London Daily

Focus on the big picture.
Tuesday, Mar 21, 2023

Sterling's plunge is laden with irony 30 years on from Black Wednesday

Sterling's plunge is laden with irony 30 years on from Black Wednesday

The disappointing retail sales figures for August, published on Friday, have sent the pound spiralling to a fresh 37-year low.

At one point, sterling was trading at $1.1348, a level not seen since March 1985.

The pound has fallen by almost 16% against the US dollar during the last year.

Against the euro meanwhile, the pound fell to as low as €1.1405, a depth not plumbed since February last year.

This weakness in sterling comes in spite of the fact that the Bank of England has been raising interest rates more aggressively than some other central banks around the world although not, crucially, the US Federal Reserve.

But the timing of the latest decline is laden with irony for long-term sterling-watchers - because today, Friday, marks the 30th anniversary of one of the most traumatic days in the post-war history of the pound.


Wednesday 16 September 1992 is better known as "Black Wednesday" and no-one working in markets at the time will ever forget it.

It saw the Bank of England burn through nearly £10bn worth of reserves, a vast sum at the time, while interest rates were raised twice during the course of the day - all in a failed attempt to prop up the value of the pound.

The consequences, though, were more far-reaching than that. Black Wednesday was the day that the Conservative government's painstakingly-built reputation for economic competence incinerated.

In that sense, it was the moment that first paved the way for the election of a Labour government - the first in 18 years - in 1997.

The background to Black Wednesday is worth going into in detail.

At the time, the pound was in the European exchange rate mechanism (ERM) - the system that yoked together the currencies of various European countries ahead of the creation of the euro. Under the ERM, currencies such as the French franc, the Italian lira, the German deutschemark or the pound were supposed to trade with each other in a tight range, described as "currency convergence".

In the case of the pound, it was supposed to move against the deutschemark by no more than 6%.

As sterling had joined the ERM at a rate of DM2.95 to the pound, that meant it was not supposed to trade at more than DM3.127 or less than DM2.773. The main means by which sterling was supposed to trade in such a tight range against the mark was chiefly by setting UK interest rates (which in those days was set by the government and not the Bank of England) close to the level set by Germany's Bundesbank.

If the pound looked like moving outside that range, the Bank of England was supposed to intervene, buying or selling the pound until the exchange rate came back within the terms set out by the ERM.

Most people thought that the pound had entered the ERM at too high a valuation against the deutsche mark - and that created a massive opportunity for currency speculators such as George Soros.

George Soros, pictured in 2012, held a huge short position in sterling that yielded big profits


They had spotted that it was completely inappropriate for the UK and Germany to have interest rates at similar levels: the UK needed lower interest rates because it was emerging from a recession and a house price crash while Germany needed higher interest rates to see off the threat of higher inflation created by the heavy spending that followed reunification between East and West Germany.

The speculators already had their tails up: there were plenty of other strains in the ERM, following a referendum in Denmark earlier that year, in which Danes had rejected the Maastricht Treaty - the treaty that was supposed to ready the way for closer European integration and the eventual creation of the euro.

France had also announced a referendum on the treaty and a number of other currencies, notably the lira, were trading at close to the limits of the range under which they were supposed to.

Those strains came to a head when earlier in the month, Britain's chancellor, Norman Lamont, had a very public argument with Helmut Schlesinger, president of the mighty Bundesbank. Things got worse when, on 15 September, Mr Schlesinger made some unguarded comments to a newspaper which were interpreted in some quarters as speculating that the pound would have to devalue - as indeed the lira had been forced to days earlier.

Mr Schlesinger insisted that had not been his intention and wrote in 2017: "I regret to this day that a general remark of mine, not focused specifically on the pound, should have played a role in aggravating sterling's position."

But the damage was done. Speculators like Mr Soros - who is reckoned to have made more than £1bn worth of profits from the event - had already been selling sterling in anticipation of a devaluation and, by the time Wall Street closed that night, the pound had fallen below its ERM floor.

