Has the pound become money in emerging markets?

S.There was tarling Once the most influential currency in the world. As soon as the American dollar took its crown it became second tier but elite and had been satisfied with its abundance for decades. Yet the pound’s shine seems to have faded again lately – so much so that Bank of America’s Kamal Sharma says it’s “acting.” [like] Emerging markets (Inside) Currency “.

Not that the pound has suddenly turned into the Turkish lira or the Argentine peso. It remains part YesThe dollar, the euro, the Japanese yen and the Swiss franc, as well as 5 groups of heavily traded currencies. Yet it has proven to be more risky for crises than others.

A “flash crash” in October 2016 saw its price rise from $ 1.26 to $ 1.14 in less than a minute. Cowid-induced panic engulfed markets in March 2020, causing the dollar to fall 12% against the dollar in a fortnightly interval (the euro fell only 6%). When British petrol pumps dried up last September, it sank again, raising traders’ expectations of its future volatility. The Bank of England’s decision to raise interest rates has already stabilized it for the most part, but some commentators are adamant that the pound has not only become detached from other developed economies, but has joined it. Inside More

Such claims are usually made when the speaker’s tongue is firmly attached to their cheek. Inside Curious features of the currency include capital control (Chinese yuan), hyperinflation (Argentine peso) and “unconventional” monetary policy (Turkish lira). The liquidity crisis during the market could lead to a severe devaluation of Sterling, explaining why it is not a safe haven like the dollar or the Swiss franc. But in normal times, call a bank’s foreign exchange (FX) The trading desk is asking to sell half a billion pounds and they will not struggle to do so. That they could be for a Inside Currency is a distinctive feature of the department.

Indeed, Sterling is notable for contrast: it plays a strangely outsourcing role. FX Market Britain accounts for 3% of the world GDP. Yet over the last 20 years its currency has consistently involved more than a tenth of it FX Business

So why would traders like sterling, if it is so fragile? You can make a foreign currency transaction if you want to buy a product or service from the country that issued it. Or you can sell something in exchange and convert the income into your currency. Neither explains Sterling’s popularity: in 2019, Britain accounted for 3.8% of global goods imports and 2.6% of exports. Or it does not specialize in central-bank holdings (it makes up less than 5% of the global reserves). The dollar dominates global financing, with many governments borrowing it and some market-products being priced. The pound does none of these things.

In fact, it is a medium for lesser goals: speculation and cross-border investment. People take a punt on the value of sterling or they trade to buy or sell British assets. It has more in common with other rich-world currencies. Like Sterling, the Australian dollar is issued by an open, developed economy that relies heavily on trade. Punters use both to bet on trends larger than their issuer’s economic footprint: a proxy for sterling risk appetite; Aussie dollars for commodity prices. And they are bigger FX The market than the height of their economy or the trade volume warrant. Australia is less than 2% of the world GDPYet its dollar is within 6.8% FX Business

Five years after the Brexit vote, there are few signs in Global Britain that voters have been promised, and Sterling has been announced. Inside According to the country’s passion for currency fall. But to understand the role of the pound today, look down. 3

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This article is published in the print edition of the section on finance and economics under the headline “Not so sterling”