Biden’s strategy on Ukraine can push Russia to find an alternative to SWIFT and price oil in yuan …

Elected officials and financial analysts have been expressing concerns that China’s currency, the yuan, could become the world’s reserve currency, replacing the American dollar as the go-to currency when seeking out a safer haven of assets like U.S. Treasurys or American real estate. In response to Russia’s invasion into Ukraine last weekend, the United States and a number of its European allies announced an initiative to remove certain banks from the Society for Worldwide Interbank Financial Telecommunication, a financial communications network used by 11,000 financial institutions in 200 countries for the movement of financial transactions. The United States, as a leader of the effort, hopes to hasten Russia’s withdrawal from Ukraine by making it very expensive for Russia to maintain a military presence in the country.

It’s not like Russia has been opting for staying in reactive mode to such a move. Russia and the rest of the world watched as the United States was able to persuade other SWIFT members to give Iran the boot.

Russia has a number of alternatives, albeit slower in today’s world of digital communications including telex, phone, and email. Russia also has the Structured Financial Messaging Solution, a communications system similar to SWIFT but used inside the country.

But what about cross-border payments? SWIFT connected Russian banks to 11,000 other financial institutions in 200 countries. SFMS is not comparable. But suppose Russia was amenable to pricing and selling its oil in yuan versus rubles? That would facilitate the use of a neighbors cross-border payments system–CIPS.

CIPS, the Cross Border Interbank Payments System, facilitates international payments for the People’s Republic of China. Twenty three Russian banks are already connected to the network, connecting these banks with between 1,189 and 1,253 financial institutions in over 100 countries.

And I should mention that the world’s second largest country, India, is also exploring a cross border financial communications network where Russia could be incentivized to circumvent SWIFT by importing more India goods.

Politically, an aggressive move to implement these alternatives to SWIFT could serve to weaken President Biden’s weaponized finance option. If Russia is able to sell oil priced in yuan and China is able to persuade more countries to use yuan for payment of exports, Mr Biden may have to convince his “coalition of the willing” to put boots on the ground to end Mr Putin’s “war of choice.” Mr Biden would also be the president who governed during the dollar’s fall from reserve currency grace.

Alton Drew


Consumers’ Spending Expectations Rise Despite Flat Income and Earning Expectations

Source: Federal Reserve Bank of New York


NEW YORK—The Federal Reserve Bank of New York’s Center for Microeconomic Data released the November 2020 Survey of Consumer Expectations, which shows that despite flat income and earnings growth expectations, households’ year-ahead spending growth expectations rose sharply in November to 3.7%, the highest level recorded in more than 4 years. Labor expectations were mixed with deteriorating expectations about the unemployment rate and improving expectations about job security. After returning to their pre-COVID-19 levels in recent months, home price expectations recorded their first decline since April 2020. Median inflation expectations increased at both the short and medium-term horizons, while uncertainty and disagreement about future inflation remain elevated.

The main findings from the November 2020 Survey are:


  • Median inflation expectations increased 0.2 percentage point in November to 3.0% at the one-year horizon and increased 0.1 percentage point to 2.8% at the three-year horizon. The increase in the short-term measure was driven mostly by respondents who are younger (below the age of 60), more educated (bachelor’s degree or higher) and with higher household income (over $100,000). Our measures of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) remain substantially above their pre-COVID-19 level at both horizons.
  • Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes— remained unchanged at the short-term horizon and increased at the medium-term horizon. Both measures are elevated relative to pre-COVID-19 readings.
  • Median year-ahead home price change expectations decreased 0.1 percentage point to 3.0% in November. This is the first monthly decline in the series since April 2020 when it reached its lowest level of 0%. The decline was recorded in all Census regions except the Northeast.
  • The median one-year ahead expected change in the cost of a college education and in the price of gasoline both increased by 0.3 percentage points to 5.2%. In contrast, the median expected change in the cost of medical care declined sharply, from 9.1% to 7.1%, slightly below its 2019 average of 7.2%. Expected changes in food prices and in the cost of rent declined by 0.1 and 0.2 percentage point to 5.1% and 5.5%, respectively.

