Who Broke the Bank of England?

Posted: 10 Oct 2009

See all articles by Niall Ferguson

Niall Ferguson

Harvard University - Department of History; Stanford University - The Hoover Institution on War, Revolution and Peace

Jonathan Schlefer

Harvard Business School

Date Written: September 9, 2009

Abstract

In the summer of 1992, hedge fund manager George Soros was contemplating the possibility that the European Exchange Rate Mechanism (ERM) would break down. Designed to pave the way for a full-scale European Monetary Union, the ERM was a system of fixed exchange rates linking together twelve members of the European Union, including Britain, France, Germany, and Italy. However, the impact of German reunification after 1989 had created significant strains within the system. Moreover, financial deregulation and the growth of cross-border flows of 'hot" money increased the likelihood that a speculative attack on one or more ERM currencies might succeed. Soros had to decide which currencies to bet against. The Italian lira? The British pound? The French franc? Or all three? The result could determine the success or failure of the project for a single European currency.

Suggested Citation

Ferguson, Niall and Schlefer, Jonathan, Who Broke the Bank of England? (September 9, 2009). Harvard Business School BGIE Unit Case No. 709-026. Available at SSRN: https://ssrn.com/abstract=1485674

Niall Ferguson (Contact Author)

Harvard University - Department of History ( email )

Cambridge, MA
United States

Stanford University - The Hoover Institution on War, Revolution and Peace

Stanford, CA 94305-6010
United States

Jonathan Schlefer

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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