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Home>British Pound Holds Its Own as Reserve Currency, but for How Long?

British Pound Holds Its Own as Reserve Currency, but for How Long?

British Pound Holds Its Own as Reserve Currency, but for How Long?

10/03/2017

 By Mike Bird 

Sterling's status as a global reserve currency is little-changed a year after Brexit, a vote that prompted predictions of the pound losing favor among central banks.

The share of global foreign reserves held in sterling has edged up for the first time since the end of 2015, according to data from the International Monetary Fund published Friday.

Of the world's $9.264 trillion in allocated foreign exchange reserves, 4.4% of the total, or $408.1 billion, was held in sterling-denominated assets during the second quarter of 2017, from 4.3% in the first quarter of the year.

Central banks and governments buy assets denominated in reserve currencies -- mainly the dollar, yen, euro and pound -- to give them a pool of liquid securities that, in an emergency, can be sold to prop up the value of their own currency

Following last June's vote to leave the European Union, the pound plummeted and some analysts predicted the currency's remaining place in the reserves of central banks would fade, mainly as the country's giant financial services sector declined and increased volatility made it less attractive to hold.

But asset managers that work closely with central banks say they don't believe that these massive buyers have already begun to pare back sterling holdings, or will soon do so. Most central banks with large reserves don't independently publish their currency breakdown.

"To the extent we've talked to reserve managers about this, they haven't noted any fundamental change in the way they view sterling relative to anything else," said Gavin Ralston, head of official institutions at Schroders.

The pound has lost around 11% of its value against the dollar and 13% against the euro following last June's referendum.

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