Currency speculation and Britain's economy
The pound has slipped to around $1.95, which makes my long-running and modest currency speculation firmly in profit (I think mine averages about $2.04).The pound's fall has been more pronounced against the euro, where a pound now buys only 1.32 euros, its lowest since the single currency's launch in 1999 [1]. Whilst the euro is probably overvalued at these rates worldwide there seems little reason to believe it is going to fall against the pound over the next year. This has prompted a lot of bizarre comments about GDP - last week we had the news (now not true) that the UK had overtaken the US in GDP per capita, and now we have the news that the UK has slipped below France in total GDP. The explanation in both cases is the exchange rate, when converted into PPP it is not true in both cases [2] [3]
[1] Around the time the euro notes and coins were introduced the pound traded at around 1.62. This also happens to be the number of km in a mile, and thus a few simple remembered conversions - 50 to 80, 66 to 100 - were useful. When a bit later the pound had fallen to 1.4 I remember driving in France and converting km to miles at that rate too, and was surprised to arrive earlier than expected.
[2] There are reasons to believe that Eurozone GDP might be understated. Tim Worstall has shown that there is more unrecorded domestic work in many of those countries than the US, and the UK probably leans to the US model.
[3] When comparing GDP of nations in power terms then market exchange rates are probably better than PPP. However while I think criticism of PPP on the grounds that it is difficult to compare consumption habits across countries is valid, it is also difficult to compare consumption habits across time, and yet there is a reasonable consensus that someone who earned £10,000 in 1970 had a higher income than someone who earns £10,000 today [not totally as some things were clearly worse in 1970].
Labels: currency speculation, economics, pound
posted by Matthew @ 1/12/2008 12:43:00 PM
Comments: 0
