As part of the process of a Guild Apprentice becoming a Guildman, each is required to write an essay on an aspect of the City of London or of the Guild which may be of interest to members.

Gurpreet Johl’s ‘London: A brief history of currency’ is reproduced below:

London: A brief history of currency

By Gurpreet Johl, December 2016

The recent introduction of the new polymer £5 note has sparked an unprecedented surge in interest in the notes themselves. In particular, ‘rare’ notes routinely auction for many orders of magnitude above their face value; a recent batch of four limited edition notes engraved with a portrait of Jane Austen are estimated to sell for up to £50,000. This is but the latest chapter in a long and storied history of currency in the UK. The cited reasons of durability for the introduction of the new £5 note mirrors Henry II’s reasons to use more durable sterling silver coins in 1158 – a change which gave our currency its name. Travelling back in time further still, the history of currency more broadly in this country is inextricably linked to the City of London itself. Roman coins date back to near the establishment of Londinium in 43AD, and almost a millennium later the City of London became home to the first coin mints of the Anglo-Saxon kings. This essay explores the story of how the pound as we know it came to be, and how this intertwines with the history of the City of London.

The site upon which the City of London stands today began life with the establishment of Londinium in 43AD by Roman merchants for use as a trading port. The various currency denominations in circulation at the time largely took their names from the number of asses (donkeys) that could be fetched at market, and the fractions thereof. A single bronze “as” would buy one ass, while one could expect twice the booty for a brass “dupondius”.  A rich man could purchase a 400-strong herd for a single gold “aureus”, while a poor man could only dream of amassing together 4 bronze “quadrans” for a single one of them. The state of this once successful trading port declined in tandem with the Roman Empire. By 410AD, following years of attacks from Scots, Picts and Saxon raiders, the Romans withdrew entirely from the walled city and the centre of trade moved to nearby Lundenwic, which became modern-day Covent Garden. Londinium was abandoned and fell into disrepair.

It took another century before any further developments were made. Bishop Liudard began minting gold coins in 561AD. Around 760AD King Offa of Mercia introduced silver pennies which spread throughout the Anglo-Saxon kingdoms. Silver pennies remained the sole coinage until the 13th century. It was commonplace at this time to break off parts of the coin to make change; crafty “penny pinchers” would clip silver from the edges of these pennies in hopes of passing them off at their full value. Aethelstan, considered by many to be the first King of England, issued the Statute of Greatley in 928AD. One of the provisions of this statute was to create a single unified national currency across all of England. By this point London had been restored by Aethelstan’s grandfather, Alfred the Great.  A series of mints were established, 8 of which were in London compared to the 6 mints in Winchester, which was then England’s capital. One of these mints, just north of Tower Bridge, later became the Royal Mint which remained in the City of London until 1968.

The Norman Conquest brought considerable changes to England, and currency was no exception. Much of the terminology used today can be traced back to this period.  From 1158, King Henry II struck more durable coins from 92.5% silver rather than the malleable pure silver coins until this point and the composition of this alloy became known as ‘sterling silver’. The etymology of ‘sterling’ is debated, though possible explanations include: “lesterling”, an Arab word for money; “easterlings” who were early medieval merchants; “ster”, an old German word meaning strong and durable; or perhaps it was a reference to the image of a starling printed on coins during this period. It was also around this time that the concept of the pound came into existence. Following the model of Charlemagne’s Frankish Kingdom which used 1 livre split into 240 deniers, Henry II introduced the pound made up of 240 silver pennies. The name derives from the Latin “libra pondo” meaning “pound weight”, as it was determined that 240 pennies should weigh exactly 1 pound. This was also the root of the ‘£’ symbol; a stylised ‘L’ (for libra) eventually morphed into the symbol as we know it today. While the concept of 12 pennies to the shilling and 20 shillings to the pound existed, it was centuries before pound and shilling coins were actually minted.

A formal test for the purity of silver coins was introduced in 1282 by Edward I. The “Trial of the Pyx” took place first in the Palace of Westminster and later moved to the hall of the Worshipful Company of Goldsmiths, where it is held to this day. The Master of the Mint was required to save one penny of every 10 pounds for testing at the trial. The Pyx refers to the box in which the coins are presented to the jury, which is stored in the Pyx Chamber of Westminster Abbey. This was not just a formality: the issue surrounding coin quality had long been a top priority for the rulers of England. Over a century before the Trial of the Pyx was introduced, an enraged Henry I punished 94 mint workers for casting poor quality coins, ordering them to be castrated and their right hands amputated.

Edward III introduced the first gold coin in common circulation in 1344. The noble was valued at six shillings and eightpence (a third of a pound) and this remained the highest value coin available for over a century. Coins for the shilling and pound were introduced towards the end of the 15th century under Henry VII. Henry VIII oversaw the “Great Debasement” of the currency from 1542 to 1551, which significantly reduced the precious metal content of the coins in circulation, and it was left to his daughter Elizabeth I to later restore the value.

