Traders should keep in mind creating alternate systems

Is there a value play or logic in using regulated, fiat money? The arguments for the use and role of money, a physical or digital representation of the value of one’s wealth or work, are plausible. It would be disingenuous to say that society should go back to a bartering system for exchanging goods and services given the consequences of impaired logistics and issues surrounding the storage of the items kept in reserve for bartering. However, I believe a crucial question regarding the definition of money needs to be revisited in order to bring certainty into trade and the value of the items we trade for.

I see money as private. Money started out as private and should go back to that status. The only reason humans engage is to trade value and as a medium for trade between private individuals, money itself should be private. Money should reflect the energy, intellect, data, commercial value, and knowledge of the individual who generates it and issues it. Fiat currency relegates the common consumer to regulated markets that may or may not meet a consumer’s need for certain goods, services, or privacy. And poor monetary policy by the issuers of fiat currencies are only leading to a devalued currency that lays at the core of inflated consumer prices.

As much as we tout competition in American society, this is where American government, a mechanism employed by American society to ensure the smooth flow of commerce, should be forced to compete with alternative payment systems. Traders should promote the use and acceptance of alternative payment systems and currencies by multiple vendors. Traders should also advocate for the exchange of alternative and fiat currencies where such exchanges reflect the necessity to engage in trade on alternative platforms or purchase goods and services that are only offered on alternative platforms.

For example, a consumer may purchase food and clothing items from a digital Walmart or Amazon store, but can only afford the police protection services offered by state or federal governments. An end-user may, like today’s central banks, maintain her own portfolio of “reserve currencies” for use on numerous platforms.

Expanding the payment system scheme can also make government more efficient by requiring government to expend resources on the activities it is most expert at and leaving other activities to the private corporate sector.

The concept of “government” is not going away. The concept can be refined and one ideal way is to have it co-exist with alternative payment systems.

Alton Drew

19 April 2022

Call to action: To support this page, please visit our advertisers. You may also visit the sidebar and make a donation via PayPal.

Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

The Narrative: Joe Biden attempts to protect the US dollar

Yesterday, President Joe Biden issued an executive order regarding cryptocurrencies.  To summarize the order, Mr Biden has asked heads of politically independent agencies like the Board of Governors of the Federal Reserve System and Federal Deposit Insurance Commission, etc., and ordered heads of certain cabinet agencies, like the Secretary of the US Treasury, to take a closer look at the impact of cryptocurrency design and deployment on six areas:

1.Consumer and investor protection;

2. Financial stability;

3. Illicit finance;

4. U.S. leadership in the global financial system and the country’s economic competitiveness;

5.Financial inclusion of marginalized consumer groups; and

6. Responsible technology innovation.

This is at least the spoken narrative, what I refer to as the “Madison Avenue” narrative; one that is designed persuade the electorate to come onboard with the President’s agenda.  The electorate plays a crucial role as the political actor providing the primary source of votes every two years.  A president’s primary power is that of persuasion and his message has to either win additional votes or at least secure the votes he has going into a general election.

I was taken aback not only by the executive order’s length but also by how weak a platform it provides for future political, policy, and legal action.  From the political perspective, it fails to counter any arguments from the opposition.  For example, Mr Biden makes nary an attempt to clearly address the philosophy of crypto proponents. 

Proponents, especially bitcoin users, will tell you till blue in the face that using crypto is about wealth preservation.  They see the US dollar as declining in wealth protection and spending value because of ineffective monetary and fiscal policies that have done nothing but send the dollar on a decline for the last fifty years. With a significant amount of the dollars printed by the central bank over the last forty or so years being printed in the last 24 months, proponents of bitcoin use believe they have a base case for seeking an alternative method for medium of exchange, store of value, and account of wealth.

Currency is about trust and according to the President’s own statistics, 16% of the nation is exhibiting some degree of trust in crypto as a payment system and store of wealth versus the dollar.

Mr Biden could have scored more points in the direct and honest department with a concise narrative bluntly stating that cryptocurrency is a clear and present danger to the US monopoly on the payment system that is used to sustain commercial transactions and collect taxes.  This “Power Narrative” would better capture western philosophy: that the world is a place divided up in order to generate yield and the energy derived from dividing up and extracting from the environment is best captured and transferred in our current system of money and to maintain an orderly transfer of “monetary energy”, there can only be one issuer of the money: government.  Unfortunately, such a brazen power narrative would not go over well with the electorate, thus forcing Mr Biden to throw in the usual feel-good concepts like “consumer and investor” protection.

