Bitesize Brexit 2.0. Tips on what to do now: currency

Brexit uncertainties continue to spook the markets and the pound is likely to experience heightened volatility as we reach crunch time for a Brexit trade deal. What should you be thinking about now?

In 928, Athelstan, England’s first king, passed the Statute of Greatley which adopted sterling as the country’s national currency. In the eleven centuries since that date, a lot has happened. At the outbreak of World War Two a pound could buy you over four dollars. Today? You’ll pocket just over a quarter of that amount: $1.30. 20 years ago the pound hit €1.75; eight years later, during the financial crisis, it sank to being almost at parity with the EU’s common currency. The upshot? With the pound, you need to expect ups and downs (mostly the latter, sadly). If exchange rate fluctuations have a material impact on your business, how prepared are you?

In this series of bite-size ‘Brexit countdown’ articles, we focus on the commercial implications of Brexit 2.0 in certain key areas and set out a high-level overview of the sort of things you should be thinking about with your teams and customers, and what you should be doing to get yourself Brexit-ready.

Last time, we looked at tariffs. In this article we look at dealing with currency issues.

What sorts of things should you typically be thinking about?

Consider these key matters in particular:

• have you considered the impact that any currency fluctuations will have on your business or parts of your business that may be more exposed? If the pound falls in value against the euro you may receive less money under your contracts. How prepared would you be for this?
• what are you doing, if anything, to manage currency fluctuations? Encouraging early payment can help. Some businesses also use forward contracts so they set the exchange rate they’ll buy or sell currency in advance
• a weaker pound makes imports more expensive, but exports less so (and vice versa). Have you considered whether there are any opportunities to enter new markets post-Brexit?
• Should you be looking at leaving some markets in 2021?
• do your contracts specify what currency payments should be made in? Can you change this for any future arrangements?
• do you contracts have an option on what currency is used? Again, can you change this for any future arrangements?
• if necessary, do your contracts contain any currency fluctuation clauses, which share the risk of any volatile exchange rates?

Of course, every business will need to consider its own particular circumstances based on factors such as, in particular:

• its location
• the nature of its goods and services
• the business, economic and regulatory environment in which it operates
• the location of its key customers and suppliers, and
• the make-up of its workforce.

There is no one-size-fits-all approach to the analysis you need to do but thinking about the commercial aspects above can help you decide what legal changes (if any) are necessary now and in the months to come.

At Shoosmiths, we have stayed close to Brexit developments. As always, we welcome any thoughts or comments from you and are ready to help you prepare for Brexit.

We are also producing briefings across all specialisms to keep you informed of legal changes anticipated in light of Brexit.

If you have any queries, do get in touch.

In the next article in this series, we’ll be looking at other financial factors that might impact your business.