Ever since, markets have let derivatives evolve from being plain vanilla instruments to being complex structures. Now, the market, too, has evolved to let deals in anything and everything happen.
Although derivatives and futures are considered new-age instruments, one can trace their existence back to the medieval era. Samurais in Japan established a rice exchange in Osaka in 1697—two hundred years prior to setting up of Chicago Board of Trade—to control the price of rice in the region. Ever since, markets have let derivatives evolve from being plain vanilla instruments to being complex structures. Now, the market, too, has evolved to let deals in anything and everything happen. China, in 2011, set up a donkey exchange to allow for trading in the animal. The animal is a highly-valued commodity in China because apart from being a beast of burden, it finds pride of place in traditional Chinese medicine—a treatment for anaemia, called e’jiao is made from boiled donkey skin, and demand for the medicine has surged.
Bloomberg now reports that all may not be well with it. According to the report, the exchange, like many others across, the world has led to prices of the commodity being traded shoot up—in this case, there has been a quadrupling of the price of donkeys. Prices have reached $1,160 in one instance. While the exchange may not be a problem, patchy oversight is to blame for the current situation. And, the problem extends far beyond just donkey exchanges.
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Officials believe that local authorities may not have the tools to regulate the sheer number of exchanges springing up across the country. While China has had problems with exchanges earlier as well, hopefully, it would not have a ‘donkey’ mania—much like the asinine tulip-mania that gripped Europe in 1634-37, when prices of tulips skyrocketed, shooting past even real estate prices. At a time when trade is becoming algorithm-dictated and China’s donkey exchange is looking to start web- and app-based trading, it is best that the regulatory issues are dealt with first.