It was only a short step from there. Practically until the abolition of the gold standard, “national currencies” did not really exist. Of course, there were pounds and dollars, and all manner of historians and philosophers earnestly drummed into people the nonsense that the “national monetary unit” was an integral part of “national sovereignty.” Of course, central banks attempted to regulate monetary policy, but their capabilities were severely limited by the gold standard—that is, the obligation, increasingly a fiction over time, to exchange their paper for gold. For the economy, there were no “pounds” or “dollars.” There was a quarter ounce of gold (the pound) and one-twentieth of an ounce of gold (the dollar). Accordingly, the exchange rate “one pound equals five dollars” reflected nothing more than the equality of a quarter ounce of gold to itself.
Thus, a ten-pound banknote issued by some private English bank was formally no different from a banknote issued by the Bank of England—that is, by the central bank—since both, especially after the passage of Peel’s Act, had to be redeemable in gold. In practice, however, everyone understood that the value of a banknote depended on the issuing bank’s ability to exchange it for gold. Several court rulings in the United Kingdom mandated the acceptance of Bank of England banknotes in settlement of debts. Similar decisions followed in the United States. Thus, it was not just any “pound sterling,” but the pound sterling issued with the permission of the Bank of England that became the sole legal tender.