HELLO FOLKS, HOW ARE WE ALL DOING THIS WEEKEND? I WANT TO TALK TO EVERYONE ABOUT A FEW INTERESTING THINGS COMING OUT OF JACKSON HOLE THIS WEEK.
THE NEW BUZZ BEING A SPEECH GIVEN BY MARK CARNEY, THE BANK OF ENGLAND GOVERNOR. CARNEY HAS ALWAYS BEEN A PIONEER OF BLOCKCHAIN AND DIGITAL CURRENCIES, HERE IS THE SPEECH HE GAVE ABOUT FINTECH BACK IN 2016
AND THIS WEEK HE’S SPEAKING OUT ABOUT A GLOBAL MONETARY SYSTEM TO REPLACE THE DOLLAR.
CARNEY HAS ALWAYS BEEN A TRAILBLAZER IN FINTECH HERE FROM 2016.
On June 16th the Bank of England quietly published Carney’s Mansion House speech, the Bank’s most important. In it, he laid out an ambitious vision for how fintech and blockchain could transform the global financial system and UK economy.
He argued, “For everyone, fintech may deliver a more inclusive financial system, domestically and globally; with people better connected, more informed, and increasingly empowered.”
Carney also announced the bank was piloting a central bank digital currency project. With a “Britcoin” the Bank of England could better defend against crises like BREXIT, prevent financial crimes, encourage honest competition, foster innovation and financial inclusion and boost growth.
THIS WEEK CARNEY SAID THE WORLDS RELIANCE ON THE US DOLLAR “WON’T HOLD” AND NEEDS TO BE REPLACED BY A NEW INTERNATIONAL MONETARY AND FINANCIAL SYSTEM BASED ON MORE GLOBAL CURRENCIES.
HE USED HIS SPEECH ON FRIDAY TO LAY OUT THE PROBLEMS OF AN OVER-MIGHTY DOLLAR FOR THE GLOBAL ECONOMY.
The US accounts for only 10 per cent of global trade and 15 per cent of global GDP but half of trade invoices and two-thirds of global securities issuance, the BoE governor said. As a result, “while the world economy is being reordered, the US dollar remains as important as when Bretton Woods collapsed” in 1971.
THE WORLDS ECONOMY IS BEING REORDERED, HUMMM 197 COUNTRIES ARE BEING REORDERED AND 189 OF THOSE COUNTRIES ARE MEMBERS OF THE IMF.
WHAT DOES THAT SOUND LIKE TO YOU? THIS REORDERING IS HAPPENING NOW.
Movements in the US dollar are therefore fundamentally important to other economies even if they have few direct trade links with the US, he said.
This means countries are forced to self-insure and hoard dollars to guard against potential capital flight, leading to excess savings and lower global growth.
In turn, he said, this dysfunctional international monetary system contributes to lower global interest rates and has amplified the difficulties central bankers face in addressing downturns.
IN THE SHORT-TERM CARNEY SAID THAT COUNTRIES COULD DO LITTLE MORE THAN “PLAY THE CARDS THEY HAVE BEEN DEALT AS BEST THEY CAN”, INCORPORATING POTENTIAL INTERNATIONAL SPILLOVERS INTO THEIR MONETARY POLICY DECISIONS AND REACTING TO GLOBAL RISK.
BUT THIS WOULD NOT CONTINUE TO WORK IF THE US BECOMES AN EVEN SMALLER PART OF THE GLOBAL ECONOMY WHILE THE DOLLAR REMAINS DOMINANT IN THE CURRENCY MARKETS.
He therefore suggested that in the medium term — alongside all countries seeking to reduce their reliance on hot money flows denominated in dollars — the IMF should set up a global fund to deal with capital flight.
“Pooling resources at the IMF, and thereby distributing the costs across all 189 member countries, is much more efficient than individual countries self-insuring,” he said, calling for a tripling of IMF resources over the next decade to $3tn.
In the longer term, Mr Carney said the solution was to create a multipolar global economy rather than waiting for China’s renminbi to challenge the dollar.
For this, he suggested more thought should be given to creating a global electronic currency that could act as “synthetic hegemonic currency provided . . . perhaps through a network of central bank digital currencies”.
SYNTHETIC HEGEMONIC CURRENCY….SHC
“An SHC could dampen the domineering influence of the U.S. dollar on global trade,” Carney said.
