Posted in Finance, Accounting and Economics Terms, Total Reads: 284
Definition: Black Wednesday
Black Wednesday points to 16th of September 1992. The event where the British Conservative government was compulsed to withdraw the pound from EERM – the European Exchange Rate Mechanism after it failed to keep the pound higher than its defined lower limit in the EERM.
This happened as an aftermath of George Soros “broke the Bank of England”. Reports suggested that he made over a billion dollars in a single day by short selling of the pound sterling. Short-selling is a technique in finance where an investor makes a profit / positive payoff when the underlying security loses value. This event cemented his reputation as one of the best forex trader and currency speculators that has ever lived.
The estimated cost of this event varied tremendously with the UK Treasury stating a cost of 3.4 billion GBPs and some sources giving estimates to the extent of 27 billion GBP.
Despite all of this, the pound retaliated strongly once the excess interest and high inflation were forced out of the economy following the beating.