The latter half of the 17th century saw many significant developments. The lettering around the edge of coins was introduced in the 1660s to minimise clipping by penny pinchers. This also helped stem the counterfeiting epidemic which had plagued the mints and was punishable as high treason. In his role as Master of the Mint at the turn of the 18th century, Sir Isaac Newton personally cross-examined over a hundred suspects and witnesses and sentenced the counterfeiter William Chaloner to death. While the concept of paper notes had existed in China since the 7th century, it was not until the late 17th century that the practice became common in England. Goldsmith bankers accepted deposits of gold and gave a receipt known as a “running cash note”, with the promise to pay the named depositor or the bearer of the note. The Bank of England was established in 1694 and formalised this process. The bank was largely formed out of necessity to raise money for William III’s war with France. At this time notes were handwritten and could be issued in any amount. It was not until 1853 that the first fully printed notes were issued in standardised amounts. It was only a year after the first handwritten notes were issued that the first major case of fraud was committed by David Perrismore, who forged sixty £100 notes at a time when the average annual salary was £20. He was executed, and the Bank introduced the watermark on its notes as a countermeasure. By 1717 the basis of the currency had unofficially moved from silver to gold, a move that was made formal in 1816 when the gold standard was officially adopted. Silver was reduced to “tokens” no longer worth their weight in precious metal. This facilitated international trade as many other countries had also adopted the gold standard, making conversion much simpler. The Restriction Period, which lasted from 1797 until 1821, saw the Bank of England cease paying out gold in an effort to preserve the bullion. This move led cartoonists to popularise the nickname “the old lady of Threadneedle Street” in reference to the miserly Bank.

The Bank continued to exert its influence over the issue of notes throughout the 18th century and beyond. Initially, any private banks could issue their own notes. The first step towards the Bank of England’s monopoly came in the Act of 1708, which made it unlawful for companies or partnerships with more than 6 people to establish a bank and issue notes. This was relaxed slightly a century later, when the Country Bankers’ Act of 1826 altered the restriction so that it only applied within 65 miles of London. In 1844 the Bank Charter Act imposed comprehensive restrictions on the issue of notes by private banks.   Among the sweeping reforms were measures to ensure that no new private banks of issue could be established, existing issuing banks could not expand their issue and the merger of an issuing bank with a non-issuing bank would forfeit all rights to issue. This led to dwindling numbers of privately issued notes. The final private note was issued in 1921 by Fox, Fowler and Co.

The 20th century saw drastic and widespread changes in monetary policy that shaped the UK’s currency system.  The outbreak of the First World War saw the link with the gold standard broken once again as it was necessary to preserve bullion to finance the war effort. This proved a turning point in British fiscal policy. Prior to the war Britain held 40% of global overseas investments, and by the end of the war it found itself £850 million in debt. The gold standard was partially restored in 1925 by Winston Churchill in his role as Chancellor of the Exchequer. Currency was once again redeemable for its equivalent in gold, at the same rate it had been when set by Sir Isaac Newton two centuries earlier. This outdated rate was inherently unsustainable, and the repercussions of the Great Depression on the other side of the Atlantic forced Britain to leave the gold standard; the issue of currency was for the first time entirely fiduciary, backed by securities and not a physical asset such as gold or silver. Further devaluation of the currency resulted from the Second World War, when the mounting costs of financing the war effort combined with an enormous Nazi counterfeiting operation which threatened to destabilise the British currency. As many as half a million fraudulent notes per month entered the country, which the Bank of England reacted to by introducing the metal strip on bank notes. This paved the way for the Bretton Woods agreement: the exchange rates of many world currencies were pegged against the dollar, which itself was tied to the gold reserves of the United States.

One of the biggest changes in the currency itself came in 1971 when Britain moved to decimalisation, ending the system of pounds, shillings and pennies that had prevailed for almost a millennium. Proposals to parliament had been put forward since the early 19th century, following the decimalisation of the French Franc in 1795. The Royal Mint, which had moved from the City of London to South Wales 3 years prior to decimalisation, was tasked with production of the new coinage system and is now capable of producing 5 billion coins per year. In a now notoriously ill-fated stroke of monetary policy, Britain joined the European Exchange Rate Mechanism (ERM) in 1990, a “semi-pegged” system which allowed the value of the pound to float within an allowed margin of the Deutschemark. The subsequent reunification of Germany lead the Bundesbank to hike interest rates to counteract the inflationary pressures on the new country. The British government, which was itself dealing with recession, tried in vain to maintain the peg. On the now infamous “Black Wednesday”, the currency devalued so much that Britain was forced to leave the ERM only two years after joining. Billionaire fund manager George Soros profited £1 billion from short-selling the currency and was dubbed “the man who broke the Bank of England”. Britain subsequently adopted a freely floating exchange rate mechanism which remains today. With the bitter taste of attempted European currency alliance still fresh in the mouths of the electorate, Britain rejected joining the single currency in a move consistent with the refusal of the Latin Monetary Union a century earlier.

Today, the move towards widespread introduction of polymer notes in Britain heralds a new chapter in the long and varied history of our currency. This currency has as diverse a history as the City of London itself: from Romans trading here with bronze coins, to the establishment of the Bank of England, to decimalisation, to a potential future which may do away with physical currency entirely. This ever-changing currency reflects the ever-changing city.


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