Traders who want to include bitcoin in their portfolios when collateralizing loans should expect Mr Biden’s executive order to act as a green light for regulators seeking to increase their scrutiny of digital assets.  Traders should also expect continued litigation over the use of digital assets.

In the short run as political narrative, Mr Biden’s executive order is a major fail.  Sure, 16% of Americans may take an interest in the government’s approach to bitcoin, but as political narrative that should be designed to win votes, this executive order does not cut it.  Most Americans are concerned about inflation and how their wages are being eaten into by increasing prices.   

Alton Drew

10.03.2022

For consultation on how this political or legal event impacts your foreign exchange trade, request an appointment at altondrew@altondrew.com.

Call to action: To support this page, please visit our advertisers. You may also visit the sidebar and make a donation via PayPal.

Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

Interbank market news scan: Could banks be relegated to money changers and merchant lending?

Links to follow today …

Banks, yields. Shares of banks and other financial institutions ticked down as Treasury yields remained well below recent highs. Financials Down As Treasury Yields Remain Under Pressure – Financials Roundup | Morningstar

Central banks, digital currency. Wall Street is warming up to the idea that the next big disruptive force on the horizon is central bank digital currencies, even though the Federal Reserve likely remains a few years away from developing its own. https://www.cnbc.com/2021/04/19/central-bank-digital-currency-is-the-next-major-financial-disruptor.html

Central banks, economy. The aggressive rebound in global economic growth still isn’t enough for most of the world’s central banks to pull back on their emergency stimulus. https://finance.yahoo.com/news/robust-rebound-won-t-augur-230100088.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAANIO_W4fWKspPdO0lmCF0BtRtybmUhLQrCrS7IiHsU3ox1D7lAQb3Wr7TRZVJl15aCZ4xuL-XKYMkGxjA9ibNTxZoMNfYd4a7dwMtWJG6VTw9RAdKO8fNl33Lu9oNBs6ZyOcLW0nqTwH9A17TmPzaaGMMUFN9VmVdSnCPC9aRR6X

Central banks, economy, pandemic. With a policy change pretty much off the table this week, European Central Bank watchers will have to closely monitor finer details about its pandemic stimulus program as policymakers wait for more data before taking decisive action. https://www.cnbc.com/2021/04/21/european-central-bank-meets-as-covid-lockdowns-complicate-recovery.html

The market opening. The rates to start your day ….

As of 9:40 am EST, Bloomberg reports that the yield on the three-month Treasury note is at 0.03% while the two-year note comes in at 0.15%. The ten-year and thirty-year Treasurys are trading at 1.56% and 2.25%, respectively.

The Federal Funds rate, the rate at which banks lend to each other overnight in support of their reserve requirements, is at .07%, while the Fed Funds target rate is still at .25%. The prime lending rate is 3.25%.

Exchange rates of interest as of 9:55 am EST….

Currency PairsRates as of 9:55 am EST 21 April 2021
EUR/USD1.2024
GBP/USD1.3891
USD/CAD1.2629
CAD/XCD2.1462
USD/XCD2.7000
USD/TTD6.6721
USD/BBD2.0000
CAD/TTD5.3012
CAD/BBD1.5986
Source: OANDA

The Opening Takeaway: Could banks become mere currency agents?

Yesterday I shared my expectations on the possibility of the Federal Reserve, the US Treasury, and other central banks and finance ministries prohibiting cryptocurrency as a medium of exchange. Using the policy rationale of the government being the sole issuer of currency, cryptocurrency issuers may find themselves limited to generating digital assets for sale as investments or safe havens. But what about the banks? What would their role be?

Wall Street appears to be hedging its bets on digital currencies (see second link above) as they prepare for the disruption a central bank issued digital currency could cause. Cryptocurrency exchanges such as Coinbase (Nasdaq: COIN) were receiving big boosts from what appears to be growing acceptance of cryptocurrency as at least a digital asset. Uncertainty in the markets drove capital toward bitcoin and other crypto-assets, making crypto the equivalent of gold in some minds. But with the vaccine rollouts and increases in the number of people, at least in western European countries and the United States on the increase, “risk on” seems to be the quiet rally cry accompanying a pullback in crypto prices. Acompanying the pull back are an increasing number of central banks exploring issuing a digital currency.

One arguable benefit from a central bank issued digital currency is the likelihood of turning more consumers into bank deposit holders. Rather than holding a deposit at a commercial bank, the “unbanked” along with those already holding commercial bank accounts, would have a default account at one of the Federal Reserve’s 12 central banks. yes, more account holders but not necessarily account holders at commercial banks. If the efficiencies promised by a central bank issued digital bank come to fruition, then why bother with holding another account? As part of the payment system, the check I write to and deposit into my son’s account goes through the Federal Reserve’s payment system anyway so why include another middle man? Commercial banks will have to consider these scenarios spawned by digital coin efficiencies when contemplating their new roles.

