The European Borrowing Unit (EBU) is convertible only into euros. It is aimed at European clients that may already be trying to rein in funding costs by borrowing in low-yielding currencies, such as yen or Swiss francs.
Positions in EBU are financed by the bank with a basket of G10 currency forwards. The basket is dynamically rebalanced each month according to a formula that targets an interest rate of zero and minimum volatility against the euro.
The euro-EBU exchange rate is fixed daily by BarCap. The synthetic currency's level against the euro was set at 100 for January 2000. By its launch on September 24, it stood at 112.3 to the euro.
Kassimatis said that in back-testing, the EBU had in fact depreciated against the euro for the past 15 years on average, resulting in a negative cost of financing. He added the bank had received “substantial interest” in the product.
A second synthetic currency is also planned, which will be convertible into dollars instead of euros. The 'Global Borrowing Unit' is expected to debut in the next two to three weeks.