On Sept. 26, the British pound hit a record low against the U.S. dollar following the announcement of tax cuts and further debt increases to curb the impact of a possible economic recession. The volatility simply reflects investors’ doubts about the government’s capacity to withstand the growing costs of living across the region.
The U.S. dollar has been the clear winner as investors seek shelter in the largest global economy, but the British pound’s weakness could be a net positive for Bitcoin. The GBP, or British pound, is the world’s oldest currency still in use and it has been in continuous use since its inception.
Fiat currencies are a 52-year old experiment
The British pound, as we currently know, started its journey in 1971 after its convertibility with gold or theequivalent was effectively terminated. Since then, the currency issued by the Bank of England has not had a fixed valuation.
Inflation has been the centerpiece of economic debates all throughout 2022 after central banks added liquidity to the markets over the previous two years to stimulate economies. As a result, in August 2022, the United Kingdom saw a 9.9% increase in consumer prices versus the previous year.
On Sept. 22, the government announced an unprecedented tax cut, the highest since 1972, causing the British pound to reach an intraday low of $1.038 versus the U.S. dollar on Sept. 26. Analysts concluded that government bond issuance would increase to pay for the lesser tax, and interest rates would have to be aggressively increased.
While the GBP’s loss of value is shocking, one must analyze exactly how important is the global currencies market, and how relevant is the British pound to cryptocurrencies. The first part is relatively easy to answer, but it depends on whether or bank deposits, savings and certificates of deposits are accounted for. If we stick to the base money definition, exclusively measuring circulating cash and deposits at the central bank, the pound sterling stood at GBP 1.05 trillion in June 2022.
In U.S. dollar terms, the U.K. currency represents $1.11 trillion out of the global $28.2 trillion in fiat base money, or…