Britain withdrew the pound sterling from the European Exchange Rate Mechanism on Black Wednesday.
Black Wednesday occurred on September 16, 1992, when the British government abandoned its attempt to keep sterling within the ERM’s permitted exchange-rate band. The government had raised interest rates and used foreign-exchange reserves to defend the currency, but pressure from traders continued.
The ERM was designed to limit exchange-rate fluctuations among participating European currencies as a step toward monetary cooperation. Britain joined in 1990, but economic conditions soon made the required exchange-rate policy difficult to maintain. High interest rates needed to support sterling conflicted with domestic economic weakness.
The withdrawal was politically damaging for Prime Minister John Major’s government, although later debate noted that Britain’s economy recovered after leaving the mechanism and cutting interest rates. Black Wednesday is therefore remembered both as a currency crisis and as a major episode in the United Kingdom’s difficult relationship with European monetary integration.