BBC: Pound hits three-year dollar low in Brexit turmoil

Article published: Sep 2, 2019

IB Economics syllabus: International economics (exchange rates)

No-deal Brexit is becoming a likely scenario for the United Kingdom to leave the EU and if it becomes reality, only one thing will be certain: uncertainty. But, as the article mentions, “[c]urrencies, as a rule, do not like uncertainty.” As a result, this has led to the fall of the GBP (British Pound) against the USD. You can represent this in an exchange rate diagram with a fall in demand for the British currency leading to its depreciation. As for the evaluation, make sure you talk about the pros and cons of the freely floating exchange rate system as well as what could be done to in the UK to restore business confidence.

Furthermore, note that there was a time – back in the 1990s – that the Bank of England had a managed exchange rate system, but this ended on Black Wednesday.

Source of image: Getty images

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