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Billionaire investor George Soros says Brexit would make speculators rich, voters poor
[NEW YORK] Billionaire investor George Soros said the pound may slump more than 20 per cent against the US dollar if British voters decided to leave the European Union, a devaluation bigger and more disruptive than when he profited by betting against the currency in 1992.
"Brexit would make some people very rich, but most voters considerably poorer," Mr Soros wrote in an op-ed published in the UK's Guardian newspaper on Tuesday.
The pound would fall by at least 15 per cent if the nation votes to leave the trading block and potentially more than 20 per cent to below US$1.15, the investor wrote. He said voters are grossly underestimating the true costs of Brexit, which will have an "immediate and dramatic impact" on financial markets, investments and jobs.
Governments and investors around the world are closely monitoring the June 23 referendum amid concern that a UK decision to leave the EU would spark turmoil across financial markets.
The pound surged the most since 2008 on Monday, spurring a global rally in higher-yielding currencies, as polls signalled the campaign to remain in the EU was gaining momentum.
The day after the referendum, the pound will either sink to the lowest level in more than three decades or climb toward the highest this year, according to a Bloomberg survey of economists.
In the event of a leave vote, most forecasters saw the pound falling to a range from US$1.25 to US$1.40, while a decision to remain could boost the currency within its current range or beyond US$1.50.
A more than 20 per cent slump would result in the pound at a level that would ironically mean the currency would be worth about one euro, a method of "joining the euro" that nobody in Britain would want, Mr Soros said.
Mr Soros said a large devaluation of the pound would be less benign than in 1992 because the Bank of England won't be able to cut interest rates if voters decide to leave the EU since rates are already at low levels.
The central bank will also have little room to move in the strong likelihood of a recession after Brexit caused by a decline in house prices and a loss of jobs.
"Today, there are speculative forces in the markets much bigger and more powerful," Mr Soros said.
"And they will be eager to exploit any miscalculations by the British government or British voters." Mr Soros cited Britain's large current account deficit, larger than 1992 and 2008, saying the nation is more dependent than ever on foreign capital.
After a Brexit, capital flows would reverse, especially during the two years of uncertainty when Britain negotiates its exit from the EU, he wrote.
Mr Soros said a post-Brexit devaluation is unlikely to result in an improvement in manufacturing exports that was seen after 1992 because trading conditions will be too uncertain for British businesses to make new investments, hire more workers or add to export capacity.
Mr Soros rose to fame as the money manager who broke the BOE in 1992, netting a profit of US$1 billion with a wager that the UK would be forced to devalue the pound and pull it from the European Exchange Rate Mechanism.
Mr Soros said in the op-ed that he was "fortunate" to make a substantial profit for his hedge fund investors at the expense of the BOE and the British government.
The pound's devaluation in 1992 "actually proved very helpful to the British economy, and subsequently I was even praised for my role in helping to bring it about," he said.
Mr Soros, who built a US$24 billion fortune through savvy wagers on financial markets, returned money to outside investors five years ago and his New York-based firm, Soros Fund Management, now manages his own wealth.