"The Bank of England couldn't afford to keep its promises. It had committed to keeping the pound trading within a narrow radius against the German mark, requiring it to spend whatever it took to defend the currency's value. The trouble was that the British economy was fragile-most mortgages in the UK at the time had variable rates, so raising interest rates would devastate British homeowners. Bessent convinced his boss, George Soros, to bet against the pound. When it crashed a week later, Bessent made $1 billion for the firm and made himself and Soros famous."
"The lesson Bessent learned on that "Black Wednesday" is simple: when a central bank is artificially holding its currency at a level the market wouldn't otherwise support, eventually the market will win. Though the yuan is harder to trade than the pound-China has a number of capital controls-the same logic, more or less, should apply to China today."
"Thirty-four years later, Bessent is flying to Beijing, where he will sit across from a central bank, the People's Bank of China (PBOC), that is, by his private firm's research, artificially holding the yuan at a level the market wouldn't otherwise support. But Bessent isn't working for that firm now; he's the Treasury Secretary of the United States."
"The dynamics in 2026 are the opposite of 1992 in the UK: Beijing has spent decades suppressing the yuan to keep its exports cheap, as opposed to propping it up to defend a peg. Throughout the 2010s, the scandal of America looking the other way on this plagued Ben Bernanke's Fed and Bush and Obama's presidencies, propelling Trump to classify China as a "currency manipulator" on the 2016 campaign trail, and then officially in 2019. That designation became the justification for the Mar-a-Lago Accord, which built the financial structure of Trump's tariff regime."
In 1992, Scott Bessent identified that the Bank of England could not sustain its commitment to keep the pound within a narrow range against the German mark. Defending the currency required spending whatever it took, but the fragile British economy meant higher interest rates would harm homeowners with variable-rate mortgages. Bessent persuaded George Soros to bet against the pound, and the currency crashed a week later, generating major profits. The same principle is applied to China, where the yuan is affected by capital controls and policy actions. In 2026, the situation is framed as the reverse of 1992: China has suppressed the yuan to keep exports cheap rather than defending a peg, with U.S. policy responses tied to accusations of currency manipulation and tariff structures.
Read at Fortune
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