Capítulo 13: CH13 - Crashes
Evening, 11 Downing Street, London, UK.
In front of the red brick Treasury building at 11 Downing Street, a crowd of domestic and international journalists had gathered, having been notified in advance.
"If they're holding an emergency press conference, they must be planning to announce their withdrawal from the ERM," muttered Alex, a journalist from The Guardian, as he held a notebook with a pen clipped to it.
A fellow journalist, who was somewhat familiar with Alex, nodded as if it was obvious.
"What else could it be? The forex market was in chaos all day."
"Indeed," Alex responded with a bitter smile.
"It was supposed to be a David versus Goliath fight, but I never thought it would turn out like this."
"No kidding."
The other journalist nodded in agreement.
"With this, the pound's status as a reserve currency has likely taken a significant hit."
Both journalists, being British, couldn't help but feel a bitter taste in their mouths. Alex glanced up at the Union Jack fluttering beside the building's entrance.
"So, this is the end of Prime Minister Isaac's political career."
"Seems that way."
Most of the journalists gathered there shared this sentiment.
It felt like an event that symbolized the decline of the once-great British Empire, which had once boasted that the sun never set on its dominions. This realization made Alex feel a sense of melancholy and loneliness.
At that moment, the entrance door opened, and Chancellor Henry, with a stern expression, stepped out with Treasury officials.
"There's the Chancellor!"
The waiting journalists surged forward at once.
The guards who had been stationed there quickly moved to keep the crowd from getting too close, but it was no use. The journalists pushed and shoved in a fierce struggle to get closer.
Chancellor Henry, who looked at the half-circle of journalists with a heavy heart, waited a moment until the crowd calmed down. Then, he took out the prepared statement from his jacket pocket.
Unfolding the piece of paper, Chancellor Henry looked up at the microphones and cameras pointed at him.
'I wish I could just run away right now.'
This would probably go down as one of the most humiliating days of his life.
It was painful, but as Chancellor, he couldn't avoid it. And to prevent a greater catastrophe, it was something he had to do. As he looked at the statement in his hand, Henry forced himself to speak.
"Citizens of the United Kingdom, today has been an incredibly difficult and painful day."
Looking at the reporters listening with bated breath, Chancellor Henry continued in a somber tone.
"As you all know, over the past few days, global hedge funds have launched a malicious attack, deliberately driving down the pound's exchange rate. The government and the Bank of England have fought valiantly to resist these malevolent forces on their own."
His words subtly conveyed his resentment and disappointment towards Germany, which had turned a blind eye and failed to offer assistance in the face of these attacks.
"Today, in particular, large-scale pound sell-offs took place from the morning onwards, causing great turmoil in the forex market. In response, the government and the Bank of England took all possible measures, including consecutive interest rate hikes, but it wasn't enough. Therefore, after much deliberation, the government has decided to…"
He hesitated for a moment, unable to continue, then coughed to clear his throat, unable to hide his anguish.
"…withdraw from the ERM."
Although it had been somewhat anticipated, the official announcement of the ERM withdrawal caused a great stir among the gathered journalists.
"While this may cause some disruption, please understand that it was an unavoidable choice to stabilize the exchange rate and the UK economy. The government will make every effort to minimize the impact of this event. Once again, I apologize and ask for the understanding and cooperation of the British public."
As soon as he finished speaking, the journalists erupted with questions.
"Does this mean the UK has surrendered to the hedge funds' attack?"
"Is it true that the forex reserves have been significantly depleted due to the defense of the exchange rate over the past few days?"
"Some say that maintaining the ERM was always going to be difficult. What are your thoughts on that?"
"How do you feel right now?"
"Chancellor, just one more comment, please!"
The cameras flashed non-stop, and the noise of the shutters was deafening. Chancellor Henry squinted against the blinding lights, feeling as if the journalists' questions, like a flock of crows descending on their prey, were almost overwhelming him.
He folded the statement and slipped it back into his jacket pocket before speaking in a firm voice.
"There will be a separate announcement regarding the next steps."
With that, he turned and walked back into the building without another word. As Chancellor Henry walked quickly back inside, shouts from the journalists followed him.
***
Cambridge, Massachusetts, USA.
As the sun climbed higher in the sky, Seok-won moved indoors to escape the harsh sunlight, settling down inside the cafeteria. The staff who had taken over the afternoon shift recognized him and casually struck up a conversation.
"You're here longer than usual today."
"I've got some work to do for a project," Seok-won replied, ordering a tuna sandwich and a hot Americano to quickly satisfy his hunger.
Even as he ate, Seok-won remained vigilant, frequently checking in with Cox for updates on the exchange rate movements.
A group of female students entered the cafeteria, chatting loudly with their textbooks in hand. Seok-won glanced at his wristwatch as he rolled up his sleeves. It was just past 2:50 PM.
With the 5-hour time difference, the UK forex market would have just closed by now.
"It should be about time for them to make their surrender announcement."
According to what Director Oh had told him, the UK government should be announcing its withdrawal from the ERM after the market closed. As Seok-won tapped his fingernail on the table, anxiously staring at his phone for what felt like an eternity, the phone finally rang.
Seok-won quickly grabbed his phone and answered, "It's me."
Cox's excited voice came through the line.
