Commentary: Derivatives out of control
Thursday 24 September 1992
These enormous flows defeated John Major and may scupper the French. Nicholas Brady, the US Treasury Secretary, appeared to ask yesterday whether anything can be done to control them. An example, the cynics might argue, of shooting the messenger, in this case markets that have told governments their economic policies are unsound.
Mr Brady did not appear to be talking about old-fashioned exchange controls such as those reimposed by Spain yesterday. These restrictions on capital flows may work effectively for a time in an economy with relatively small and illiquid markets. But not only has the European Community agreed to phase out capital controls, it is also hard to see them being reimposed on economies with large, liquid currency markets. The outcome will be expensive leakages and inefficiencies.
One clue is that Mr Brady was keen on controls to break the links between futures and the stock market after the 1987 crash. Could he be thinking about the derivatives markets - options, futures, swaps, and all that?
The systemic risks of the derivatives markets are still frighteningly little understood. More to the point, the products based on derivatives generate a substantial proportion of the underlying turnover in the foreign exchange market.
A new look would at least concentrate minds on the potential shock to the system of a disaster stemming from the derivatives market. And there are ways to curb them, through regulatory and margin controls.
- 2 The awkward moment Sarah Palin raised $25,000 for Hillary Clinton's election campaign
- 3 Ball pool for adults opens in London
- 4 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
- 5 Baldness could soon be treated using stem cells, scientists hope
Woman falls to her death as she celebrates marriage proposal at the edge of Ibiza cliff
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
The awkward moment Sarah Palin raised $25,000 for Hillary Clinton's election campaign
Ball pool for adults opens in London
Amal Clooney gives excellent response to fashion question at European Court of Human Rights
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...