I see the larger banks easily leveraging their scale to ramp up already existing roles. They could focus more on lending, hopefully in a higher yield environment. They could also lobby for relaxation of Dodd-Frank restrictions on proprietary trading, opening up additional income making opportunities to offset income (if any) made currently from depositors. Large banks will not want to waste investments in their infrastructure by being relegated to mere currency issuer status, competing with check cashing facilities located at Walmart or around the corner at a pawnshop.

For the smaller banks, they will want to leverage their community relationships to counter any new found competition from larger banks as they face the irony of central bank issued digital coin taking away their customers.

Alton Drew

Going forward toward digital solutions …

Starting today, my focus will be on digital platforms and the exchange of value across these platforms in the form of digital currencies and assets. My consultations will focus on solving problems in the digital space including finding ways to promote acceptance of digital assets as currency. I am so committed to this task that starting on 15 March I will accept bitcoin, Ethereum, silver, or gold as payment for my consulting services.

Thanks for joining me on this venture….

Opinion: Black Americans and Bitcoin. Playing it Wrong from the Beginning and How to Play it Right Now

A few years ago, I saw a number of Black Americans on Facebook touting bitcoin as the path to wealth. What bothered me that in all the hype being expressed that there was nary a discussion on what currency actual meant. No discussion as to the economics. No discussion as to the political-economic philosophy that undergirds a currency. 2017 saw the bitcoin bubble burst and the chit chat by those same Black Americans faded away like the unrealized gains they promoted.

Bitcoin and other cryptocurrencies have been touted by some proponents as the way to introduce underbanked or unbanked minorities into the credit system. Some Black Americans may have bought into this although the leading Black advocate organizations i.e. National Urban League, NAACP, Color of Change, Multicultural Media, Telecom, and Internet Council, to name a few, have been relatively silent on the benefits of crypto as a banking and payment system. No surprise their since when it comes to technology, Blacks have consistently taken a consumer position versus a producer position. And given that these legacy organizations are lead by the older generation, leadership’s inability to wrap its head around the true underlying economic benefits of cryptocurrency is a direct result of leadership being out of step with technology overall and how technology lies at the core of America’s economic exceptionalism.

In addition to consumerism, Black Americans still emphasize allegiance to the American political economy instead of a more skeptic, independent view of it. Again, its current leadership emphasizes inclusion and diversity as benefits without discussing its costs: that not everyone will benefit from such an approach. A truly inclusive approach to the political economy would be one where Black Americans view themselves not as a community, but as a nation within an American confederation. The advantage of that approach, a national approach, would require that Black Americans re-evaluate the meaning of economic value and the technology or mechanisms for capturing, storing, expressing, and transporting that economic value, particularly in a digital age. Cryptocurrency can be a vehicle for capturing, storing, expressing, and transporting Black economic value.

The upfront work will be the hardest, that being to identify and “mine” that value and quantifying it into a digital asset like cryptocurrency. But by doing so, by tying it to a Black economic engine, Black Americans can provide a blueprint for moving cryptocurrency from merely a speculative commodity to a true currency that can be used in the mainstream to buy and sell any and all goods. Unless crypto can demonstrate its utility in trade, then Nouriel Roubini’s description of cryptocurrency as shit coins will take hold as truly appropriate by most observers. Creating that value means taking a “nationhood” approach. It means connecting all productive assets within Black America to its current banking assets, identifying the economic value within Black America, issuing coin based on that value, ane getting members of its community to buy off on that value.

There are legal and regulatory hurdles, but the biggest hurdle will be cultural and societal. Black Americans will have to take a more courageous approach to Black economic viability and sustainability. The current political-economic structure has failed them and it will be up to Blacks on their own to reimagine the production and distribution of economic value within their communities.

As of 10:27 am AST, cryptocurrency prices hours before the New Year ….

PairsBTCETH
 BTC/USD=28124.40ETH/USD=733.872
 BTC/EUR=22,895.20ETH/EUR=597.422
 BTC/JPY=2,903,660ETH/JPY=75,767.30
 BTC/CNH=183,043ETH/CNH=4,776.27
 BTC/DKK=170,321ETH/DKK=4444.31
 BTC/CHF=24,829.20ETH/CHF=647.888
 BTC/GBP=20,711.40ETH/GBP=540.437
Source: OANDA

Legal Events Impacting Trade in Cryptocurrency/Digital Assets

None to report.