Bank of England governor Mark Carney delivered a speech on Friday titled, ‘The Future of Money‘, in which he extolled the virtues of fiat currencies and called for regulation of cryptocurrencies. As outlined in a recent economic update, the narrative of ‘what is money‘ and the ‘role of central banks in the digital age‘ began this year with a speech by Bank for International Settlements General Manager, Agustin Carstens. It was promptly reinforced with speeches by Jens Weidmann of the Bundesbank and Yves Mersch of the European Central Bank.
Last week was the turn of the Bank of England to follow the lead of the BIS. Before Mark Carney came John Cunliffe (Deputy Governor for Financial Stability) who addressed the University of Warwick PPE Society with the speech, ‘Looking After Our Money‘.
As well as communicating his hostility towards digital currencies (Bitcoin in particular), Carney raised concerns about the prospect of money laundering and terrorist financing – which chimed almost word for word with Jens Weidmann at the Bundesbank. The coordination of central banks communicating the same underlying theme is testament to their membership at the Bank for International Settlements.
Carney was much more enamoured with the technology behind cryptocurrencies:
- I trust you have gathered by now that for many reasons the crypto-assets in your digital wallets are unlikely to be the future of money.
- But that is not meant to dismiss them. Their core technology is already having an impact. Bringing crypto assets into the regulatory tent could potentially catalyse innovations to serve the public better.
This is further evidence that central banks are fully supportive of blockchain technology. The animosity towards Bitcoin is a distraction from the clear intent that banks possess in bringing state regulated digital currencies into the market place as a precursor to the gradual reduction of physical banknotes and coins.
During a Q&A session after Carney’s speech, he commented that there was ‘nothing proprietary about the underlying technology‘ of fiat currencies.
- The technology will move beyond them. If you own the currency you don’t really own the underlying application.
The internationally coordinated change in monetary policy (of which Japan are the latest to signal their intent to reverse stimulus measures), coupled with rising debt levels across the globe, means that fiat currencies have never been under a greater strain of debt than they are today.
Throw in a continuation of interest rate hikes throughout 2018, along with the Federal Reserve’s balance sheet reduction programme (the Fed ran off another $18 billion in securities last week), and it points to an inevitable economic downturn. The IMF have warned of ‘volatile capital flows‘ as a result of policy normalisation, as well as the dangers of America imposing tariffs on imported aluminum and steel.
Markets are becoming increasingly sensitive to communications from central banks and policy decisions emanating from the Trump administration. Tellingly, Zero Hedge posted an article over the weekend debating the potential consequences should a global trade war develop. They came to the conclusion that,
while it remains to be seen if foreigners dump US Treasuries in angry retaliation, it is safe to say that as of this moment, the fate of the Trump administration is in the hands of the Federal Reserve.
A large proportion of economists are adamant that the Fed would initiate a fourth round of quantitative easing and cut interest rates to prevent a full blown economic collapse, one which would put the existence of the dollar as the world reserve currency in jeopardy. Nothing at present being communicated by the Fed or their counterparts indicates they would loosen policy in response to a downturn. Particularly if a contraction coincided with rising inflation.
The global trend is towards monetary tightening, with higher inflation being used as a rationale to raise interest rates, taper stimulus and sell off securities.
The fact that central banks are now actively positioning themselves on the subject of digital currencies, and openly questioning the future role of money, suggests they are preparing for widespread change in how money is recognised as an entity. Preserving the current manifestation of money with further stimulus measures is showing no signs of being on the agenda.
Bloomberg: Trump’s Tariffs Throw a Wrench in the Global Trading System
- Just when it looked like the global economy was running on all cylinders, President Donald Trump injected a degree of risk to the otherwise favorable outlook.
- The U.S. president announced on Thursday plans to impose 25 percent tariffs on imported steel and 10 percent tariffs on foreign aluminum, with more details to be unveiled next week. American equities cratered for a third day as fears of a trade war spread and expectations for U.S. economic growth weakened a bit.
Reuters: IMF warns that U.S. steel, aluminum tariffs will likely hurt economies
The International Monetary Fund warned on Friday that U.S. import tariffs on steel and aluminum would likely cause economic damage to the United States and its trading partners, and urged countries to resolve trade disputes without resorting to retaliatory measures.
“The import restrictions announced by the U.S. President (Donald Trump) are likely to cause damage not only outside the U.S., but also to the U.S. economy itself, including to its manufacturing and construction sectors, which are major users of aluminum and steel,” the IMF said in a terse statement.
CNBC: 4 Fed rate hikes this year would be ‘gradual’: Dudley
- Four interest-rate rises by the Federal Reserve this year would constitute a “gradual” tightening, New York Fed President William Dudley said on Thursday, offering his definition of what has become a policy mantra from U.S. central bankers.
- “If you were to go to four, 25-basis-point rate hikes I think it would still be gradual,” the influential official said at a Sao Paulo conference, noting that would be half as aggressive a policy tightening as the Fed conducted last decade.
