"[The Bank of England's] reserves fell from over $130 million on Wednesday, July 29, to less than $50 million on Saturday, August 1,when the Bank, attract deposits and conserve its rapidly diminishing stock... announced it had raised its interest rates to an unprecedented 10 percent.Yes, it sounds like the Black Wednesday that we know in 1992. Bank of England spent billions of pounds to raise rates to 10% and higher in a costly and futile attempt to prop up its currency and stay in the ERM. Soros made his billions and indeed his name by making over a billion dollars for his investors.
But this is not recent - the year is 1914. Full quote is below:
"[The Bank of England's] bullion reserves fell from over $130 million on Wednesday, July 29, to less than $50 million on Saturday, August 1,when the Bank, attract deposits and conserve its rapidly diminishing stock of gold, announced it had raised its interest rates to an unprecedented 10 percent.This occurred at the beginning of World War I, when the world was still following the gold standard and therefore banks were forced to honor a preset exchange rate with gold. Unfortunately, no central bank had 100% of deposits backed in gold (by design) and so when bank panics to a country-level as in a world war, no bank is safe.
What surprised me was that even though 78 years had passed, the same bank faced the same run and responded the same way, by raising rates to 10% (and beyond). Granted it was gold vs. foreign currency reserves, but does that matter? Isn't gold just another currency? One whose supply changes/fluctuates just like any other? Or actually, it continues to grow:
(Source: Gold Standard)
While the issue of the gold standard is more than just this bank run, it does seem like currency/bank crises are not that different. Whether it is pounds, dollars, gold, silver, or baseball cards, all currency/banking systems can and do come under pressure in similar ways.
This post was pretty prescient considering yesterday's gold collapse.
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