Technology can disrupt the current network effects that protect the dollar, he explained, noting that an increasing number of transactions occur online and use electronic payments rather than cash.
While he did not explicitly reference cryptocurrencies, he did note that “the relatively high costs of domestic and cross border electronic payments are encouraging innovation, with new entrants applying new technologies to offer lower cost, more convenient retail payment services.”
IN OTHER WORDS, DIGITAL CURRENCIES COULD HAVE A ROLE IN WEANING THE WORLD OFF THE US DOLLAR AS THE GLOBAL RESERVE CURRENCY.
AND BY REDUCING THE INFLUENCE OF THE US ON THE GLOBAL FINANCIAL CYCLE THIS WOULD HELP REDUCE THE VOLATILITY OF CAPITAL FLOWS TO EMERGING MARKET ECONOMIES.
“In the longer term, we need to change the game,” Carney said. “When change comes, it shouldn’t be to swap one currency hegemon for another.”
Libra is planned to be a worldwide digital currency that could lie outside the direct control of central banks. So far it has drawn opprobrium from most policy makers — French Finance Minister Bruno Le Maire said it is “out of the question” and U.S. House Financial Services Committee Chair Maxine Waters promised an aggressive response from Congress.
Carney has been more sympathetic, though in his speech he said it may be that a new “Synthetic Hegemonic Currency” would be best provided by the public sector, through a network of central bank digital currencies.
“Even if the initial variants of the idea prove wanting, the concept is intriguing,” he said. “An SHC could dampen the domineering influence of the U.S. dollar on global trade.”
SO, WHAT DO WE THINK ABOUT ALL THIS?? A DIGITAL GLOBAL CURRENCY BACKED BY A BASKET OF CURRENCIES. SOMETHING ALONG THE LINES OF LIBRA BUT REGULATED AND AVAILABLE IN THE PUBLIC SECTOR.
FOR THOSE OF YOU THAT WERE FOLLOWING ME A FEW YEARS BACK THIS IS EXACTLY WHAT WE WERE TALKING ABOUT.
THE SECOND SOLUTION HE HAD WAS FOR THE IMF TO SET UP A GLOBAL FUND TO SHIELD COUNTRIES RELYING ON HOT MONEY FLOWS THAT ARE DENOMINATED IN THE DOLLAR.
THAT SOUNDS A LOT LIKE HAVING AN ADDITIONAL FUND ASIDE FROM THE SDR FUND TO SUPPORT COUNTRIES RELYING ON HOT MONEY FLOWS.
WE NEED TO LOOK AT THIS ON IT’S FACE AND NOT MAKE ANY ASSUMPTIONSS THAT THIS NEW “SHC” HAS ANYTHING TO DO WITH GOLD BACKING OR NEW LYNCH PIN TO ANY SORT OF GLOBAL HAPPENING THAT MANY GURUS OUT THERE MAY BE TALKING ABOUT.
THIS IS AN EXCITING TIME IN TRYING TO CHANGE THE GLOBAL MONETARY SYSTEM WHICH IS A TOPIC WE USED TO SPEAK ON A FEW YEARS AGO.
WE ARE WATCHING IT FINALLY HAPPEN IN REAL TIME NOW AS WE APROACH 2020 WHICH IF YOU ALL REMEMBER WAS ALWAYS THE TARGET DATE TO SEE REAL BANKING CHANGE.
WE ARE GOING TO STOP HERE FOR TODAY, WE HAVE MANY THINGS TO COVER IN THE COMING DAYS. I WANT TO STRAIGHTEN OUT A LOT OF BABBLED NONSENSE ABOUT QUANTITIVE FINANCIAL SYSTEM, GOLD BACKING OF CURRENCIES, DEBT FORGIVNESS, RE-DENOMINATING CURRENCIES AND WHAT WE CAN EXPECT TO SEE FROM SOME NEW CURRENCIES ENTERING THE GLOBAL STAGE.
FOR TODAY I WILL LEAVE YOU WITH HUGS ALL AROUND AND WE WILL BE A DOING A CALL VERY SOON. WE ARE HAPPY TO BE BACK AND GIVING YOU N ACCURATE VIEW OF WHAT’S HAPPENING GLOBALLY…
LOVE TO ALL, ML& NOVA