What Was Black Wednesday?

A collapse in the value of the pound sterling forced Britain to withdraw from the European Exchange Rate Mechanism (ERM) on Sept. 16, 1992.

The U.K. was unable to prevent the pound from falling below the lower limit specified by the ERM. The European Exchange Rate Mechanism, now known as ERM II, was established to limit volatility in exchange rates between the euro and other European currencies.

ERM was introduced in the late 1970s to stabilize European currencie🐽s in preparation for the introduction of the euro. It required countries to keep the value of their currencies within a specific range for ♎several years.

Understanding Black Wednesday

Before Black Wednesday, the U.K. had been in the European ERM for two years. However, the pound was 澳洲幸运5官方开奖结果体彩网:depreciating and falling close to the lower limits set by the ERM. The British government took steps to bolster the pound, including raising interest rates and authorizing the use of forei🌺gn currency reserves to purchase poun🌌ds.

However, the prominent investor 澳洲幸运5官方开奖结果体彩网:George Soros thought that the U.K. would ultimately fail in its attempts to prop up the pound. Soros quietly accumulated a large short position against the British curren♈cy.

Soros then began speaking publicly about his belief that the pound could not be defended. Other 澳洲幸运5官方开奖结果体彩网:speculators started betting against the pound, while investors sought hedges against a collapse in the exchange rate.

The Soros-inspired pile-on against the pound had many of the characteristics of a 澳洲幸运5官方开奖结果体彩网:self-fulfilling prophecy. As more people came to believe that the British pound would crash out of the European ERM, a crisis became more likely🔴. As it became more likely, businesses and investors had to prepare for it. Their preparations then put further pressure on the pound.

The day before Black Wednesday, Soros' Quantum Fund began selling large amounts of pounds on the market, causing the price to plummet further. Although the Bank of England took steps to stem the sell-off, it was unsuccessful.

On Black Wednesday, the Bank of England d🅘eclared that the U.K. would leave the European ERM.

Because of his role in Black Wednesday, George Soros became known for "breaking the Bank of England." It has been reported that he made a $1 billion pr✃ofit that day.

Criticism of Black Wednesday

Black Wednesday was widely condemned at the time as a massive waste of money. It damaged the reputation of British Prime Minister John Major and the Conservative Party for effective economic management. Some go much further and suggest that Black Wednesday led inexorably to Brexit, nearly three decades later.

The U.K. government expended billions of pounds worth of foreign exchange reserves in an ultimately futile attempt to prevent the pound from crashing. The British public received no benefit at all, and in faওct suffered from dramatic increases in interest rates to up to 15%. Soros and other wealthy speculators made bi💯llions.

The political damage from Black Wednesday was much worse because the Conservative Party had recently won reelection on a pro-euro platform. The center of John Major's economic policy was Britain's participation in the European ERM and eventual adoption of the euro.

This policy was a complete failure. The subsequent 澳洲幸运5官方开奖结果体彩网:prosperity of the U.K. during the mid-1990s wa🌊s seen as happening in spite of government policy, not because of it. The Conserv𝔉ative Party lost the 1997 U.K. general election in a landslide, in part because of Black Wednesday.

Benefits of Black Wednesday

Although Black Wednesday is described as a disaster by many, others think that it helped prepare the way for an economic revival. They believe that economic policies enacted in the U.K. in the aftermath of that day contributed to an improvement in economic growth, lower unemployment, and lower inflation.

Many believe that the events of Black Wednesday kept the U.K. out of the eurozone and saved it from more serious economic problems later on. In particular, the British economy performed much better during the 澳洲幸运5官方开奖结果体彩网:European sovereign debt crisis.

Britain was able to use 澳洲幸运5官方开奖结果体彩网:monetary policy more effectively because it retained the pound. Ultimately, black Wednesday was far less expensive than the bailouts require꧟d to keep several countries in the euro♚zone.

The Bottom Line

The events of Black Wednesday in London reverberated through British politics for years. The collapse of the British pound and the nation's withdrawal from Europe's monetary controls system contributed to its later decision to stick with the pound over the euro. It may even have added weight to its decision to withdraw from the European Union in 2020.