Labor Market

  • Median one-year ahead expected earnings growth remained flat in November at 2.0%, below its 2019 average level of 2.3%. This is the fifth consecutive month that the series has remained unchanged.
  • Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased for the first time since July 2020, from 35.4% in October to 40.1% in November.
  • The mean perceived probability of losing one’s job in the next 12 months decreased for the third consecutive month from 15.5% in October to 14.6% in November, still slightly above its 2019 average of 14.3%. The decrease was more pronounced among respondents above the age of 60 and without a college education. The mean probability of leaving one’s job voluntarily in the next 12 months decreased by 1.3 percentage point to 16.6% in November, a new series low. The decrease was driven mostly by respondents above the age of 60.
  • The mean perceived probability of finding a job (if one’s current job was lost) increased from 46.9% in October to 47.9% in November, but remains substantially below its 2019 average of 59.8%.

Household Finance

  • The median expected household income growth stayed flat in November at 2.1%, well below its 2019 average of 2.8%.
  • Median household spending growth expectations rebounded sharply in November, increasing 0.6 percentage points to 3.7%, its highest level since July 2016. The increase was driven mostly by those with household incomes below $50,000.
  • Perceptions of credit access compared to a year ago remained essentially unchanged in November. In contrast, expectations for future credit availability improved, with more respondents expecting it will be easier to obtain credit in the year ahead.
  • The average perceived probability of missing a minimum debt payment over the next three months increased by 1.6 percentage points to 10.9% in November, still below its 2019 average of 11.5%.
  • The median expectation regarding a year-ahead change in taxes (at current income level) increased sharply in November from 2.9% to 4.1%, the highest reading since May 2014. The increase was more pronounced for respondents between the age of 40 and 60.
  • The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now increased 0.5 percentage point to 24.8% in November, remaining below its 2019 average of 30.0%.
  • Perceptions about households’ current financial situations compared to a year ago remained essentially unchanged in November. In contrast, respondents were more pessimistic about their households’ financial situations in the year ahead, with more respondents expecting their financial situation to deteriorate, and fewer respondent expecting an improvement in their financial situation.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now decreased 2.3 percentage points to 38.5% in November, its lowest level since August 2019.

About the Survey of Consumer Expectations (SCE)
The SCE contains information about how consumers expect overall inflation and prices for food, gas, housing, and education to behave. It also provides insight into Americans’ views about job prospects and earnings growth and their expectations about future spending and access to credit. The SCE also provides measures of uncertainty regarding consumers’ outlooks. Expectations are also available by age, geography, income, education, and numeracy. 

The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month. Unlike comparable surveys based on repeated cross-sections with a different set of respondents in each wave, our panel allows us to observe the changes in expectations and behavior of the same individuals over time.

Shelley Pitterson
(212) 720-2552

Remarks by World Bank Group President David Malpass to the G20 Finance Ministers and Central Bank Governors Meeting

Thank you, Chair.   I would like to thank Minister Al-Jaadan and Saudi Arabia for their G20 work during the year; and for the substantial progress made on debt relief for the poorest countries, including the extension of the debt suspension, the addendum to the term sheet and the common framework.  These will all help.  

While some countries are recovering, the pandemic is still taking a terrible toll, with poverty levels rising sharply. Inequality and climate change are creating political instability and adding to fragility, refugee crises, and violence against women.  

International cooperation has never been more important, and the World Bank Group is at the center of many key international development efforts.

With your support in our Board, we are on track to deliver a record surge in commitments and disbursements.  We’ve doubled the disbursement volumes in the quarter ending September 30 versus a year ago, and we’re maximizing grants and concessional finance. 

We have health emergency response programs in 112 countries using a fast-track mechanism that is now able to access a further window of $12 billion in funding for vaccine purchases and delivery.  We are already at work – in cooperation with WHO, UNICEF, the Global Fund and GAVI – on rapid vaccine deployment readiness assessments for 100 countries. The IFC is working – in coordination with CEPI – to invest a further $4 billion in manufacturing and distribution of vaccines and products that support vaccination programs.

