Astute readers will have noticed two rather similar trends in recent days. Big falls in the Cryptocurrency markets, and big falls in the £ sterling, that once-venerated symbol of Britain’s former imperial might. But, despite the fears in the public bar of the The Dog and Duck, are we really talking about the same thing?
We have always taken the view that virtual currencies will slowly integrate themselves into the broader world economy-as does trading in any new technology.(LSS 11 1 21) Think motor transport in the twentieth century or the international wine trade in the iron age, if you want. But there may be many fluctuations and bubbles before the new boy finally settles in place. Which might be some considerable time.
Sterling is rather different. Whilst it is true that UK exports and foreign investment are dramatically down, the currency is still backed by the complex infrastructure of a modern state. Which has a relatively educated workforce, transport and communications and a considerable research base in its Universities. These will persist. So a change in the currency exchange rates reflects economic realities, not existential threats. Indeed a lower rate for sterling could actually drive an export revival, as we have argued before(LSS 30 9 21) A UK trading the £ at or even below parity to the Euro would in effect have circumvented many of the disadvantages of being outside of the single market. Individual Britons would feel the squeeze in things like holidays and consumer prices. But eventually Britain (or perhaps England and Wales) would achieve a new equilibrium with the EU block, just as Ireland did with the Sterling area in the 1950s.
Former British Prime Minister Margaret Thatcher once memorably remarked “you can’t buck the markets.” We are not financial advisers or even economists, but we think she was right. An equilibrium will return. We just have to set the price.
#sterling #pound #eurozone #euro dollar exchange rates