Currency swaps in the modern world. The birth of a global currency cartel
The topic of currency swaps (currency exchange transactions) has become one of the main ones in the media today. Almost every month we learn that an agreement on currency swaps is concluded between some countries. The total number of such agreements in the world is already measured in dozens.
What is a currency swap?
A currency swap is not an ordinary single-step currency purchase and sale transaction, after which relations between counterparties are considered closed. In a currency swap, first currency X is exchanged for currency Y; after a set time, a reverse operation is provided, that is, currency Y is exchanged for currency X. Important terms of a currency swap are the initial and final exchange rates and / or interest charged for the provision of currency for a period. The main part of all currency swaps in the world (in total volumes) is carried out with the participation of central banks. There may be internal and external currency swaps. In the first case, the central bank makes a deal with the commercial banks of its country. In the second case - with the central banks of other countries. In turn, currency swap transactions between central banks may be one-time or transactions within the swap lines.
Swap-line - an agreement between central banks of different countries on mutual exchange of currencies at fixed rates. Typically, such agreements set the duration of currency swaps, transaction limits, and the total term of the agreement. As a rule, within a swap line today, a currency can be exchanged for a period ranging from several days to one year.
Currency swaps between central banks have two main objectives: a) providing mutual assistance in the event of a shortage of foreign currency to repay liabilities denominated in this currency by banks, companies, and the state; b) assisting in the development of trade in goods and services in the currencies of the counterpart countries. A striking example of the use of currency swaps for the realization of the first goal is the financial crisis of 2007-2009. Today, the first wave of the global financial crisis is over, temporary stabilization has begun. At present, currency swaps are more spoken of as a means of strengthening national currencies by the countries of the periphery of world capitalism, that is, as a means of fighting the hegemony of the dollar and the dictates of the United States in world trade and international finance.
Monetary world: from order to chaos
However, we will begin our analysis with currency swaps in a narrow group of selected countries belonging to the so-called golden billion. Much less is said and written about these swaps, and when they are still remembered, it is only as a routine technical operation of central banks. Meanwhile, the devil is hiding in trifles; The influence of currency swaps of several “elected” central banks on the overall situation in the global economy and international finance is extremely large. To understand this, let us briefly describe what metamorphosis occurred with the global monetary and financial system in the twentieth century. In October, 1929, the panic on the New York Stock Exchange, marked the beginning of the Great Depression, which began to destroy industry and agriculture in all countries of the world (with the exception of the USSR). The fragile world monetary and financial system was also destroyed, which barely began to recover after the First World War on the basis of a gold bullion and gold exchange standard. The world has entered a protracted phase of world currency chaos, economic autarky, financial isolation and currency blocks.
In 1944, fateful decisions were made at the International Monetary and Financial Conference in Bretton Woods, designed to end currency chaos and aimed at restoring order in the global financial system. First of all, all countries unanimously came to the understanding that the world should develop on the basis of fixed exchange rates. And for this, a mechanism was created which provided, if necessary, for countries to conduct currency interventions and support currencies with the help of loans from the International Monetary Fund. As an exception, revaluations and devaluations of currencies were allowed with a simultaneous change in their gold parities. The monetary and monetary order in the world was maintained by means of regulation at the state level (national currency regulation) and at the international level (International Monetary Fund). Such an order lasted less than three decades, it ended in the 70-s of the last century, the collapse of the Bretton Woods system. It was replaced by the Jamaican monetary system, which legalized floating exchange rates, completely abolished the gold supply of money, and launched the general economic liberalization. The new liberal ideology assumed that "the market will adjust everything," including adjusting exchange rates, which, under the influence of supply and demand, will occupy an "optimal position."
However, in real life, the subjective factor prevailed in the currency markets. A vivid manifestation of this subjective factor was financial speculators. Such speculators manipulated exchange rates without worrying at all about the implications of these manipulations for international trade and national economies. They did not spare anyone. Not only developing countries, but also economically developed countries of the “golden billion”. Suffice it to recall that a financial speculator named George Soros managed in 1992 to derail the British pound sterling.
