Sterling has been hammered since Thursday night.
When EU referendum polls closed, a single pound was swapping hands for $1.50. Now it will only get you $1.33. The fall on Friday of 7.6 per cent – on historically comparable calculations – was the sharpest since the pound has been a free floating currency in the 1970s.
However, as Deutsche Bank researchers have discovered, the pound has had noticeably worse days in its long history.
"I'm sure you've read by now that sterling's drop on Friday was the largest on record," strategist Jim Reid stated.
There have been eight occasions in the last 150 years when the pound suffered a sharper fall than it did last Friday. As Reid points out, that means, "in the 38,000 business days since 1862, Friday was only the ninth worse day for sterling. So maybe it's not all that bad."
|1||30.4 per cent||19 September 1949||Devalued under the Bretton Woods system|
|2||23.6 per cent||21 September 1931||UK leaves the Gold Standard|
|3||18.8 per cent||30 September 1869|
|4||13 per cent||20 November 1967||Harold Wilson's "pound in your pocket" devaluation|
|5||11 per cent||25 March 1863|
|6||9.8 per cent||10 May 1940||Deviation from the dollar peg|
|7||7.9 per cent||25 September 1931||Second devaluation after leaving the Gold Standard|
|8||7.8 per cent||19 June 1866|
|9||7.6 per cent||24 June 2016||UK votes to leave the European Union|
Before 1971 the UK had, to some degree, a fixed exchange rate. Be it the gold standard – which allowed anybody to exchange currency for a defined amount of gold – or the Bretton Woods system – which pegged the US dollar to gold.
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This meant devaluations were a conscious act and required express action on behalf of the government of the day. It also meant they were usually relatively large in scale. Because it was seen as a political embarrassment to devalue your currency, governments often tried to delay, or take whatever steps they could to put it off.
- In 1931 the National Government was formed in the midst of the depression with the specific mandate of keeping the pound on the gold standard. It failed within months.
- Then again, after the war in 1967, Harold Wilson created uproar when he tried to claim that his devaluation, taken under the Bretton Woods system, had not reduced the value of the pound in people's pockets.
- Under the exchange rate mechanism (ERM), which pegged exchange rates across Europe, John Major spent more than £3bn in reserves trying to maintain the value of the pound on Black Wednesday in 1992. On the same calculations, sterling fell by 4.2 per cent according to Deutsche Bank – the 28th worst in the list of sterling's dark days.
Despite coming only ninth on the new list, it's worth remembering that free floating currencies are designed to stop drastic price movements over short periods of time. Had the pound not had a pegged exchange rate, and been allowed to drift gradually lower in 1967 or 1931, such large one day movements may not have occured.