The pound is at risk of fading from the top ranks of central-bank asset holdings following Britain’s decision to leave the European Union.
The world’s foremost reserve currency a century ago, sterling has been overtaken by the dollar and the euro, mirroring the U.K.’s waning influence in the global economy. Now its 5 percent share of foreign-exchange reserves is in danger of shrinking further because of Brexit, compounded by forces including China’s push to bolster the international role of the yuan.
Diminishing use of sterling-denominated assets would vindicate the warnings of those who called for Britain to stay in the EU and potentially put upward pressure on U.K. borrowing costs. S&P Global Ratings, which stripped the U.K. this week of its last remaining top rating, sees Brexit affecting the pound’s role as a reserve currency. Sterling has dropped more than 9 percent since the June 23 vote sent the nation into a political crisis.