Traders react to sterling's plunge at the National Westminster Bank in the City in September 1992


The following day, the pound was hit by wave after wave of selling, prompting Mr Lamont at 11am to raise interest rates from 10% to 12% and then, three hours later, from 12% to 15%.

Heavy spending by the bank, using up what were reckoned at the time to be half the UK's reserves of foreign currency, failed to stem the tide.

Mr Lamont announced that night that sterling's membership of the ERM would be suspended and the second interest rate rise, to 15%, would not go ahead.

Norman Lamont took the UK out of the ERM in September 1992


It was a humiliation for John Major's Conservative government as great as sterling's devaluation in 1967 had been for Harold Wilson's Labour government. It was defeated by Tony Blair at the subsequent general election.

Sterling's suspension from the ERM ensured the UK never entered the single currency - while its devaluation paved the way for a strong recovery that ensured Labour inherited a strong economy when it came to power. Some economists now refer to it as "Golden Wednesday".

But Black Wednesday did not only pave the way for Labour's election victory five years later. Many now see it now, also, as the moment that Conservative wariness of the EU spiralled into full-blown Euroscepticism.

As Mr Schlesinger himself wrote in 2017: "One might see this as the beginning of the UK's slow separation from the EU that culminated in the Brexit vote last year."

In Europe, meanwhile, there was also a response. Sterling's ignominious departure from the ERM concentrated minds.

The French public, days later, voted in favour of the Maastricht Treaty.

And European governments concluded their planned integration was vulnerable so long as it was dependent on the ERM - especially as the episode had highlighted the Bundesbank's reluctance to take action in defence of the currency bands.

They stepped up moves towards the creation of the euro.

