August 5, 1997 — Wall Street, New York.
More than a month had passed since hedge funds began their assault on the Hong Kong dollar. As George Soros arrived at Quantum Fund's headquarters on 7th Avenue in Manhattan, he summoned Rodney, the CIO, and Ian, the chief manager, into his office.
The three men gathered around the leather sofa at the back of the room. Sitting at the head of the group, George Soros began speaking in a slightly subdued tone.
"There was over 20 billion Hong Kong dollars sold again in the forex market yesterday, but they still didn't manage to break through the upper limit of the exchange rate band."
Ian, who had been directing the Hong Kong dollar offensive overnight, responded with a tired expression.
"It's not just us — a number of hedge funds are relentlessly hammering away, but the Hong Kong government is holding on more stubbornly than we expected."
Rodney, seated opposite, added with a serious expression:
"They've raised the base interest rate further and practically given up on their stock and real estate markets just to defend the currency. That level of commitment is making this a tougher fight than anticipated."
George Soros frowned, clearly displeased with how things were progressing.
Rodney, noticing his expression, tried to soften the mood.
"We did expect from the start that Hong Kong would be harder to crack than the other Asian countries."
Ian also chimed in with a somewhat hopeful outlook:
"They're holding firm, but the more they defend the currency, the more U.S. dollars they're burning through. Time is on our side."
But despite these reassurances, George Soros didn't ease his frown.
"That may be true. But there's a new variable now."
Rodney furrowed his brows and asked,
"You don't mean China is preparing to intervene, do you?"
Ian also looked tense as he stared at George.
"No," George said, shaking his head as he leaned back in his chair.
Rodney narrowed his eyes further.
"Then what new variable are you referring to?"
George Soros answered with a grim expression.
"The White House."
"What?"
The two men were taken aback by the unexpected news, their eyes widening in surprise.
"Did you just say the White House?"
Rodney, the CIO, couldn't hide his confusion and leaned forward, almost questioning his own hearing, his expression filled with doubt.
George Soros nodded and responded in an annoyed tone.
"Yes."
"But why the White House...?"
Clearly struggling to understand, George Soros crossed his arms and took the time to explain in detail.
"Last night, Huxley from the White House called me and told me that President Zhang Zhong of China had personally expressed deep concern to the White House about the current situation in Hong Kong."
Rodney immediately expressed his disagreement.
"But I find it hard to accept that the White House would intervene in private investment activities."
"You're right."
Ian, the chief manager, also seemed to share the same thoughts, nodding in agreement.
The United States, as a country that prioritizes individual freedom and rights, was enshrined in its constitution. Wall Street, where investments flowed across the globe to generate wealth, adhered strongly to these principles.
Therefore, the idea that the White House would interfere with free investment activity after receiving a phone call from the Chinese president was naturally unsettling.
George Soros, equally grim-faced, nodded in acknowledgment.
"I was initially annoyed and wanted to ignore it, but it seems like the White House is in a difficult position. If Hong Kong devalues its currency, China will have no choice but to significantly devalue the yuan to defend its exchange rate."
Rodney immediately grasped the situation and frowned.
"If China indeed devalues the yuan, it will cause a major disruption to the White House's plan to induce a weaker dollar to reduce the fiscal deficit and boost the economy."
"Exactly."
Ian, now realizing the reason behind the White House's involvement, wore a serious expression.
"But we've already shorted Hong Kong dollars with an astronomical amount. If we stop now, the losses will be huge."
Rodney, full of concern, echoed the sentiment, and George Soros nodded in agreement.
"I said the same thing."
"So what did they say?"
George Soros sat on the sofa, interlacing his fingers.
"They gave us three days."
Looking up and noticing that the two men were listening intently, George Soros continued.
"The White House is reluctant to see Wall Street hedge funds, including us, suffer major losses. They've given us a final three days to force Hong Kong to surrender."
"What happens if Hong Kong isn't brought down within three days?"
Rodney, the CIO, asked seriously.
George Soros, his face expressionless like a statue, replied in a low voice.
"Then we'll be told to pull out of Hong Kong completely."
The two men's faces immediately darkened seriously.
In the moment of silence that filled the office, George Soros narrowed his eyes and asked.
"Do you think we can force a surrender within three days?"
Unlike Ian, the chief manager, who couldn't respond immediately, Rodney CIO quickly composed his thoughts and met George's gaze.
"It won't be easy, but if the time limit is set, I'll make sure we meet it."
Seeing the answer he was hoping for, George Soros nodded slightly.
"Then, for the next three days, let's put everything into taking down the Hong Kong dollar."
"Understood."
"Got it."
Rodney CIO and Ian, the chief manager, answered with heavy faces.
***
Beep beep beep.Beep beep beep.
In the dark room, the loud ringing of a cellphone woke Seok-won, who was lying in bed. He turned over, stretched out his arm to the nightstand, and fumbled for his phone. Grabbing it, he answered the call without opening his eyes.
[Boss, it's me.]
It was Landon's voice, and Seok-won, still half asleep, responded.
"What time is it?"
