Brexit Will Erode Pound’s Status As a Global Currency

A new survey has postulated that Britain’s exit from the European Union- a move now made famous by the Brexit call- will have ramifications for the pound.

The trade journal Central Banking Publications conducted a poll that suggests that Brexit will harm the GBP, especially if central banks around the world alter or completely cut their reserves held in sterling.

The pound enjoys global status as a reserve currency, with banks the world over holding assets in the currency. The ease with which these assets can be sold off to curb exchange rate swings adds to the appeal the British currency has.

That view will likely change in the event Britain leaves the E.U., according to respondents in the survey. Per the poll, up to three-quarters of respondents (currency reserve managers) hold the view that Brexit is going to be tough on the pound.

One in every three people out of 80 money managers who work at several central banks held a bleak view of the expected departure. Ostensibly, the respondents collectively oversee up to €7 trillion in assets, and their take was that they would have no second thoughts about cutting sterling holdings under their control.

As noted by Central Banking Publications’ Nick Carver, mass liquidations of assets held in sterling could see the currency’s popularity wane, weakening it.

Factors working against the currency could be the huge uncertainty surrounding Britain’s departure and the attendant volatility. Many reserve managers express dislike for the likely disruptive outcome of Brexit to markets and counterparty arrangements.

The Sterling, therefore, risks falling further behind popular reserve currencies like the U.S. dollar, the Euro, and the Japanese yen. Currently, the pound ranks as the fourth most trusted reserve currency.

Data from the International Monetary Fund (IMF) indicate that the pound has declined against the U.S. dollar since June 2016 when the U.K. voter agreed to leave the E.U.  The GBP has slipped from values above $1.45 to exchange at a regular $1.30 and below.