Policy makers including the Financial Stability Board are working actively on the issue of currency benchmarks and the need for alternatives to rates such as Libor, a Canadian government official said before this weekend’s Group of 20 meeting.
The international community is working toward market-driven interest-rate and currency benchmarks, said the official, who spoke to reporters yesterday on condition of anonymity because he’s not authorized to speak publicly. While the topic may not be on the formal agenda at the next meeting, it’s part of the work plan the G-20 has given the FSB, the official said.
The FSB said last week it created a group to review the process of setting foreign-exchange benchmarks and present its findings later this year. At least a dozen regulators on three continents are investigating whether traders in the world’s largest financial market colluded with counterparts at other firms to manipulate benchmarks.
“It would obviously make sense to have more market-derived benchmarks,” said Greg Gibbs, a Singapore-based strategist at Royal Bank of Scotland Group Plc. “The current system has created problems for the banks. They’ve been burnt by the fixing mechanisms and there’s a broad consensus it would be better” if it was out of their hands, he said.
Benchmarks set by a poll of bankers who give estimates for what interest rates they will charge or receive have come under suspicion as some of the world’s largest banks have paid billions in fines for rigging the most important of these -- the London interbank offered rate. Canadian Finance Minister Jim Flaherty said in his budget last week the government will step up regulation of financial benchmarks set by banks, which could include CDOR, or the Canadian Dealer Offered Rate.
The scrutiny comes as Peter Urbanc, treasurer of Nova Scotia, said the Canadian province will avoid using CDOR while pricing its latest variable-rate debt offering, opting instead to use CORRA -- the Canadian overnight repurchase agreement rate average, which is published by the Bank of Canada.
Three former Barclays Plc employees were charged by U.K. prosecutors with conspiring to manipulate Libor, the Serious Fraud Office said in an e-mailed statement yesterday, bringing the number of people accused in global probes to more than a dozen.
Bloomberg News reported in June that currency dealers said they had been front-running client orders and attempting to rig foreign-exchange rates for at least a decade by colluding with counterparts and pushing through trades before and during the 60-second windows when the benchmarks are set.
G-20 policy makers will also discuss normalization of monetary policy in advanced economies and developments in emerging markets, the official said. The G-20 will probably reiterate earlier messaging about the need to properly communicate and calibrate monetary policy, the official said, adding he hopes the group has a broader discussion than simply talking about the Federal Reserve tapering its asset-buying program.
Quota reform at the International Monetary Fund will probably be another topic of discussion, the official said. Countries who stand to benefit from the increased voting power at the Washington-based lender will probably express their disappointment at how long the process has taken, the official said.
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