Brexit is expected to jeopardize the pound’s stature as an international reserve currency according to an analysis of central bank money managers who say Britain’s separation from the EU will revise their views on sterling. The pound’s history as one of the most prominent international currencies has meant central banks have long held assets denominated in pounds that can be traded quickly to help curb fluctuations in their own currency’s market rates.
But a new survey suggests Brexit will imperil its prestige, with three-quarters of reserve managers predicting that central banks will collectively alter (and probably cut) their sterling holdings. Over one-third of 80 people surveyed — managers working at central banks that hold €7tn in assets — showed that they would diminish the sterling holdings they manage.
The pound was the global reserve currency of choice until around the middle of the 20th century when it was usurped by the dollar. Central banks choose reserve currencies from sovereign issuers that boost economic influence, support and open financial markets. Sterling is the fourth most popular reserve currency after the US dollar, the euro and the yen. Since the UK voted to leave the EU in June 2016, the pound has declined from above $1.45 to below $1.30. The UK was permitted a postponement by the rest of the EU earlier this month that enables Brexit to be postponed until October 31.