Interbank market news scan: Federal Reserve lists principles for reducing its balance sheet; foreign exchange rates of interest …

Interbank, Federal Reserve. The Board of Governors of the Federal Reserve reiterated that its primary policy tool for managing the money supply, maintaining stable prices, and pursuing maximum employment is the federal funds rate, the interbank, overnight rate banks apply when lending reserves to each other. The Board will reduce its balance sheet of assets after its initial raising of the federal funds rate which markets expect to occur in March 2022. Legal advisors should keep this in mind when reviewing or counseling clients on foreign exchange contracts. To see the Board’s release, follow this link.

Interbank, US Dollar. Analysts are expecting further slippage in the euro versus the dollar given the Board of Governors of the Federal Reserve’s decision last Wednesday on interbank overnight lending rates (the federal funds rate). Analysts are seeing the EUR/USD falling to support levels as low as 1.10. Legal advisors should keep this in mind when advising clients on foreign exchange contracts. To see this article, follow this link.

Interbank, SONIA. As banks transition from LIBOR to alternative interest rate benchmarks, here is a discussion on implications from and an update on the status on making the change from LIBOR.

Interbank, European Central Bank. The ECB issues a statement on historically low number of counterfeit banknotes. Approximately 347,000 banknotes were withdrawn from circulation. To see this article, follow this link.

Foreign exchange rates of interest to Atlanta’s immigrant community












Source: OANDA

Interbank market news scan: BIS releases paper on virtual banking; forex rates of interest to Atlanta; Ethereum strengthens slightly

Bank of International Settlements. Today, the Bank of International Settlements released a paper on virtual banking providing insights on the use of information capital as a substitute for tangible capital. The paper argues that information capital, comprised of an enterprise’s or individual’s digital data footprint, can be used as collateral for obtaining credit, thus increasing access to credit by small and medium businesses and low income individuals.

While the paper uses the Hong Kong market as a case study, I believe that if US-based banks and fintechs embarked on the same initiative, the following legal issues may arise. Can information capital be used as collateral when borrowing for the purpose of purchasing foreign currencies? Does the use of information capital raise discrimination issues where biases are embeded in the artificial intelligence programming? Are existing laws sufficient for protecting enterprise or individual data privacy where such data is encompassed in information capital used as collateral?

The link to the BIS paper can be found here.

Federal Reserve Bank of New York. Yesterday after the Board of Governors of the Federal Reserve announced that it would hold its interbank rate for overnight lending between 0 and .25%, the Federal Reserve Bank of New York announced that the reserve bank’s Open Market Trading Desk would increase its System Open Market Account holding of Treasury securities by at least $20 billion per month and its agency mortgage-backed securities by at least $10 billion per month. This reduced level of purchasing (down from a combined high of $120 billion per month at the beginning of the pandemic) will commence on 14 February 2022.

The link to the New York Fed’s announcement can be found here.

Interbank Market, Pakistan. The rupee held steady against the dollar at Rs176.98 but has been depreciating in value since 1 July 2021. See link to article here.

Foreign exchange rates as of 10:00 am EDT












Source: OANDA

Federal Reserve continues reduction of monthly asset purchases, maintains interbank rate at current level, and no clear indication of a March rate hike…

“Indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months but are being affected by the recent sharp rise in COVID-19 cases. Job gains have been solid in recent months, and the unemployment rate has declined substantially. Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain, including from new variants of the virus.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate. The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March. Beginning in February, the Committee will increase its holdings of Treasury securities by at least $20 billion per month and of agency mortgage‑backed securities by at least $10 billion per month. The Federal Reserve’s ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Patrick Harker voted as an alternate member at this meeting.”

Implementation Note issued January 26, 2022Last Update: January 26, 2022

Source: Board of Governors of the Federal Reserve System

CFTC chairman Rostin Behman announces additional members to his leadership team

January 25, 2022

Washington, D.C. — Commodity Futures Trading Commission Chairman Rostin Behnam today announced the following leadership appointments as he begins his chairmanship. The personnel announced today will lead divisions, offices and other teams within the CFTC to execute the responsibilities in the CFTC governing statute and other issues facing the agency. Today’s announcement follows Chairman Behnam announcing his executive office staff and naming Tanisha Cole Edmonds as the CFTC’s first Chief Diversity Officer. Chairman Behnam plans to make additional staff and policy announcements very soon.

“These individuals have decades of experience with the Commodity Exchange Act and our governing regulations, bringing unmatched expertise to their roles,” said Chairman Behnam. “I am grateful to each for their service, and I am confident that they will strive every day to fulfill the agency’s mission and ensure our markets work for all.”

