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.
- 1 Planes go hybrid-electric in important step to greener flight
- 4 Hip hop is both racial and political, and for Iggy Azalea to suggest otherwise is insulting
- 5 Man hospitalised with pneumonia after downing eggnog at office Christmas party
Antonio Martin shooting: Black teenager may have tried to ambush patrolman, says police officer's lawyer
Orphan kangaroos spend Christmas without their parents
Northern Lights above Britain: Stunning Aurora Borealis illuminates Northumberland sky on Christmas Eve
New route to Mars could make manned mission much cheaper and easier
Isis 'did not shoot down Jordan war plane' before capturing pilot, says US
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
BBC director Danny Cohen: Rising UK antisemitism makes me feel more uncomfortable than ever
Alex Salmond has 'broken his word to the Scottish people' says Scottish Lib Dem leader
iJobs Money & Business
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...