The FT has reported that:
Foreign investors are increasingly shunning UK government debt as international confidence in sterling has been hit by the currency's recent weakness.
The pound has fallen steadily this year, hitting a seven-year low against the dollar last week, amid concerns over the forthcoming vote on membership of the EU and the UK's current account deficit.
For the record, the share of UK government debt owned overseas has fallen from about 31% to 26%, both figures being post QE ratios.
And, for the record, this is a good thing. The less UK government debt there is the more financially secure we are. If we owe more interest to ourselves then there is less leakage from the UK economy as a result. And if the recipients of UK gilt interest are in the UK then UK tax revenue will increase. And if most gilts are owned here then we are less vulnerable to external shock.
In fact, with the ratio at this level another round of QE could, in theory (if unlikely in practice) solve any such shock.
I am not usually nationally minded. When it comes to government debt I can see every reason to be so. This is, at this moment, a move in the right direction.
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But given the chronic import / export deficit is there not an accumulating quantum of sterling and sterling investments held by overseas citizens / entities? Does amyone publish the balance on the capital account?
Overall more is being held
Not in gilts, it seems
How can yields which are paid in Sterling leak from the Sterling area?
Surely after exchange into a foreign currency, the new holders can only save, spend or pay taxes in the Sterling area?
Because they are used to buy foreign currency and are taxed elsewhere
But when they are are swapped for foreign currency, whoever has sold that currency now holds that same amount of Sterling.
If it’s not taxed, i.e. destroyed, then it can only be saved (in a Sterling account and then, as reserves, probably re-invested in gilts again!!) or spent in the UK.
What else can happen to it?
I’m not being funny – as a non-economist/accountant I’m really trying to get my head around this stuff.
I accept your point: it was the tax issue I was most concerned about because this can create financial instability
External debt/GDP ratio used to be over 400%…
http://www.usdebtclock.org/world-debt-clock.html
As we move towards 23 June it will be necessary to watch carefully the activities of Soros and his partners to see if an attempt is made again to manipulate the value of the pound to his great advantage.
So – forgive me – but I’m sure that Keynes said that it is better if the means of production were retained in one’s country.
So basically we are saying the same for debt because that debt is investment and will contribute to the production of goods and services within one’s own country?
So debt in this case is a ‘means of production’?
So this is not debt for the sake of debt but debt aimed at kick starting and maintaining economic activity?
As long as the debt is in Sterling and not in dollars, euros or yuan (although, stupidly, Osborne issued some RMB denominated bonds a year or so ago) what difference does the nationality of the individual or corporation is who chooses to save in Sterling make?
Genuine question.
The risk is that they seek to dump sterling: that is it
Better the debt in sterling, of course, but the more held overseas the greater the volatility risk and the higher the net after tax cost
But given that Sterling is no longer in any kind of fixed exchange rate system, and that many currency areas seem to be competing in a beggar-thy-neighbour race-to-the-bottom devaluation war, do these ideas still hold like they used to?
Are exporting countries really going to want to price themselves out of UK markets?
I’m just curious, and trying to learn, so excuse me if I’ve got it wrong.