There is widespread speculation about what speculators actually do . .

. .TOM SHIELDS visited the London money markets and witnessed the

ferocious fight for the pound.

THE day has joined my personal pantheon of ''where were you when . . .

?'' Like: where were you when you heard JFK had been shot? (Collecting

window cleaning money for Alfie McLaughlin, shammy-artist of Priesthill,

Glasgow.) Or: where were you when you heard Mo Johnston had signed for

Rangers? (Having lunch at an international conference on jurisprudence

at Glasgow University, but I left sharpish to interview the denizens of

sundry bluenose pubs at Bridgeton Cross.)

So, where was I the day of the sterling chaos? The day Norman Lamont,

in a vain effort to defend the pound, put the interest rate up 5%. Then

he indulged in Eurocurrency interruptus. Then, to cap a perfect day, he

was snapped amid the dustbins as he tried to sneak out of the Treasury

by the back door. The day which prompted the Sun headline writer to pen:

''Now we've all been screwed by the Cabinet''. Actually I was in the

middle of the action, with a front seat in the Royal Bank of Scotland

dealing room in the City.

The Royal Bank had kindly co-operated in my mission to understand by

letting me sit in at their treasury and capital markets division in

London. Senior dealer Fergie Buchan was explaining some details of the

foreign exchange market, specifically how he had made a few shillings

for Royal Bank customers that morning by taking a position on the mark

versus the yen.

Fergie had started to describe the torrent of money that was getting

out of sterling and into stronger currencies when there came news of the

first 2% interest rate rise. I waited for the activity in the dealing

room to become even more frantic. Why no frantic activity, I asked

Fergie. Why no sudden improvement in the pound? ''The 2% will make no

difference. The speculators are still chucking sterling at the Bank of

England,'' he said.

How come that Fergie, a self-taught foreign exchange dealer, knew this

but Mr Lamont and his high-powered team at the Treasury and Bank of

England didn't? Fergie said: ''The market's been telling the Chancellor

that a realignment or devaluation of sterling is needed, but he's not

been listening.''

Three hours later Mr Lamont is maybe starting to listen. He puts the

bank rate up a further 3% and this time elicits a response. It is from a

dealer in interest rate futures I meet in the pub downstairs. He has

pulled out of the market for the moment, having made a nice wee profit

in the morning. ''I don't know what's happening. Most of the people I do

business with don't know what's happening. The Bank of England doesn't

know what's happening. Least of all Norman Lamont knows what's

happening.''

We've all heard the stories. The manager of a broker's firm who

pointed to the lads on his dealing floor and said proudly: ''Not an

O-level among them but you should see them make money . . . '' A Scots

girl working in advertising in London and stepping out with one of the

Essex dealer lads told me simply: ''Beasts. They're all beasts.'' And

this from someone who grew up in Airdrie.

This analysis is certainly not borne out by my brief encounter with

the lads in the Royal Bank dealing room. Perhaps because they have a

healthy leavening of Scots. Fergie Buchan, who was born in Broughty

Ferry and saw service in Banff and various branches of the Royal Bank,

has not so much embraced the lifestyle of the Jack-the-Lad Home Counties

banker as taken them on at their own game.

He tells you with a broad grin that he lives at Pratts Bottom in Kent.

Near Badgers Mount. He's up at 5.30am to be at his City desk for 7am.

After a long day, there's maybe time to squeeze in a couple of pints

before getting home at 9pm. Even if he is occasionally called into the

office at 11.30pm from his local, his is one of the more relaxed

regimes. He and his colleagues could have tripled their salaries by

leaving the relative peace and quiet of his clearing bank for one of the

more zoo-like dealing rooms. Big bonuses; fast burnout.

A run of bad deals and your P45 is in the post. The Royal Bank is more

forgiving. ''If a dealer is on a bad run, he can put his hands up and be

taken out of the front line until he finds his form again. We have a

management system which prevents dealers chasing their losses.'' A

sensible precaution in a business which last week saw two dealers in

Adam & Co, the small Scottish bank, rack up losses of #21m.

Not that the Royal Bank boys are any kind of wimps. One of the dealers

has put on his hat with the rubber horns. He is feeling bullish and is

on a good run. There are outbreaks of hand-slapping as the business is

being done.

Fergie was explaining his work ethic: ''I'm in and out like a

ratcatcher's dog. Grab the profit and get out.'' Warming to the theme,

he explained the current philosophy of the foreign exchange market

towards the lira, sterling, and other weak currencies: ''We smelled

blood and we went for the throat.''

