6 Jan 2017

Best wishes for 2017 - and an update on LCH Clearnet

My best wishes to all of you for 2017 - and my apologies for being rather quiet of late. Put at least some of it down to post Brexit, post Trump depression.

But, as always at this time of year, I like to cheer myself up by downloading the remarkably detailed figures that LCH Clearnet provides on its website on the last day of the year. If you check out their site, you can get graphs showing the total volume per month over the last 2 years. The numbers have been hovering round $50 trillion with a peak at $71.4 trillion for the month of June.

But the really interesting thing is that LCH provides full details by currency. And that allows me to  produce the following table comparing the figures in 2016 with 2015 and 2014.
As you can see, the total for 2016 was nearly $666 trillion - up 25% on 2015 (although 2014 was also an impressive year).

The importance of different currencies has varied a lot, with US dollar transactions making up 46.7%of the total, compared to 29% for the Euro and 11.4% for Sterling. This is very different from 2014, when nearly half the trading was in Euros.

But despite these flucatuations, there was nevertheless an impressive €174.7 trillion in Euro denominated trading.  As you may know, I have been arguing that Central Banks could easily impose a tiny fixed rate financial transaction tax on all electronically denominated trades in the relevant currency. While you might want to call this a tax, it is more appropriate to think of it as simply a way to remove excess money from the economy. Given that Mario Draghi at the ECB has been pumping €80 billion a month into the financial markets, it's clear that Central Banks don't have any real problem in creating money if they want - it's removing the excess that is harder.

In case you are interested in the gory details, the LCH website also provides an up to date summary of precisely where those transactions have been taking place, as shown in the figure below.

Over 95% of the transactions are split roughy equally between Forward Rate Agreements, Interest Rate Swaps, and Overnight Indexed Swaps.

Can anyone give me any reason why it would be unreaonsable to impose a very modest transaction tax on such deals? At 0.01% it would generate $60 billion. That could be used for any sort of useful activity - paying for an Unconditional Basic Income, funding renewable energy projects or whatever.
(Note : the data is available as a Google Sheet here)

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