Newsletter

Related Articles

London Daily
Close
0:00
0:00
Credit Suisse's Scandalous History Resulted in an Obvious Collapse - It's time for regulators who fail to do their job to be held accountable and serve as an example by being behind bars.
You're Beautiful - James Blunt (Boyce Avenue acoustic cover)
Home Secretary Suella Braverman tours potential migrant housing in Rwanda as asylum deal remains mired in legal challenges
You Are So Beautiful
Goldman Sachs cuts outlook for European bank debt over Credit Suisse crisis
Postmodern Jukebox European Tour Version
Paris Rioting vs Macron anti democratic law
An old French tune (by Georges Brassens) Pomplamoose ft. John Schroeder
'Sexual Fantasy' Assignment At US School Outrages Parents
Sattahip Motor Show 20
Orbán Viktor: the restructuring of the power relations in the whole of Europe is taking place
SONATE AU CLAIR DE LUNE - Moonlight sonata
Credit Suisse to borrow $54 billion from Swiss central bank
A kiss to build a dream on
The BBC problem about China
Wiz Khalifa - See You Again ft. Charlie Puth, Furious
Strikes-Hit UK Pledges 94 Billion Euros In Cost-Of-Living Budget
Wonderful Tonight - Eric Clapton (Boyce Avenue acoustic cover)
Russian Hackers Preparing New Cyber Assault Against Ukraine
Mean Blues
"Will Fly Wherever International Law Allows": US Warns Russia After Drone Incident
La Chansonnette
UK face biggest fall in spending power for 70 years
Pattaya Addicts
Jeremy Hunt insists his Budget will get young parents and over-50s back into work
Franz Liszt - Liebestraum - Love Dream
If this was in Tehran, Moscow or Hong Kong
Dream a little dream of me
Announcing GPT-4
Tu Vuo' Fa' L'Americano - Hetty & the Jazzato Band
TRUMP: "Standing before you today, I am the only candidate who can make this promise: I will prevent World War III."
Unchained Melody sung like you've NEVER heard!
Drew Barrymore
Dave Brubeck - Take Five
China is calling out the US, UK, and Australia on their submarine pact, claiming they are going further down a dangerous road
Édith Piaf - Non, Je Ne Regrette Rien (Sofie)
A brief banking situation report
Rondo Alla Turca
We are witnessing widespread bank fails and the president just gave a 5 min speech then walked off camera.
Kiss of fire
Donald Trump's asked by Tucker Carlson question on if the U.S. should support regime change in Russia?.
Ed Sheeran - Perfect (Amadeus violin cover instrumental)
'No relation to the American SVB': India's SVC Bank acts to calm depositors amid brand name confusion.
Tom Jones - I´ll Never Fall In Love Again 1967, 1989, 2001
Good news: The U.S. government is now guaranteeing all deposits, held by, Silicon Valley Bank, and the funds are available as of today
Israel Cachao López - Guajira Clásica
Silicon Valley Bank exec was Lehman Brothers CFO
Edward Maya - Stereo Love (feat. Vika Jigulina) (Extended Mix)
In a potential last-ditch effort, HSBC is considering a rescue deal to save Silicon Valley Bank UK from insolvency
Strauss - Radetzky March - Karajan
Saudi Arabia has announced a major breakthrough in diplomacy with Iran after two years of intense talks
La vie en rose
BBC Director General, Tim Davie, has apologized, but not resigned, yet, following the disruption of sports programmes over the weekend
Despacito (Piano Cover) - Peter Bence
A Mississippian man, who was once considered a “ticking time bomb,” has lost a whopping 165 kilograms! What motivated this incredible transformation?
The Temptations - My Girl (Smokey Robinson Tribute) 2006 Kennedy Cent
Elon Musk Is Planning To Build A Town In Texas For His Employees
Orlando Cachaito Lopez Redencion
The Silicon Valley Bank’s collapse effect is spreading around the world, affecting startup companies across the globe
Edith Piaf - NON, JE NE REGRETTE RIEN
City officials in Berlin announced on Thursday that all swimmers at public pools will soon be allowed to swim topless
RADETZKY MARCH-2008-Wien, New Year Concert
Fitness scam
Only you (And you alone)
