The Fixer

the USD has been a reserve currency since the end of Breton Woods and the Euro has reserve currency status as well for quite a while. You can hold whatever opinion you want about fiat currencies but that does not change the fact that most countries with trade surpluses hold their reserves in at least USD and Euro among many other currencies. Singapore manages a whole basket and so does China and various other nations.

National Security issue, lol. Sounds more like the tin foil hat has touched some strong currents...

But let me answer why global benchmarks are needed: Because we are a global economy and cross border deals are struck every single day. You have prime rates in the US and they are perused for many deal makings in the US. For most everything international Libor, Tibor, Hibor,...are used. Not sure which part confuses you. I do understand your grip with monetary policy and partly agree with you and cry with you but that does not change the fact that benchmarks such as Libor are needed.

nitro said:
I am saying that certainly not the Euro, and barely the USD can be called reserve currencies. Nowhere did I say people should dump anything. It is a case of picking from bad currencies to horrendous currencies, so you take the least evil choice, which is what the world is doing. But call it what it is, and to call the EUR (and soon the dollar) a reserve currencies is a misnomer. This is not just my opinion. See the Economists article above.

To reiterate:

Libor or any other market that is opaque is subject to rigging. It is a national security issue for the United States to have $350 trillion dollars be at the mercy of an opaque market. No one doubts that. What I am confounded by is, why even bother with Libor? What is wrong with all the benchmarks interest rates in the US? I am guessing that a HUGE lender to the world are English banks. So we close our eyes and hope for the best.

As an aside, the USD and certainly not the EUR are reserve currencies. Certainly not in a traditional sense of the word.
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volpunter said:
the USD has been a reserve currency since the end of Breton Woods and the Euro has reserve currency status as well for quite a while. You can hold whatever opinion you want about fiat currencies but that does not change the fact that most countries with trade surpluses hold their reserves in at least USD and Euro among many other currencies. Singapore manages a whole basket and so does China and various other nations.
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For some reason, when people post on ET, they don't take the time out to read what is being said. Alternatively, perhaps the point is not always clear. Let me see if I can say it in a more clear way.

Yes, agree, the USD and the Euro have been reserve currencies. No one doubts that, and those were well earned. My claim is that TODAY, not twenty years ago, they can no longer be called reserve currencies when

1) The government shuts down once a year, with defaults constantly in play.
2) You run negative interest rates (zero is barely tenable)
3) Your debt to GDP ratio is negative
4) You can essentially take a dollar, rip it up into little pieces, and make ten new dollars out of nowhere. QE1, QE2, QE3, and now, there is even talk of QE4
5) There is no rule of law and entities do as they please, with minor punitive repercussions. Trust is a major component of being a reserve currency.

Now, is there a better alternative than the USD and the EUR? Hardly. The only one that sort of does is the YUAN, but it is run by a communist country. So, people close their eyes and hope for the best. Again, this is not my opinion, it is becoming the norm to fear the dollar as the only place to stick your money.

National Security issue, lol. Sounds more like the tin foil hat has touched some strong currents...
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Tin foil? Ok.

But let me answer why global benchmarks are needed: Because we are a global economy and cross border deals are struck every single day. You have prime rates in the US and they are perused for many deal makings in the US. For most everything international Libor, Tibor, Hibor,...are used. Not sure which part confuses you. I do understand your grip with monetary policy and partly agree with you and cry with you but that does not change the fact that benchmarks such as Libor are needed.
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No one says benchmarks aren't needed:

1) Benchmarks should be market driven, highly liquid, with price discovery
2) Using US IRs does not mean it would not be global, any more than having it in London. I can think of ten thousand ways to make it global and still be transparent. For example, some sort of index on the short term rates of US+London+Germany etc.

The takeaway, there is no clear reason why Libor is the benchmark for this sort of thing. It is clearly amenable to rigging because it is not transparent. There are lots of alternative computations that would meet 1 & 2 above.
 
For some reason, when people post on ET, they don't take the time out to read what is being said. Alternatively, perhaps the point is not always clear. Let me see if I can say it in a more clear way.

