Fed: Currency Trades Soaring
The number of currency trades made each day in the United States has skyrocketed, the Federal Reserve said Thursday in a report likely to fuel fears that volume is getting too high for governments to maintain order.
According to the report, issued by the Federal Reserve Bank of New York, average daily foreign-exchange volume has leaped to $192 billion since 1989, up 49% from 1989.
The increase represented a slowing of the rate of growth from the previous three-year period, between 1986 and 1989, when volume soared 120%.
But it nonetheless continued a trend that only Wednesday prompted words of warning from Treasury Secretary Nicholas F. Brady.
Brady, surveying the wreckage from last week’s currency crisis in Europe, noted that daily trading volume now far exceeds major countries’ foreign-exchange reserves. He called for a study of global capital flows.
“Capital markets have grown dramatically in size and complexity,” Brady told the annual meeting of the International Monetary Fund and World Bank in Washington, “well beyond the resources governments can bring to bear” to control them.
Government officials in Europe have vociferously criticized currency speculators for nearly destroying the Continent’s Exchange Rate Mechanism by picking on weaker currencies.
Defending those currencies has cost central banks billions of dollars the last few weeks.
Market participants themselves said the huge increase reported by the New York Fed simply reflects the fact that investment has become a global game, requiring a constant supply of different currencies.
“There has been continuous internationalization of the financial markets,” said David Wilson, a New York vice president of GiroCredit, an Austrian bank.
“It’s something you learn very early in Economics 101,” said David Durst, assistant vice president at Credit Lyonnais in New York. “The market is going to move to an equilibrium point no matter who tries to stop it.”
The New York Fed said the average size of a foreign exchange deal among financial institutions increased to $6 million in 1992 from $5 million in 1989. The average size of an options deal is $4 million through financial institutions.
