Pound losing status?

Not only has the pound shed more than 15 per cent of its value against the dollar since the Brexit vote last June, but now one City of London analyst has suggested that sterling could be at risk of losing its “reserve currency” status too.

But what does this mean? Why would it matter? And is it even true?

What is a reserve currency?

These are well-established and internationally used national currencies that central banks and governments around the world buy and hold as official “reserves” along with other assets such as gold.

They do this for the purposes of managing their own currencies in times of stress, by selling the reserves at certain times and buying them at others.

The vast majority of global trade is conducted in US dollars – so the dollar is the world’s pre-eminent reserve currency, at around 63 per cent of the total.

But the euro is another, on 20 per cent. Then, some distance later, comes the pound sterling at 4.5 per cent, roughly equal to the Japanese Yen.

According to IMF data the equivalent of $350bn of reserves is held around the world in sterling.

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