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Is there any mechanism today to prevent a bunch of gangsters attacking a Government's Central Bank like that?

by brabel 5y ago

orwin 5y ago
No. And some currency are particularly weak right now to this kind of attacks[0], like the CHF, as well as the colonial CFA. The theoric ideas to resist this for a country is either: to let your currency fluctuate freely, as the free market theory wants. But this is basically selling your small and medium business production to companies that can do faster arbitrage than them. I know this is the liberal way, but when you think about it, this is not viable if you have any industry and free trade agreements with a countries with richer banks/companies. This would be economic suicide for Mexico if you want an example. Other way to resist this is to have a lot of dollar/eu bonds and sell them. If you have more bonds than the attacker money, you "win" (the attacker doesn't loose much either). I'm pretty sure some money can be capted during an attack for HFT firms, but don't quote me on that, and i'd like confirmation from someone actually working with HFT systems here And the last way is having one of the strongest currency in the world. Dollar, Euro, Yuan basically. Pound and Yen "waste" their respective central bank millions each year [0]: https://ideas.repec.org/p/nbr/nberwo/5285.html https://ideas.repec.org/p/nbr/nberwo/5285.html
unmole 5y ago
Sure, the central bank doesn't have to worry about attacks if it doesn't artificially manipulate the currency itself.
neilwilson 5y ago
Yes. You let the market know that you won't be intervening. Preferably the central bank should be constitutionally barred from doing so. At that point there is no patsy in the market, and liquidity constraints will deal with the situation. For every seller there has to be a buyer Couple it with the occasional 100% margin calls if the price moves too much and the risk of getting caught naked becomes very high indeed.

Is there any mechanism today to prevent a bunch of gangsters attacking a Government's Central Bank like that?

by brabel 5y ago

Is there any mechanism today to prevent a bunch of gangsters attacking a Government's Central Bank like that?

No. And some currency are particularly weak right now to this kind of attacks[0], like the CHF, as well as the colonial CFA. The theoric ideas to resist this for a country is either: to let your currency fluctuate freely, as the free market theory wants. But this is basically selling your small and medium business production to companies that can do faster arbitrage than them. I know this is the liberal way, but when you think about it, this is not viable if you have any industry and free trade agreements with a countries with richer banks/companies. This would be economic suicide for Mexico if you want an example. Other way to resist this is to have a lot of dollar/eu bonds and sell them. If you have more bonds than the attacker money, you "win" (the attacker doesn't loose much either). I'm pretty sure some money can be capted during an attack for HFT firms, but don't quote me on that, and i'd like confirmation from someone actually working with HFT systems here And the last way is having one of the strongest currency in the world. Dollar, Euro, Yuan basically. Pound and Yen "waste" their respective central bank millions each year [0]: https://ideas.repec.org/p/nbr/nberwo/5285.html https://ideas.repec.org/p/nbr/nberwo/5285.html

unmole 5y ago

Sure, the central bank doesn't have to worry about attacks if it doesn't artificially manipulate the currency itself.

neilwilson 5y ago

Yes. You let the market know that you won't be intervening. Preferably the central bank should be constitutionally barred from doing so. At that point there is no patsy in the market, and liquidity constraints will deal with the situation. For every seller there has to be a buyer Couple it with the occasional 100% margin calls if the price moves too much and the risk of getting caught naked becomes very high indeed.