<blockquote>
<p><a href="https://economics.stackexchange.com/questions/57860/what-happens-to-the-british-pound-if-the-dollar-collapses#comment95957_57860">If the dollar value against the Yuan drops by 95%, what would happen to the British pound value against the Yuan?</a></p>
</blockquote>
<p>The generalist answer to your question is the economist's go-to: &quot;It depends.&quot;</p>
<p>It depends on the underlying reason for this giant drop in value. Why did the RMB/USD exchange rate drop 95%? Did China unveil incredible economic data that means its exports will be sought the world over? Did Russia nuke the US, decreasing the future value of its exports? Was it a computer glitch that will be corrected in a few minutes? These would all imply different reactions in the RMB/GBP exchange rate.</p>

CC BY-SA 4.0
2024-03-17T02:45:37.177Z
Pick the worst possible scenario...
Scott Rowe
CC BY-SA 4.0
2024-03-08T10:31:46.093Z
2024-03-08T11:28:11.017Z
2024-03-08T11:28:11.017Z
Giskard
<p>One of the simplest immediate effects would be defaults on debt of the US to the UK. The default on both the interest payments and the total loan amount would directly impact the value of the pound.  According to the US Department of Treasury, British investors held over \$750 Billion in US Assets in January 2024.  For fiscal year 2023, the US paid \$659 Billion in interest on national debt.  The UK proportion of debt is under 10%, but the defaults would also be to Japan and China and the impact on these economies would affect trade and wealth in many parts of the world.  Similar to the debt/interest relationship, the UK would suffer immediate loss in some industries such as tourism from the US (and perhaps Japan and China as well) which would eventually lead to debts impacting the value of the pound.  It is critical to keep in mind with the analysis, that a currency exchange rate implies currencies actually have values relative to one another.  What happens when, in general, currencies lose their value?  All of them? Can one currency remain stronger when the economies are intertwined?  There was an expression in the early colonies, &quot;It isn't worth a Colonial&quot; (the name of the currency) after Britain had printed forgeries to intentionally devalue the currency.  Sometimes a currency value can spiral out of control with triple digit inflation rates eroding its worth daily until measures are taken by a government to stabilize its economy overall and produce a currency of value. There would be domino effects of intertwining economies and the overall impact would depend on the effectiveness of countermeasures.  The overall wealth of the US has steadily grown with technology for many decades even while US currency has generally lost value due to poor debt management.  In the 2008-2009 crash, banks were able to arrange a bailout due to a store of wealth.  As currencies devalue, there has been an increase in the value of gold due to its tangible nature.  Gold can be viewed as a type of currency.  Yet gold futures are speculation on gold prices and are only as valuable as the trader's ability to pay.  These are more esoteric areas of currency values.  A currency exchange rate may be politically motivated (for instance to allow Asia to provide affordable automobiles and other manufactured products to the US), and not a valid representation of the relative values between the currencies.</p>

CC BY-SA 4.0
2024-04-05T19:47:34.133Z
2024-04-05T19:47:34.133Z
Gwendolyn Anderson
<p>Hypothetically, if the dollar's value collapsed either over night or a fast down hill crash, what would happens to the value of the British pound?</p>

