Here's why you should still care about the British pound - Business Insider

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Here's why you should still care about the British pound CMEGroup ad

On a historical basis, the British pound is extremely important. It is the oldest currency in the world that is still in continuous circulation.

There have been a lot of ups and downs in its 1,200-year history, but the pound, commonly known as sterling, is the fourth most actively traded currency behind the US dollar, euro, and Japanese Yen. And it has long been a popular investment destination with a well developed English-speaking financial market.

On a practical basis however, sterling's impact on investments depends on the percentage of sales that a company does in the UK. If the amount is limited, say less than 15%, the rise and fall of sterling will only affect earnings in a minor way. However, if the company has significant business abroad in the UK — in excess of 30% for example — then a stronger pound will translate into higher earnings for the American business.

If an unruly Brexit causes money to flock out of the UK, we could see markets and sterling come tumbling lower. There could also be major stress for UK banks that would force the Bank of England to provide stimulus. London is home to some of the largest banks in the world — and in the worst case scenario, we could see UK bank failures with global repercussions.

If sterling crashes, the biggest beneficiaries will be the euro and US dollar, as investors escape into the safety of assets in the US and continental Europe. From proximity alone, German, French, and Eurozone investments would be the biggest beneficiaries of Britain's plan to leave the European Union.But there's one sector — fintech — that could be hit particularly hard by increased regulatory hurdles and the loss of EU trade benefits.

 

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