The Attack on the British Pound: Summer 1992

ECONOMIC ANALYSIS FOR M ANAGERS
FINAL RESEARCH REPORT
ABOUT
THE ATTACK ON THE BRITISH POUND 1992

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Table of Contents
1

Description of the crisis scenario around the British pound in summer 1992

applying the theory of speculative attacks.................................................................... 3
2

Why did this represent a “classical one-way-bet” scenario? ................................ 8

3

How could Mr. Soros be so confident about the German reluctance to support

the British pound? Describe the situation in summer 1992 from the perspective of the
Deutsche Bundesbank. ................................................................................................ 9
4

Describe and analyse the investment strategy of Mr. Soros. What was the

downside risk related to his strategy? ........................................................................ 11
5

Conclusion ......................................................................................................... 12

6

List of references: .............................................................................................. 13

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Description of the crisis scenario around the British pound in summer
1992 applying the theory of speculative attacks

In summer 1992 different developments and events brought the pressure on the pound
Sterling (“pound”) to a head and made it a target for speculation. In particular this was due to the state of Britain´s economy at that time, the economic aftermath of German reunification, a weak United States dollar (“dollar”) and a combination of events that wounded the credibility of the European Exchange Rate Mechanism (“ERM”).

The ERM at that time was an adjustable-peg system where European currencies were pegged to each other, giving each participating currency a central exchange rate against a basket of currencies, the European Currency Unit. Although it was not the basis, the
Deutschmark (“mark”) was the currency against which other