Sunday, January 18, 2009
Iceland has war time capital controls in place and the ECB no longer publishes the exchange rate. Which seems to have gone from 60 to 290 against the dollar. Obviously this exchange rate is meaningless with capital restrictions. However, if you assume (for no reason just made up) that the external exposure of the UK relative to the size of the domestic economy is comparable, then potentially our true rate of exchange against the dollar would be 1/6th of the £1:$2 peak i.e. worst case £1 : $0.33 . If we are stuffed in the same way as Iceland. But in that case why is Sterling holding up so well? People are defaulting right left and centre, the government is borrowing, there is talk of money printing, but still reasonably OK?!?