It is on this crash–the British pound sterling (GBP) crash of 1992–where George Soros made approximately $1 billion by 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%. In the forex market, that’s a big move.
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. The Bank of England, and the English taxpayer, lost about 3.3 billion pounds.
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/difference.
Those in power don’t always know the best way to handle economic situations, 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