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The British Pound and how it works

The British pound (originally pound of sterlings) is the legal currency in the United Kingdom (officially the United Kingdom of Great Britain and Northern Ireland). This includes England, Scotland, Wales, and Northern Ireland, as well as certain territories outside of Great Britain (such as Gibraltar, the Falkland Islands, and Saint Helena) and in the Crown Dependencies (the Channel Islands and the Isle of Man). The British pound was divided into 20 shillings (each shilling further divided into 12 pence) until 1971, after which the decimal system was adopted, dividing it into 100 pence. The symbol used to denote the British pound is £. The ISO 4217 code for the pound is GBP.

All Pound Sterling coins
The complete set of Pound Sterling coins

The British pound, coins, and banknotes

The Bank of England is the central bank of the United Kingdom, responsible for issuing and regulating banknotes in the UK. Coins, on the other hand, are produced and issued by the Royal Mint, the British mint. Since 2016, there have been four legal denominations of banknotes: £5, £10, £20, and £50. In Scotland, it is also possible to find a £1 banknote, although it is relatively rare. All four denominations of banknotes are printed on a special polymer material. As for coins, there are eight denominations: 1p (where p stands for penny), 2p, 5p, 10p, 20p, 50p, £1, and £2. Both coins and banknotes produced in England are legal tender throughout the United Kingdom and in Crown Dependencies.

Unlike most countries, the United Kingdom has not enacted a law centralizing currency issuance. As a result, various private banks in Scotland and Northern Ireland, as well as the governments of Crown Dependencies, mint coins or print banknotes for their specific territories. These currencies may occasionally circulate in England, although they do not have legal tender status there.

All Pound Sterling related banknotes
All current sterling-related banknotes

In 1953, the first banknotes featuring the likeness of Queen Elizabeth II were introduced. With the passing of Queen Elizabeth, coins and banknotes will depict King Charles III. The new coins, unveiled in late September 2022, began being minted in October 2022, with the first coin entering circulation on December 8 of the same year. The new banknotes were presented to the public on December 20, 2022, and are expected to enter circulation by mid-2024.

Pound sterling quotation against major foreign currencies

 CHF  EUR  USD  GBP  JPY  CAD  AUD
 CHF 1 1.0405 1.1267 0.8906 169.9529 1.5334 1.7360
 EUR 0.9537 1 1.0785 0.8519 162.8231 1.4692 1.6632
 USD 0.8778 0.9179 1 0.7852 150.4770 1.3578 1.5369
 GBP 1.1135 1.1636 1.2616 1 190.2522 1.7165 1.9430
 JPY 0.0059 0.0061 0.0066 0.0053 1 0.0090 0.0102
 CAD 0.6521 0.6805 0.7367 0.5826 110.8311 1 1.1321
 AUD 0.5761 0.6011 0.6507 0.5146 97.9016 0.8833 1
Threadneedle St, London EC2R 8AH, United Kingdom
Threadneedle St, London EC2R 8AH, United Kingdom

Bank of England's Reference Interest Rate: The Base Rate

What is Bank of Englad base rate?

The Bank of England base rate, the most significant interest rate in the UK, is often referred to as the 'Bank of England base rate' or simply 'interest rate'. Responsibility for setting the base rate rests with the Bank of England's Monetary Policy Committee (MPC). This is part of the wider Monetary Policy framework that the Bank of England employs to achieve the government's objective of maintaining low and stable inflation.

The base rate determines the interest rate that the Bank of England pays to commercial banks that hold funds with it. It directly influences the interest rates that these banks charge people to lend money or offer on their savings accounts. Consequently, changes in the Bank Rate usually lead to corresponding adjustments in the interest rates for lending and saving at commercial banks.

However, it is important to note that the base rate is not the only factor influencing interest rates on savings and loans. Various other factors may come into play, and changes in these rates may not accurately reflect the change in the Bank Rate.

Reference institution
Bank of England
Head Office
London, United Kingdom
Reference interest rate
5.250 %
Last updated
08-03-2023

The SONIA rate: what is it and how much does it correspond to?

SONIA (Sterling Overnight Index Average) is an overnight (literally overnight) interest rate based on actual transactions. It is published daily by the Bank of England and reflects the average interest rate that banks pay to borrow sterling overnight from other financial institutions and institutional investors.

Why the SONIA rate is important

The SONIA rate is, among other uses, used for the following functions:

  • Calculation of interest on swaps and sterling floating rate notes;
  • Valuation of assets worth approximately £30 trillion per annum;
  • Support for the Bank of England's monetary policy.

How is the SONIA rate calculated?

SONIA is calculated using an algorithm that takes into account overnight sterling transactions that occurred on the previous business day. The algorithm considers all transactions, regardless of size or counterparty.

SONIA and LIBOR, handover

SONIA has become the preferred benchmark for the transition from LIBOR to risk-free benchmark rates. LIBOR is a benchmark interest rate that has long been used in the international financial market. However, it has been involved in a data manipulation scandal and its reliability has been questioned.

In conclusion, SONIA is an important reference rate for the UK financial market. It is used in various contexts and is becoming increasingly important as it is gradually replacing LIBOR, which is being phased out.

Below is the latest updated value of the SONIA rate:

SONIA5.188 %

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