CME Group hosted a two-day series of training sessions for central bankers from countries across Asia last week. The success of the event is reflected in the attendance by representatives of central banks in Singapore, China, Japan, India, Thailand, Malaysia and Indonesia.
This is the first time we have held our Central Bank Forum in Asia, following the model established at successful forums in the United States, Latin America and Europe over the last five years. The purpose is to foster dialogue between the key participants in policy-setting and exchange controls in the region, and provide a platform for sharing ideas.
The consensus from attendees was that this was a timely event as the global economy continues to face challenges stemming not only from the western economies’ long-running flirtation with recession, the European sovereign debt crisis, and natural disasters in Japan and elsewhere, but also the volatility triggered by signs of slow recovery in the United States and a simultaneous slowing of China’s economy. As the Financial Times puts it, “As one crisis eases, a new threat grows.”
The implications for the central banks entrusted with guiding their countries’ currencies, interest rates, and money supply, are complex and substantial. The requirement to balance inflation, employment, lending rates, monetary stability and economic growth, among a host of other key considerations, imposes a serious responsibility.
What role do the world’s exchanges have to play in this scenario? At CME Group, we are host to trading in asset classes that are intimately tied to the very heartbeat of any country’s economy: interest rates and foreign exchange. Our customers use interest rate futures and options to hedge against the long-term risk that interest rates will move in an adverse direction. They also provide a useful bellwether of market sentiment; prices fall as pressure to hike interest rates rises, and rise as sentiment favors a fall in rates.
Key Economic Tools
At the conference in Singapore, we discussed the key tools for shorter-term interest rate risk management: fed funds, Eurodollars, Euribor futures and options, and three-month OIS futures and options. Taken together, these interest-rate products make up a toolkit covering risk scenarios from three months to thirty years out.
Our foreign exchange business consists of 56 listed futures and 31 options contracts, covering significant pairs within the G7 currency set. With more than $120 billion in daily liquidity, we are the largest regulated FX marketplace in the world.
But our agenda ranged further than these tools for economic management. Our speakers covered current global regulatory developments like the drive to OTC clearing, global exchange partnerships, prospects for the Chinese Renminbi, and strategies to deploy in the ‘risk on, risk-off’ environment.
In my opening remarks, I told attendees that the event wouldn’t fulfill its true purpose if it didn’t inspire dialogue from the audience. Gauging by the dialogue at our conference, the central banks of Asia will have a strong relationship with the financial markets here for the foreseeable future.