This is a very plausible explanation.
Indeed, but I think there are multiple factors at work in the problem perpetuating. Including misunderstanding on BA's part, and some legacy hard coding.
GIP is indeed a valid ISO currency code
Well, it is an ISO code allocation (as I said) - but I would not say it is necessarily 'valid'.
but which is practice used only in wholesale banknote trading. In the wholesale markets, GIP banknotes are worth less than Bank of England banknotes but more than Scottish banknotes,
Let's be clear, these are NOT 'GIP' banknotes, they are notes issued by the Government of Gibraltar, with face values in GBP. GIP as a currency does not exist.
Now Gibraltar issued notes, when used away from their home market, do have a legitimate much higher repatriation cost than Scottish / Northern Irish issued notes, and certainly than Bank of England issued notes. This increase in cost is due both in practical terms (due to transportation hassle, and low irregular volumes) and also due to inventory reason - nobody wanting to hold physical stock of GBP for any reason would want to hold GoG issued notes.
which is one purpose for which these separate ISO currency codes continue to exist.
No, I'm sorry but that is not at all WHY they exist (or WHY continue to exist) - if that is what you were saying.
ISO 3 char codes do NOT exist for many other issues of GBP denominated notes - including the various different Scottish and Northern Ireland issues, Jersey/Guernsey/Isle of Man issues etc. Yet in physical terms (inventory or dealing) these do need to be considered separately to BoE issues, so codes get made up for these other issues. (Often either in the X** range or in the GB* range - but the X range is usually safer - given GBX (non-ISO) use in many trading systems for pence, etc).
Now, given that GIP is in the ISO list, that is being used in practice, but it is not the reason why it is on the ISO list, I honestly believe it is a mistake that it is on the list.
It certainly does not exist in practice as a currency. Nobody has anything physical that is GIP valued, nor any bank account in it.
The simple solution to this is for BA to stop using GIP for GIB-originated flights and instead use GBP.
Indeed, especially since occasionally people in Gibraltar are getting charged FX load or foreign usage fee when a card system tries to do a 'GIP' to GBP conversion. Then report it to the bank to get it fixed, etc. So it is just causing problems.
Have reported this to BA many times.