Finance, power, and the British balance of payments

The Brexit referendum marks a critical juncture in Britain’s political economy. Benjamin Cohen argues that a nation’s monetary sovereignty lies in its balance of payments (BoP) flexibility (2008, 2015). I argue that a country’s position in the global financial régime must also be accounted for when explaining its BoP dynamics. This allows us to understand why, while sterling has long lost its ‘world currency’ status, Britain’s BoP exhibits some of the same features associated with American ‘exorbitant privilege’. To appreciate the UK’s own BoP flexibilities as well as to flesh out the Anglo-American axis in the international financial order, I compare the UK’s external balance sheets with those of the US. Given the complexities and uncertainties inherent in BoP analyses, I advise against micro-analyses of the BoP in favour of a broader approach that takes into account macro-dynamics as well as the International Political Economy (IPE) concerns outlined above. Elaborating such an analysis for the UK BoP, I explore the potential implications of Brexit for Britain’s external balance sheets and its political-economic future. While Britain’s financial power has helped insulate its balance sheets from external shocks, Britain’s impending departure from the European Union heralds a period of considerable uncertainty.