The Man Who Broke the Bank of England – The Untold Story Behind It

On September 19, Anatoly Kelis, a well-known economic editor and contributor to the newspaper, published an interview in which the newspaper's reputation in the media and the shocking headline led to the newspaper selling out shortly after its publication, and the newspaper had to increase its supply by more than a million copies to ensure market supply.

"This month, the Bank of England failed to intervene in the foreign exchange market, and the pound depreciated by more than 30 percent, and with the depreciation of the pound, international investor Shen Jiannan made $4.7 billion on the pound. ”

"I am honored to be qualified for an interview with Shen Jiannan by chance. ”

"He's young, and I can't believe the first time I saw him, this young man had brought down the most powerful central bank in the world, the Bank of England. ”

"In the interview, I asked him why he chose the pound as an attacking target. He told me that this was not an attack, he just wanted some big people to hear him and use the results to tell them that the pound was overvalued and that it was a very serious mistake. ”

"As a traditional British, I was outraged when I heard him say that. ”

"A foreigner, he was accusing our government, but after I listened to all the words of Shen Jiannan, I fell into deep thought. ”

"Flies don't bite eggs. The total size of the pound in circulation is trillions, and Shen Jiannan's company only has a position of 40 billion pounds in the position of selling pounds. ”

"But as a result, the Bank of England failed, and the pound depreciated by 30 per cent, so that every taxpayer lost at least 50 pounds of wealth. ”

"Obviously, it's not an equal contest. But why, has the always strong pound been hit hard?"

"I asked Shen Jiannan this question. He told me that, in fact, the Bank of England would not have to bear this loss, and if Britain had not joined the European Community, it would not have been held hostage by Germany's high interest rates, and it would have easily coped with the crisis. Taking a step back, even a week ago, the Bank of England had more options to withdraw from the European Exchange Rate Mechanism at any time, and in doing so, they could save a lot of money. ”

"But it's clear that the Bank of England didn't do that, and they chose to foolishly carry it to the end. ”

"I don't understand why the government did this, but there is no doubt that it was a very stupid act, and in the end, we did not stay in the European Community, but we had to suffer huge losses. ”

"Shen Jiannan told me that he had closed his position on the pound. ”

This answer surprised me deeply, the Bank of England has lost its foreign exchange and can no longer support the price of the pound, and at this time to understand the pound to sell positions is to give up the wealth in hand. ”

"He told me that he didn't want to see anything harder, that he was a forex trader, that he was a speculator, that it was his job to short the pound, like a butcher in a slaughterhouse, and that there was nothing right or wrong in terms of work. But that doesn't mean he likes the job. ”

"The depreciation of the UK also means that the Bank of England has realized its mistake, so there is no need to continue to short for the sake of shorting. ”

“......”

Hundreds of words were written, Anatoly Caris wrote at the end of his article.

"Shen Jiannan was a very knowledgeable man, a philanthropist, and it would be hard to imagine that he had spent a lot of time in Eastern Europe engaged in political and educational philanthropy if I had not seen it with my own eyes. Jiuding Bank, a subsidiary of Capital One, has even provided more than $30 million in aid to Ukraine. ”

"It's incredible. ”

But he is also the world's largest currency trader. In the week leading up to Black Wednesday, Shen Jiannan dealt the most brutal blow to the Cabinet government in history."

Caris wrote.

Shen Jiannan knew that he had made a whopping $4.7 billion from the pound's collapse. Describing the pre-Black Wednesday action, he told me: "We did a lot of short selling of pounds, so we made a lot of money. Before the collapse of the exchange rate mechanism, we became the most important traders in the market. Prior to Black Wednesday, we had a business volume of £40 billion in the market. We plan to sell most of them. In fact, we were very happy when Lemon said before the currency devaluation that he would borrow $15 billion to defend the pound, because that was exactly what we planned to sell.

And the amount he is talking about is not even a third of the size of the position we hold. ”

"But things turned out more than we could have imagined, and before we could capture a large enough market share, the pound withdrew from the monetary mechanism, and $4.7 billion was the gain we had estimated earlier. Although it's in dollars and not pounds".

