It has been revealed that the Bank of England will print more sterling and use the additional money to purchase financial bonds. One can't help but to draw a comparison with the situation in Zimbabwe whereby government-sanctioned printing of the Zimbabwean dollar assisted in the collapse of the currency.
Mervyn King, Governor of the Bank of England, once said he is dedicated to making monetary policy boring. Such a leap into the unknown doesn't sit well with this aspiration.
The government is taking this action in the knowledge that if the currency plummets in value, it can safely abandon sterling and adopt the euro as the official currency of the UK. Iceland are pursuing the same course of action following the collapse of the króna. It is a useful insurance policy in uncertain economic times. In addition, the UK would enter the eurozone at a low level (since the pound is weak in value) and this would be excellent news for the UK exporters.
In conclusion, I believe the decision to print more GBP could potentially spell the death knell for sterling.
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