A Brexit wouldn’t just weaken the pound — it would jeopardize its status as a reserve currency used in world trade, according to S&P Global Ratings.
Sterling lags only the dollar and euro in central banks’ holdings, a legacy of Britain’s large economy, its trusted legal system and use of the global lingua franca. But a vote to leave the European Union on June 23 may dethrone the pound and would even threaten the nation’s top AAA credit rating, says S&P.
“A U.K. departure from the EU could put sterling’s reserve status at risk by deterring foreign direct investment and other capital inflows,” London-based analyst Frank Gill wrote.
“Sovereigns controlling a reserve currency benefit from extensive external and monetary flexibility, which supports government creditworthiness.”
The pound rose 0.1 percent to $1.4653 as of 11:45 a.m. London time, leaving its decline this year at less than 1 percent. It has rallied in recent weeks on speculation its pre-referendum slide was overdone and as some opinion polls suggest the campaign to keep the U.K. in the world’s biggest single market is gaining strength.
Sterling gained 0.1 percent to 76.03 pence per euro and touched the strongest level in more than three months.