Since Mu Lin couldn’t personally step forward at the moment and had no intention of leaving Country Y for the time being, he invited Cross to come to Y. This short-selling plan required absolute secrecy; otherwise, it could end in failure.
Currently, Country Y was experiencing a significant economic downturn due to the mass withdrawal of foreign investors. The unemployment rate had skyrocketed, and Mu Lin’s crackdown on the corrupt wealthy families and underworld gangs had plunged the nation into chaos. This instability, however, provided the perfect opportunity for Mu Lin to execute his plan.
As soon as the group entered Mu Lin’s living room, Mu Lin got straight to the point: “Cross, I’m planning to short the pound and the lira. Take a look at my proposal and tell me what you think.”
“Alright,” Cross replied without hesitation, taking the document and studying it carefully. Mu Lin also handed a copy to Claire, as someone would need to coordinate communications during the operation. Cross wasn’t influential enough for that role—Claire was the most suitable candidate.
For over 200 years, the British pound had been one of the world’s major reserve currencies. Under the gold standard, pegged to gold, it held a dominant position in global finance. However, the aftermath of World War I and the 1929 stock market crash forced the British government to abandon the gold standard in favor of a floating exchange rate, leading to the pound’s gradual decline in influence. Nevertheless, it remained a key global currency alongside the U.S. dollar.
The Bank of England, as the guardian of financial stability, was a formidable pillar of Country Y’s monetary system, possessing vast market experience and immense power. No one had ever dared to challenge this financial institution—most wouldn’t even entertain the thought. Yet Mu Lin was determined to do the unthinkable: shake the mighty British economy and test its true resilience.
After reviewing the proposal and pondering for a while, Cross finally spoke: “Daniel, let me see if I understand this correctly. Country Y has made a critical mistake by joining the European Exchange Rate Mechanism (ERM), the new monetary system established by Western European nations. The ERM requires member currencies to be pegged not to gold or the U.S. dollar, but to each other.
Each currency is allowed to fluctuate only within a narrow band. If it moves beyond that range, the respective central bank must intervene by buying or selling its own currency to stabilize the exchange rate.
Within the permitted range, member currencies can fluctuate against one another, but all calculations are centered around the German mark. And you happen to have strong connections in Germany. Before joining the ERM, the pound was already fixed at a rate of 1 GBP to 2.95 DEM.
But now, with Country Y’s economy in recession, maintaining such a high exchange rate comes at an exorbitant cost. On one hand, it makes Country Y dependent on Germany, restricting its ability to independently adjust interest rates or devalue its currency to address economic issues.
On the other hand, it’s questionable whether the Bank of England even has the capacity to sustain this overvalued rate. Meanwhile, you plan to leverage your German connections to short the pound and the lira, using this move to teach these two unscrupulous nations a harsh lesson—am I right?”
Mu Lin nodded. “Your analysis is spot-on. There’s one more thing I didn’t include in the proposal, but it just came to mind after seeing you. Last year, on February 7th, the 12 member states of the European Union signed the Maastricht Treaty.
This treaty has left currencies like the pound and the Italian lira significantly overvalued. The central banks of these countries now face immense pressure to either slash interest rates or devalue their currencies. Can they really align their economic policies with Germany, a powerhouse? And if their markets collapse, would Germany, as the core nation, sacrifice its own interests to bail them out?
Never forget that international relations are governed by self-interest. Our influential friends may support us now, but if forced to choose between their country and us, they’ll abandon us without hesitation. That’s an unshakable truth. As for our friendship—I’m already deeply moved that you, as a private individual, publicly condemned the Y government when I was in trouble.
But the funds in your foundation no longer belong solely to you—they belong to your clients. If I were to drag you and your foundation into this mess purely for personal revenge, I wouldn’t deserve your friendship.
Here’s the key takeaway: The ERM will struggle to maintain stability due to the differing economic strengths and national interests of its members. Once the ‘links’ in this system begin to loosen, speculators like us will strike, targeting the weak points. Other opportunistic investors will follow, amplifying the volatility until the entire mechanism collapses under the weight of speculation. Do you understand?”
Cross nodded, then returned to studying the proposal intently. After a long silence, he finally looked up, his eyes burning with determination.
“I have one last question: How much capital can we mobilize, and how much influence can we exert? Right now, my fund only manages about $3 billion—that’s nowhere near enough to take down a nation.”
Mu Lin met Cross’s gaze, searching his eyes. What he saw was unwavering resolve—the look of a warrior ready for battle.
From that look, Mu Lin understood Cross’s determination to go all-in. This wasn’t just about helping a friend—it was a chance to make his fund legendary. Cross had already realized that Mu Lin intended to remain in the shadows during this operation. So, he was prepared to shoulder the fame—or infamy—himself.
Nodding slowly, Mu Lin asked, “Then, Cross, what’s your bottom line? What’s the minimum amount of capital you’d need to win this fight?”
Currently in country Y, due to widespread withdrawal of investments by merchants, the overall economic situation was deteriorating. At the same time, with a surge in unemployment and Mu Lin’s crackdown on those wealthy families and gangs in country Y who were indifferent to the suffering of others, the domestic security situation had become chaotic. This gave Mu Lin the feasibility to implement his plan.
