The Foreign Exchange (FOREX) manipulation scandal is growing in scope. In 2013 many large banks (Barclays, Deutsche Bank, UBS, Royal Bank of Scotland and HSBC) set aside 16.4 billion euros to cover « legal expenses », e.g. the probable amount of fines they will have to pay after their trials. In 2014 five of the largest european banks are expected to set aside between 8.5 and 10.5 billion euros for the same reason, according to the Financial Times of March 10.
Traders/manipulators on the FOREX would agree through their instant messaging service to place orders just a short time before currency price fixings and, thus, take advantage of it. The amounts involved are so astronomical ($5.3 trillion in daily transactions) that the merest spread becomes significant. The investigation is mainly centered on the City, in London, the world’s foremost exchange hub for foreign exchange, but it is being spread to continental Europe, the United States and Asia. It is believed that no large international bank should avoid scrutiny.
But things are getting more serious yet with the Bank of England itself being investigated. The Bank’s governor, Mark Carney, was questioned on March 11 by the House of Commons Finance Commission and he had to explain the quite ambiguous attitude of its chief of « currencies » department, Martin Mallett, who has been suspended pending results of the internal investigation. It seems that Mr. Mallett would have been aware of the manipulation by certain traders but that he wouldn’t have acted on it...
This news of FOREX manipulation comes after news on LIBOR and EURIBOR. Those large-scale malversations have been going on for several years, most large international banks are concerned, and central banks wouldn’t be aware of that? Come on!
Gold market specialists have been sounding the bell for a long time about direct central bank intervention in concert with large bullion banks. For a long time they have been hailed as crackpots or conspiracy theorists, but proofs are starting to come out, investigations are initiated and guilty verdicts are pronounced. The London Gold Fix has been manipulated for ten years, explains Bloomberg. Finally, gold advocates were precursors. They understood well ahead of others that prices were being manipulated, and we’re only discovering today the scope of this lie : It is colossal, because LIBOR and the foreign exchange market affect colossal volumes and are used as reference points for a vast array of financial products, including your mortgage.
The irony in all this is that it’s gold, the « barbaric relic », now demonetised and hailed as just an « accessory », according to those who pretended we could go without it, that has played the role of spark plug. There are still many things waiting to be discovered but, the closer we get to the central banks, the more « fun » will be in store.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.