In such a context, vast financial
resources can be unleashed by institutional investors in speculative attacks on the
currencies of states incurring the investors’ displeasure. Sterling’s forcible e jection
from the European Monetar y System (EMS) at the hands of George Soros and others
is a classic case in point. Within such models, por tfolio investors, in part icular, are
seen to display a clear interest in, and preference for, strong and stable currencies
backed both by implacable independent central banks w ith hawkish anti-inflationar y
credentials and governments wedded in theor y and in practice to fiscal moderation
and prudence. Any depar ture from this new financial or thodoxy, it is assumed, w ill
precipitate a flurr y of speculation against the currency and a haemorrhaging of
investment from assets denominated in that currency. Governments provoke the
w rath of the financial markets at their peril