CC BY-SA 4.0
2024-03-07T20:52:15.983Z
what do you exactly mean by this? All currency values are relative to each other, in terms of other currencies nothing should happen (since you don't specify any event that would affect GBP) in terms of dollars it has to appreciate just because dollar value decreased
1muflon1
CC BY-SA 4.0
2024-03-07T21:59:14.247Z
The US is hugely indebted to Britain!  There would be substantial defaults.
Gwendolyn Anderson
CC BY-SA 4.0
2024-03-07T22:05:00.440Z
@1muflon1 I mean for example the Turkish lira recently lost 80% of its value against the dollar. Usually the dollar is used as a reference for other currencies values. But what if the dollar value itself drops? Does it drop against all currencies? I am only interested in what would happen to the British pound
Mocas
CC BY-SA 4.0
2024-03-07T22:43:49.530Z
@Mocas every currency can be used as a reference for every single currency all currency prices are relative to each others. USD is just quoted so much because US is the biggest world economy, there is nothing magical about it
1muflon1
CC BY-SA 4.0
2024-03-08T03:08:19.443Z
What if a dollar was worth only 20 cents, which itself is only worth 4 cents
Giskard
CC BY-SA 4.0
2024-03-08T08:31:04.163Z
@1muflon1 ok, let's take the Chinese Yuan. If the dollar value against the Yuan drops by 95%, what would happen to the British pound value against the Yuan?
Mocas
CC BY-SA 4.0
2024-03-08T08:32:18.180Z
@GwendolynAnderson why would that happen? If you can explain with some references please submit an answer.
Mocas
CC BY-SA 4.0
2024-03-08T10:24:10.873Z
@Mocas it would automatically increase against yuan. Are you really confused by this? Any value of currency is by definition relative. There is no meaningful difference between saying that yuan value dropped and that value of all other currencies increased
1muflon1
CC BY-SA 4.0
2024-03-08T10:28:15.047Z
@1muflon1 Hi, I don't think what you wrote is clearly true. At least I don't see why GBP would automatically become stronger relative RMB if RMB became stronger relative to USD. Perhaps you read the comment too hastily again.
Giskard
CC BY-SA 4.0
2024-03-08T10:51:47.693Z
@Giskard I was still under assumption that OP keeps the assumption in the question that general value of USD drops
1muflon1
CC BY-SA 4.0
2024-03-08T11:26:59.850Z
Sure, but what does that imply that the answer to their question (emphasis by me) "*what would happen to the **British pound** value against the **Yuan**?*" is "*it would automatically increase against yuan*"?
Giskard
CC BY-SA 4.0
2024-03-08T12:43:23.177Z
@Giskard oh okay, I misread that as first currency being also GBP, yea if something happens to dollar and not to yuan then the relative value of yuan and GBP would be the same, but still what I have written holds, because there is no meaningful difference between saying that both yuan and GBP are now more valuable
1muflon1
CC BY-SA 4.0
2024-03-08T21:06:11.267Z
@1muflon1 I find it fascinating that people on this forum refuse to clearly own their mistakes. I wonder if it is specific to economists/academics/young professionals? So you misread something, big whoop, it happens to everyone. There is no need to rationalize it, especially if the rationalization is obviously wrong.
Giskard
CC BY-SA 4.0
2024-03-08T22:34:02.737Z
@Giskard ? I am not trying to rationalize it. The argument that currencies are relative is robust to that error. Are you seriously claiming that currencies are not relative, since you claim it’s obviously wrong? Regarding the part that wasn’t robust to the error I corrected myself, if USD weakens (and nothing else happens it’s just one of shock to USD like OP says) then nothing should happen between relative value of yuan and GBP again I don’t see what’s obviously wrong about my correction to previous comment or how is it a rationalization
1muflon1
CC BY-SA 4.0
2024-03-17T02:44:34.150Z
Didn't Greece have a problem when US had a big economic issue, 15 years ago?
Scott Rowe
CC BY-SA 4.0
2024-04-05T17:01:37.400Z
@Mocas there is a book called "When Genius Failed: The Rise and Fall of Long Term Capital Management" by Roger Lowenstein.  LTCM was a hedge fund based mainly on arbitrage (that borrowed over $125 Billion) following an algorithm that tanked when Russia defaulted.  The US national economic tail spin that followed, considering lack of regulation on speculative activities, gives you your answer.  Currencies are not simply "relative," those with debts are intertwined.  Many nations are interdependent, certainly US and UK.
Gwendolyn Anderson
<united-states>
What happens to the British pound if the dollar collapses?
Mocas
# What happens to the British pound if the dollar collapses?

(Asked by: username_0 on 2024-03-07)

Hypothetically, if the dollar's value collapsed either over night or a fast down hill crash, what would happens to the value of the British pound?

