Review & Outlook

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Twenty years from now, would you rather be paid in euros or pounds?

17 October, 2016 by Matthew O'Brien, Ph.D. in Commentary

I asked myself this question as I read the commentary about the recent sell-off in the pound sterling.  Here is the pound against the dollar:


Many commentators have taken the opportunity of the sell-off to castigate Brexit and Britain’s new prime minister, who seems bent on implementing the results of the referendum and not slowly walking it back.  Thus Martin Wolf, the leading economic mandarin at the Financial Timespronounced that the sell-off was the market’s verdict on Brexit’s foolishness.  Yet it seems much more foolish to me to divine in short-term currency fluctuations any judgements about sovereignty.  Let’s also remember that the Bank of England’s policy response to Brexit has been to weaken the pound, so it’s hard to argue that a weakening pound is itself somehow clearly attributable to Brexit alone.  In any case, if today you gave me an annuity that started paying twenty years from now — choosing either in pounds or euros — I wouldn’t hesitate in choosing pounds.  So too, presumably, would some of the founders of the euro.