A foreignexchangemarket is
where one currency is exchanged for another. This important set of
markets facilitate international trade by companies and
international investments by investors. However, a substantial
amount of trading in these markets is speculative in nature. The UK
is the main centre in the world for foreign
A rapidly changing foreignexchangemarket
This chapter is designed to show how much the foreignexchangemarket
has changed over the years. The days of noisy currency trading floors
where dealers shouted at each other have long gone, replaced by computers and people tapping at keyboards or talking quietly to each other.
When did the foreignexchangemarket start to change and why does
A different market begins to emerge
As with LIBOR, there are suggestions that rigging or manipulating
the foreign exchange (FX) market began in 2005. To
Manipulating the foreignexchangemarket
As we saw in the last chapter, the BIS Triennial Surveys show that dealers
generally take orders from clients but executed them in the market as
principal, bearing the consequent price risk, rather than executing in
the market as agent acting for the client. To manage the risks associated with the flow of client orders, dealers hedge by executing FX
transactions in and around the calculation window, which results in a
large spike in the trading volume. This creates a market in which the
dealer is agreeing to
This book provides a compelling account of the rigging of benchmarks during and after the financial crisis of 2007–8. Written in clear language accessible to the non-specialist, it provides the historical context necessary for understanding the benchmarks – LIBOR, in the foreign exchange market and the Gold and Silver Fixes – and shows how and why they have to be reformed in the face of rapid technological changes in markets. Though banks have been fined and a few traders have been jailed, justice will not be done until senior bankers are made responsible for their actions. Provocative and rigorously argued, this book makes concrete recommendations for improving the security of the financial services industry and holding bankers to account.
difficulties with wage demands in the 1970s and early 1980s, they
were able to use the state’s coercive power to weaken the trade unions
and make resistance to anti-inflationary discipline harder. Eventually,
governments in all developed countries were forced to adjust their
welfare states, and some also their patronage strategies, to the deflationary bias created by the new foreign-exchangemarkets, and they did
so without precipitating a constitutional crisis or having to legislate by
decree.1 Even when the governments of the EU member states agreed
to abide by the
electronic machines. They are just like the
gamblers in casinos watching the clicking spin of a silver ball on a roulette
wheel and putting their chips on red or black, odd numbers or even ones.
As in a casino, the world of high finance today offers the players a
choice of games. Instead of roulette, blackjack, or poker, there is dealing to be done – the foreignexchangemarket and all its variations; or
in bonds, government securities or shares. In all these markets you may
place bets on the future by dealing forward and by buying or selling
options and all sorts of other
This conclusion provides a brief summary of the nature of the UK financial system as presented in this book. The financial crisis of 2007-8 has resulted in major changes to the whole framework of regulation and supervision of the financial system. Collateralised debt obligations and structured investment vehicles were badly designed and credit default swaps misused, with the result that they all contributed to the financial crisis. In addition, the reputation of the banks has not been enhanced by their being associated with a series of financial scandals. These include mis-selling of payment protection insurance, fraud and the rigging of LIBOR and the foreign exchange markets. Despite the malpractices it can still be contented that finance plays an important role in the economic growth of a country and the poor reputation of the banks held by the general public is only partly justified.
The early part of the twenty-first century has witnessed a sea-change in regulation of the financial system following the financial crisis of 2007-2008. Prior to that financial crisis, the official policy was directed to deregulating the financial system, whereas after 2008 the move is towards increased regulation. This book begins the study of the UK financial system with an introduction to the role of a financial system in an economy, and a very simple model of an economy. In this model the economy is divided into two distinct groups or sectors. The first is the household sector and the second is the firms sector. The book describes the process of financial intermediation, and in doing so, it examines the arguments as to why we need financial institutions. It highlights the nature of financial intermediation, and examines the various roles of financial intermediaries: banks as transformers, undertaking of transformation process, and providers of liquidity insurance. The nature of banking, the operations carried out by banks, and the categories of banking operations are discussed next. The book also examines the investment institutions and other investment vehicles. It examines the role of central banks in the financial system in principle, particularly, the role of the Bank of England. Primary market for equity issues, secondary market, the global stock market crash of October 1987 and efficient markets hypothesis are also covered. The book also looks at the trading of financial derivatives, risk management, bank regulation, and the regulation of life insurance companies, pension funds.
value of the dollar were as stable in
terms of the goods and services it bought at home as it was in the 1960s;
and if its value were to be unaffected by the monetary shifts which cause
such turbulence in the foreignexchangemarkets, then many of the economic problems which are secondary consequences of either an unduly
weak or an overly strong dollar would melt away.
But putting the economic management of the United States in order is
clearly a task easier said than done. It requires first, the political conviction that it has to be done. Then it requires some
Over more than thirty years of reform and opening, the Chinese Communist Party has pursued the gradual marketization of China’s economy alongside the preservation of a resiliently authoritarian political system, defying long-standing predictions that ‘transition’ to a market economy would catalyse deeper political transformation. In an era of deepening synergy between authoritarian politics and finance capitalism, Communists constructing capitalism offers a novel and important perspective on this central dilemma of contemporary Chinese development. This book challenges existing state–market paradigms of political economy and reveals the Eurocentric assumptions of liberal scepticism towards Chinese authoritarian resilience. It works with an alternative conceptual vocabulary for analysing the political economy of financial development as both the management and exploitation of socio-economic uncertainty. Drawing upon extensive fieldwork and over sixty interviews with policymakers, bankers, and former party and state officials, the book delves into the role of China’s state-owned banking system since 1989. It shows how political control over capital has been central to China’s experience of capitalist development, enabling both rapid economic growth whilst preserving macroeconomic and political stability. Communists constructing capitalism will be of academic interest to scholars and graduate students in the fields of Chinese studies, social studies of finance, and international and comparative political economy. Beyond academia, it will be essential reading for anyone interested in the evolution of Chinese capitalism and its implications for an increasingly central issue in contemporary global politics: the financial foundations of illiberal capitalism.