"While we found that the pound market was already approaching $2 billion, we were still increasing our earnings due to our operations in other currency markets. Long-term share of the interest rate market in the UK, France and Germany, as well as operating a short-term Italian lira business, will make us a profit of $4.7 billion. ”

"I asked him why he had invested his money in a policy that Britain had so stubbornly pursued and which had ultimately failed, and if Britain had changed its policy, the size of the position would have been enough to bankrupt him. ”

"I believe the Bundesbank wants the lira and the pound to fall, not the franc," Shen said. I feel safer to bet on the Bundesbank. The Bundesbank made it clear that it wants the lira and the pound to depreciate, and it is ready to protect the franc. In the end, the Bundesbank scored 3:0 and the speculators 2:1, and I did better than the other businessmen by being firmly on the side of the German Bundesbank. ”

When I asked if Major had raised interest rates before Wednesday, it would have been better, Shen replied: "It's absolute nonsense, if interest rates go up, it will encourage us to increase the sell-off in the stock market, because the operation of the market is accelerated by the increase in interest rates, which will allow us to get more profits to short the pound."

In fact, we didn't want the currency to depreciate until the end of the week, but when rates were raised on Wednesday, we realized that we couldn't wait any longer, and we couldn't afford to sell quickly to capture our market niche. ”

"In our conversation, Shen Jiannan, like a financial analyst, believes that speculation is harmful, especially in the currency market. “

But he believes that the measure to stop this kind of speculation is not to stop speculating, like a rapist, if he wants to make him really realize his mistake and correct it, then the best way is to punish him according to the law, rather than ignore his criminal behavior or even selectively ignore it.

The mistake itself comes from the mistake itself, and even if I give up the attack on the pound, it will still go wrong.

And what I did with the pound was to make the mistake corrected earlier.

But apparently, the Bank of England did not realize this until the end, and until then it had been trying to limit monetary liquidity, which has often proven to be more harmful. Restricting liquidity can make capital feel panic and uneasiness, and it can shake investment, as evidenced by the simultaneous decline in the stock market and the interest rate market. ”

"When it comes to the exchange rate, I have to ask whether a fixed exchange rate is more suitable for the current currency market. ”

Shen Jiannan told me: "Fixed exchange rate systems are also flawed because they will eventually fall apart. ”

He used a theory that I couldn't quite understand - the avenue fifty, and the one used forty-nine.

Thankfully, I didn't understand what it meant, but he explained it to me.

"In fact, any exchange rate mechanism is flawed, and the longer they exist, the greater the flawed. Avoiding speculation is not about not doing away with the exchange rate mechanism, but about using only one currency in Europe, as in the United States. This would make it impossible for a speculator like me to operate, but I am willing to sacrifice it. “

In the conversation with me, Shen Jiannan seemed calm and composed.

"He told me that he didn't have much interest in money, and that in his eyes, money was just a symbol. I believe he is serious because he seems absolutely calm and rational, and I didn't even feel his obvious mood swings. ”

“......”

In his opinion, making money is just a means...... But the purpose of making money is not necessarily because it needs money. ”

I asked him why he was willing to be interviewed by me. ”

He said that he was proud of his accomplishments, which is why he decided to talk to me about it. ...... He was delighted with his intelligibility in recognizing what would happen, challenging authority, and winning. But he also wanted to use public outreach, which would make his philanthropic work in Eastern Europe known to the public, and at the same time, it would allow governments to learn enough from the crisis to avoid making such mistakes.

Postscript:

Before leaving, Shen Jiannan looked much happier than he did when he mentioned making money, and his approach to sterling challenges corroborated his business theories.

As a result, blind self-confidence and a sense of representation and error can give rise to corresponding trading behavior in the market, and he recognized that on the eve of the crisis of the currency-exchange rate mechanism, there was a major misconception, namely, the false hope that the Bundesbank would support the pound in any case.

But it is clear that the Bundesbank has made it abundantly clear that it will not follow the Bank of England's proposal to cut its interest rates.

His theories also led him to believe that speculators always try to make the same trades in the market on an ongoing basis.

He said: "In a mechanism where the exchange rate is relatively free-floating, the volume of speculative transactions gradually increases, and speculation has the characteristics of long-term continuity, and with the growth of the scale of the electronic zerg, this will lead to an increase in the exchange rate, and eventually lead to the rupture of the mechanism." Because Internet information can be bought and sold in milliseconds, the central bank's tens of billions of foreign exchange reserves are completely out of date. ”

Obviously, this is ignorant and seriously backward thinking. ”