The British Pound Stumbles at the Thought of Scottish Independence

Posted by Allison on 12 September 2014, 17:05

Most of us recognise the hazards various world currencies have to negotiate in order to maintain a good exchange rate with others around the world. An individual currency can be affected by all manner of events and occasions, and each one can have a bearing on how well – or not – it does on the markets.

Those of you who’ve been keeping up with the news in this area will be aware the British pound has had some issues of late. Most of this is down to the Scottish referendum which, at the time of writing, is due to take place in just a few short days’ time.

Why is the British pound affected? Simple – at present no one knows whether it would be the currency of choice in an independent Scotland. First Minister Alex Salmond is determined that it would be, whereas those in charge in Westminster (as well as the Opposition) say this would not – indeed could not – be the case.

The result is that there has been an increasing uncertainty over whether the pound would be used or not, and this has led to a weakening of sterling’s position against several other currencies. Sterling has become more volatile in recent weeks. This has led to sharper changes in the exchange rate instead of much smaller ones as we would normally expect to see.

Even though all eyes are on which way the Scots will vote, the resulting uncertainty is harming the rest of the UK just as it is harming Scotland at present. If there was to be a yes vote we could reasonably expect another sharp fall in the value of the British pound, at least until the thorny and still unanswered question of which currency the newly independent country would use is solved.

At the moment it looks as though this might be a moot point, as the momentum is swinging back in favour of Scotland staying as part of the UK. But until the votes are counted after voting on the 18th and the results are known, there is every possibility that sterling will continue to suffer as we go forward.