Currency strength might not be the best marker of success
Something we have all heard following Brexit is how the result has poorly affected our economy etc. I’m not arguing for or against the actual benefits versus negative effects because the outcome of Brexit is surprisingly hard to predict.
What I want to point out is why using currency value, which most of the people I’ve met have done, isn’t anything more than confirming what we already know: lots of people didn’t like the result. This is something which anyone could tell you, and you don’t need currency to point that out, but money seems to be the only thing that people listen to.
To explain what I mean I’ll give a quick example of how currency used to gain value, versus how it is now.
A little story
Currency used to be based on an object, I can’t speak for other countries, but the UK-based it’s currency on the value of gold, a physical object that was reflected by the amount available to any given person and how much people wanted it, simple supply and demand that is borderless (that is to say it’s not restricted for use in one place) and about as close to a single currency you could get way back when. This was called the “gold standard”, during the Great Depression the UK was forced to abandon this in order to help the economy and keep paying the workforce, the plan was always to get back onto the gold standard. For a number of reasons, this never happened, the great benefit being that, in times of hardship, the government could keep paying its citizens, and they could use it to encourage people to export, boosting the country’s economy. This shift moved currency from being pretty solidly linked to the supply and demand of a given object, to being a speculative value based token: influenced not only by the amount people were making in that country but also by how much people thought they would continue to make.
Fast forward a few years to the EU referendum and we get to a position where so many people have investments in the UK, and in so many different ways, it could be property, manufacturing, anything. The amount of demand for UK resources contributes most of the value of the currency.
And now for some thoughts
Now to go back to the argument I’m trying to make, that is, that the drop in the rate of the pound was nothing but a reflection of how people felt, this is why I found it so ridiculous that people were so shocked that the pound dropped at the result. Of course, it was going to happen, people were terrified, they were unsure if they would be able to charge as much for their property, or if they could import as much into the UK, etc. All of these things have an effect on the strength of the pound.
What I’d say is far more powerful is looking at the action of these investors. Plenty of companies that said they would leave haven’t, there hasn’t been much of a shift in the housing market and interest rates have remained fairly steady… However, this will obviously be met with the argument:
“Brexit hasn’t happened yet”
Several companies aren’t entirely sure of the repercussions that Brexit will have and that’s obviously going to affect us if the threats transpire. I’m not sure much will change until later and we can visibly see the effects, I don’t think anyone knows what the true effects are going to be when that happens. One thing for certain is that if Theresa May doesn’t stop appeasing the Brexit crowd with rhetoric she’ll pretty much damn near destroy the UK for good.
I guess the last question on people’s minds would be, do I think Brexit could be a good thing? I would argue yes, for a number of reasons, but it’s entirely dependent on how Theresa May handles it. If we remain with relatively open borders the housing market will continue to rise due to the demand for houses, (The higher the demand for houses the more expensive they’ll get) The price of buying a house is already pretty bad. If free trade is allowed to happen then perhaps businesses won’t see much of an impact as a result and won’t need to move, but honestly, I don’t think anyone knows what will happen, the value of the currency certainly can’t predict that outcome, just how people feel about the result.