Brexwhat?! If you’re like most of us, you’ve been bombarded with word of Brexit in the last week. The vote, the outcome, and the uncertain future. But what’s all the fuss about, anyway? Why is all of this such a big deal? Today we’re breaking it down into simple terms.
Let’s start at the very beginning: 1973.
That year, the United Kingdom joined together with several other nations in a coalition—a club of sorts—called the European Union, or the EU for short.
The EU did a lot together, including negotiating trade deals with other countries. So what’s a trade deal, exactly? It’s an agreement between two countries regarding how much of one country’s goods the other will allow in, and with what kind of taxes applied.
Think taxes are crazy? Imagine a world without them.
This meant that when one country in the EU wanted to sell their goods to, say, the United States, they got the same deal as ever other EU country, immediately. No negotiation needed.
Being a part of the European Union also required nations to have open borders with one another. If citizens of one member nation wanted to travel to another nation, they had to receive them. It was that requirement that led to a dramatic increase in migration to the United Kingdom in recent years, and desire among some citizens to stop it.
But the only way to get out of the EU agreement was to leave the EU altogether. And that’s what prompted a kingdom-wide vote last week. And as you’ve probably heard, those who voted to leave the EU won. So what does that mean for the United Kingdom, and the world? And why is everyone talking about it?
Because all of the United Kingdom’s trade deals were negotiated through the EU, the future independent United Kingdom will need to start from scratch. That’s a lot of work, and there’s no guarantee that countries won’t apply more taxes to their goods than before. And that would be bad for, say, a chocolatier who competes with American chocolatiers on quality and price. Her prices would increase, and demand could decrease.
When the vote was counted, the British Pound (Britain’s main currency) dropped in value against the US dollar pretty dramatically. One of the reasons for that is uncertainty. Currencies are strongest when their economy is most stable. In other words, when everyone is fairly certain that things will be okay.
Click to watch our hosts discuss the value of money.
Because this situation has never happened before, no one knows what’s going to happen. But we’re all about to find out.
So what do you think about Brexit, Biz Kid? How would you have voted?
Want to learn more about the value of money? Check out our episode from Season 4, “The Value of Money.”