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History-Making Events in the Currency Markets

Photo: Greg Marinovich | Getty Images

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George Soros and the British Pound

Year: 1992

The 1990s, though generally a very prosperous decade for the world economy, were rife with currency market tumult in just about every corner of the world.

During the early phase of Europe’s single currency, the euro, the E.U. had a currency control known as the exchange rate mechanism, meant to keep the major currencies there in a range of relative value with each other. At the time, the U.K. was considering joining the monetary union — though reluctantly. With an economy on the verge of a downturn, the U.K. struggled to keep the British pound within the appropriate range of the German mark, whose value has been inflated by very high interest rates connected to the borrowing costs of German unification.

Investor George Soros, then an active currency trader, and others in the market, undertook massive and relentless short-selling of the British pound, devaluing it to the point that its inclusion in the trading band was threatened. The British government fought back by raising interest rates and intervening in the markets. In the end, the traders prevailed and Britain quit the European Exchange Rate Mechanism. For his part, Soros reportedly made a billion dollars.

Photo: Greg Marinovich | Getty Images