International Monetary Exchanges

Not sure what to think of this idea except for this bit:

The solution is to set up a system of International Monetary Exchanges (IMX) through which all interbank transactions would go. There would be one for each leading currency – a global euro exchange, a dollar exchange, a yen exchange and a sterling exchange. The respective central bank for each currency, for example the Bank of England, would own, run and decide who can join the IMXs.

They would operate like any normal exchange, such as the Stock Exchange, but would have the critical benefit that, because the central banks would guarantee them, there would be no reason for banks not to supply funds to them. Furthermore, participants could deal freely with the exchange without having to inquire about other members\’ credit status.

We can identify a few more key features of such a system. First, anyone could offer liquidity to the exchange at a set price, including the central banks. Second, all interbank lending of participating institutions would have to be made through the exchange. Third, borrowing from the exchange would be at the same price irrespective of borrower.

It\’s that last sentence that I do have a view about.

We\’re seriously suggesting that any and every member of the market gets to borrow money at the same price?

Regardless of credit risk?

No, no and thrice no.

5 comments on “International Monetary Exchanges

  1. The current mess was caused by people ignoring risk, or rather believing that the risks of falling asset prices, untrustworthy borrowers and badly managed banks had disappeared. Too much faith was placed in regulators and credit rating agencies, and we have seen the moral hazard caused by implicit (now explicit) government guarantees at the likes of Fannie Mae.

    I cannot understand how the solution is to encourage lenders to throw their money (or the money entrusted to them) at these IMXs, without caring about either the means and character of the individual borrowing institutions on the other side, or the collective sum of them, safe only in the assurance that the one small group of people who should be looking at all the risks, the oh-so-smart central banks, will never make mistakes, will never be subject to conflicts of interest, political pressure or corruption, and that even if they do, the taxpayers have unlimited funds to bale out the system.

    To avoid having to deal with the reality of living near Stromboli, they want to create Tambora.

  2. A cunning plan worthy of Baldrick. Mispricing risk got us into this mess it can darn well get us out of it!

  3. How the hell does being former home secretary, and an expert on the economic impact slave trade in West Africa, earn Reid a Times column for his daft views on international finance?

    I mean, I know ministers aren’t expected to be specialists themselves, but at least they get access to briefings from genuine expert civil servants – so Reid’s views on justice policy, although probably wrong, might at least be worth listening to.

    But this piece is worse, and worse-grounded than something that Tim, or I, or even Will fucking Hutton, would write on the crisis…

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