We’re working with all clients, but recognize that FCV states are most in need.  We’re engaged in Sudan, Somalia, Lebanon, Ethiopia, West Bank & Gaza, the Sahel, and many others.  In Sudan, I’m hopeful that arrears clearance can begin quickly.  This is urgent given the refugee inflow from Ethiopia, and would allow substantial World Bank funding to begin flowing almost immediately.  

We are working toward a greener, more sustainable recovery.   The World Bank Group has been the largest international investor in climate finance over the past five years. And I am proud that under my Presidency, the World Bank Group has invested more in climate finance than at any time in its history. As we look forward, a key goal for us is both to increase climate funding and to improve outcomes — in terms of reducing green house gas emissions, and helping countries meet their NDCs. 

IDA is frontloading its financing to make more resources available for the poorest countries.  This will create a financing cliff in 2022 and 2023. We welcome calls from Japan, India and others to supplement IDA resources.

Transparency will be critical in making support as effective as possible.   I’ve been pleased to see the progress in the Saudi presidency. An important step was the G20 call on DSSI beneficiary countries to commit to disclose all public sector financial commitments. We’re working closely with debtor countries on this and publishing much more data than before.  Still, the reconciliation process called for by the G20 will require more disclosure, and we urge all G-20 countries to require their public creditor institutions to disclose debt contracts, refinancing agreements and terms of debt restructurings.

I would like to commend the UN Secretary General’s detailed statement this week on debt relief and transparency.  We’re facing major debt challenges, such as in Angola and Ethiopia where, in the absence of permanent debt relief, the poverty outlook remains bleak.  I was pleased to see that, in Zambia, non-Paris Club creditors such as China’s Exim Bank are applying the new DSSI term sheet and have suspended debt service payments. That’s an important and welcome step.  

I know that some creditors have been reluctant to offer deep, permanent debt relief on the view that it would simply initiate another cycle of non-transparent debt.  We should guard against this through transparency and careful policy measures using the experience of the current debt crisis, but, given the severity of the crisis, we must move forward now with debt relief processes.  

Like many of you, I’ve been disappointed by the inability of private creditors and their creditor groups to meet the G20’s calls. I urge you to incentivize all the creditors under your jurisdiction, public and private, to participate fully in debt relief efforts. Kicking the can down the road should not be an option. The World Bank stands ready to support legal advice to debtors and to convene dialogue between creditors and debtors through the Debt Reduction Facility for IDA countries.

The Development Committee tasked the Bank and the IMF to propose more actions to address the unsustainable debt burdens of low- and middle-income countries. Major jurisdictions may need to look to legislative changes to support faster progress if private creditors aren’t able to move forward on their own. Where good faith efforts to reach agreement with creditors are underway, tolerance of arrears accumulation may be necessary to support Covid-related spending. On their part, developing countries need to ask for relief, and to take steps to put in place transparent and sustainable national policies that attract new flows toward productive sectors. Fuller transparency is the only way to balance the interests of the people with the interests of those signing the debt and investment contracts.  I’d like to again thank the Saudi G20 for the progress being made, and I look forward to working with the Italian G20 in the year ahead.  

Source: World Bank Group

There is no such thing as economic equality

“Who is creating equal. I’m trying to find the equation.” — Louie Bagz

Byron Allen, a black billionaire media business owner, appeared on Fox Business News today sharing his insights on economic equality.  Economic equality has been one of the major topics during the last five or six weeks since the death of George Floyd last May.  At first glance, you could argue that Mr Floyd’s death had nothing to do with economics and that the media’s highlighting of the plight of black people in the American economy is another angle to either drive up ratings by keeping the story hot or to keep the American public distracted from other undercurrents.  Frankly I think it’s a bit of both.  Conflating an economic argument with an act of horrific brutality gives Emmy and Pulitzer chasing journalists something more to talk about.

On the flip side, you can make an argument that Mr Floyd’s death was related to economics based on an economic decision he made that tragically led to his death.  Mr Floyd was trying to make a purchase with a counterfeit twenty-dollar bill.  Somewhere in his decision matrix he concluded that his optimal currency for use in exchange for some other good or service was a dollar bill not recognized as legal tender in the United States.

