Black Wednesday
Black Wednesday refers to September 16, 1992, when the British government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism (ERM) due to speculative attacks on the currency. This event led to a sharp devaluation of the pound and significant economic repercussions, including a loss of confidence in the government's economic policies.
3 Key excerpts on "Black Wednesday"
eBook - ePub- Felix Berenskoetter, M. J. Williams, Felix Berenskoetter, M. J. Williams(Authors)
- 2007(Publication Date)
- Routledge(Publisher)
...8 Contested credibility The use of symbolic power in British exchange-rate politics Wolf Hassdorf ‘Black Wednesday’, 16 September 1992, the day when sterling was humiliatingly ejected from the European Exchange Rate Mechanism (ERM), remains a key date in the economic history not just of Britain and the European Monetary System (EMS), but of the post-war international monetary order. The collapse of the British exchange-rate peg was part of the wider currency crisis of the ERM in 1992/3; the type of financial crisis that would become a feature of the liberalised intentional financial system of the 1990s. At first glance, the crisis seems to confirm that with the liberalisation of international capital flows a qualitative shift of power from the nation-state to globalising financial markets had taken place. After all, the policy of the British Government to peg sterling to the Deutschmark, the anchor currency of the ERM, without backing up this policy by strictly following disinflationary German interest rates, was ultimately overpowered by speculative global finance. The outcome of the crisis confirmed that under conditions of full international capital mobility, an exchange-rate peg would, de facto, result in the surrender of monetary policy autonomy to the key currency country. 1 Intuitively attractive as such an interpretation of the disastrous outcome of Britain’s ERM membership may be, it overlooks the significance of the process that led to this outcome. The economic and political fragility of the sterling peg was evident from the moment sterling entered the ERM in 1990. However, it took financial markets until late August 1992 – less than four weeks before Black Wednesday – to fully realise that the peg lacked substance. 2 The authorities impressed markets up to this point by tough rhetoric about the strength of the pound and by persistently voicing the commitment to do whatever it would take to defend parity...
eBook - ePub- Kevin Jefferys(Author)
- 2015(Publication Date)
- Atlantic Books(Publisher)
...11 ‘. .. an extremely difficult and turbulent day’ Black Wednesday, 1992 At least the nation can comfort itself that it was only money that was poured away, not blood. National pride has too often been paid for with the lives of young men in war. Nonetheless Mr Major’s quixotic battle with the speculators still seems the economic equivalent of the Charge of the Light Brigade: half a billion, half a billion, half a billion onwards. . . The Times, 19 September 1992 It was at that moment we lost the 1997 election. . . There was never any real hope after that. John Major, reflecting on Black Wednesday, quoted in Robin Oakley, Inside Track (2001) T he weakness of the contemporary Conservative Party, humiliated in the general elections of 1997 and 2001, can be traced back to a single day almost a decade ago. On what swiftly became known as ‘Black Wednesday’, 16 September 1992, John Major’s government was confronted by a financial crisis from which it never recovered. For all those involved the overwhelming emotions, as interest rates swung up and down and as sterling faced devaluation, were those of disbelief, impotence and a terrible sense of failure. Britain had, of course, experienced similar situations before, but none had engulfed a government with such startling speed, and most had been associated with Labour administrations. After earlier devaluations of the pound, Labour had narrowly managed to secure re-election in 1950, and recovered some lost ground prior to defeat in 1970. But after September 1992, the Tories never looked remotely capable of winning a fifth successive term of office. The Conservative reputation for sound management, whether justified or not, was destroyed at a stroke, and the party plunged to the modest level of public support at which it has remained stuck ever since. Black Wednesday, in short, stands out as the single most debilitating event in Tory politics since the war...
eBook - ePubForeign Exchange
A Practical Guide to the FX Markets
- Tim Weithers(Author)
- 2011(Publication Date)
- Wiley(Publisher)
...Central bank intervention was required when the exchange rate reached 75% of its maximum-allowable divergence. While there were occasional adjustments to the ERM rates, this system held up until 1992. In September and October 1992, amid political turmoil surrounding the ratification of the Maastricht Treaty in France, the lack of coordinated efforts of the EU central banks, and a certain lack of credibility about the ability on the part of the Bank of England to keep GBP within its band, George Soros and others attacked the Pound. In attempting to defend their currency, on Wednesday, September 16 alone—a day that became known as Black Wednesday—the Bank of England squandered around USD 15 billion worth of foreign exchange reserves buying Pounds; eventually they ran out of reserves and GBP was forced out of the Exchange Rate Mechanism (ERM) along with Italian Lira. On September 16, Soros made a profit of approximately USD 2 billion based on his short Pound and short Italian Lira positions as well as additional bets on Swedish Krona, and other currency and equity markets around the world. This day earned George Soros the title “The Man Who Broke the Bank of England.” 6 The inability of central banks to maintain an artificially supported price in the foreign exchange markets is a common theme of FX crises. At the time, George Soros himself said of speculation: Measures to stop it, such as exchange controls, usually do even more harm. Fixed exchange rate systems are also flawed, because they eventually fall apart. In fact, any exchange rate system is flawed and the longer it exists the greater the flaws become. The only escape is to have no exchange rate system at all, but a single currency in Europe, as in the U.S...
