Paper money is the mainstay of modern currencies throughout the world. This reliance is a far cry from the situation at the beginning of the 20th century when gold, in the form of bullion or coinage, predominated as the basis for most of the world’s money. Banknotes were considered a poor substitute for ‘real’ money of coined gold or silver. Most paper was directly backed through a clause on the note stating that it could be exchanged at a certain bank or treasury location for gold or silver coins.
This situation changed during the 20th century as war, economic disaster, and the increasing volume and pace of trade forced countries to adapt their currencies. World War I shifted the financial focus of the world from war-torn and debt-ravaged Europe to the United States. The Great Depression forced most nations to cease producing gold coinage in order to protect their currencies from collapse.
The Bank of England, the central bank of the United Kingdom, has issued banknotes since 1694. Unlike most countries where the issue of banknotes is handled exclusively by a single central bank or the government, the UK has seven retail banks with the right to print their own banknotes under Bank of England supervision. In 1921, the Bank of England became the sole legal issuer of paper currency in England and Wales. These notes, known as “sterling banknotes,” circulate as legal tender in much of the UK, but not Scotland or Northern Ireland. There they are accepted along with banknotes issued by the seven retail banks outside of England and Wales. Sterling banknotes are also official currency in British sovereign territories such as Jersey, Isle of Man, the British Antarctic Territory and St. Helena.
Did You Know?
The United Kingdom does not have a single set of money that is legal tender across the nation. In England and Wales, Royal Mint coins and Bank of England notes are legal tender. In Scotland and Northern Ireland, only Royal Mint coins are legal tender. Throughout the UK, there are restrictions on low denomination coins as legal tender. One penny and twopence coins only count as legal tender for amounts up to 20 pence.
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