Amanda Olear, Market Participants Division Director

Amanda Olear has been appointed the Director of the Market Participants Division. In her role, she is responsible for the oversight of swap dealers, futures commission merchants, introducing brokers, commodity pool operators, commodity trading advisors, and their associated persons, and she has been working in an acting capacity for this past year. Previously, she served as Deputy Director for Registration and Compliance since 2018. Ms. Olear joined the CFTC in 2007 from Council, Baradel, Kosmerl & Nolan, P.A. in Annapolis, Maryland, where she focused on business entity formation and complex commercial litigation. Prior to that, Ms. Olear served as a law clerk to the Honorable Lynne A. Battaglia on the Maryland Court of Appeals. Coming from a long line of family farmers, she holds a JD, with honors, from the University of Maryland Francis King Carey School of Law and a BA, summa cum laude, from McDaniel College.

Rob Schwartz, General Counsel

Rob Schwartz has been named General Counsel of the Commodity Futures Trading Commission. In his role, Mr. Schwartz will lead the Legal Division and serve as chief legal advisor to the Commission. A 10-year veteran of the CFTC, Mr. Schwartz has been the agency’s Acting General Counsel since January 2021. Since joining the CFTC in 2011, Mr. Schwartz has served primarily as the CFTC’s chief litigator, in the position of Deputy General Counsel for Litigation, Enforcement and Adjudication. He has successfully represented the CFTC in numerous critically significant cases, including several lawsuits challenging the agency’s implementation of the Dodd-Frank Act, many appeals in enforcement actions, and bankruptcies of registered entities. Mr. Schwartz joined the CFTC from private practice where he represented businesses and individuals in enforcement actions and investigations by the Securities and Exchange Commission, the Public Company Accounting Oversight Board and other government agencies, as well as in private civil actions at all levels of the federal judicial system covering a broad range of business issues. Prior to that, Mr. Schwartz served as a law clerk to the Honorable Amalya L. Kearse of the U.S. Court of Appeals for the Second Circuit. Mr. Schwartz holds a JD, magna cum laude, from New York University School of Law and a BA in Political Science from Tufts University.

Clark Hutchison, Clearing and Risk Division Director

Clark Hutchison will continue his role as the Director of the Division of Clearing and Risk (DCR), which he has led since July 2019. In his role, Mr. Hutchison manages a team of 90 employees at the CFTC’s Washington, D.C., New York and Chicago offices that are responsible for the agency’s supervision of derivatives clearinghouses and their members, including oversight of clearing processes through risk assessment and surveillance. Prior to joining the CFTC, Mr. Hutchison spent more than three decades in top positions in large global financial institutions, where he specialized in clearing and risk management. In addition to his private sector experience, Mr. Hutchison has served as a special advisor to the board of directors of the Futures Industry Association, as a member of the Chicago Mercantile Exchange’s Risk Committee, and as a member of the board of directors of NASDAQ Futures, Inc. Mr. Hutchison received a BA from Haverford College.

Tamara Roust, Data Division Director and Chief Data Officer

Dr. Tamara Roust will continue as the Director of the Division of Data and Chief Data Officer, a role she has had since October 2020. In her role, she is responsible for overseeing the agency’s enterprise data strategy and data governance approaches, including cloud migration, automation and artificial intelligence efforts and compliance with the Federal Data Strategy. Prior to rejoining the CFTC, Dr. Roust served as Chief Data Officer for the State of Illinois where she developed the state’s enterprise data strategy and was a part of the state’s COVID-19 taskforce. As part of that effort, she developed automated solutions for transferring data from 1970s era IBM DB2 systems to cloud-native systems for contact tracing, so that hundreds of local health departments could connect to data stored within the state’s systems. From 2011-2016, Dr. Roust served as a Risk Analyst in the CFTC’s Division of Clearing and Risk (DCR), and from 2016-2019, as an Associate Director within DCR’s Examinations Branch, where she revised 39.18 and 39.36 regulations to improve information security at Derivatives Clearing Organizations (DCOs). She also has nearly a decade of experience in the financial services industry, holds several industry credentials, and worked as a senior engineer for NASA’s Jet Propulsion Laboratory. Dr. Roust holds several graduate degrees including a PhD in Management Information Systems from Claremont Graduate University and a BA in Mathematics and Computer Science from the University of California, Los Angeles. Most recently, she earned a certificate in Machine Learning from Stanford.

