Title: The Trade of the Century: When George Soros Broke the British Pound
Headings: The Trade of the Century: When George Soros Broke the British Pound
The Trade of the Century: When George Soros Broke the British Pound
By Rohin Dhar
Picking Up the Pieces in Europe
Britain Enters the ERM
Meanwhile in New York City
A Mis-priced Currency Means Big Opportunity
The Flashpoint
The Trade of the Century
Fighting off the Speculators
The Aftermath of Black Wednesday
Published Jun 17, 2016  by Rohin Dhar

Content: The hope was that tighter relations would prevent catastrophic wars from breaking out every few decades and create a Pan-European market that could compete with the United States. This culminated in the European Union (EU), which didn’t assume its current form with a single currency until 1999. A precursor to the EU was the European Exchange Rate mechanism ( ERM ), which was created in 1979. Countries weren’t ready to give up their national currencies, but they agreed to fix their exchange rates with each other instead of “floating” their currency and letting capital markets set the rates. Since Germany had the strongest economy in Europe, each country set their currency’s value in Deutschmarks. They agreed to maintain the exchange rate between their currency and the Deutschmark within an acceptable band of plus or minus 6% of the agreed upon rate. With fixed exchange rates, countries can’t just “set it and forget it.” People trade currency every day, exchanging their currency to buy imports or sell exports, and the market applies pressure based on what it thinks the actual rate should be based on supply and demand for a currency. To keep the exchange rate fixed, governments need to participate in the market and nudge it in the agreed upon direction. Governments can manage their currency in two main ways.