By: Scott RossPublished: September 16, 2022

George Soros

In the 1950s, George Soros earned his Bachelor's and Master's degrees in Philosophy from the London School of Economics, before going to work for a variety of banks in England. He then launched in 1969 the first of his hedge funds, amassing a small fortune over the ensuing two decades. But it was in 1992 that Soros achieved both "fuck you" rich status, as well as supervillain status.

In 1979 European Exchange Rate Mechanism (ERM) was born, with the express purpose of keeping stable the exchange rates of European Economic Community-member currencies. The ERM was essentially an effort to have Europe operating with a single currency, while letting each country keep their own currency. It was a stepping stone toward the euro.

After more than a decade of letting the pound float, England joined the ERM in 1990, at an exchange rate of 2.95 Deutsche mark to one pound Sterling; by the rules of the ERM, should the pound deviate from the Deutsche mark by more than 6% in either direction, the British government would be required to intervene to stabilize its currency.

Soros gambled that there was no way for the pound to track the Deutsche mark given that England's inflation was three times that of Germany's, the introductory exchange rate was way too high. He also felt there was a recession for England on the horizon and thus, started shorting the pound.

On September 15, 1992, Helmut Schlesinger, president of Bundesbank (the German Fed), told the Wall Street Journal that the European currencies needed to be realigned and that the pound was too strong relative to the Deutsche mark. Soros saw his chance and doubled down on his shorting of the pound.

The following morning, September 16, newly minted Prime Minister John Major (who as Treasury Chief Secretary had convinced then PM Thatcher to join the ERM), called for the Bank of England to start selling off foreign currency holdings (~£30 billion worth) and start buying up pounds, while also hiking interest rates, but it wasn't enough. Soros just kept shorting. By the time the blood had stopped flowing, England's interest rate was 12%--after a briefly announcing a rise to 15%, an idea from which they backed away--the pound had plunged roughly 10%, and Soros' Quantum Fund had made a billion dollars.

"We must have been the biggest single factor in the market in the days before the E.R.M. fell apart," Soros told the Times of London. "Our total position by Black Wednesday had to be worth almost $10 billion... A billion is about right as an estimate of the profit, though dollars, not pounds."

The daring wager and its ruinous success earned Soros the nickname "The Billionaire Who Broke the Bank of England."


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