**Tags:** united-states

> **Comments:**
> **username_1**: what do you exactly mean by this? All currency values are relative to each other, in terms of other currencies nothing should happen (since you don't specify any event that would affect GBP) in terms of dollars it has to appreciate just because dollar value decreased  
> **username_2**: The US is hugely indebted to Britain!  There would be substantial defaults.  
> **username_0**: @username_1 I mean for example the Turkish lira recently lost 80% of its value against the dollar. Usually the dollar is used as a reference for other currencies values. But what if the dollar value itself drops? Does it drop against all currencies? I am only interested in what would happen to the British pound  
> **username_1**: @username_0 every currency can be used as a reference for every single currency all currency prices are relative to each others. USD is just quoted so much because US is the biggest world economy, there is nothing magical about it  
> **username_3**: What if a dollar was worth only 20 cents, which itself is only worth 4 cents  
> **username_0**: @username_1 ok, let's take the Chinese Yuan. If the dollar value against the Yuan drops by 95%, what would happen to the British pound value against the Yuan?  
> **username_0**: @GwendolynAnderson why would that happen? If you can explain with some references please submit an answer.  
> **username_1**: @username_0 it would automatically increase against yuan. Are you really confused by this? Any value of currency is by definition relative. There is no meaningful difference between saying that yuan value dropped and that value of all other currencies increased  
> **username_3**: @username_1 Hi, I don't think what you wrote is clearly true. At least I don't see why GBP would automatically become stronger relative RMB if RMB became stronger relative to USD. Perhaps you read the comment too hastily again.  
> **username_1**: @username_3 I was still under assumption that OP keeps the assumption in the question that general value of USD drops  
> **username_3**: Sure, but what does that imply that the answer to their question (emphasis by me) "*what would happen to the **British pound** value against the **Yuan**?*" is "*it would automatically increase against yuan*"?  
> **username_1**: @username_3 oh okay, I misread that as first currency being also GBP, yea if something happens to dollar and not to yuan then the relative value of yuan and GBP would be the same, but still what I have written holds, because there is no meaningful difference between saying that both yuan and GBP are now more valuable  
> **username_3**: @username_1 I find it fascinating that people on this forum refuse to clearly own their mistakes. I wonder if it is specific to economists/academics/young professionals? So you misread something, big whoop, it happens to everyone. There is no need to rationalize it, especially if the rationalization is obviously wrong.  
> **username_1**: @username_3 ? I am not trying to rationalize it. The argument that currencies are relative is robust to that error. Are you seriously claiming that currencies are not relative, since you claim it’s obviously wrong? Regarding the part that wasn’t robust to the error I corrected myself, if USD weakens (and nothing else happens it’s just one of shock to USD like OP says) then nothing should happen between relative value of yuan and GBP again I don’t see what’s obviously wrong about my correction to previous comment or how is it a rationalization  
> **username_4**: Didn't Greece have a problem when US had a big economic issue, 15 years ago?  
> **username_2**: @username_0 there is a book called "When Genius Failed: The Rise and Fall of Long Term Capital Management" by Roger Lowenstein.  LTCM was a hedge fund based mainly on arbitrage (that borrowed over $125 Billion) following an algorithm that tanked when Russia defaulted.  The US national economic tail spin that followed, considering lack of regulation on speculative activities, gives you your answer.  Currencies are not simply "relative," those with debts are intertwined.  Many nations are interdependent, certainly US and UK.  

---

## 2 answers

### Answer by username_3 on 2024-03-08. Score: 2 | Accepted answer

> [If the dollar value against the Yuan drops by 95%, what would happen to the British pound value against the Yuan?](https://economics.stackexchange.com/questions/57860/what-happens-to-the-british-pound-if-the-dollar-collapses#comment95957_57860)

The generalist answer to your question is the economist's go-to: "It depends."

It depends on the underlying reason for this giant drop in value. Why did the RMB/USD exchange rate drop 95%? Did China unveil incredible economic data that means its exports will be sought the world over? Did Russia nuke the US, decreasing the future value of its exports? Was it a computer glitch that will be corrected in a few minutes? These would all imply different reactions in the RMB/GBP exchange rate.

> **Comments:**
> **username_4**: Pick the worst possible scenario...  

---

### Answer by username_2 on 2024-04-05. Score: -1

One of the simplest immediate effects would be defaults on debt of the US to the UK. The default on both the interest payments and the total loan amount would directly impact the value of the pound. According to the US Department of Treasury, British investors held over \$750 Billion in US Assets in January 2024. For fiscal year 2023, the US paid \$659 Billion in interest on national debt. The UK proportion of debt is under 10%, but the defaults would also be to Japan and China and the impact on these economies would affect trade and wealth in many parts of the world. Similar to the debt/interest relationship, the UK would suffer immediate loss in some industries such as tourism from the US (and perhaps Japan and China as well) which would eventually lead to debts impacting the value of the pound. It is critical to keep in mind with the analysis, that a currency exchange rate implies currencies actually have values relative to one another. What happens when, in general, currencies lose their value? All of them? Can one currency remain stronger when the economies are intertwined? There was an expression in the early colonies, "It isn't worth a Colonial" (the name of the currency) after Britain had printed forgeries to intentionally devalue the currency. Sometimes a currency value can spiral out of control with triple digit inflation rates eroding its worth daily until measures are taken by a government to stabilize its economy overall and produce a currency of value. There would be domino effects of intertwining economies and the overall impact would depend on the effectiveness of countermeasures. The overall wealth of the US has steadily grown with technology for many decades even while US currency has generally lost value due to poor debt management. In the 2008-2009 crash, banks were able to arrange a bailout due to a store of wealth. As currencies devalue, there has been an increase in the value of gold due to its tangible nature. Gold can be viewed as a type of currency. Yet gold futures are speculation on gold prices and are only as valuable as the trader's ability to pay. These are more esoteric areas of currency values. A currency exchange rate may be politically motivated (for instance to allow Asia to provide affordable automobiles and other manufactured products to the US), and not a valid representation of the relative values between the currencies.


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