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Black Wednesday: What Happened to the Bank of England in 1992?

Adam Lienhard
Black Wednesday: What Happened to the Bank of England in 1992?

On September 16, 1992, the Bank of England succumbed to pressure and was forced to raise the floor ceiling on the exchange rate and allow the pound to collapse. This event is also known as the Black Wednesday. Read the article to learn more about this incredible event.

Who is George Soros?

Soros was an experienced investor who founded his Quantum Fund in 1969. Over the years, he believed that currency markets were not always efficient and that governments sometimes pursued unrealistic exchange rate policies. He saw this as an opportunity for well-timed speculation.

Black Wednesday established Soros as the archetype of the politically powerful global hedge fund manager who actively shapes economies and policies. The fall of the pound inflicted costs on British citizens and hurt the country’s prestige.

Before Wednesday

In the late 1980s and early 1990s, the British authorities were trying to defend the fixed exchange rate of the pound sterling against other currencies. However, the American investor George Soros noticed that this fixed price was unsustainable. 

In 1988, Soros began shorting the pound, believing that UK inflation was too high for its exchange rate peg to the Deutsche Mark to be sustainable long-term. However, the Bank of England intervened extensively to defend the rate.

Later, in 1991, Soros increased his bets against the pound when the UK joined the ERM at too high of an exchange rate. By early 1992, Quantum Fund had a $10 billion short position, which was the largest of any single investor.

In the years leading up to 1992, the UK had been experiencing high inflation. The Thatcher and Major governments were committed to controlling inflation, which is why they pursued a fixed exchange rate policy for the pound. 

As a result, Soros began selling the pound sterling in large quantities, anticipating that it would fall soon. Soros had been short-selling the pound for months based on his assessment that it was overvalued and UK interest rates were too high given slowing growth. By September 1992, his fund had accumulated a huge short position against the pound.

The Black Wednesday

In the days leading up to September 16th, the Bank of England spent over $15 billion to stabilize the value of the pound, but to no avail. Soros’ fund and other speculators continued short-selling.

On the night of September 15th, UK Chancellor of the Exchequer Norman Lamont held emergency meetings with other European finance ministers to get support to prop up sterling. However, Germany and others refused to bail out Britain.

On September 16th, 1992, Soros instructed his trader to sell $10 billion in pounds simultaneously at 1 PM London time, which helped destabilize markets. Soros escalated his selling of pounds, overwhelming the Bank of England’s reserves as it tried to prop up the currency. It is estimated that Soros made over $1 billion in profit from the trades. 

Facing a potential financial crisis, the UK was forced to withdraw from the European Exchange Rate Mechanism (ERM) and allow the pound to float freely on currency markets. It dropped over 15% against the Deutsche Mark.

The next day, Lamont raised UK interest rates to 15% from 10% in a last-ditch effort to make the pound more attractive in the currency markets. But it backfired as markets saw this as a sign of desperation.

By afternoon, the Bank of England had run through its foreign reserves. At 3 pm, Lamont announced Britain’s exit from the ERM. Markets saw this as a British surrender.

The collapse had a very real human cost as over 150,000 Brits lost their jobs in the ensuing recession. Public confidence in the Conservative government’s economic stewardship was shattered.


Soros’s trade highlighted weaknesses in the UK economy and became symbolic of the globalization of finance that could threaten national currencies. It reflected the declining influence of centralized monetary policies.

The devaluation had significant economic impacts, with inflation and interest rates rising. It damaged the UK’s international prestige and leadership in Europe. It was a seminal moment marking the decline of the UK as an independent economic power. Britain had to follow, not lead, the German Bundesbank on monetary matters.

Soros’s large sales of the British currency led to enormous pressure on it and a deficit in the Bank of England’s foreign currency reserves. 

Current discussion

To this day, it remains controversial as to who or what was primarily responsible for the crisis: Soros’ trades, faulty economic policies, or a combination of those and other factors. But most agree that Black Wednesday accelerated a long-term economic decline.

While some economists believe that Soros’ actions were not unjustified or illegal but rather exemplified rational market behavior due to his bearish view and ample resources, others believe he helped precipitate a crisis for profit. 

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