Information on Dollar-Pound Exchange Rate

You have asked for the exchange rate between the United States dollar ($) and the British pound (£) for a given year or period of years beginning in 1791. The exchange rate is the price of the British pound in terms of the dollar: the number of dollars that it took to buy one British pound. The exchange rate can also be expressed as the inverse, that is, the number of pounds that it took to buy one dollar. For most foreign currencies today, the exchange rate is commonly defined in the latter way (the price of the dollar in terms of the foreign currency). Only because of long tradition is the exchange rate for the British pound and a few other foreign currencies customarily expressed as the price of the foreign currency in terms of the dollar.

With the exchange rate providing the number of dollars per British pound, a higher exchange rate (for example, $4.75 in 1794 versus $4.51 in 1793) denotes a "weaker" dollar. The dollar has depreciated (lost value) in comparison to the pound. Similarly, a lower exchange rate (for example, $4.53 in 1795 versus $4.75 in 1794) means that the dollar is "stronger." The dollar has appreciated (gained value) compared to the pound.

The importance of the exchange rate is that it enables conversion of a foreign price or value into dollars. Because of the way the exchange rate is defined, the foreign magnitude is multiplied (rather than divided) by the exchange rate to obtain the dollar equivalent. For example, if a British good costs £100 in 1794, it would also be worth £100 x $4.75 = $475. Similarly, a dollar price or value can be expressed in British pounds by dividing the dollar magnitude by the exchange rate.

For 1791-1912 the exchange-rate data pertain to what was called a "sight" (or "demand") bill of exchange. This meant that the buyer of British pounds paid in dollars immediately, but received the pounds after shipping the bill across the Atlantic and "presenting" it in London. Until 1879, in fact, "time" bills were the basis of exchange transactions. For example, a 60-day bill would involve an additional 63-day lag before receiving pounds—60 days inherent in the bill itself plus three "days of grace." The time-bill data (1791-1878) are converted to a sight-bill basis by eliminating the interest-component associated with the additional lag beyond that for a hypothetical sight bill.

For 1913 and later years the exchange-rate data are for "cable transfers," whereby pounds are received on the same day that dollar payment is made. By the year 1913, the difference between the sight and cable rate is so small as to be unimportant for most purposes.

The entire exchange-rate series is distinctive in two respects. First, with rare exception (fourth quarter of 1833 and all of 1834), the data refer to actual and large-scale transactions rather than advertised, posted, or otherwise hypothetical exchange rates (the latter commonly recorded until the late nineteenth century). Second, the data are annual averages, covering as much of each year as possible, rather than pertaining to a specific day or month of the year. For 1870-1914, the data are annual averages of daily rates. For 1791-1869, the data are annual averages of quarterly values, these values derived as averages of all available intra‑quarterly observations.

For further details on the exchange-rate series, the interested reader may consult Lawrence H. Officer, Between the Dollar-Sterling Gold Points (Cambridge University Press, 1996) and Lawrence H. Officer, "Exchange Rates," in Susan B. Carter, Scott S. Gartner, Michael Haines, Alan Olmstead, Richard Sutch, and Gavin Wright, eds. Historical Statistics of the United States: Millennial Edition, vol. 5 (Cambridge University Press, 2006).