George Soros: The Bank of England “Slaughterer”
In the UK, there was an event that was remembered as “Black Wednesday”. It happened on September 16, 1992. The day was remembered by the economic community as the day when speculators ravaged the pound, forcing the British government at that time to withdraw the pound out of the European Exchange Rate Mechanism (ERM). At first, joining ERM was one of Britain’s ways to take part in unifying the European economy.
Even though it had stood alone, the pound had overshadowed the mark (German currency) in the range of the 1990s. Unfortunately, the UK inflation rate is high but interest rates are low. England then decided to enter ERM with the desire to keep the value of pounds above 2.7 marks per pound. Fundamentally, that doesn’t make sense because the UK inflation rate was much higher than Germany.
Britain’s exit from ERM due to the devastation of pounds was a matter of quite hitting the nation’s pride, so there must be someone who was made a scapegoat. Even though the obvious target is the government, it still seems that a character who is considered darker and evil is still needed. Geroge Soros is considered suitable for playing the character.
So, the financial figure who was not too well-known (even if well-known, only at the regional level) suddenly became popular with the nickname “The Man Who Broken the Bank of England”.
Who is Soros?
George Soros was born in Budapest, Hungary on August 12, 1930. At the age of 17 he moved to England at the end of World War II. He studied philosophy at the London School of Economics with Karl Popper.
Before moving to Wall Street and continuing his financial career in 1956, Soros joined Singer and Friedlander, London bankers. He then founded the Quantum Fund which later became known as one of the first hedge fund companies in the world. The way it works is to use capital from rich people and invest it in international transactions that are very risky but have huge potential profits.
The Quantum Fund managed to survive when the era of fixed exchange rates in the 1970s ended and deregulation took place in global capital markets. In 1980, Soros’s wealth had reached £ 16.5 million and his company had a capital of £ 67 million. This is the beginning of the intervention to ERM.
“Destroy” pound sterling
Beginning in the spring of 1992, Soros considered that the pound would be devalued because it had been forced to enter ERM at a rate that was too high. He knew that the Bundesbank (the German central bank) wanted a devaluation of sterling and lira (the Italian currency at the time) and Soros believed that this would happen due to the damaging effects caused by the high UK interest rates.
Soros then spent the next few months opening a position which he considered would result in the benefits of devaluation. He piles sterling with a massive amount of up to 6.5 billion pounds and converts them to Deutschmarks and Frank France.
On Black Wedesday, Soros gained profits. The next day he closed all his positions and made a profit of around 1 billion pounds. At the same time, Soros bought British shares up to 350 million pounds by assuming that the prices of stocks in a country often strengthened after the currency weakened.
He acknowledged that his actions only benefited him personally, at that time. He claimed that the only thing that could save England was a single currency (like the euro now), one thing he still believed until now.
Although famous as “The BoE Slaughterer”, Soros has proven that he can also lose big. Financial market crashes that occurred in 1987 caused a loss of 530 million pounds in the Tokyo capital market.
This also provides evidence that anyone cannot win forever.