, Columnist
How Do You Replace the Most Important Number in the World?
As markets prepare to move away from the benchmark Libor, they risk sparking confusion and chaos.
The transition is going to be a headache.
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In deciding to replace key interbank rates, financial markets have created their own version of a Y2K problem: how to ensure existing structures don’t collapse during the transition.
Hyperbolically termed the most important number in the world, Libor (London interbank offered rate) is a key market interest rate. It evolved in conjunction with euro-currency markets in the mid-1960s. The British Bankers Association formalized the arrangements in 1986, facilitating the use of Libor to price loans and act as a reference rate for interest-rate derivatives.