Wednesday, October 13, 2010

Losing at forex…. not a record but a creditable effort by RBNZ

The world record for losses as a foreign exchange trader despite owning the printing press still belongs with the Bank of England after its little tussle with George Soros – an effort which could only be described as a FAIL. 

This effort was a major – but one of so many over such a long time you really have to conclude that central banks just don’t have the learning gene – not there, sorry, absent, not functioning.

And thus we get this bit of pith from the RB chief in N.Z…..

“the Bank has maintained stable underlying income from interest earnings and stable operating costs. “Nonetheless, we have recorded a loss of $111 million for the year ended 30 June 2010, as a result of unrealised losses arising from adverse revaluations on our assets and liabilities.

Dr Bollard said most of these losses occurred on the Bank’s unhedged foreign exchange position, as exchange rate and interest rate movements partially reversed the large unrealised gains of the previous year. “

The “trading” was supposed to take the “extreme highs and lows” off the dollar assist our economic  wealth. This is a puzzling objective – even if it could be achieved….

  • If short it guarantees to wallop importers
  • If long it guarantees to wallop exporters

In either case the taxpayer stands to get whipped – and was 111,000 ,000 times this last year.

While wondering why this needs to happen – the idea of “stable underlying income from interest earnings” is also worth a thought. What exactly is this and why is the currency monopolist helping itself here as well?

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