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Breakingviews

Breakingviews: FX market isn’t fit for purpose

Tuesday, February 18, 2014 - 03:09

Feb. 18 - Following the Financial Stability Board’s announcement that it will review foreign exchange benchmarks, Breakingviews argues the whole FX business belongs in the dock.

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Today's breaking these -- -- focus on the ethics marketing why the whole business belongs to an adult joining me now is what's hot that's. -- think so much for joining us think through wine in your story looks that -- this industry and wind is the whole marks of an economic fine. Yes. Well actually should separate -- because here there are a lot of criminal investigations I'm not accusing. The whole industry of committing a legal crime. But I'm talking about is when you start to look at this industry you see some very peculiar things from point of view of if finance is supposed to serve to the economy wise it's business like this. I have three things that I find out. Number one is it's huge it's. Five point three trillion dollars of trading day. Which is roughly a hundred times the amount of merchandise exports today so. That suggests that well 99% of the businesses basically just people trading among themselves. And speculating and speculating exactly and hedging and all these sort of activities that don't really serve a lot of economic purpose. That's point one I saved more than 95% -- are some other uses as much merchandise exports. Point two is the currency so volatile this is a much deeper question it's an economic question. But if you look at the things that should determine currency lose economic growth interest rates and so forth. Should be changing -- 234% a year and it currency moves are often 152030%. A year and back and forth during the course of the year crazy volatile. And my third point is that. My -- is so popular. On companies and hedge and they spent a lot of time and energy to -- hedges forward for a few months to protect themselves against foreign exchange market. But almost all people that are trading currencies should just trade they should take the losses themselves. Because of the hedge what they're doing is they're pushing the losses and gains on to someone else. Who met someone else. Hires high priced traders who may well be engaging in strange activities -- so it's just not really very sensible business in many different ways. So -- why is it prosecutions I haven't been able to find any illegal activities it because. They haven't been looking hard enough or is it because it's really hard to spot these crimes well I think it's a little bit early to be a harsh and prosecutors say it just started to in this business. And they have a lot of faith in this market. Because they thought this five trillion dollar they market very open how could be rigged and yet it looks like it is rigged that's the suspicion. And that seems to be the danger. Think and I would say they should look at the other way around and say well this market doesn't make any economic sense it's probably. Like. Petri dish to grow mold. On when you have this much strange pointless activity would be very peculiar -- wasn't a little bit crooked. Pitching disagreeable I love that and it it thank you very much and what how to set from breaking these. And full breaking these stories do you check online platform which is insider. For now I'm managing all this is what's his.

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Breakingviews: FX market isn’t fit for purpose

Tuesday, February 18, 2014 - 03:09