Suyash G. Paliwal, International Affairs Office Director

Suyash G. Paliwal will continue as Director of the Office of International Affairs (OIA) at the Commodity Futures Trading Commission. In his role, Mr. Paliwal advises the CFTC Chairman on cross-border issues and leads the CFTC’s international regulatory initiatives. OIA represents the Commission in international fora such as the International Organization of Securities Commissions (IOSCO), IOSCO’s joint work with the Committee on Payments and Market Infrastructures (CPMI), and the Financial Action Task Force (FATF), and advises the Chairman on matters relating to the Financial Stability Board (FSB) and IOSCO’s Financial Stability Engagement Group (FSEG). Prior to joining the CFTC, Mr. Paliwal served at the Federal Reserve Board, where he advised on FSB matters, represented the central bank in the International Association of Insurance Supervisors and bilateral forums, developed international and domestic policy for the supervision of systemically important financial institutions and certain financial conglomerates (insurance savings and loan holding companies), and oversaw the supervision of large financial institutions. He led a team of supervisors in Europe and Asia to develop international standards on governance and risk management, advised Federal Reserve Board leadership on strategic international engagement and market developments, and was lead author of a proposed capital rule. Prior to his government service, Mr. Paliwal worked in private practice at White & Case and Allen & Overy, where he advised clients on complex international legal issues and derivatives regulations. Before entering law school, he worked in the financial services industry at Ernst & Young and Verisk Analytics, Inc. He holds a JD from Columbia Law School (2010), an MBA, University of Pennsylvania and a BS, University of Pennsylvania.

Source: Commodities Futures Trading Commission

Conflict resolution in a flatter world …

Attorneys should prepare for a flatter world, where instead of appearing in a hierarchical forum, the attorney shuffles between capital exchanging parties negotiating, mediating or arbitrating disputes. Capital exchangers may prefer this model because it is efficient, gives participants more control over the outcome, and lessens the erosion of capital invested in conflict resolution. #lawyers

Alton Drew


When analyzing fiscal impact on exchange rates, traders should focus on government expenditure data not narrative …

Political analysis should follow this chain of events. First, there is the world view or philosophy of state leadership. The party or strong man in charge imposes his or her world view on his society. She takes the next step and creates a narrative, writes a story that is consumed by parts of society. There will be conflicting narratives promoted by factions, and via the political system, a winner will be determined. With political power in hand, the victorious faction will draft the policy or action plan that activates the narrative. And finally, to make sure that there is no confusion as to what is the prevailing narrative, it is codified in law for all to read or hear.

The Democratic and Republican parties have been vocal about their world views on inflation. The Republicans argue that Mr Biden’s spending under his American Rescue Plan is leading to high rates of inflation. The Republicans energize their argument by citing the last Consumer Price Index print which came in at 7% year-over-year for December 2021. This was up from the November 2021 print of 6.8%.

The Democrats rebut by arguing that spending under the American Rescue Plan will provide income supports that eventually lead to normal employment levels. Rather than increase consumer prices, the American Rescue Plan, along with the Build Back Better legislation sitting in the Senate, will ease long term prices. Americans have been facing high consumer prices in part due to clogged supply chains and Democrats have been arguing since last spring that this government investment will expand capacity and produce lower prices.

Traders should cut through the political banter and look at the data. Data from the U.S. Bureau of Economic Analysis shows that as a percentage of gross domestic product, federal government spending has held around 7% between 31 March 2021 and 31 December 2021. Actual dollar spending has declined during this period. First quarter 2021 spending was approximately $1,375.2 billion. Federal spending declined in the second quarter 2021 to $1,356.7 billion and fell further in the third quarter 2021 to $1,339.1 billion. During this period, the MarketWatch dollar index signaled dollar strength with the dollar going from 93.23 on 31March 2021 to 95.97 on 31 December 2021.

Along with the dollar strengthening over this period came inflation. Data for the U.S. Bureau of Labor Statistics shows that the Consumer Price Index went from 2.6% in March 2021 to 7.0% in December. Mr Biden could deflect Republican attacks by implying that inflationary pressures are a reflection of the growing money supply spurred on by asset purchases made by the central bank since March 2020. That would leave a few in Washington scratching their heads since the man who led the $120 billion a month purchase of Treasury and agency mortgage-backed securities, Jerome Powell, was nominated by Mr Biden for a second four-year term. In addition, Democratic leadership in the U.S. House and U.S. Senate have been singing Mr Powell’s praises for his interventionist policies.

Granted, the increase in M1 money supply has gone from $18,669.2 billion in March 2021 to $19,874.8 billion in November 2021 (latest figure available) making Mr Powell’s actions an easy target for the “too much money chasing too few goods” argument, but Mr Biden and in particular the progressives in the Congress will need Mr Powell’s cooperation to fund their Build Back Better agenda. The Fed is the Treasury’s underwriter and Progressives can ill afford politics that upset its banker.

The irony is that Mr Biden has showed no penchant to artfully deflect criticism from Republicans to the Fed for his handling of inflation. However, for the trader that is neither here or there. The question should be whether proposed fiscal policy will have an impact on the direction of foreign exchange rates and if so, in what direction.

Alton Drew


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