As soon as the group entered Mu Lin’s living room, Mu Lin got straight to the point and said to Cross, “Cross, this time I plan to attack the British pound and the lira. What do you think of my plan?”
“Okay!” Cross didn’t hesitate, took the plan and started reading. Meanwhile, Mu Lin handed a copy to Claire, because in the upcoming battles, there needed to be a central contact person. Cross currently wasn’t influential enough, and only Claire was the most suitable candidate.
The British pound of country Y had been a major global currency for over 200 years. Initially, it was on the gold standard, tied to gold, giving the pound an extremely important position in the global financial markets. However, after World War I and the stock market crash of 1929, the British government was forced to abandon the gold standard and adopt a floating exchange rate system, causing the pound’s position in the global market to decline continuously. Nevertheless, the pound, along with the dollar and others, still held an important place in the global monetary system.
As a crucial institution for maintaining market stability—the Bank of England—was a strong pillar of country Y’s financial system, possessing extensive market experience and formidable strength. No one had ever dared to oppose this national financial system, or even dared to think about it. Yet Mu Lin decided to do something no one had done before—to shake the mighty tree of Great Britain, reputed to be rock-solid, to test just how powerful it really was.
After Cross finished reading Mu Lin’s plan and pondered for a while, he began to speak to Mu Lin, “Daniel, can I understand it this way? Country Y decided to join the new currency system established by Western European countries—the European Exchange Rate Mechanism (ERM), making a decisive mistake. Because the ERM would no longer peg the currencies of Western European countries to gold or the dollar, but instead peg them to each other.
Each currency would only be allowed to float within a certain exchange rate range. Once it exceeded the specified fluctuation range, the central banks of the member countries would be responsible for intervening in the market by buying or selling their own currencies to stabilize the exchange rate within the specified range.
Within the specified fluctuation range, member countries’ currencies could float relative to each other, all calculated based on the German mark. And Mu Lin has excellent connections in this country. Even before country Y joined the ERM, the exchange rate between the pound and the German mark had already stabilized at 1 pound to 2.95 marks.
However, currently, with country Y’s economic downturn, joining the ERM at the cost of maintaining such a high exchange rate is extremely expensive for country Y. On one hand, it would cause country Y to become dependent on Germany, preventing it from boldly addressing its own economic issues—such as deciding when to raise or lower interest rates or devaluing its currency to protect its own economic interests.
On the other hand, whether the central bank of country Y has sufficient capacity to maintain this high exchange rate is also questionable. At the same time, you plan to use your good relations in Germany to attack the pound and the lira, using this action to teach these two countries, which have lost their conscience, a profound lesson, right?”
Mu Lin nodded, “You analyzed it very well! There’s one more point I didn’t include in the plan, which just came to my mind when I saw you. That is, on February 7th last year, the twelve EU member states signed the Maastricht Treaty.
This treaty made certain European currencies, such as the pound and the Italian lira, clearly overvalued. The central banks of these countries would face tremendous pressure to lower interest rates or devalue their currencies. Could these countries maintain coordination and consistency with economically powerful Germany regarding their economic policies? Once these countries’ markets become turbulent and they are unable to resist, would Germany, as the core country, sacrifice its own national interests to help these countries?
You must remember that between countries, it’s always about eternal interests. Our friends are all high-ranking individuals. Once they are forced to choose between their country and their friends, they will definitely choose their country. This is an unshakable truth. Just like the relationship between us. As a regular friend, you can stand up publicly and express your anger towards the government of country Y when I face difficulties, which has already deeply moved me.
The funds you currently control in the fund are no longer yours alone—they belong to your clients. If I were to drag you and your fund into this murky water merely for my own personal vendetta, then I wouldn’t deserve to be your friend.
One thing you must remember is that the ERM will find it difficult to maintain coordination and consistency due to the different economic strengths and national interests of the member countries. Once some of the ‘chains’ that constitute the ERM start to loosen, combined with speculators like us taking advantage of the situation to attack these weakened ‘chains,’ other trend-followers will also jump in, causing exchange rates to become even more volatile. Eventually, the reliance on the trend-following mechanism will far exceed the market’s capacity to absorb it, until the entire mechanism collapses. Do you understand?”
Cross nodded and picked up the plan again for a careful study. After a while, he finally lifted his head, his eyes shining with determination.
“I have one last question: how much capital can we currently control, and how much influence can we exert? You must know that my fund currently controls only about 3 billion dollars, which is fundamentally insufficient to defeat a country!”
Mu Lin raised his head and stared into Cross’s eyes for a while. In them, he saw only a resolute gaze—the determined look of a warrior preparing to head into battle.
From Cross’s gaze, Mu Lin understood his determination to go all out. This was both the best way to honor his friend and an opportunity to make his fund famous worldwide. He had already realized that Mu Lin did not intend to reveal his true strength in this battle. Therefore, Cross was ready to bear this ‘fame’ for his friend.
Nodding, Mu Lin finally spoke, “So, Cross, I want to ask you—what’s your bottom line? What is the minimum amount of capital you need to win this battle?”
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