Pound’s Fate Was Inevitable

Far from Brexit causing the termination of the UK economy the changes in the value of the pound were inevitable and do not represent a disaster, says the Guardian:

Sterling had to fall, regardless of the EU referendum – with such a big trade gap, it was inevitable

Brexit or no Brexit, it has been clear for months that the only way for the pound was down. When a country is running a balance of payments deficit unsurpassed in peacetime history, it is hard to make a compelling case for its currency going up.

In truth, all the referendum vote on 23 June has done is to bring forward the fall in sterling and squeeze it into a shorter period.

LATER: Thia was not the narrative one might expect to read there, but Sam Bowman offers an explanation.


  1. Sterling stuff. The problem with fiat currencies is that it is like watching skydivers with varying postures and levels of drag falling, all at various speeds, and some fall faster than others, making the higher ones appear strong. ‘Hitting the ground’ is of course, the Weimar/Zimbabwe stage, when there is a ‘flight’ from money. We don’t and can’t know the ‘right’ price for a £ as the currency is subject to central bank interest rate tinkering, QE and all the other vagaries of the economy. We can say that lowering the currency can to an extent reduce wages rates in relative cost terms and thereby boost employment, as well as the relative cost of manufacturing and services, but of course, imports such as nice Moldovan wine, cost more. Treat it as an opportunity to innovate, everything changes.



    1. Agree with the analogy.

      It amazes me that so many economists clearly see that central planning is inferior to individuals in a market for every other industry except money, in which case their hubris as to their own profession’s abillities leads them to support the regular intervention of a few appointed wise men in money markets as a positive thing.

      If, when things get worse, Brexit is the worst excuse for blame in the popular narrative that would be a good outcome. Unfortunately the groups who get blamed are usually more identifiable and, as such, come to more harm.



  2. The exchange rate of the Pound was absurdly high – destroying domestic industry.

    However, to cut interest rates was insane – the Central Bank (which should not exist) should not be handing out funny money- it is madness.

    We will never know whether Paul Marks was right about there going to be a bust anyway – as the Fiat money authorities have decided to double down on their madness.

    It is a bit like me saying “this man is going to die of that gunshot wound” – and then Mark Carney coming along and shooting the wounded man again.

    I will never know if I was right in my first estimate.



    1. Your analogy eloquently describes the main flaw of economics in its inability to replicate controlled experiments to prove hypotheses, and the main flaw of economic policy makers who ignore the hypothesis anyway for thereason that ‘this time it’s different’.



    2. May it be some comfort that in the scenario of the dying man, assuming sufficient malice existed, both the first shooter and the one delivering the coup de grace would be guilty of murder in English law, or MORDUR in Scots law.



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