Yes, agree, the USD and the Euro have been reserve currencies. No one doubts that, and those were well earned. My claim is that TODAY, not twenty years ago, they can no longer be called reserve currencies when

Really? No you said "I am saying that certainly not the Euro, and barely the USD can be called reserve currencies" (Post #10 in this thread). Now you say "agree, USD and Euro have been reserve currencies". Sounds pretty confused to me.

1) The government shuts down once a year, with defaults constantly in play. (the US government maybe, not Germany, and certainly not most other nations, but again this has NOTHING at all to do with whether a currency is a reserve currency or not)
2) You run negative interest rates (zero is barely tenable) (again that is not true, I linked to the exact up-to-date Euro term structure, other than the short end none of the mid and longer rates are in negative territory, and again, the term structure has nothing whatsoever to do with whether a currency is considered a reserve currency or not)
3) Your debt to GDP ratio is negative (again, has nothing to do with reserve currency status)
4) You can essentially take a dollar, rip it up into little pieces, and make ten new dollars out of nowhere. QE1, QE2, QE3, and now, there is even talk of QE4 (yada yada yada)
5) There is no rule of law and entities do as they please, with minor punitive repercussions. Trust is a major component of being a reserve currency. (And people and nations [still] trust in the ability and willingness of the United States to stand behind its payment obligations and currency stability)

Now, is there a better alternative than the USD and the EUR? Hardly. The only one that sort of does is the YUAN, but it is run by a communist country. So, people close their eyes and hope for the best. Again, this is not my opinion, it is becoming the norm to fear the dollar as the only place to stick your money. (China communist? Maybe but my friend, in many areas China is way less communist than the US is. Wherelse in the world does a government dictates which financial assets its citizens are allowed to trade? Only the US to my knowledge, and I could make up a list of 100+ items that point to the US tightly controlling its citizens rather than China)


Tin foil? Ok.


No one says benchmarks aren't needed:

1) Benchmarks should be market driven, highly liquid, with price discovery (which they mostly are; you have not understood the whole issue of the Libor scandal if you think otherwise)
2) Using US IRs does not mean it would not be global, any more than having it in London. I can think of ten thousand ways to make it global and still be transparent. For example, some sort of index on the short term rates of US+London+Germany etc. (are you dumb? Did I not precisely point out that such indexes already exist? In fact they are not composites but nationally struck benchmarks. Tibor is used in Japan, for example. Many swaps are struck with domestic currency libor rates).

The takeaway, there is no clear reason why Libor is the benchmark for this sort of thing. It is clearly amenable to rigging because it is not transparent. There are lots of alternative computations that would meet 1 & 2 above.

(so, you people want to control the rest of the world and run the show in each and every facet of life? I understand the desire but it won't happen, get comfortable with that. London is fx money center, and so is it rate benchmark setting center, by the way, Libor is set not only by British banks but a number other international institutions submitted their contributions). Let's see what sort of reforms we can expect but you seem to lack some very fundamental understanding of this whole issue.
 
U.S. Wins First Libor-Rig Case as Ex-Rabobank Traders Convicted

"A New York jury convicted two ex-Rabobank Groep traders of rigging a key financial benchmark in the first such trial since the government pledged in September to hold bankers accountable for wrongdoing..."

fixer.jpg


http://www.bloomberg.com/news/artic...t-libor-rigging-prosecution-in-n-y-jury-trial
 
volpunter said:
Sounds overly paranoid. It's more an issue of why a few individuals were allowed to set such important benchmark. By the way the BBG story is way overblown. It suggests as if the benchmark was falsified to turn whole trading books around. That is incorrect. The benchmark was pushed around a bit around fixings which proved profitable enough. American procecutors frequently blow up stories to make a case for extradition. Same with the HFT case. Now a young individual out of an apartment caused the flash crash.
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Why bother, Nitro is an idiot savant with no common sense at all. His theories are nuts on many topics. Ask him about what his models predicted about the SPX when it was 1100, or when he declared that only companies that paid healthy dividends had any value at all. He's added some nutty theories about the future of science as well.
 
Here's the current construct of how central banks allocate their reserve currencies.

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Is anyone familiar with the Triffin delimma?
It says that if a country wants to be a reserve currency, they gotta be willing to run trade deficits to get all that currency out into world markets, which central bankers can then hold as a reserve.
https://en.wikipedia.org/wiki/Triffin_dilemma
 
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