It is on this crash–the British pound sterling (GBP) crash of 1992–where George Soros made approximately $1 billion from selling the GBP. Below is the 1997 BBC documentary, Black Wednesday, which looks at the events leading up to the GBP collapse and why it happened. In 1992, between September and December, the GBPUSD dropped by approximately 25% (chart below).
September 16, 1992 is Black Wednesday. It’s the day when the Bank of England was forced to withdraw their currency from the European Exchange Rate Mechanism (ERM), because the Bank no longer had the funds to hold the GBP at the prescribed rate. Sellers stepped in, and the Bank of England…and the English taxpayer…lost a fortune (about 3.3 billion pounds, which is much lower than losses estimated at the time).
Had the Bank of England not tried to support the falling GBP, and instead maintained its currency reserves, it’s estimated the devaluation of the GBP would have actually resulted in a 2.4 billion pound profit. That’s a 6 billion pound swing…showing that those in power don’t always know the best way to handle economic situations (and that is still true today), as the video below discusses and some of the players involved admit. In an ironic twist, the crash stabilized the English economy and brought about the lower interest rates that the Bank of England was trying to attain in the first place with the artificially high GBP.
Ultimately the crash helped England. The pound and English economy recovered, so Black Wednesday is also known as Golden Wednesday.
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By Cory Mitchell, CMT