Is it time to ditch the Pound?

Just a thought: if currencies are humans, they’re all in a hospital right now. The US dollar is in constant fluctuation. The Japanese yen’s high exchange rate is hurting their economy same with the Chinese yuan. And now, the pound is sinking too.

A zap of history: Pound sterling is the oldest circulating currency in the world. It is the monetary unit of United Kingdom. Originally, the term meant an actual pound of silver from which 20 shillings were coined. In 1931, after U.K. left the gold standard, exchange value of one pound is $4.86.

Declining power: The pound’s strong value allowed most Britons to travel vastly without spending much. That was before the pound sterling’s value started plummeting. And yesterday, United Kingdom’s charter carrier British Airways announced a huge drop of profit and shares caused by the weak currency.

In 2008 UK pound has lost about a fifth of its value against the euro and 30% against the dollar. As of Jan. 27, the venerable currency was worth $1.42 and €1.08, well off its peak of $2.11 and €1.53 in 2007. Although it did bounce back a bit today after reaching $1.4375, the highest level since Jan. 20.  

So what’s causing the pound sterling’s downfall? Investors would point that out to Britain’s minimizing economy. FX trader Scott Shubert of tradingmastermind.com thinks it is because of the enormous British debt load. We can also point our fingers to the British government and the Britons themselves.

Shifting from pound sterling to euro: Lo and behold! Now that the pound is sinking someone aims to throw it out. British Prime Minister Gordon Brown is committed to replace the historical monetary unit (though he later announced that they have no plans to join the EU). But with Britain’s current political situation, the move may be temporarily impossible.

Studies show that most Britons are attached to the pound sterling. To them, it symbolizes Britain’s independence from continental Europe. "There's a long sentimental attraction to a coinage that has been around for such a large part of history," said Nicholas Mayhew, professor of monetary history at the University of Oxford's Ashmolean Museum in an interview with TIME magazine.

Plus, in a recent survey by BBC, 71 percent of Britons oppose the elimination of the pound sterling. Most participants think that this is a wrong time to be part of the Euro zone.

Playing with fire: Should traders buy the pound? Investor Jim Rogers bluntly said the following in an interview with Bloomberg– "I would urge you to sell any sterling you might have. It's finished. I hate to say it, but I would not put any money in the U.K." he said. Creepy huh.                                                     

But others remain optimistic. Chief Sterling Strategist Paul Robinson is positive that when markets function normally within the year, sterling will outperform safe haven currencies like the dollar. Could it be that Rogers lost so much on the day he was interviewed? Put in mind that the pound is not alone in this worldwide economic downfall.

FX Trading