The games of politicians who promoted the interests of their countries on the world financial arena also belonged to the category of subjective factors. How can you not recall the famous agreement 1985 year "Plaza" (after the name of the hotel in New York, where the negotiations took place). It was an agreement reached at a meeting of heads of treasuries and central banks of the five leading capitalist countries (USA, UK, Japan, Germany, France). Washington succeeded then, by clicking on all the levers, to achieve from its partners a voluntary increase in the rates of their monetary units in relation to the US dollar. As a result, Uncle Sam managed to straighten his balance of payments and improve his position in world markets. Within two years, the dollar fell by 46% relative to the German mark and 50% relative to the Japanese yen. The most affected was the Land of the Rising Sun. Many believe that after the Plaza agreement, Japan has already failed to recover. They said that this was the beginning of its end.
Many attentive analysts felt that the Plaza agreement was an important milestone in the development of the global financial system. The meeting in the New York hotel in 1985 marked the beginning of the formation of a mechanism for coordinating the actions of the “elected” central banks in the sphere of regulating currency markets. Until now, most of the media continues to inspire ideas of economic liberalism to the public. However, liberalism has long died in the world of currencies, and the free market has been replaced by “manual control” for almost thirty years. The “manual control” steering wheel is in the hands of the “chosen” central banks.
Currency swaps as a tool for manual control of central banks
Of course, currency swaps did not arise today, they existed long ago, in the era of the Bretton Woods monetary system. The center of the international monetary system was the Federal Reserve. The Federal Reserve has been practicing currency swaps with other central banks since 1962. However, in those days it really was an exotic "technical operation".
But during the last financial crisis, the scale of currency swaps increased dramatically. Their role in overcoming the crisis is difficult to overestimate, although they are rarely mentioned and few. The Fed and the ECB conducted the first dollar-euro swap line in December 2007 of the year for dollar payments by European banks on mortgage-backed bonds. After the collapse of the US investment bank Lehman Brothers in 2008, the financial crisis seized the entire European economy. By the end of June, 2011, the foreign partners (first of all, the ECB and the Bank of England) received about 600 billion from the Fed in the framework of the agreements. The ECB took advantage of the euro currency swap - the dollar in May 2010, due to the onset of the Greek debt crisis. At that time, in just one week, the ECB borrowed about 9,2 billion from the Fed.
Until 2011, unlimited swaps between central banks opened for a term of 7 days. In the autumn of 2011, the US Federal Reserve, the European Central Bank (ECB), the Bank of Japan, the Bank of England, the Bank of Switzerland and the Bank of Canada (the “six”) agreed to coordinate actions to ensure the liquidity of the global financial system. According to the release posted on the websites of the above-mentioned central banks, the purpose of these actions was to “ease tensions in financial markets and thereby reduce the negative effects of such tensions on the provision of loans to households and businesses in order to stimulate economic activity.” This decision was due to the fact that the global financial system showed signs of a second “wave” of crisis.
The US, EU, UK, Japan, Switzerland, and Canada monetary authorities agreed on the following: a) the price of providing dollar liquidity within currency swaps will be reduced (its calculation is tied to indices of domestic currency swaps in the US banking system); b) the term of currency swaps will be increased to 3 months; c) there will be no limits on the provision of dollar liquidity, the size of currency swaps will be determined by the needs of the banking systems of the respective countries; d) The Federal Reserve, if necessary, also reserves the right to apply for foreign currency to the central partner banks; e) the agreements will be valid from 5 December 2011 of the year to February 1 of 2013.
In December, the Fed 2011 supported the operation of the ECB, codenamed LTRO-1 (long-term refinancing operation-1). It was an issue of euro worth almost 500 billion euros. Part of this issue was immediately exchanged for the US currency in a three-month swap for a total amount of 100 billion. Some analysts called it the first coordinated issue of the ECB and the Fed. The withdrawal of such a large mass of euro from the currency market prevented the violation of the fragile status quo between the two parts of the Euro-Atlantic world. If there were no currency swap operations, the euro would have sunk strongly, which would cause undesirable financial-economic and political tension between Brussels and Washington.
As is known, the US monetary authorities have been implementing a “quantitative easing” program since 2010, which actually means an increase in dollar money supply. There are scholastic discussions about whether similar “quantitative easing” is conducted by the closest partners of the United States - the European Union, the United Kingdom, Japan, and Canada. However, no matter how you call the actions of the central banks of these countries, they all increase the scale of the issue of money. And here it is extremely important whether there is coordination in these actions. After the financial crisis, 2007-2009. in the West they understood this and began to build a mechanism for such coordination. An important detail of this mechanism today are currency swaps. With their help, you can quickly correct various imbalances and prevent the leading states of the “golden billion” from sliding into a “currency war” with each other.