Market Chaos as USDC Loses Peg to USD after $3.3 Billion Reserves Held by Silicon Valley Bank Closed.
Beautiful in White x Canon in D (Piano Cover by Riyandi Kusuma)
A primitive judge in Australia sparked outrage when he told a breastfeeding woman to leave his courtroom for being “a distraction"
Strangers In The Night
Barcelona is feeling the heat as they face corruption charges over payments to former vice-president of Spain's referees' committee, Jose Maria Enriquez Negreira
Charles Aznavour - La Boheme
Banking regulators close SVB, the largest bank failure since the financial crisis
Summer time
Watch: “They are wounded but unbowed, unbreakable.”
Sting and Stevie Wonder - Fragile (from Sting's 60th birthday concert)
Silicon Valley Bank: Struggles Threaten Tech Startup Ecosystem"
Aux Champs Elysees
The unelected UK Prime Minister Rishi Sunak, an immigrant himself, defends new controversial crackdown on illegal migration
Stand By Me - Ben E. King (Boyce Avenue acoustic cover)
Old clip of Bill Gates saying Ukraine is a big, fat, corrupt sinkhole is going viral
La Mer (Beyond the Sea) – Avalon Jazz Band
Man’s penis amputated by mistake after he’s wrongly diagnosed with a tumour
She
Motorist fined £650 after council ‘paints disabled bay around his car
Nathalie Song by Enzo Petrachi Stjepan Hauser Cello
Brexit Deal Falls Short: UK Regains Few Pre-Brexit Benefits
Shape of My Heart - Sting (Boyce Avenue acoustic cover)
In a major snub to Downing Street's Silicon Valley dreams, UK chip giant Arm has dealt a serious blow to the government's economic strategy by opting for a US listing
Radiohead - Creep
Brexit is done (sort of), again
Quizás,Quizás,Quizás - Andrea Bocelli - Jennifer Lopez
JP Morgan Becomes First Bank to Predict UK Will Avoid Recession
Perhaps, Perhaps, Perhaps - Multi-Couples
JP Morgan Becomes First Bank to Predict UK Will Avoid Recession
Pentatonix Havana
JPMorgan has become the first City of London forecaster to predict that Britain will stay out of recession in 2023
Paula Cole - Autumn Leaves
How do stolen goods end up on Amazon, eBay and Facebook Marketplace?
Oscar Benton Bensonhurst Blues
It's the question on everyone's lips: could a four-day workweek be the future of employment?
OH NANANA vs ABUSADAMENTE
Nina Simone - ”I Put A Spell On You”. Vezi aici cum cântă Jeremy Ragsd
NIGHTWISH - The Phantom Of The Opera
Motorshow 2016 Tanjay Negros Oriental
Monica Bellucci - Ti Amo
Michael Jackson - Billie Jean Milena The Voice France 2018
Michael Buble (Help Me Make It Through The Night) feat Loren Allred
Memories Canon In D - Maroon 5 (Boyce Avenue piano acoustic cover)
Matteo Simoni - Marina
Maroon 5 - One More Night
Maroon 5 - Memories
Mark Knopfler - Brothers In Arms (Berlin 2007 Live)
Mark Knopfler & Emmylou Harris - Romeo And Juliet (Real Live Roadrunni
Marina, Marina - The LUCKY DUCKIES intimist live concert at Guimarães
Major Lazer & DJ Snake – Lean On Mauranne The Voice France 2016
Love Theme from Romeo and Juliet - Joslin - Henri Mancini, Nino Rota
LoLa & Hauser - Love Story
Linkin Park Jay-Z - Numb Encore (Live 8 2005)
Hallelujah Mennel Ibtissem, The Voice France Leonard Cohen
Leonard Cohen - Dance Me to the End of Love
Leonard Cohen & Natasha Rostova - Dance me to the end of love
La casa de papel - Bella Ciao
La Camisa Negra
L'italiano (Toto Cutugno) - The Gypsy Queens
Juanes - La Camisa Negra
Jonathan and Charlotte - Britain's Got Talent 2012 Live Semi Final - U
John Powell - Assassin's Tango
Joe Cocker - You Can Leave Your Hat On (LIVE in Dortmund)
Joe Cocker - Unchain My Heart 2002 Live
Joe Cocker - A Whiter Shade Of Pale
Jay Z & Alicia Keys - Empire State of Mind LIVE
Jason Mraz - Im Yours (live)
Jarrod Radnich - Bohemian Rhapsody - Virtuosic Piano Solo
James Blunt - You're Beautiful
James Blunt - You're Beautiful & Bonfire Heart (Live at The Nobel Peac)
If You Go Away - Helen Merrill & Stan Getz (Tribute to Virna Lisi)
I'LL BE MISSING YOU
I Say a Little Prayer
Hotel California ( Eagles ) 1994 Live
