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The British Pound could be going to see a currency crisis and a complete repricing of the exchange rate, there are many reasons that markets and financial institutions have been weighing for the repricing of the Pound. There are many econometrics data that explain why the British Pound could get into a currency crisis. That becomes interlinked with the UK Private Pension fund industry and the potential insolvency of £3.2 Trillion pound industry. The Financial account of the UK overall stands on £ 7.18 Trillion of External debt= 326% DEBT/GDP, which that means on a gross notional the whole UK economy has been leveraged 3.26 times against the whole output of the economy, about £ 2.2 trillion pound.
Of this external debt £ 7.18 trillion pound, financial institutions, and large investment funds know that the UK private pension funds hold £ 3.2 trillion in assets, on their balance sheet, that gets leveraged through liabilities that would be future payables to private pensioners, but as well the liability part of Private Pension balance sheet are financial assets as well. So becomes intuitive to understand that the UK financial account deficit of £ 7.18 TRILLION EXTERNAL DEBT, would figure out also as assets on the UK Financial account position, while indeed the £ 7.18 Trillion of external debt makes the UK financial account completely insolvent representing 326% DEBT/ GDP ratio.
Considering the UK as a relatively small open economy, that will require the Pound to depreciate much more to balance the pressures on all other parts of the economy. The structural Balance of Trade deficit would require the British Pound to depreciate much lower below parity for UK exports to become competitive and functional to other economies in the global supply chain, theoretically, that would have the potential to invert the flows of the UK Balance of Trade deficit into a surplus, that, of course, would require the UK economy to develop a consistent semi-manufacturing and manufacturing industrial base, that would become functional to global supply chains and industries, while also supplying the island economy.
The UK Fiscal position has become of structural deficits since the aftermath of the 2009 financial crisis that forced Governments to utilize billions of pounds in borrowed fiscal deficit to stabilize the banking system and the economy as a whole. The mismanagement of the UK Public finances during the past decade has made the UK GDP/DEBT ratio 101%<102% and most probably in future continuing to increase more than the UK economy on aggregate. The funding of this Fiscal Deficit through GILTs issuance has become more difficult and thereby requires higher yields for investment funds. That would require a large part of UK Fiscal revenues to pay for DEBT INTEREST SERVICING. (only interest paying).
The structural deficiencies and imbalances of the UK aren’t going to be solved in the near term, indeed, these deficits have become a feature of the UK economy relying on external financing and these external financing flows will come to an end thereby transforming into a Currency Crisis. The British Pound’s probably going to depreciate a lot, when considering the last depreciation, we can see that the POUND depreciated 0,75 cents -35%<-36%. So going forward there are possible scenarios to consider: 1) 0,75 cents depreciation would see -53,5% below parity GBP/USD 0,67 cents. 2) -35,5% depreciation -0,50 cents would see GBP/USD 0,91 cents below parity.
The UK economy in its exchange rate, over time, will drift toward the Scandinavian countries’ exchange rate levels, although this would most probably in the near term determine a GBP Sterling-denominated assets financial crisis that can become a global financial crisis.