January 14, 2011

Just the same old pound locks!

Sir, Gillian Tett in “Stand by for new ways to control hot money bubbles”, January 14, refers to instruments like special levies on banks foreign exchange positions. These instruments are far from new and have very often been used all over the world as pound-locks in order to guard for the asymmetries in the size of flows between the small lakes of small countries and the big global oceans.

For a time free market zealots were against even these pound-locks but most of us knew it was just a question of time before they were going to be used again. And by the way the zealots never realized that capital requirements for banks based on perceived risk were a hundred times more intrusive and distorting than these transparent levies and pound locks… just look at the tsunami into the triple-A rated waters they produced.

What would though be thought provoking, interesting and new would be to see the big oceans needing protection from the flows from the small lakes.