Will Brexit Break the Pound?
The British government's recent announcement that a referendum on the UK’s EU membership will be held on June 23 was quickly followed by a sharp decline in the value of the pound. The risk is that such volatility – and the accompanying political instability – could drive British voters to reject the EU.
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PRINCETON – The British government’s recent announcement that a referendum on Britain’s European Union membership will be held on June 23 was quickly followed by a sharp drop in the pound’s value. Exchange rate volatility for the pound is bound to continue until the referendum, and to intensify at moments when a vote for “Brexit” looks more likely. The result may be a self-fulfilling prophecy, in which market and political instability drive British voters to reject the EU – an outcome that would be highly dangerous for them and their European counterparts alike.