The pound sterling's slump to its lowest in more than 30 years against the dollar this past week in increasingly volatile trading has raised fears that Britain's exit from the European Union could yet trigger a currency crisis like those of 1967, 1976 or 1992.
By some measures, such as the speed of the losses and volatility of its market trading, the pound is showing crisis-like symptoms. Most market observers expect it to fall further on the foreign exchanges before it stabilizes.
But for a classic "currency crisis" to unfold, sterling losses would have to choke off the foreign portfolio investments that are critical to balancing the economy's massive external payments deficit. That risks a spiral of selling of U.K. bonds and stocks, sinking the currency further, stoking inflation and complicating the central bank's ability to ease credit more if needed to support the real economy.
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