Brexit Fallout

Central Banks to the Rescue?

Bank of England head Mark Carney says his institute is prepared for the Brexit’s fallout. Source: Reuters
Bank of England head Mark Carney says his institute is prepared for the Brexit fallout.
  • Why it matters

    Why it matters

    Central banks couldn’t stop a collapse in the value of the pound Friday, but markets are relying on them to be a force for calm in the coming weeks.

  • Facts

    Facts

    • British voters surprised the market consensus by voting to leave the European Union in a referendum on Thursday.
    • The British pound fell to its lowest value in more than 30 years on Friday morning as the result became clear.
    • The British and European central banks promised to provide liquidity to banks if they need it, but stopped short of intervening to prop up currency markets.
  • Audio

    Audio

  • Pdf

Central bankers hate uncertainty. So a British exit from the European Union was a headache that the world’s monetary policy guardians certainly did not need.

But central bankers are also known for being well prepared. On Friday morning, Mark Carney, head of the Bank of England, stepped before the cameras to assure the British people that, despite his many warnings over the past few months about the negative consequences of a Brexit, the country’s economy will be kept afloat.

The British central bank had prepared extensively for this moment, Mr. Carney said, even if the polls had predicted a different outcome for Thursday’s referendum. His institution stands ready to act, to prop up the financial sector if need be, including by providing liquidity to banks if necessary.

The European Central Bank in Frankfurt was no different. Even though Britain is not a member of the 19-nation euro zone, it will be up to the ECB president Mario Draghi’s institution to prevent the Brexit from impacting too drastically on the currency bloc.

In a statement, the ECB said it “stands ready to provide additional liquidity, if needed, in euro and foreign currencies.”

Speeches by Mr. Carney and at the ECB didn’t stop the British pound from falling to its lowest value in more than 30 years on Friday morning though. But then, that wasn’t the point. A radical fall in the pound’s value, as harrowing as it may have been, was widely considered inevitable by currency traders and central bankers.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.