Black Wednesday: Why George Soros is the Ultimate Pokémon Master

“Hey man, that’s a pretty sweet Charizard trading card. Wanna trade it for my Pikachu card?” I hear you ask your friend Hans.

An ultra-rare Charizard card for a common Pikachu? Is this guy an idiot?

“I want at least 5 common cards for my rare Chari…”

“Done”

Oh bugger. Maybe Hans should have bartered for more cards? That was quick.

See, what I didn’t know was that when you told everyone that your dad worked for Nintendo last week in a desperate bid for attention, you were telling the truth. You have boxes and boxes of cards at home that you can trade with.

You run home to show your mum the new card, but she is halfway through a bottle of red watching Dr Phil reruns and scaring the cat with her erratic behaviour.

The next day you come back to the schoolyard (this is all set in a schoolyard, by the way), and find that Hans has new Charizard card he’s willing to trade.

You might be thinking, why would anyone want another Charizard card? That’s not how trading card games work? Use a little imagination, damnit! I’m trying my best here.

So, you offer 5 more cards for it.

“Nah, Grace over there can offer me 10 cards for it.”

Grace! That weasel! She’s flooding the market and seriously lowering the value of your cards.

Sure, you technically can afford the trade, but it’s the principle of the thing!

You come up with an ingenious plan. At recess, you buy all of Grace’s Pokémon cards in exchange for a pack of gum and a promise that you’ll stop calling her Brace-face Grace anymore (except behind her back).

Come lunchtime, there is no one else to trade cards with, so Hans agrees to another trade of Charizard for 5 Pokémon cards.

Each day, before class, you buy Pokémon cards off anyone that might have some to maintain the rarity of your own, and Hans agrees to trade a Charizard at the same price of 5 commons.

If you’re reading this and getting confused with all this Pokémon talk, substitute Pokémon for marbles or conkers of whatever it is that you old people traded with… A hoop with a stick?

It may not seem like it, but you have effectively created a pegged currency. You have created a system where my Charizard card is worth a fixed number of common cards. No matter what else, you’ve kept the rate the same: 5 for 1.

Currencies do the same thing. Central banks around the world trade currencies all the time and if they want to peg their currency to another, they need to make sure there is a certain amount of their currency trading hands.

We’ve briefly talked about why countries might want to peg a currency here but we will go into more detail about it in future.

Let’s say, for example, you had British pounds and you wanted to peg them to the German Deutschmark. If there are billions of British Pounds floating around, market forces control their value rather than the British Central Bank. If Australia has a bunch of pounds, Britain could ‘buy’ them back with US dollars or whatever else it has in its banks.

Australia gets a good deal; Britain keeps the pounds rarity (and therefore value) at the fixed price it wanted. Everyone wins. Well… just those two countries actually…. Don’t know why I said everyone.

Moving on.

The hairs on the back of you neck stand on end and you shiver.
That weird kid that sits in the corner and reads the dictionary cover-to-cover, is standing right behind you and see’s that your buying all the Pokémon cards. He grins.

Later that night, in secret, the kind hatches a scheme.

Turns out, his dad also works for Nintendo and so he comes into school the next day with hundreds of Pokémon cards. If you want to keep your trading card ‘peg’, you’ll have to buy all of them, and that little snot is going to make you pay through the nose for it.

The first day it was all your lunch money and you bike. The next day you have to ‘borrow’ some money from your mums’ purse. The next day you agree to kiss Brace-Face as part of a dare.

By now, all the other kids have seen what the weird kid is doing and they’ve gone out and bought Pokémon cards too, knowing you’ll pay them back.

By the end of the week, you’ve re-mortgaged your parents house and sold their car to some shady guy just outside of Dubbo. Meanwhile, that weird kid basically won the trading card game and “Caught them all”.

By this stage, like most gamblers, you’ve decided to quit while you’re ahead and decide to stop the peg. You won’t buy any more Pokémon cards, and if a Charizard is worth 10 common cards, or 100, or 1000, so be it.

What happened to that weird kid? Well, my friends, he grew up to be George Soros.

See, in 1992, before the Euro, Britain pegged the pound to the then German Deutschmark. Soros noticed Britain was suffering from what was known in finance as ‘The Unholy Trinity’, which we will discuss in a future article, and wouldn’t be able to pay for its currency peg.

So he shorted 10 billion… with a B… pounds on the currency market. All the other investors saw what he was doing and followed suit.
Britain’s central banks didn’t have enough assets to sell to buy all these pounds and as the rarity of the currency crashed through the floor, the ‘peg’ broke.

This was known as Black Wednesday or the day Soros broke the British bank. It also netted him a cool 1 billion dollars for his troubles.

So the next time someone suggests that playing Pokémon in your 20’s is for losers (That’s hurtful, mum), you let them know about Soros.