Following British Prime Minister Liz Truss’ “mini-budget” – a mishmash of policies ranging from Reaganomics-style tax cuts for corporations and the wealthy to an old-style socialist cap on energy prices – commentators have reacted with increasingly florid hyperbole. Many now wonder whether the United Kingdom is coming to resemble less an advanced economy than a wayward emerging market.

True, financial markets have sent the pound spinning to its lowest level ever (against the US dollar), with no bottom in sight. The pound’s reserve-currency status, the last remaining vestige of Britain’s once-vaunted position at the center of the international monetary system, is being called into question. While talk of an outright UK default is overblown, it is not unreasonable to anticipate a painful reckoning just short of that outcome.

Project Syndicate