At this point the nice man who was tailing me from the Royal Bank

public relations began to look concerned. Fergie moderated this to: ''In

this business you've got to go with the crowd. We've got to look after

our customers. Only 20% of our transactions is speculation by the bank.

Most of the business we do is commercial work for our customers.''

With so much going on that day, it didn't seem the right time to ask

questions such as why do we need so many people buying and selling

foreign currency when they're not even going on holiday.

Luckily there is a book on the subject published, appropriately, by

the Swiss Bank Corporation. It explains that foreign exchange dealings

spring from ''the coexistence between the internationalism of trade and

the nationalism of currencies''. It's all in there -- spot dealings,

futures, long and short positions with handy wee examples. In 92

simple-to-follow pages, you too can learn to be a foreign exchange

dealer. The book concludes: ''That's it! Once you've digested all this,

you will have the technical knowledge to be a foreign exchange dealer.

Even if there is some truth to the saying that foreign exchange dealers

are not made, they are born, don't get discouraged.''

Fergie Buchan describes the essence of the whole business more

succinctly: ''Buy cheap, sell dear.'' Some dealers have refined their

work to roaming the system electronically in the hope of finding a

fellow dealer who has made a mistake by setting too favourable a rate

and then ripping him off. It is no wonder that there have been the

ocasional ''ruck'', as the Essex lads call it in the pub after a day's

dealing.

So who are the speculators? The Bank of America did their image no

good by having one of their dealers admit on ITN news that they had made

#10m profit on that wacky Wednesday.

The central bank of one of the Far East countries is famous among

dealers for its predatory style. Far from being a force for calm as a

central bank is supposed to be, this bank has a $100billion war chest

which it uses to wage war on ailing currencies.

There are also the wealthy individuals who sit at home with the same

electronic kit as the dealers and move their cash around for profit but

also pleasure in a high-stakes parlour game.

But the bad news for idealists is that the speculators are -- you and

me. Our insurance companies, our banks, our unit trusts, perhaps even

the firm we work for. When the rush out of sterling was at its peak that

Tuesday and Wednesday some of Britain's blue chip companies were at the

head of the queue.

One of the fascinating aspects of the money market is the obscure

reasons analysts come up with to explain movements in currencies. When

the market was talking down sterling there were a few beauties like

nervousness caused by the floating of the Finnish markka. Or a fall in

the USA non-farm payroll index.

Scott Bannister, the Royal Bank's futures manager and another canny

Scot who went to their City office after shuffling pesetas in a Glasgow

branch, said: ''Indicators go in and out of fashion. Money supply used

to be popular then it got boring. US non-farm payrolls is a favourite at

the moment.

''On my screen at the moment is a headline from Reuters telling us

that US business inventories are up 0.1%. Is that good news because

American firms are stocking up for good times ahead? Or bad news because

American firms can't shift their products? Take your pick.

''I often feel that after something has happened on the market, people

look for something to blame.''

Among the information supplied by Reuters to the dealers that

afternoon was the fact that President Mitterrand is suffering from

prostate cancer. One of the lads is heard later wondering aloud how

''Mitterrand's willie trouble'' will affect the market.

The Swiss Bank Corporation's bible admits that currency dealing is

less than an exact science: ''Psychological factors can also have a

bearing on exchange rate behaviour, mainly by inducing capital flows. In

this connection it is noteworthy that many currencies have a certain

image; the Swiss franc has the image of a refuge currency which explains

at least part of its inherent strength; in turbulent times it is often

such images, rather than any solid reason, which make people move in and

out of certain currencies.''

So there we have it. Our lives ruled by US non-farm payrolls,

Mitterand's willie problem, and the state of the Finnish markka. For the

state of the currency market is beginning to dominate our whole lives.

Even on Radio 1 news we hear financial experts rabbiting on about the

lira. The vicar on the morning service on Radio 4 the other day asked us

to pray to God for a stable currency and asked God to guide Norman

Lamont.

The money market fever was even affecting some cherished British

institutions the day I was in the City. Over a cooling pint of Tennent's

Pilsener, as the stuff is called down there, I was listening to a

collection of suits discuss the day's events.

''Bloody 15%,'' said one. ''The Tories will have to go. It's time we

had a bloody revolution!''

Pigs might fly. And the lira might rise.