Subject/Request Details: How Sterling can be used to express the value contained in the commodities it is exchanged for if, in itself it has minimal value? What is meant by "public faith in the pound", how it is maintained and why price stability is the aim of this maintenance?
Date released: 17 March 2016
The value of money is essentially what it will buy; people accept it as payment for goods and services only if they believe it can be used for other payments of similar value. Universal trust in the value of the currency is the key to the success of a fiduciary currency (i.e. one based on faith).
Part of the public faith in a currency is that, not only can it be exchanged for goods and services now, but also in the future. This implies an expectation that the currency will be able to be exchanged for broadly the same value of goods and services at a future date. This faith can only be maintained if prices do not rise, or only rise slowly, in other words that inflation is under control.
Further information on how the Bank of England (the ‘Bank’) seeks to control inflation through its use of monetary policy is published on the Bank’s website.