Brexit is Threatening the Value of the British Pound

Oct 10, 2019

The British pound sterling has been around since the eighth century and is the oldest currency still in use around the world today. The reason for this is mostly due to the explosive growth of Britain in earlier centuries. That growth in power bolstered the value of the pound throughout the centuries. 

Because of that, there has been a culture of pride for the British pound sterling from its citizens and even from those in other countries. For a long time, it has been a beacon of success and power. 

But that power and value have been on a slow decline since the 1920s, with an even larger potential decline looming.

The Decline of the Pound

As recently as the 19th century, the British pound was a dominant figure in the global economy. However, a costly World War I closely followed by World War II was a huge blow to the pound.

This gradual decline continued to play out over the years with another huge blow being dealt in 1992 when a group of wealthy investors led by George Soros bet against the value of the pound. This action alone was enough to drive down the value and forced the British government to allow the pound to be exchanged independent of European currencies in the currency markets. 

In 1999, the British government refused the adoption of the euro and stuck with an independent central bank. Despite it being the only European country to decline, this actually ended up working out in their favor as they were able to recover from the Great Recession of 2008 faster and more effectively. 

As the economy continued to morph, the U.S. dollar usurped the British pound sterling of its seat at the top of the global market, followed increasingly by the Chinese Yuan.

However, the move towards Brexit, which was voted on in 2016, has ended up dealing with another blow to the currency. In fact, on the day of the Brexit vote, the British pound sterling was valued at $1.48. The very next day, it dropped to $1.36.

Since then it has developed a spike of growths and falls with the value ultimately decreasing. The pound has dropped around 18% in value against the USD since the June 2016 vote. 

The Future of the Pound

It’s hard to say what will happen in the coming months and years as Brexit changes the British landscape, but many financial advisors are worried about the long-term effects that a no-deal Brexit might have on the British pound sterling. 

On one hand, a lower-valued pound means that imported product prices will go up inside the country. Depending on how Britain handles this will have a huge impact on their recovery and growth potential. 

On the other hand, a currency that more closely matches the rest of the world makes way for British companies to lower their prices of goods and services and to compete abroad more effectively. It might also make tourism an appealing option because of the more equal exchange rates for visitors from other countries. 

Only time and the decisions of the British government will spell out the future of the pound.

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