Leaving Is Not Just a British Thing
What happens to the money when political ties are forged or broken?
There will always be gold and silver.
Next week Britons will go to the polls to determine whether the United Kingdom will stay in the European Union. The decision could have a profound global economic impact on the currency, bond and equity markets. If the “leave” vote wins, it will set off a chain event of uncertainties . If the “stay” vote wins, the trend towards devolution of power from larger state entities may be slowed, but not stopped.
Over the past few centuries in the west, there has been an inexorable movement towards nationalism and supranationalism. Ever larger governments have been established to bring about unions of peoples sharing common cultures, histories, territories and languages or shared destinies.
Over the past two decades, however, the movement away from larger nation and supranation states has developed and appears to be accelerating.
Since the beginning of the Renaissance there has been a trend in the west towards larger more powerful states.
Key Dates in Western Nation State Development
1516 Spain – Unification of Hapsburg Spain post reconquista from Arab rule.
1536 England and Wales – Act of Union united England and Wales.
1707 England and Scotland – Union with England Act united England and Scotland.
1787 United States – U.S. Constitution signed/ratified (1789) creating the United States of America.
1861 Italy – Unification of Italy, Kingdom of Italy established.
1865 United States – War Between the States ends resulting in stronger federal union.
1871 Germany- Unification of northern German speaking territories post Franco-Prussian War.
1918-1992 Yugoslavia (formerly the “Versailles state”) – Union of States of Croatia, Slovenia and Kingdom of Serbia.
1922-1991 Union of Soviet Socialist Republics (Soviet Union).
1938 Germany – Austria added to Germany (Anschluss).
1958 European Economic Community established among Belgium, France, Italy, Luxembourg, the Netherlands and West Germany.
1990 Germany – western and eastern Germany reunite towards end of USSR.
1992 European Union established.
1999 -European Monetary union substantially completed with introduction of the Euro.
Since the early 2000’s there has been a counter-trend towards a devolution of state power. Political
movements over the past 10-15 years that aim to reverse the multi-century long trend towards consolidation of political power in larger governmental entities have gained in popularity.
Key Dates in Western Nation State Devolution
1993 United Kingdom – UKIP Founded- Eurosceptic party, won 12% of House of Commons vote in 2015, 28% of European Parliament vote in 2014. UKIP supports leaving the European Union.
2009 Italy – Five Star Movement Founded – Eurosceptic/direct democracy party. Won 2nd most votes in 2013 general election. Five Star Movement’s Virginia Raggi is the leading candidate to be elected Mayor of Rome on June 19.
2012 France – National Front- anti Euro & Eurozone candidate Marine LePen won 18% of vote for President of France.
2014 Spain- Catalan Independence Referendum. Passes by 80%. Spain, however deemed the referendum illegally held and invalidated the results.
2014 Scotland -Scottish Independence Referendum. Failed with 45% of voters choosing independence.
2016 United States – Floor vote barely avoided in Texas legislature on issue as to whether Texas should secede from the United States.
2016 United Kingdom – Will hold Brexit vote on June 23. Recent polls show a majority of Britons favor leaving. In a referendum held in 1975, more than 67% of Britons voted to stay in the European Community.
What happens to the Money When Change Arrives?
There will always be gold and silver
Currencies issued by government entities are vulnerable to political changes, uncertainties, including the potential for extinction. For example, currency issued by the Confederate States of America lost all their value when it was defeated by the United States of America in 1865. Indeed, Confederate dollars were losing value rapidly as the CFA’s prospects waned towards the end of the war. Confederate citizens who held their wealth in U.S. dollars, British pounds or gold managed to save their wealth after the defeat of the the CFA.
Sometimes, there is an orderly transition of national currencies as was the case in 1999 when the Euro was introduced and the European nation state currencies were phased out. European citizens merely turned in their marks, francs and lira for Euros. A larger entity, the European Union, stood to back the new currency.
Euro and the Pound
How will the Euro perform if the United Kingdom leaves the Eurozone? Will a Brexit cause other European nations to also wish to leave? Can the European Union survive with fewer members? Are there certain core members that must remain to give the Euro legitimacy? One can imagine scenarios where the Euro loses value or gains value post Brexit. But neither scenarios are certain in severity or outcome.
With the trend towards devolution perhaps the larger entity is not the stronger one.
How will the British Pound perform if the United Kingdom leaves the Eurozone? In the period leading up to the Brexit vote on June 23, markets have viewed a vote to leave as being negative for the Pound. Perhaps, a Brexit vote will be negative for the Pound if the British economy suffers and the European Union is unaffected. There is a possibility, however, that the British Pound will strengthen post Brexit if the European Union struggles to keep together its political and monetary union post Brexit, while the United Kingdom pursues a predicable course unencumbered by European Union considerations.
Those looking to hedge their currency bets, often bet on the currency of another government that has less perceived risk and greater stability. While one can bet on another government’s currency, the safest bet (but perhaps not the most profitable) is usually gold or silver because they never default or cease to exist.
With gold and silver there is no uncertainty – nothing ever happens to change their underlying properties. How some people vote in Stoke on Trent, Waltham Abbey, or Glasgow may determine the value and even the existence of the pounds, euros, dollars, shares or bonds you hold. While the value of gold and silver may be impacted by political changes like Brexit, such changes do nothing to change the underlying immutable nature of gold and silver. Value has been ascribed to gold and silver for over 5,000 years. The Brexit vote on June 23 won’t change that and indeed may increase their values.
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.