Reuters: BOJ chief flags prospect of exit from easy policy if inflation goals met
- Japan’s central bank chief said on Friday it would consider ending ultra-loose monetary policy if inflation hits its target during the year ending in March 2020, in his first comments acknowledging the possibility of a stimulus exit.
- “If economic conditions become favorable and our price target is achieved, we will normalize monetary policy,” he said.
FT: UK credit card borrowing jumps at near fastest rate since crisis
- Borrowing on credit cards in the UK jumped in January to its second-highest level since before the financial crisis, reviving concerns about the sustainability of unsecured borrowing given recent declines in real household incomes.
- Consumers borrowed an additional £746m on credit cards over the month, when adjusted for seasonal affects, the largest monthly increase since January 2005, according to data released by the Bank of England on Thursday.
- Over the previous 12 months, borrowing increased by 9.6 per cent, the second-highest year on year rate since 2005.
Sky News: 3,000 jobs at risk as Toys R Us falls into administration
- Toys R Us has crashed into administration, placing just over 3,000 jobs at risk as UK retailers battle tough trading and surging costs.
- It is understood the demise of the UK business will leave the Pension Protection Fund (PPF) – the country’s pension lifeboat – facing a bill of about £37m as it absorbs the company’s pensions liabilities.
- Toys R Us is struggling internationally, except in Asia. It sought bankruptcy protection in the US and Canada last year.
Sky News: Maplin enters administration with 2,500 jobs at risk
- Electricals retailer Maplin has collapsed into administration, putting 2,500 jobs at risk. The company took the decision after failing to raise finances through a rescue deal
- Maplin, owned by private equity firm Rutland Partners, called in administrators from PwC after talks with Edinburgh Woollen Mill broke down amid disagreements over the continued involvement of Rutland.
- The chain has 217 stores and is continuing to trade normally as efforts continue to find a potential buyer.
BBC: Prezzo set to close 100 restaurants in rescue attempt
- Italian restaurant chain Prezzo is preparing to close about a third of its outlets in an attempt to rescue the business, the BBC understands.
- The chain, which is owned by private equity firm TPG Capital, employs about 4,500 people.
- Prezzo is also expected to completely close its TexMex chain Chimichanga, which has 33 restaurants in the UK.
- The move to close 100 of its 300 stores would form part of a deal to cut rent costs in the future.
Bloomberg: IMF’s Lagarde Warns of Volatile Flows From Policy Normalization
- Central banks need to stay vigilant as uncertainty remains over the impact of the normalization of monetary policies in advanced economies, International Monetary Fund Managing Director Christine Lagarde said.
- “We have known for some time that this is coming, but it remains uncertain as to how exactly it will affect companies, jobs, and incomes,” Lagarde told a conference in Jakarta on Tuesday. “Clearly, policy makers need to stay vigilant about the likely effects on financial stability, including the prospect of volatile capital flows.”
Sky News: Bank governor Carney seeks Cryptocurrency regulatation ahead
- Mark Carney said: “There are a number of problems with cryptocurrencies. They are small now but they are getting bigger.
- “We will talk about them at the G20 meeting and we are talking about them now in the Bank of England. The Financial Policy Committee is looking at the risks to financial stability.
- “There are issues for authorities who deal with money laundering, terrorist financing and price fixing. There have been a number of incidents of theft – not just big crimes but also steady thefts from people’s wallets.
- “They will be regulated in my view.”
- Mr Carney said the blockchain technology that has been developed in parallel with new currencies was “exciting and interesting”.
CNBC: Ex-Fed Chairman Alan Greenspan: ‘We are in a bond market bubble’ that’s beginning to unwind
- Former Federal Reserve Chariman Alan Greenspan told CNBC on Thursday the decadeslong bull market in bond prices is coming to an end.
- “We are in a bond market bubble” that’s beginning to unwind, he said on “Squawk on the Street,” as new Fed Chairman Jerome Powell appeared on Capitol Hill for the second time this week. “Prices are too high” on bonds, Greenspan added. Bond prices move inversely to bond yields, which spiked higher in the new year, recently hitting four-year highs of just under 3 percent.
New Statesman: World Bank chief: Automation could usher in era of fragility, conflict and extremism
- Delivering a keynote speech to Mobile World Congress on Monday, Jim Yong Kim said that if the technology industry fails to “step up its efforts in building a brighter future”, many countries will be beset by “fragility, conflict, violence, extremism and eventually migration”.
- “If everyone’s aspiration are going up and technology is replacing cheap labour in developing countries, we’re going to have to answer some very difficult questions,” said Kim. “What on earth are people going to do? How will they support their families? How will they spend their time and even will they be more likely to be recruited by online extremist groups?”
WSJ: Household Debt Sees Quiet Boom Across the Globe
- A decade after the global financial crisis, household debts are considered by many to be a problem of the past after having come down in the U.S., U.K. and many parts of the euro area.
- But in some corners of the globe—including Switzerland, Australia, Norway and Canada—large and rising household debt is percolating as an economic problem. Each of those four nations has more household debt—including mortgages, credit cards and car loans—today than the U.S. did at the height of last decade’s housing bubble.
Steven Guinness 