Like slide rules and martini lunches, the London interbank offered rate (LIBOR) was once a fine idea. But the benchmarks replacing it are more suited to 21st-century finance
’s five currencies, they are something of an alphabet soup. There is the secured overnight financing rate for the dollar, the sterling overnight index average for the pound, the Tokyo overnight average rate for the yen, the Swiss average rate overnight for the Swiss franc and the euro short-term rate for the euro.
What they all have in common is that they measure borrowing costs on large numbers of actual transactions, rather than trusting conflicted bankers to reply honestly to a subjective survey. Two of them——report rates in the repo market rather than for bank deposits. This reflects the financial system’s shift from bank lending to disintermediated, market-based finance.’s alternatives make more sense. In practice, adopting them has been a long and rather tortuous slog.
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