Currency Uncertainty: How to Guard Against Risk as Brexit Looms

Oct 27, 2016

To coin a phrase: the only certainty is uncertainty

It’s the start of a new fall season in the fine arts world—auctions, new exhibitions, gallery openings, and global art fairs draw international attention—as good a time as any to speculate about the future.

Britain voted to leave the European Union in June, giving rise to regret in some quarters, jubilation in others, and speculation around the world on what “Brexit” might look like. Some believe that the vote signals fissures in the EU as well, and could precipitate changes and reforms in a delicately balanced market still finding its feet after the 2008 financial crisis.

It goes without saying that in a market as deeply integrated as the EU (with Britain or without), the exit will be complicated; negotiations may give rise to a completely new economic model for the UK and Europe. The exit is on a two-year clock once it’s triggered (the latest news points to March of 2017).

The immediate result of the Brexit vote in June—unexpected, unheralded, and for some, unimaginable--was a drop in the value of the British Pound against other major currencies. The 10% tumble against the US Dollar brought it back to a level not seen in thirty years. The Euro swooned, but wasn’t nearly as hard hit. Britain suddenly looked like a bargain to many: for travelers; real estate buyers; importers; and even investors.

Speculation about a “soft” or “hard” Brexit was quashed in early October when Prime Minister Theresa May announced a more aggressive timetable and approach to unwinding Britain’s relationship with the European Union. The Pound swooned despite cautious optimism about the longer-term health of the British economy.

Implications for the fine arts community

The art market is peculiar and unpredictable, and for some, a safe haven in times of economic uncertainty. After the financial crisis of 2008, interest in “hard asset” investment increased, as did collateralization of assets. Tastes change; players emerge and recede.

London is a premiere art market for buyers and sellers—the second largest after the US. Given the general skittishness in the international currency markets, British art buyers will not see their money go quite as far this season. For buyers flocking to London, though, for its galleries, auction houses, art fairs and museums, London is still the hub and foreign funds will go further.

Many of Britain’s museums and cultural institutions currently receive funding from the EU, which will likely disappear. Free movement of workers into Britain and across Europe was one of the issues that sent British voters to the polls. This could have a negative impact on creative collaborations for British and European artists. Taxes, royalties and secondary market valuations may also be at issue in the exit discussions.
In many ways, it’s business as usual until the discussions begin next spring.

Guarding against risk

For anyone operating in international markets, it’s wise to plan ahead and to consider the effects of currency movements on the bottom line. Approaches can be different depending on the money flows , and you’ll need to properly price the work for your UK artists selling abroad, including your British buyers. If you’re traveling to UK and European auctions, or exhibiting at Art Fairs, you might consider purchasing Pounds while the rates are favorable.

In a market as mutable and as sophisticated as the fine arts, you need to stay ahead of trends to remain competitive. We cannot predict shocks like we’ve seen in the Pound, but examining your international needs and exposures with a trusted specialist can give you an edge.

Final thoughts

With the global art business moving quickly, managing your foreign exchange and payments can often seem daunting. It doesn’t have to be. By having a grasp on the dynamics of the currency markets and working closely with a global payments specialist, you can better understand your business needs and make the right decisions.

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