At the time, Germany and England had economies that were quite different. Germany had to still deal with the effects of their reunification, England had high levels of inflation (much higher than Germany's) and a high deficit.
Usually when you peg an exchange rate, you want economies that are similar and will be going in similar directions. This is pretty rate to pull off, essentially you are dictating your monetary policy to another nation's central bank.
The exchange rate mechanism kept the pound artificially high by forcing the Bank of England to intervene whenever there was selling pressure. That way the pound would not devalue below the 1:2.95 level. Similarly, raising interest rates would have been a non-starter too because it might lead to the pound exceeding the 1:2.95 level.
With Soros selling at such a great magnitude, Billions versus hundreds of millions, he was able to force England to stop using the mechanism and let the pound float to a lower price which more accurately reflected its true value.
No, you are just borrowing a lot of the money that already exists and then you are using your large volume and sell order to put downward pressure on the security's price.
Usually when you peg an exchange rate, you want economies that are similar and will be going in similar directions. This is pretty rate to pull off, essentially you are dictating your monetary policy to another nation's central bank.
The exchange rate mechanism kept the pound artificially high by forcing the Bank of England to intervene whenever there was selling pressure. That way the pound would not devalue below the 1:2.95 level. Similarly, raising interest rates would have been a non-starter too because it might lead to the pound exceeding the 1:2.95 level.
With Soros selling at such a great magnitude, Billions versus hundreds of millions, he was able to force England to stop using the mechanism and let the pound float to a lower price which more accurately reflected its true value.