, then reinstated it in post-war 1925, only to abandon it again during the Great Depression.

In 1971, the United Kingdom let the British pound float freely against other currencies. This decision allowed market forces, rather than artificial pegs, to determine the value of the currency. In 1990, the U.K. considered tying the value of the British pound to the Deutsche mark but abandoned this idea shortly thereafter. In 2002, when the euro became the common currency of most European Union member nations, the U.K. chose not to adopt it, but instead kept the GBP as its official currency.

In a June 2016 referendum, British voters, by a slim majority, supported a measure to leave the European Union altogether, initiating a process that's commonly known as Brexit. The GBP declined significantly upon the U.K.'s split from the EU, and the value of the currency fluctuated in response to the subsequent trade negotiations.

The pound sterling declined yet again in September 2022, after the new Prime Minister Liz Truss announced economic policies centered around tax cuts. Although the Truss government aimed to boost U.K. economic productivity, investors and forex traders appeared concerned that the tax cuts would increase already high levels of inflation and debt. Partly owing to these concerns, the GBP/USD sank to an all-time low of around 1.03 on Sept. 26, 2022, before posting a slight recovery.

How Can I Trade GBP?

You can trade GBP and other foreign currencies through a forex broker. A forex broker is just like a stock brokerage, except they focus on foreign exchange products.

What Is the Difference Between GBP and GBX?

GBP refers to the pound sterling, while GBX is an abbreviation for the penny sterling (plural: pence)⁠—⁠or 1/100th of a pound. Since many stocks are traded in pence rather than in pounds, stock exchanges may use GBX to indicate the distinction between pence and pounds.

Is GBP a Reserve Currency?

The British pound was the world's dominant currency for centuries and was thus considered the primary reserve currency in which other nations held their excess cash. However, with the declining influence of the British Empire following World War I and World War II, the U.S. dollar assumed the reserve currency status that the pound previously held. By the early part of the 21st century, the dollar was the world's leading reserve currency, followed by the euro. According to the International Monetary Fund (IMF), the pound has settled into fourth place, trailing the Japanese yen.

The Bottom Line

The GBP⁠—or British pound sterling⁠—is the official currency of the United Kingdom and its territories. The GBP is the oldest currency in the world that is still used as legal tender. Symbolized by the pound sign (£), the GBP has one of the highest trading volumes in the world. In recent years, the currency has seen significant impacts from the U.K.'s decision to separate from the European Union—a process commonly known as Brexit.

Article Sources
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  1. Bank of England. "Overview."

  2. The Bank for International Settlements. "Foreign Exchange Turnover in April 2019."

  3. The Bank for International Settlements. "Triennial Central Bank Survey Foreign Exchange Turnover in April 2019," Page 11.

  4. CMC Markets. "What Is the World’s Oldest Currency?"

  5. UK Parliament. "Act of Union 1707."

  6. European Commission. "20 Years of the Euro in Your Pocket."

  7. UK Parliament. "The ERM and the Single Currency."

  8. European Union. "Brexit: EU-UK Relationship."

  9. The Guardian. "Why Is Sterling Falling and What Does It Mean for the Rest of the World?"

  10. International Monetary Fund. "Currency Composition of Official Foreign Exchange Reserves."

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