1990, Britain decided to join the European Exchange Rate System (ERM), which is a new monetary system created by western European countries. Soros believes that Britain has made a decisive mistake. Because the European exchange rate system will make the currencies of western European countries no longer peg to gold or dollar, but peg to each other; Each currency is only allowed to float within a certain exchange rate range. Once the exchange rate floating range is exceeded, the central banks of member countries have the responsibility to intervene in the market by buying and selling their own currencies, so as to stabilize the exchange rate of their own currencies within the specified range; Within the prescribed exchange rate fluctuation range, the currencies of member countries can float relative to the currencies of other member countries, with the Deutsche Mark as the core. Long before Britain joined the European exchange rate system, the exchange rate between the British pound and the German mark had stabilized at 1 the exchange rate between the British pound and the German mark of 2.95. However, when the British economy was in recession, it was extremely expensive for Britain to join the European exchange rate system on the condition of maintaining such a high exchange rate. On the one hand, it will lead to Britain's dependence on Germany, unable to take bold actions to solve its own economic problems, and how to raise or lower interest rates and promote the depreciation of its currency to protect its economic interests; On the other hand, it is doubtful whether the Bank of England has enough ability to maintain its high exchange rate.

As early as the signing of the Maastricht Treaty, Soros foresaw that the European exchange rate system would be difficult to maintain harmony because of the economic strength and national interests of all countries. Once some "chains" that make up the European exchange rate system become loose, speculators like him will take the opportunity to attack these loose "chains", while other trend followers will follow suit and make the exchange rate fluctuate more. In the end, the mechanism of chasing the wind is far greater than the capacity of the market to accept them until the whole system is destroyed.

Sure enough, in less than a year after the signing of the Maastricht Treaty, it was difficult for some European countries to coordinate their economic policies. It is impossible for Britain to maintain a high interest rate policy when the British economy is in a long-term downturn and is in trouble. The only feasible way to stimulate economic development is to lower interest rates. But if Germany does not lower interest rates, Britain's unilateral interest rate cut will weaken the pound and force Britain to withdraw from the European exchange rate system.

At this moment, Soros and other speculators have been expanding their positions in the past few months to prepare for the attack on the pound.

As time goes by, the British government's economic policy of maintaining high interest rates is under increasing pressure. It asked the Bundesbank to cut interest rates, but the Bundesbank refused the British request for a rate cut, fearing that the rate cut would lead to domestic inflation and possibly economic collapse.

The exchange rate of the pound against the mark kept falling, from 2.95 to 2.85, and from 2.85 to 2.7964. The British government has ordered the Bank of England to buy 3.3 billion pounds to intervene in the market in order to prevent speculators from making the exchange rate of the pound against the mark lower than the lower limit of 2.7780 stipulated by the European exchange rate system. However, the government intervention did not produce good expectations, which made Soros more convinced of his previous judgment, and he decided to attack when the crisis appeared.

From September 65438 to September 0992, speculators began to attack the weak currencies in the European exchange rate system, including the pound and the Italian lira. Soros and some mutual funds and multinational companies that have been engaged in arbitrage for a long time sold weak European currencies in the market, forcing the central banks of these countries to borrow huge amounts of money to support their respective currencies.

The British government plans to borrow money from the international banking organization to prevent the further depreciation of the pound, but this is only a drop in the bucket. In this contest with the British government, Soros alone spent $654.38+000 billion. In this gamble, Soros sold 7 billion pounds and bought 6 billion dollars of strong currency-mark. At the same time, considering that the devaluation (appreciation) of a country's currency usually leads to the rise (fall) of the country's stock market, Soros bought British stocks worth 500 million dollars and sold German stocks. If Soros is the only one to compete with Britain, the British government may still have a glimmer of hope, but the participation of many speculators in the world makes the strength of the two sides disparity, which doomed the failure of the British government.

Soros is the biggest gambler in this "gamble". After placing a bet, Soros began to wait. The crisis finally broke out in mid-September. There are rumors that the Italian lira is about to depreciate everywhere in the market, and the selling of the lira has poured out in large quantities. In September 13, the Italian lira depreciated by 7%. Although it is still within the floating range defined by the European exchange rate system, the situation does not look optimistic. This gives Soros every reason to believe that some members of the European exchange rate system will eventually not let the European exchange rate system determine the value of their currencies, and these countries will withdraw from the European exchange rate system.

1992 September 15, Soros decided to short a lot of pounds. The exchange rate of the pound against the mark has been falling to 2.80. Although it was reported that the Bank of England bought 3 billion pounds, it still failed to stop the pound from falling. By the end of the evening, the exchange rate of the pound against the mark almost fell to the lower limit stipulated by the European exchange rate system. The pound is on the verge of exiting the European exchange rate system.

The British Chancellor of the Exchequer took various measures to deal with the crisis. First of all, he once again asked Germany to lower interest rates, but Germany refused again; Helpless, he asked the Prime Minister to raise the national interest rate by 2%- 12%, hoping to attract money back through high interest rates. Within one day, the Bank of England raised interest rates twice, and the interest rate has reached 15%, but it still has little effect. The exchange rate of the British pound has not yet reached the lowest limit of 2.778. In this action to defend the pound, the British government spent $26.9 billion worth of foreign exchange reserves, but eventually suffered a fiasco and was forced to withdraw from the European exchange rate system. The British call1September 1992 15-the day when they left the European exchange rate system Black Wednesday.

However, Soros is the biggest winner of this attack on the pound, and was once called the man who defeated the Bank of England by The Economist magazine. Soros made a profit of nearly $65,438 billion from short trading in the pound. Due to his long positions in interest rate futures in Britain, France and Germany and short trades in Italian lira, his total profit was as high as 2 billion dollars, of which Soros's personal income was 1/3. This year, Soros's fund increased by 67.5%.