Germany: U.S. Hedge Fund Supposedly Knew About Pending Euro Intervention, leak from non-eurozone Central Bank suspected-- Citibank, Robert Rubin, Central Bank connection said possible

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 Thursday's referendum.

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. Sep. 27

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-- Carl Jenkins (Somewherepress@aol.com), September 28, 2000

Answers

Sounds to me like a little hanky panky going on there.

-- Buck (bigbuck@trailways.net), September 28, 2000.

Quick in, quick out -- yup, that's the way you make big bucks in international exchange. And, you only need a few hours notice when millions -- maybe even billions -- of dollars are involved -- to score big.

-- RogerT (rogerT@c-zone.net), September 28, 2000.

How long has it been now since we've heard of any major central bank interventions? These always used to be associated with bad times and recessions.

-- R2D2 (r2d2@earthend.net), September 28, 2000.