Sunday, December 02, 2007

Rogue Central Banking

Chavez wins referendum; gov't sources - Reuters

It looks like Venezuelan President Chavez has won the chance to put his money where his mouth is. But a few weeks ago Mr. Chavez was hoping for "the fall of the dollar" and assuming the early poll results are indicative, he now controls a fund which can force the issue.


Oops, now I have some sense of how the guys who ran the "Dewey beats Truman" headline must have felt. Mr. Chavez did not win the referendum.

Chavez loses constitutional vote - AP

To his credit, he appears willing to bow to the results of the vote- perhaps he is a "true believer" in Democracy. I'll leave my post as written last night as I doubt Mr. Chavez will be the last leader to wish to bend his Central Bank to his own whims (and we know he ain't the first).

Back in the late 80s when I was trading FX at Chase I was always listening for news of Bank Negara, the Malaysian Central Bank, as they were, in a sense, a rogue Central Bank. In addition to "normal" Central Banking functions (these days who knows what "normal" is, but back then, there was a "normal") Bank Negara speculated in FX.

As they were a Central Bank, they had access to more funds than just about any other fund at the time in those markets. Thus, for a time, they were able to "bully" their way around, until they got in the way of the inevitable- GBP's exit from the ERM in 1992. Interestingly, those losses came with Bank Negara trying to prop up an overvalued exchange rate. Had they bet against the GBP, they might still be "slinging it around." Other than that event, as far as I know, they didn't have any political axes to grind, as Mr. Chavez does. Their goal was to make money.

Mr. Chavez, as noted, has an ax to grind- he wants the US$ lower. With Venezuelan reserves totaling (according to the World Bank, 2006) some US$36B he can certainly move the markets is he so chooses.

This could get interesting.

Meanwhile, over in Russia, Vladimir Putin's United Russia won in a (rigged according to many sources) landslide. I guess now we'll see if he was serious about that "New World Financial Order" on which he opined a few months back.