Sterling Could Lose Reserve Currency Status

The British pound has experienced significant devaluation since the UK voted to leave the EU last summer, seeing its value fall by more than 15 per cent. Consequently, the British currency’s share in central bank reserves across the globe is starting to diminish, with Deutsche Bank (DB) saying that reserve managers are slowly starting to move away from it. Research carried out by DB concluded that “the pound may offer value, but is increasingly becoming irrelevant.”

The International Monetary Fund (IMF) estimates that the equivalent of $350 billion is currently held in sterling reserves around the world. US dollars make up the majority of currency reserves as it is used for 63 per cent of global trade transactions. A further 20 per cent of deals are carried out using the euro, with sterling and the Japanese yen taking approximately 4.5 per cent of the share each. However, commentators are predicting that this proportion will soon be eroded away by the Chinese yuan.

DB analyst Robin Winkler suggested that “the pound’s diminishing role in international capital flows post-Brexit should permanently reduce its reserve status.” He also claimed that the Chinese central bank is reducing its sterling reserves at a faster rate than its other currencies.

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