The 'disorderly' moves in the pound and loss of confidence in UK policy makers is historic, and point to the paradigm shift markets are headed towards, Mohamed El-Erian says

El-Erian said that the drop in the value of the pound against the dollar is a historic moment and points to a larger paradigm shift in global financial markets.

The UK's new budget plan involves cutting taxes for the wealthy and slashing planned corporate tax hikes. It caused the pound to plunge to a 37 year low on Friday, and to sink 2% on Monday, with analysts predicting that the UK currency could sink below parity with the dollar next year.

The plan was criticized by the International Monetary Fund for its focus on cutting taxes at a time of high inflation. Economists say that unfunded tax cuts and increased debt will cause more harm and that the Bank of England could be forced to hike rates more aggressively than planned.

Over the last six days, this is a G7 country, that has experienced disorderly moves in the currency and in bond yields, a loss of confidence in policy making, now, direct, central bank intervention, and an International Monetary Fund warning. El-Erian spoke with CNBC.

In a developing country, that happens often. In a G7 economy, it doesn't happen. This is something that has never been done before. It shows the paradigm shift we're going through.

El-Erian has warned of the paradigm shift, pointing to central banks' pivot from quantitative easing to quantitative tightening as inflation continues to rise. That means that the era of high-liquidity and ultra-low interest rates is over, which means that the global economy will suffer from high inflation, high unemployment, and low growth.

The longer you stay in, the harder it is to leave. El-Erian said that the exit in the UK is complex.

The UK will have to raise interest rates to keep inflation in check. Unemployment and floating mortgage rates could go up because of that.

It shows the competing paths of the UK's fiscal and monetary policies and it's important that the US avoids a similar situation. He recently urged the central bank to keep hiking rates despite the possibility of slowed growth and high unemployment, despite his previous criticism of the Fed for not acting on inflation sooner.