[Chancellor Henry just officially announced the UK's withdrawal from the ERM!]
As soon as Seok-won heard this, he clenched his fist. He knew this was coming, but there was still a thrilling rush of excitement from the success of his first big bet.
[As soon as the news broke, the pound's exchange rate plummeted below $1.3000, falling as low as $1.2950.]
It seemed that his involvement had caused the pound to drop even more than in the original timeline.
[The sell orders are pouring in so heavily that it's hard to predict where the bottom might be.]
Quickly regaining his composure, Seok-won responded calmly, "The Bank of England stopped supporting the pound by giving up its defense, so it's bound to fall further."
[Haha, indeed. If I were holding onto a depreciating pound, I'd be desperate to sell it off before the losses grew any larger.]
With the UK's withdrawal from the ERM confirming the pound's weakness, a massive wave of sell-offs followed. But with the Bank of England no longer intervening to stabilize the exchange rate, the pound plummeted uncontrollably.
As a result, more and more investors, fearing further losses, dumped their pounds, causing what is often referred to as a "death spiral."
'Even though the pound will eventually stabilize and avoid a full-blown crisis, the UK will have to endure a tough period ahead.' If he remembered correctly, the pound would drop to $1 by the end of the year, so there was still a long way to go.
[You intend to maintain your position, I assume?] Cox asked, seeking confirmation.
Seok-won shook off his thoughts and replied, "Of course. Sell everything when the pound hits $1."
[Are you serious? You really think the pound will drop that low?]
Cox sounded shocked, as most people, no matter how pessimistic they were about the pound, wouldn't expect it to sink that far.
Leaning back in his chair, Seok-won spoke with conviction, "Yes."
[One dollar… If it really gets there, the returns will be staggering.]
Cox felt a whirlwind of emotions—doubt, but also excitement at the prospect of hitting the jackpot. It seemed unlikely, but considering the pound's current freefall, it wasn't out of the question. And since Seok-won had accurately predicted the pound's decline and bet big on it, Cox couldn't shake the feeling that it might actually happen.
"Also, I'd like to use the current contracts as collateral to leverage further. Do you think that's possible?"
[Are you planning to short the pound even more?]
Cox immediately picked up on his intention.
But Seok-won responded with a relaxed smile. "With everyone swarming around like bees, how much profit could there possibly be? I'm not interested in joining that crowd."
[Then what do you plan to do?]
Cox asked, genuinely curious. After witnessing Seok-won's uncanny accuracy, he was eager to know what he would do next.
"I plan to buy some British stocks."
As expected of a top Wall Street trader, Cox quickly understood Seok-won's intention and let out a gasp of admiration.
[You're planning to buy blue-chip stocks at bargain prices, aren't you?]
"Exactly."
Due to the recession, the stock prices of companies listed on the London Stock Exchange had plummeted to rock bottom.
'British companies had struggled with the high exchange rate, but that's no longer an issue.'
With the UK's exit from the ERM causing the exchange rate to plummet, British companies would gain a significant competitive advantage. This meant there was a strong likelihood that stock prices would rebound sharply.
[I can't make that decision myself, but I'll report it to my superiors and get back to you.]
"I'd like to hear back by the end of today, if possible."
[I can't promise anything, but I'm confident the approval will come through.]
Cox replied confidently.
The stark difference in attitude compared to when they first discussed the leveraged investment made Seok-won chuckle as he wrapped up the call.
"Then I'll be waiting for the good news."
[I'll be in touch soon.]
As soon as Seok-won set the phone down, the tension in his body relaxed completely.
"Ha… it's finally over."
Seok-won raised the disposable coffee cup in front of him as if it were a champagne glass, toasting to the success of his first big bet.
***
Hannam-dong, Seoul, South Korea.
As usual, Chairman Park Tae-hong rose early and entered the living room, where the savory scent of cheonggukjang (fermented soybean paste stew) tickled his nose.
"Ahem."
"Oh, you're up, Chairman."
Chairman Park Tae-hong cleared his throat, and Mrs. Gunsan came out of the kitchen to greet him.
"Is that cheonggukjang I smell?"
"Yes, it is."
"Just the smell is already making my mouth water."
Mrs. Gunsan chuckled at his barely concealed impatience. "It'll be ready soon. Would you like me to make you some coffee?"
"Yes, please."
As he moved into the living room, Chairman Park Tae-hong sat on the plush antique sofa and picked up the morning newspaper from the table.
The headline on the front page immediately caught his eye.
[UK Withdraws from ERM; Pound Crashes!]
"What?!"
Chairman Park Tae-hong narrowed his eyes and read the article carefully.
[
After days of relentless attacks by global hedge funds, the UK government suddenly announced its withdrawal from the European Exchange Rate Mechanism (ERM) on the 16th, leading to a sharp decline in the pound. Despite two interest rate hikes in a single day, the UK failed to defend its currency and was forced to exit the ERM. The pound fell to $1.29, the lowest since 1985. With the ERM exit expected to deal a severe blow to the pound and the UK economy…]
"Huh…"
Chairman Park Tae-hong exhaled slowly, the newspaper still in his hand.
"I thought it was a long shot, but the pound really did crash."
He was left in a half-dazed state.
"Even if we didn't lose money, it's fortunate enough… but… how much did Seok-won make?"
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