Brexit Cold Hard Facts – The Pros and Cons

  • The UK can handle leaving without a deal as per Boris Johnson's comments at the G7 summit this weekend.
  • Brexit combined with the rise in popularity of cryptocurrency-- which is an alternate to an offshore scenario-- will create unfavorable conditions for future foreign capital investors.
  • Independence is an opportunity to provide lucrative offshore deals, while collecting accumulated interest from such transactions.

Brexit is the withdrawal of the United Kingdom from the European Union, after the referendum held on 23 June 2016.  The HBO documentary Brexit depicts the behind the scenes experience of the referendum. The UK is a constitutional monarchy with a parliamentary system of governance that is based off of the Westminster system. Executive power rests in the hands of Her Majesty’s Government, the prime minister and the cabinet who are all members of the Privy Council. Legislative power is held within the bicameral parliament, the House of Commons and the House of Lords, the former being elected and the later appointed.

UK Prime Minister Boris Johnson stated Britain has to leave the EU no later than October 31, 2019. The UK can handle leaving without a deal as per Boris Johnson’s comments at the G7 summit this weekend. A recent leak of Operation Yellow Hammer provides an inside look at the potential consequences for the UK leaving the EU without a deal.

The highlights of the pressing issues are:

  • Immigration changes and preparedness of the border enforcement
  • Transportation issues
  • Customs processing and entry within borders
  • Certain food and medicine delays
  • Tariffs on UK fuel
  • Concern over Scotland’s desire for Independence
  • The Northern Ireland continuous conflict

Colonization provided Britain with global dominance and economic uplift. However, after World War II, their African colonies (and the US) put pressure on the UK to abide by the terms of the Atlantic Charter and allow African nations to gain independence. Currently, China and Russia are forging ahead on the African continent.

Former UK colonies Australia and Canada no longer allow Britain any influence, while being interdependent on the US and China. Also, Canada and Australia no longer have ties to the British political system other than the Queen being the head of state, but that does not define a colony. It defines a constitutional monarchy and she is only a figurehead. The UK still maintains control of certain islands and territories.

Britain failed to assert itself as the leader of the European Union. Thus, a power play by the German Chancellor Angela Merkel allowed Germany to take the lead in the EU.

Britain’s politicians crave the return of British political dominance and are hedging their bets in the high stakes roulette of Brexit hoping for a windfall.

The 2019 report by Goldman Sachs paints a grim picture and Brexit has already cost the UK economy 2.4% of its GDP, based on a comparison with its growth before the 2016 referendum.

Furthermore, Britain lost its key position as the financial center of the world. As per the Global Financial Center Index 2019, London is now #2. The ranking is an aggregate of indices from five key areas: business environment, financial sector development, infrastructure factors, human capital, and reputation and general factors.

Britain has been known for their offshore zone benefits, which include:

  1. Political and economic stability
  2. Geographical proximity to Europe
  3. International transportation hub
  4. International financial and commercial center
  5. No local taxation if business and residence are outside the UK
  6. Benefits of having access to European markets
  7. Low costs
  8. Details of beneficial owners are kept confidential
  9. Nominee Services are available
  10. Respected international jurisdiction
  11. Tax is based upon residence and location of commercial activities
  12. Flexible financial products that give the same benefits as traditional offshore jurisdictions

Brexit combined with the rise in popularity of cryptocurrency– which is an alternate to an offshore scenario– will create unfavorable conditions for future foreign capital investors. Add in two unknowns: the political and economic stability of the UK; and their access to European markets without a deal.

Nevertheless, the British Pound will continue being the 3rd most held reserve currency in the world. After Brexit, it is predicted the British Pound will loose its value, even if Trump gives the UK a reasonable trade deal. The reason the US administration has a vested interest in the UK is fear of US corporations possibly relocating there, post Brexit. It is rumored Boris Johnson is working to offer large incentives for foreign corporations to relocate.

Another positive for the UK: the collection of credit interests and operational royalties.  Independence is an opportunity to provide lucrative offshore deals, while collecting accumulated interest from such transactions.

One “No Deal Brexit” dire possibility is a devaluation of the UK Center Bank assets (here is the Bank of England Assets Database). This in turn could cause a domino effect of hyperinflation— the  prices of goods or services rising quickly and out of control. The national debt currently exceeds 4x the UK GDP. The nominal GDP of the UK in 2018 was $2.828 trillion.

While the UK has failed to diversify its portfolio and attract high tech industries, the health sector continues to be an international leader, especially with innovations in the organ transplant area. The defense capabilities of the UK are not as strong as they used to be, and the country is dealing with rising crime and immigrant numbers– both hot topics.

Overall, Brexit remains a gamble and it might be a failed gamble for the UK.

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Christina Kitova

I spent most of my professional life in finance, insurance risk management litigation.

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