Currency Wars: Currency Trades that Toppled the World

Currency Trades that Toppled the World

Third Place: Andrew “Andy” Krieger vs The Kiwi

Following Black Monday on 1987, Andrew “Andy” Krieger — who just moved to Bankers Trust from Salomon Brothers for two years — sold short the New Zealand Dollar (Kiwi) against The Dollar in such substantial amounts ranging from US$600 million to US$1 billion that it actually exceeded the then currency supply of the entire country.

In a matter of hours, the Kiwi plunged 5 percent against the U.S. dollar (with some reports indicating fluctuations of up to 10%). New Zealand Central Bank was furious but the market ruled that it was the country’s fault for being too small to cope with Bankers Trust operations.

It was said the estimated profit to Bankers Trust was $300 million.

 

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Second Place: Stanley Druckenmiller bets on the Mark — Twice

Making a right bet on a currency is already a challenge, making millions by betting on the same currency? That’s ingenious.

The trader at George Soros Quantum Fund put a multi-million dollar short option on the German Mark when the forecasted difficulties of reunification between East and West Germany had slumped the German Mark to what Stanley Druckenmiller thought was the extreme low. Predictably, he was correct.

Years later, when Druckenmiller’s boss George Soros was attempting to plunge the British Pound, Druckenmiller went long in the mark on assumption that his boss would successfully drop the Pound against the Mark, which would force Britain to slash its interest to stimulate business and promote exports. Subsequently, Druckenmiller predicted that investors would then move to German bonds for its stability. Again, he was correct.

 

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First Place: George Soros vs. the British Pound

Before the 1990s, the British Pound was still heavily linked to the German Mark despite the civil turmoils from the reunification of East and West Germany. In attempts to keep the pound at a certain exchange rate for its entry into the European Exchange Rate Mechanism (ERM), therefore, Britain suffered high interest rates and equally high inflation.

Visionary George Soros started betting on a drop in the Pound to test the strength of the fixed exchange rate. For awhile, the British government raised its interest rates to double digits in attempts to attract investors and up its currency, but the act didn’t last long until it realised that it would lose billions to upkeep an artificial pound. It soon withdrew from the ERM and the pound plummeted agains the Mark.

Soros made at least $1 billion off this trade.

 

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