Taking into account the fact that the world population for four decades increased from four to around 7.5 billion people, that for what 1975 could be bought for 100 dollars today should allocate more than 450, and that the price of a barrel of oil then stood at about 13 dollars, there is no formula which could carry out a factor that makes the worth of anything increased much more than 500 times, as it is the case with the currency market.

If we consider the early seventies of the last century, currency exchange was primarily used to simplify international trade. Another striking aspect regarding the magnitude of this market is that foreign trade transactions in foreign currencies accounted for only two percent of the world currency exchange.

According to Inflation Calculator data, upon the resolution of the major oil crisis in the seventies, it took 200 days for foreign exchange markets to reach a global level equivalent to annual world exports. Even though world exports have quadrupled from the beginning of the seventies to the present, the turnover in the foreign exchange market has now been reduced to 84 hours. This serves as a key indicator that the currency market is somewhat detached from the productive economy and world trade.

In recent years, the four leading banks in the world — UBS, Citigroup, Barclays, and Deutsche Bank — have controlled half of the global market. When combined with six other powerful banks, including Morgan Stanley, Bank of America, JP Morgan, Royal Bank of Scotland, HSBC, and Credit Suisse, these institutions cover 80 percent of the foreign exchange market. The remaining 20 percent is controlled by smaller banks, and only a tenth of this free portion relates to transactions for exporting to international markets.

Half of the transactions take place in the London market, where the Libor manipulation scandal has not been fully resolved. However, fines for Libor-related misconduct amounted to “only” 5.8 billion dollars — much less than what the responsible bank could have paid if proven. The daily volume of euro-dollar exchanges alone is 1,300 billion.

Meanwhile, there are increasing warnings that the Bank of England could also be held responsible for manipulation. Since the spring of 2012, large investors have been receiving alerts, leading to the realization of transactions in a very short time, before any official information becomes available in the mainstream media. Countries that are actively trying to overcome this problem, striving to maintain control over all available mechanisms, are certainly members of the Eurozone.

The set of convergence criteria, which allows the use of the euro, along with the rigorous procedures of the European Central Bank and its restrained approach to conducting aggressive monetary policy, are attempting to retain control in this area. However, the competing interests of banks headquartered outside the beneficiary countries of the euro, as well as the governments of countries facing issues in the Eurozone, are not the only concerns that exaggerate these restrictions.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018