[It's about 1:30 AM Seoul time.]
Struggling to sit up, Seok-won grabbed the wristwatch he had left on the nightstand and checked the time.
"What's going on at this hour?"
[The Hong Kong dollar is being sold off in large quantities in the New York forex market, and it seems like it's being orchestrated by Quantum Fund.]
"But hasn't this been going on for over a month now?"
When Seok-won casually responded, Landon's voice hardened over the phone.
[In the last three hours, the amount sold has surpassed 20 billion Hong Kong dollars.]
"...!"
Seok-won, instantly wide awake, tightened his grip on the phone and urgently asked again.
"Did you say 20 billion Hong Kong dollars?"
[Yes. And this is just Quantum Fund selling it.]
Over the past month, hedge funds, including Quantum Fund, had been relentlessly dumping Hong Kong dollars, but the maximum amount in a single day had only been around 30 billion Hong Kong dollars.
Yet, in just three hours, and not even by the entire speculative force but only by Quantum Fund, they had sold a quantity close to two-thirds of the highest daily amount. Seok-won couldn't help but be shocked.
He instinctively realized that something unusual was happening.
"What are the other hedge funds doing?"
[At first, they were taken aback by Quantum Fund's sudden rampage, but now they are all increasing their selling amounts, following suit.]
"Then the Hong Kong dollar exchange rate must have spiked."
[Yes. Due to the massive sell-off, the exchange rate briefly broke through the upper limit of the band, reaching 7.965 Hong Kong dollars per 1 USD, but after Hong Kong authorities took emergency measures, it's now back within the band.]
Seok-won, feeling something was wrong with Quantum Fund's sudden action, rubbed his forehead and asked.
"Is the selling pressure still as strong as ever?"
[Actually, it's getting even stronger with time.]
The fact that even more Hong Kong dollars were being dumped rather than less made Seok-won's expression harden.
[The forex market is in turmoil, and the Hang Seng index futures have dropped over 7%.]
"When the exchange rate becomes unstable, there's bound to be a massive outflow of investment from the stock market. It makes sense that there's a spillover effect."
No matter how much he thought about it, Seok-won couldn't find a reason why George Soros, who had been gradually weakening Hong Kong by depleting its foreign exchange reserves, would suddenly launch a full-scale assault.
"Did something happen in the market while I was asleep?"
[Not really. However, there is one thing that stands out.]
"What is it?"
[There's a rumor circulating in Washington. It's said that the President of China personally called the White House to express serious concerns over the hedge funds' attack on Hong Kong, and mentioned that, depending on the situation, China could devalue the yuan.]
"...!"
As Seok-won listened to the conversation, he felt as though he had been hit on the back of the head.
In his memory, Hong Kong had been holding out firmly until the very end. However, due to sharp interest rate hikes, the stock and real estate markets had collapsed, and foreign exchange reserves had drastically decreased. It was a situation where it wouldn't have been surprising if they surrendered at any moment.
But the sudden halt of the attack by Quantum Fund and the other hedge funds had always been a mystery to him.
"No wonder something felt off. So, China was behind the scenes all along."
Since it had been done behind the scenes, it wasn't something that had been revealed on the surface.
Landon, hearing Seok-won's muttering, asked in a puzzled tone.
[What did you say?]
"Ah, just talking to myself."
Seok-won quickly brushed it off and leaned against the head of his bed, deep in thought.
Releasing China's foreign exchange reserves to directly support Hong Kong could have easily made them a target for speculative attacks.
Instead, they had chosen to put pressure on the U.S. indirectly by bypassing the White House's desire for a weaker dollar to stimulate the economy.
'When I think about it again, it's a really clever solution.'
Outwardly, China had maintained a seemingly indifferent stance toward the struggling Hong Kong, but behind the scenes, they had accurately pinpointed the vulnerabilities of their opponent and taken action. Seok-won couldn't help but feel that China was a force to be reckoned with and not to be underestimated.
Shaking off his thoughts, he immediately gave instructions to Landon.
"For now, carefully monitor the movements of Quantum Fund and the other hedge funds. Also, find out whether it's true that President Zhang called the White House, and get more details on what was discussed."
[Understood.]
After ending the call, Seok-won got out of bed.
Now that he was fully awake, there was no way he could get back to sleep.
He walked out of his bedroom, crossing the large living room lit only by indirect lighting, and made his way to the kitchen. There, he opened the refrigerator, pulled out a bottle of water, and poured some into a cup. The cold water quenched his thirst and helped clear his mind.
"Since I'm already wide awake, I might as well check the market."
After making himself a cup of coffee, Seok-won entered his trading room, where he powered on his computer and Bloomberg terminal.
Listening to the sound of the fans whirring, he took a sip of his coffee while waiting for everything to boot up.
When the Windows screen finally appeared, he moved his mouse and opened the Hong Kong Dollar trading window.
[HKD: 7.81 (▲0.11)]
Despite Hong Kong authorities' intervention, the exchange rate had briefly exceeded the upper band of 7.80. Seok-won clicked his tongue and muttered to himself.
"Looks like George Soros is really pushing this."