City Forex Houses Cool To Possibility Of Single Currency

The prospect of hundreds of traders being thrown jobless on to the street as currencies disappear overnight does not scare them. Its not going to make much difference to us, said David Clark, at the London offices of Bank Gesellschaft Berlin.

This confidence stems from the fact that the European currencies likely to be swallowed up in the euro, the proposed single currency, make up only about 10 per cent of total turnover in Londons $464bn-a-day foreign exchange business.

The loss of the European currencies would simply push us back to 1993 levels, said Graham Cocks, at First National Bank Boston. He believes that the growth of the foreign exchange markets - which has been rapid over the last few years - would soon replace the lost business.

 

This could include the new euro, trade in which may expand quickly if the move to a single currency triggers faster growth in the economies taking part. But while turnover has grown, banks profits have not.

Currency markets are extremely quiet by historical standards. Banks report that several institutions are laying off foreign exchange traders mainly because the volatility upon which traders thrive is simply not there, especially between European currencies such as the D-Mark, the French franc and the Italian lira.

Already we have in effect monetary union, with low volumes. So already banks are not generating large amounts of income from trading these markets, said Avinash Persaud, head of currency research at JP Morgan in London.

For this reason, most banks in London have begun to look for other, more profitable trading opportunities. Many of them have begun trading the more volatile currencies of eastern Europe, Russia, Asia, South America and Africa. It is the startling growth of these currency markets that dealers believe would quickly replace the business lost following Emu.