Even before the UK’s Brexit vote was official, the pound’s value plummeted. It has been much reported that sterling has hit record lows. A look at the history of British currency crises shows how dramatic the shock was. That’s not to say Brexit has precipitated a full blown crisis, but a sterling recovery in the short term is not to be expected.
The pound fell to £1 to US$1.28 in the two weeks after the Brexit result. This has only been reached once in all the time these two currencies have existed – for a two-year period in the 1980s. And in the 1980s, the low rate was not due to a fundamentally weak pound, but to a strong dollar. All European currencies at the time fell against the dollar and were saved in 1985 by the Plaza Accord, a commitment by the US and Europe’s major economies to support their currencies through market intervention.
Apart from this brief episode between 1984 and 1985, sterling is now at its lowest against the US dollar since 1792, when the first American dollar was minted. The morning after the announcement of the Brexit result on June 24, sterling had dropped 10% overnight and was down 8% at the end of the trading day. Only four times since 1900 did the pound drop so much in one day – in 1931, 1940, 1949 and 1967. Two of these four falls were government induced devaluations.
Image: Pound coins
Credit: J D Mack
Alain Naef, PhD Candidate in Financial History, University of Cambridge
This article was originally published on The Conversation. Read the original article.
The opinions expressed in this article are those of the individual author(s) and do not represent the views of the University of Cambridge.
Reproduced courtesy of the University of Cambridge
____________________________________________