The Six agreement on currency swaps 2011 of the year was calculated until February 1 of the year 2013. Without waiting for this deadline, in mid-December 2012, the central banks extended the agreement by another year. True, the "six" has become a "top five", since Japan left the agreement.
Currency pool "six" as a step to a single world currency
At the next stage, the US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the National Bank of Switzerland and the Bank of Japan (he returned to the club of the “chosen ones”) agreed to transfer the temporary agreements on currency swaps to a permanent basis. October 31 2013 six leading central banks of the world created an international currency pool that allows you to quickly increase liquidity in the member countries of the pool in case of a deterioration in market conditions and with serious disturbances in the currency markets. In fact, a small group of leading central banks are building a mechanism for global monetary management. Some people call this the birth of a world currency cartel of central banks and the crystallization of the governing core of international finance.
The increased coordination of central banks is already becoming noticeable. Analysts point out that the corridor of currency fluctuations of the “six” has narrowed down and difficult times have come for currency speculators. The concept of “freely convertible currency” at fixed rates in the “six” zone will be rather conditional. "Six" began to act in a consolidated manner in relation to countries that are not members of this club "elected". Skeptics reasonably believe that it is now meaningless to discuss the possibility of developing a common monetary policy in the framework of the G-20.
Currency wars do not go anywhere, they stop only within the currency pool of the "six". And between the “six” and the rest of the world, new currency wars are inevitable. The success of BRICS and other countries on the periphery of world capitalism in building a fair global financial order will depend to a large extent on the understanding that the West has already consolidated and distanced itself from the rest of the world. “Six” is a closed club, no one is going to accept there any more (it’s known, however, that Australia is asking for it, if accepted, there will be a “seven”).
There are signs that the currencies that come down from the printing presses of the Fed, the ECB and the other central banks of the Six are not different currency units, but a single currency. After all, if there are stable proportions of exchange between the euro, the US dollar, the British pound sterling, the yen, the Swiss franc and the Canadian dollar, then these are not different currencies, but different modifications of a single world currency.
The emerging mechanism is somewhat reminiscent of the Bretton Woods system, in which there were also fixed exchange rates and world money were recognized gold and the US dollar. However, the resemblance is external, superficial. In 1944, the decision to create a new global financial system was made by states that delegated government delegations to the conference. With all the features of the Bretton Woods system, any state could become a member of it (there were only temporary restrictions for Germany and its allies in World War II). At first, the conference documents were signed by the 44 states, but after two decades (in the 1960-ies) more than 100 states became members of the Bretton Woods system. The current currency "six" - a closed club. Against this background, even the Bank for International Settlements (BIS), which is called the “club of central banks,” looks like a fairly democratic organization.
With the current currency "six" situation is quite different. Plans to create a single world currency are developed by central banks, which have independent status from the state. Decisions on the creation of permanent currency swaps between the “elected” central banks are not submitted for discussion by either the governments or the parliaments of the six countries, while the documents that delegations signed at the conference in Bretton Woods in 1944, passed the procedure of ratification in parliaments.
Although formally in the “six” all central banks are equal, among them there are “more equal”. This "more equal" is the Federal Reserve. After all, in fact, all swap transactions, starting with 2008, boiled down to the fact that the Federal Reserve supplied its partners with a green paper. It is doubtful that the composition of the "six" will expand. Rather, on the contrary, over time, from some partners in monetary cooperation, the Fed owners can be freed from unnecessary burdens.
Some experts tend to dramatize the situation in the monetary and financial world, seeing in it signs of "recent times." Indeed, we see signs of dismantling national states, building supranational institutions, strengthening the power of world bankers. However, one should not think that the mentioned currency “six” is insured against internal contradictions and represents a consolidated core. Recall, for example, that in the fall of 1961, the central banks of the leading Western countries formed the so-called “golden pool” (consisting of the Federal Reserve Bank of New York and the central banks of the seven leading capitalist countries), which was intended to conduct joint interventions to maintain a stable price. for gold. However, in March 1968, this pool collapsed. The current currency pool of "six" can also fall apart. However, this will largely depend on how far the countries of the periphery of world capitalism can consolidate their monetary and financial policies.
- Valentin Katasonov
- http://www.fondsk.ru/news/2014/09/16/valjutnye-svopy-v-sovremennom-mire.-rozhdenie-globalnogo-valjutnogo-kartelja-i-29487.html
Information