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Brexit and the Pound

The value of the Pound is reacting to every last little bit of news about the EU referendum. The mainstream media would like us to worry that its value could drop if we vote to leave. Everyone is talking about it. Even City AM, though the two comments point out that it depends what time spans you look at. In any case, past Guardian articles bemoan a high value Pound, so Guardian readers must now vote to leave.

The value of the Pound also reacts to traders with fat fingers. I conclude that there is nothing to see here.

Anyway it is quite obvious what will happen to the economy in the event of Brexit: some short term turmoil while things reconfigure themselves to the new arrangements, followed by a bit more growth than there would have been otherwise thanks to slightly less friction from interfering politicians.

8 comments to Brexit and the Pound

  • CaptDMO

    But..but…with largely (now) electronic “placeholders” for
    silver, at this point, what difference does it make?
    Isn’t an electric transferable “promissory note” JUST as valuable as a hyper-inflated paper one?
    Barter, and goods, are still legal…RIGHT?

  • Fred Z

    “slightly less friction from interfering politicians”

    Sounds like the triumph of optimism over experience.

    I rather think UK politicos are ready, willing and able to provide the necessary interference and keep friction up to standard.

  • bloke in spain

    Something the old market traders used to say “Up on anticipation, down on realisation.” (Or the converse, of course.)
    They also said “Sell in May & go away”

    Done that.

  • Laird

    BIS, the aphorism I’ve heard is “buy on the rumor, sell on the news.” Which is essentially the same thing.

  • bloke in spain

    Not quite, Laird. What out canny traders were doing was predicting trading patterns. The trick is, of course, to be ahead of the market, not lagging it. So one should really be out, before the news.
    The old “sell in May” thing is about market volumes. With a lot of traders away on holiday or at the cricket, trading is thin. Thin trading produces large price fluctuations, as each trade has a disproportionate effect on the market. So more unpredictable and, if you do need to unload or cover, much harder to do so without moving the market against you.

  • Greytop

    I always though Bruin was the worst Prime Minister ever (though the jury is out on whether Bliar can claim that title) but I take my cap off to him: he probably did more than anyone to keep us out of the Euro. If we had adopted that Toytown money — and who doesn’t want picture sod bridges on their banknotes? — it might be even harder to get out the Ever-so Useless club.

  • Paul Marks

    The Pound is clearly over valued.

    See Purchasing Power Parity with other currencies.

    And also see the massive balance of trade deficit.

    The government (and everyone else) should be welcoming the correction of the exchange rate – the “fall of the Pound”.

    This is the market working as it should.

    It baffles me that some people want an artificially high exchange rate.

  • Paul Marks

    People who want artificially high (or “fixed”) exchange rates (who go into a panic when the currency “falls” on the exchange markets) have done vast harm in many countries – including in Britain.

    It is one of the things I watch for.

    If someone want a fixed exchange rate that person either knows nothing about economics (about how prices must be allowed to adjust – and that exchange rates are prices) or they deliberately intend to do harm.

    The only way one can have fixed exchange rates without doing harm is if there really are no exchange rates at all – i.e. if the currency is really the same in different countries.

    For example – GOLD.

    IF there are different fiat currencies then exchange rates must be allowed to adjust.

    In this case (the case of massively overvalued Pound – leading to huge trade deficit and so on) the exchange rate of the Pound must be allowed to fall.