UK Finance CEO Stephen Jones has warned that a no-deal Brexit could create a “1930s-style contraction.”
In an interview with Channel 4 News, Jones issued a dramatic warning, stating: “A no-deal Brexit would create a 1930s-style contraction. If our economy contracts by 10%, that’s a 1930s-style contraction.” The 1930s saw a period of economic downturn which had its origins rooted in the global Great Depression.
Jones continues to suggest a contraction of this magnitude has far reaching implications, such as massive increases in credit card losses, mortgage losses, and vehicle loan losses.
The CEO also believes that “there is a risk of a no-deal happening by accident… if the prime minister’s deal is voted down.” As we now know, Theresa May’s deal was rejected in a historic defeat. This puts the UK in uncharted territory. Particularly worrying is Jones’ comment that the idea of “London as the European financial centre appears to most of us to be – frankly – quiet over.”
His sentiment isn’t necessarily wrong. London as a financial hub has dwindled in recent memory. If the UK does go through with Brexit, we could be on the cusp of seeing the economy drastically plummet.
Could cryptocurrency become a viable solution to economic peril?
If this turns out to be the case, the resulting volatility of fiat could become a potential catalyst for cryptocurrency adoption.
Whilst cryptocurrency won’t be replacing fiat currency any time soon, it can provide some stability. For example, a person could place 10 Bitcoin into a lending platform as collateral. From there, the loan company would hold on to it until that person has paid them back.
There is a risk that the lending platform could retain the cryptocurrency should you not complete the payment. However, if fiat were to suddenly plummet, you would also have reserve funds safely stashed.
Greece is a perfect example to illustrate how cryptocurrency could solve economic issues. During Greece’s referendum, the government temporarily shut down the banks. This left panicked customers unable to withdraw their money. Since cryptocurrency isn’t controlled by a singular authority, a government would not be able to prevent their citizens from accessing their personal funds.
Furthermore, when people lose faith in a currency, they have a tendency to jump ship to another one. Cryptocurrency, at the moment, cannot serve as a primary currency because it isn’t regulated. However, it could be used as a buffer until fiat restabilises.
Think of it this way. If the pound were to begin decreasing in value, it isn’t likely to stay that low forever. So, people could temporarily move their fiat into cryptocurrency and wait until their national currency has stabilised.
A fall in fiat could therefore serve as a catalyst for cryptocurrency adoption, if only for use as a safety net.
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Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.