Historia de un amor - Luz Casal. Vezi interpretarea Biancăi Sumanariu
Here Comes The Sun - The Beatles (Boyce Avenue acoustic cover) on Spot
Heart - Stairway to Heaven Led Zeppelin - Kennedy Center Honors
HAVANA by Camila Cabello Zumba Pre Cooldown TML Crew Kramer Pastra
HAUSER and Señorita - I Will Always Love You
HAUSER - Waka Waka
HAUSER - Sway
HAUSER - Lambada
HAUSER - Historia de un Amor
HAUSER - Despacito
Great Pretender
Georgia May Foote & Giovanni Pernice Samba to 'Volare' - Strictly Come
Gary Moore - Still Got The Blues
GIPSY KINGS VOLARE Penelope Cruz
Fugees - Killing Me Softly With His Song
French Latino - Historia de un Amor
For A Few Dollars More The Danish National Symphony Orchestra (Live)
Flashdance • What a Feeling • Irene Cara
Filip Rudan - “Someone You Loved” Audicija 4 The Voice Hrvatska Sez
Eric Clapton - Wonderful Tonight
Enya - Only Time
Enrique Iglesias - Bailando (English Version) ft. Sean Paul
Enrique Iglesias - Bailamos
Elena Yerevan Historia de un amor
Ed Sheeran - Shape of You (Official Music Video)
Ed Sheeran - Perfect Symphony [with Andrea Bocelli]
Ed Sheeran - Perfect (Official Music Video)
Easy On Me - Adele (Boyce Avenue 90’s style piano acoustic cover) on S
ERA - Ameno
ELENA YEREVAN- Cancion Del Mariachi-IN STUDIO-2017 DPR
Dust In The Wind - Kansas (Boyce Avenue acoustic cover)
Don't Let Me Be Misunderstood
Despacito x Shape Of You - Pentatonix
Deep Purple - Child In Time - Live (1970)
David Foster When A Man Loves A WomanIt's A Mans World (SealMichael Bo
Dance me to the end of Love ( Pi-Air Design )
Coolio - Gangsta's Paradise (feat. L.V.) [Official Music Video]
Conquest Of Paradise (Vangelis), played on Böhm Emporio organ
Cielito Lindo
Chico & The Gypsies - Bamboleo
Canción Del Mariachi - Antonio Banderas, Los Lobos • Desperado
Camila Cabello - Havana (Audio) ft. Young Thug
Camila Cabello - Havana ( cover by J.Fla )
California Dreamin' - The Mamas & The Papas José Feliciano (Boyce Ave
Buster Benton - Money Is The Name of The Game
Hallelujah Pentatonix
Bobby McFerrin - Don't Worry Be Happy (Official Music Video)
Bob Dylan - Knockin' On Heaven's Door Emilia The Voice Kids France
Besame Mucho - Cesaria Evora
Ben E. King - Stand by Me Sax Cover Alexandra Ilieva Thomann
Bella Ciao
Bella Ciao - INSTRUMENTAL
Beautiful in White x Canon in D (Piano Cover by Riyandi Kusuma)
Bad Romance - Vintage 1920's Gatsby Style Lady Gaga Cover ft. Ariana Savalas & Sarah Reich(1)
BELLA CIAO 2020 - KARAOKE ITALIANO
BAMBOLEO - Gipsy Kings • Antonio Banderas, Katya Virshilas
BAILANDO (original)
Awesome Ukrainian yodeler - SOFIA SHKIDCHENKO (with English subtitles)
Avicii - The Nights
Atom - The Great Gig in the Sky
Aretha Franklin - (You Make Me Feel Like) A Natural Woman (Official Ly
Antonio Banderas - Cancion del Mariachi (Desperado)
André Rieu - Zorba's Dance (Sirtaki)
André Rieu - Can't Help Falling In Love
André Rieu & Mirusia - Ave Maria
Andrew Reyes Elton John - Don't Let The Sun Go Down The Voice 2020 (
Andreas Kümmert Whiter Shade Of Pale The Voice of Germany 2013 Showd
And I Love You So
All About That Bass - Postmodern Jukebox European Tour Version
Alan Walker - Faded (Piano Cover)
Ain't No Sunshine -- Bill Withers (cover by Canen 12 y.o.)
African music
Adriana Vidović - “Creep” Audicija 4 The Voice Hrvatska Sezona 3
Adriana Vidović - “Believer” Nokaut 3 The Voice Hrvatska Sezona 3
A Fistful of Dollars - The Danish National Symphony Orchestra and Tuva
4 Beautiful Soundtracks Relaxing Piano [10min]
2CELLOS - Whole Lotta Love vs. Beethoven 5th Symphony [OFFICIAL VIDEO]
2CELLOS - Smooth Criminal (Live at Suntory Hall, Tokyo)
2CELLOS - Smells Like Teen Spirit [Live at Sydney Opera House]
2CELLOS - Despacito [OFFICIAL VIDEO]
13 Year Old Girl Playing Il Silenzio (The Silence) - André Rieu
094.All About That Bass
00 - SADNESS PART 1
(Ghost) Riders In the Sky (American Outlaws Live at Nassau Coliseum, 1
(Everything I Do) I Do It For You - Bryan Adams (Boyce Avenue ft. Conn
What a wonderful world
Moon river
×