The GBP currency was introduced as paper money in 1694, with the establishment of the Bank of England. The Pound Sterling waspegged to the gold standard in 1816. However, with the outbreak of World War I, the gold standard was temporarily abandoned. The British economy weakened significantly after the war ended, with debts of over £850 million. In order to curb the situation, the Pound Sterling was pegged to gold at the pre-war rate, in 1925. Due to the Great Depression, the UK moved away from the gold standard in 1931. The currency was later pegged to the US dollar under the Bretton Woods system in 1940, at £1 = $4.03, till the end of World War II. The currency was floated in 1971.
The Euro began appreciating gradually against the US dollar in 2008, with the slowdown in the US economy gaining momentum.The British pound, which fluctuates in parity with the Euro, did not rise against the US dollar. The British pound began declining amidst a number of crises, including the weakening stock market around the world and the housing problems in the US. The subprime problems in the US particularly impacted the UK, since the British economy is driven by the financial services sector.