The Comparative Strengths of the Euro and the British Pound in Global Trade

The Euro and the British Pound (GBP) have long been prominent currencies in global financial markets. The debate over which currency is 'better' often centers around their exchange rates, their stability, and their usage in international trade. This article explores these factors and provides insights into why the Euro is considered superior in certain aspects, particularly in international trade.

Exchange Rates and Their Stability

One of the key reasons why the Euro is often favored in international trade is due to its stable exchange rate. The Euro is generally more stable against the US Dollar than the British Pound, which is particularly relevant given that Brent Crude Oil is priced in US Dollars and most international financial transactions are conducted in US Dollars. This stability translates to lower transaction costs and less risk for businesses engaging in international trade.

National Economic Impact

The financial performance of both the Euro and the British Pound is heavily influenced by the economic strength of their respective regions. After the UK left the European Union (EU), its economy has faced significant challenges. Stats show that the UK loses approximately $100 billion per year in exports to the EU, a trend that may take up to 20 years to reverse. These economic strains further affect the strength of the British Pound in the global market.

Perspectives on Currency Usage

A personal anecdote from an individual who has lived in Spain for 14 years but spends parts of the summer in the UK highlights the practical differences between the two currencies. The author notes that they commonly use both currencies but find the new plastic UK notes less appealing compared to the Euro. While the Euro notes of 100 and 200 are considered by some as 'daft' due to forgery concerns, the British ones might also be seen as less convenient. This preference, however, is subjective and varies from person to person.

International Trade Considerations

The use of the Euro in international trade is significantly higher than that of the British Pound. For international businesses, the Euro's prevalence is crucial. In 2021, the Euro was used ten times more than the Pound for international trade, dramatically affecting international settlement practices and transactions. The choice of currency in these scenarios can impact a company's operational costs, efficiency, and competitiveness.

Conclusion

While the Euro is better regarded for international trade due to its stability and higher usage, the British Pound still holds relevance for various other sectors. The perception and value of a currency depend on economic factors, such as stability and demand, rather than simply being 'better' or 'worse.' Both currencies have their unique strengths and weaknesses, and the 'better' currency is often a matter of context and personal or business needs.

So, when considering the Euro and the British Pound, it is essential to weigh the practical implications and the economic environment in which they are used. For international trade, the Euro is often the more advantageous choice, reflecting both its stability and its global footprint. However, for domestic use or in specific markets, the British Pound may still hold its own.

Ultimately, the choice of currency should be based on its suitability for the specific use case, whether it's for international trade or local transactions, and how it aligns with the broader economic context.