|U.S. Hedge Fund Supposedly Knew About Intervention|
By Claus Tigges
FRANKFURT. The intention of the European Central Bank
to intervene in favor of the euro, along with other leading
central banks, was apparently known several hours before
the actual price-supporting currency purchases were carried
out last Friday, according to market sources in Frankfurt.
Supposedly, there was a leak in one of the participating
central banks not in the euro-zone. On hearing about the
impending intervention, Citibank, one of the leading currency
traders worldwide, began buying up euros in large volumes
for a U.S. hedge fund company, according to the rumor.
The price of the euro had risen slightly against the dollar to
more than $0.86 on Friday morning. According to sources
at banks in Frankfurt, the suspected purchases and
subsequent sales of currency by Citibank were ostensibly
the reason that the euro did not climb to $0.90 following the
intervention, which took place at 1 p.m. CET.
A possible connection between the hedge-fund company, the
bank and the central bank has been found in the person of
former U.S. Finance Minister Robert Rubin, who is
currently co-chairman of Citigroup.
The Bundesbank, which had participated in the support
buying on behalf of the Japanese central bank, as well as the
ECB, refused to comment on the rumors on Tuesday.
Citibank's German subsidiary was equally silent on the issue.
In Frankfurt, the euro was traded on Wednesday at around
$0.8851, a little higher than on Tuesday.
The amount of the intervention is still unknown. A total of
euro 6 billion ($5.3 billion) was purchased, according to
estimates of currency experts. Some currency traders think
this figure is too low, and are citing figures between euro 15
billion and euro 20 billion as likely. In any case, it is clear
that currency traders in the participating central banks had
stretched the intervention over a period of time, in order to
react to the development of the exchange rate.
Although the ECB announced that it would put back the
liquidity which the markets had lost through the support
purchases, it will, nevertheless, be difficult to estimate the
real extent of the intervention from this sterilization, which
will in all likelihood be carried out through the weekly
open-market operations. The ECB will spread the additional
liquidity across several transactions, in order that the sums
will not be calculable.
In the meantime, market observers expect that the first
intervention was not the last. It could soon be necessary to
carry out further support buying if the Danes vote against
Denmark's participation in European monetary union in
This would be assessed as a mark of distrust in the euro,
according to currency experts. Following comments by U.S.
Finance Minister Larry Summers, it is not clear if the
Federal Reserve Bank would be willing to participate in
further support buying on its own account.
[from the September 27, 2000 Frankfurter Allgemeine Zeitung]