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The latest on GBP to USD exchange rates
The lowdown on the US dollar
As the leading currency on the planet, the US dollar is the world’s most used currency in international transactions and the world’s most dominant reserve currency. It’s used in several countries across the world as an official currency, as well as a de facto currency in plenty more places after that.
The iconic dollar bills are recognised the world over and you’ll hear tons of nicknames for the famous US currency – from smackers to doubloons, Benjamins to clams.
Ever wondered where the dollar gets its name? Way back in the 16th century, Count Hieronymus Schlick of Bohemia began minting silver coins known as joachimstalers, named after Joachimstal, the valley where the silver was mined (in the modern day Czech Republic). Joachimstaler was later shortened to taler and the word found its way into Danish, Swedish, Norwegian and Dutch as daler, Hungarian as tallér, Italian as tallero, and English as, you guessed it, dollar.
Soon, all coins of a similar size and weight were known as dalers, such as the most popular coin of the time for international trade: a Dutch coin with a lion on it. This Dutch coin became known as the leeuwendaler, which translates as ‘lion dollar’. The leeuwendaler was very popular across the Dutch East Indies and in the Dutch colony of New Netherlands (now New York), soon spreading to the Thirteen Colonies during the 17th and 18th centuries, where the name caught on in English as the ‘lion dollar’. In fact, the modern day pronunciation of the word ‘dollar’ is actually still very close to the 17th century Dutch pronunciation of ‘daler’!
Of course, when Spanish pesos arrived in the US with the same shape and weight as the lion dollar, they soon garnered the nickname of ‘Spanish dollars’. These Spanish dollars became the currency of the Spanish New World by the mid-18th century and when the time came for the first official currency of the USA on September 8 1786, there was only one reasonable choice: the US dollar was born.
A look back at British pound to US dollar rates
Leading up to the early 20th century, the concept of an official ‘exchange rate’ hadn’t yet been invented. If you wanted to convert dollars to pounds back then, you’d need to buy actual gold in the US and then transport it to the UK where you could sell it for its worth in pounds. Imagine going through that process every time you wanted to go on holiday! What’s more, since there was no official exchange rate, the amount of pounds you’d get for your dollars would depend on the price of gold in the two countries – this is where the basic principle of the Gold Standard comes from.
More on the Gold Standard
From the 18th century, the pound and dollar fluctuated between using a fixed Gold Standard and using a free market, with £1 buying around $4.70. By 1937, every country in the world had abandoned the idea of the Gold Standard and the $/£ rate hovered around $5 dollars to the pound. With the outbreak of WWII, the dollar dropped significantly against the pound and the British government decided to officially peg the dollar against the pound at a rate of $4.03.
Post-war pounds and dollars
Following the devaluation of the pound over the next few years, the exchange rate fell to a fixed rate of $2.40 by 1967. In 1971, the US put a stop to freely converting between currency and gold, ending the last vestiges of the Gold Standard and establishing the freely-traded currency we all know so well today.
Over the next few years, the highs and lows of the pound to dollar were pretty substantial, with a $2.44 high at the end of 1980 contrasting starkly with a rate of just $1.05 to the pound in February 1985.
Disaster struck in 1992, when the UK was forced to remove the pound from the ERM (Exchange Rate Mechanism) in a move known as Black Wednesday, after it was unable to keep above its agreed lower limit. The pound fell dramatically to just $1.40 within a few months. After peaking at $2.01 in January 2008, the pound dropped further to $1.36 in 2009 but has hovered around $1.60 for the last five years. That’s around £0.67 to $1.