George Soros “blew up the Bank of England” in 1992 with his famous bet against the pound sterling. Now he warns that a UK vote this week to leave the European Union would do far more damage to the currency – and the UK economy – than the aftermath of ‘Black Wednesday’ ever did. .
In a guest column for Britain’s Guardian newspaper published on Tuesday, Soros notes that he was praised for triggering the 1992 devaluation of the British pound GBPUSD,
that followed the ejection of the currency from the European exchange rate mechanism. That’s because the move gave a boost to a British economy dragged down by a stronger-than-warranted pound that was defended by ever-higher interest rates.
Read: The Brexit vote: everything you need to know about the referendum
While some proponents of a British exit, or Brexit, from the European Union argue that a likely devaluation of the pound would lead to a repeat of the 1992 experiment, Soros remains unconvinced.
He offers three reasons:
First, in 1992 (and in 2008, for that matter), the Bank of England was able to cut interest rates sharply following the devaluation. That’s not possible this time around because interest rates are already close to zero, Soros notes.
If a ‘slump’ in house prices and job losses causes a post-Brexit recession, as is likely, there is little monetary policy can do to stimulate the economy and counter the loss of demand resulting,” he wrote.
Second, the UK’s current account deficit is much larger than it was in 1992 or 2008. In fact, Soros notes, the UK is more dependent than at any time in history on foreign capital. Instead of the increase in capital inflows that followed the devaluations of 1992 and 2008, post-Brexit capital flows would “almost certainly move in the other direction”.
Third, said Soros, a post-Brexit devaluation is unlikely to boost manufacturing exports as it did in 1992 “because trading conditions would be too uncertain for UK businesses to undertake new investment, hire more workers or otherwise increase export capacity”.
Ultimately, the most likely post-Brexit scenario would have more in common with the humiliating and painful devaluation of the pound of 1967 than with the event of 1992, he wrote – a decision that reduced the standard of living in the UK. On top of that, the speculative forces in the markets are “much larger and more powerful” than they were in 1967 and will be “desired to exploit any miscalculation” by the UK government or voters, it said. he declared.
“Brexit would make some people very rich but most voters considerably poorer,” Soros predicted, warning that a “leave” vote could lead to “Black Friday.”
The column puts Soros on the same side as British Prime Minister David Cameron, who led the “remain” campaign. In September 1992, Cameron was a young aide to British Chancellor of the Exchequer Norman Lamont, unable to withstand the speculative attack on the pound sterling by Soros and other speculators, who were rightly betting that the British government would not be unable to defend the pound’s trading band against the German mark.