The collapse of the pound

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The collapse of the pound

The author is the deputy editor of the economic policy news team at the JoongAng Ilbo.

After Queen Elizabeth II’s 70-year reign ended, much has changed. One of them is the design of the British pound. The face of Elizabeth II on the front of all the bills and coins in the U.K. will be replaced by the face of Charles III who succeeded her. The decision follows the tradition of the Royal Mint, which has a history of 1,100 years. The oldest company in England has carved the king’s face on coins since the reign of Alfred the Great (849-899). The tradition continues to this day.

On Sept. 29, the Royal Mint unveiled the new design for the 50-pence coin by sculptor Martin Jennings, which shows the left side profile of Charles III without a crown. It is different from the past design, which featured Elizabeth II wearing a crown on all coins and bills. Coincidentally, shortly after her passing, the status of the pound sterling, a key currency, started to shake.

A key currency refers to a currency that can be used in any country, as it holds a stable value similar to gold. Countries around the world store key currencies for foreign exchange reserves and emergency funds. There are only a few currencies recognized as world currency. Until the early 20th century, the British pound was the only world currency. It has been less than 100 years since the U.S. dollar joined the ranks of key currencies after World War II. Since then, the Japanese yen and the euro have also jointed.

The British pound, the original key currency, is having a crisis. As the U.S. Federal Reserve aggressively raises interest rates to control inflation, new British Prime Minister Liz Truss fueled the crisis. Upon taking office, she announced a tax cut program totaling 45 billion pounds ($51.3 billion). The financial market panicked as she presented a prescription to pour out more money when the British economy is already in trouble with soaring prices. The anxiety that the policy will further increase prices and sovereign debt led to the dumping of the pound. The value of the British pound against the U.S. dollar fell to an all-time low, $1.03 per pound. The downfall of the British economy continues, as its sovereign credit rating is expected to be downgraded and mortgage loans are suspended.

The storm in the global financial market is so strong that the pound kingdom that had been solid for over 200 years is shaking. Korea, too, is in the middle of the storm.
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