After Brexit Pound At Risk of Losing Reserve Currency Status

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.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza