Sterling – is it worth it?
Image by Steve Punter via Flickr
As Robert Peston points out on his blog, the UK is currently caught in a vicious cycle.
UK banks owe billions to overseas lenders; lenders confidence in the UK banks is wavering increasing the likelihood of them demanding their money back; this is causing the value of sterling to fall, as the government, already massively in debt, is effectively guaranteeing repayment; sterling’s fall is in turn increasing the value of the bank/governments’ debts further reducing confidence in the banks and the UK.
Having an independent currency was supposed to have the benefit of allowing gradual devaluation to boost international competitiveness. Unfortunately as we are so in debt to the rest of the world, it seems to be driving us into a potentially nasty scenario where the UK can not pay its debts. Think Russia in the 1990s or Argentina in the early 2000s. Default leads to a sudden sharp fall in the value of the currency which then leads to massive inflation, as the price of imported goods and services soar. This feeds through to wage demands and all the knock on effects of being caught in an inflationary economy.
How long will it be until Gordon is on the phone to the IMF? Would this have happened if we were part of the Euro?
Related articles by Zemanta
- We’ll trip over the skin of our banana republic policies
- UK cannot take Iceland’s soft option
- The Falling Pound Raises Fears of Nationalization
- UK cannot take Iceland’s soft option
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=20529419-3566-48d9-aaee-3d4d1f8a9b9a)
Tags: Argentina, Devaluation, Inflation, International Monetary Fund, Robert Peston, Russia, United Kingdom