But currency connotes more than just money in circulation.  The amount of currency one is in possession of transmits a message about the value that an individual brings to market.  Is this individual willing and able to pay for goods and services that I have in my inventory such that I am willing and able to supply such goods and services?  In Mr Floyd’s case that value, at that moment in time, may have been zero.  But did that necessarily mean he was not economically equal to the merchant he wanted to trade with or anyone else for that matter?  I would argue no for the simple reason that there is no such thing as economic equality.

Let’s first define “economic.”  Economic, which is derived from “economy”, entails the management of income and production.  To be economic is to derive and apply certain rules regarding the management of resources in order to achieve some targeted income or production goal.  An economy is a system of rules or decision-making matrices that determine how wealth and income are to be distributed and how production is to be managed.

“Equality” is to do or to make something equal.  Two or more items are said to be equal when they are of the same quantity, size, or value.  Two or more individuals may be considered equal where they have the same abilities, rights, or rank.  But can Mr Floyd’s decision-making matrix be equal to mine?  Would his approach to deciding between producing more bread versus producing more wine equally reflect mine? For the simple reason that no two people are alike I would conclude that economic equality does not exist because no two economic decision-making systems for income, output, and wealth are alike or can be alike.

Can we find economic equality on a macro or national level?  Specifically, can we find economic equality between Anglo-Americans and Afro-Americans?  Again, just like on the individual level, you won’t find the non-existent.  Anglo-Americans, as a collective, follow the rules of income, wealth, and production as determined by a minority made up of political, banking, and religious elites for the benefit of the masses to the extent sharing those benefits with the masses protects the interests of the elite.  After acquiring by force land, minerals, and waterways, Anglo-Americans were able to apply technology and free labor to build an economy and refine a political economy that applied rules of wealth distribution for its people.

Afro-Americans were not at the table when the rules of acquisition and distribution were made.  You cannot enjoy economic equality when you were never the author of the economy’s rules.

But even if Afro-Americans had garnered a sufficient amount of land and other resources such that they could design their own economy, would there be “economic equality”?  I would argue no because differences in lineage, history, environment, and values, to name a few characteristics, would likely create a decision matrix different to those of Anglo-America.  Even if per capita production and quality of goods and services were on par, I would argue that because of the difference in decision rules, both economies would not be equal.

And would it necessarily be a bad thing if both groups were not economically equal where each group decided via its own standards how best to distribute income and wealth?

Public policy should encourage banking to go back to its roots: financing commerce while supporting high yield…

The unbanked are unbanked because they have nothing to bank.  In a nation driven by capital formation and returns on capital, focusing on the unbanked seems like putting the horse before the carrot.  The American Treasury Department and the central bank should be focusing public policy on encouraging capital formation and generating high yield.  Nothing in the U.S. Constitution says that consumers should be encouraged to borrow or that banks should be obliged to lend to the consumer class.

Political responses such as the Community Reinvestment Act, the Dodd-Frank Act, or the creation of the Consumer Financial Protection Board cater to voters but overlook the need for encouraging the accumulation of capital goods necessary for driving the American economy.

More importantly, political responses mentioned above serve to incentivize consumers to enslave themselves to credit even while the last four decades have seen real wages go stagnant.  The political class on the left is quick to leave out consumers’ complicity in the financial downturn of 2007-2009 where consumers were encouraged to borrow against their shrinking means to repay.  Consumers do not need protection from banks.  We need our mindsets redirected in our approach to banking.

Each household needs to rebuild their capital buffer.  It is easier said than done especially in a transition period where the timeline for capital’s replacement of labor with automation and artificial intelligence is being sped up.  Not only is more work being done from home but businesses are determining whether the benefits of keeping employees at home outweigh the costs of bringing them back in-house.  A number of employers have been transparent with updating employees on their engagement with companies offering AI-driven resources that increase efficiency.  Larger companies are partnering with technology companies whose mission is to reduce the time employees spend on certain tasks.  These are threats to labor and income and in this environment not only is the consumer tasked with increasing household capital formation but with seeking additional or alternative opportunities that provide for increases in income, savings, and investment.

One way, in my opinion, to increase capital while deriving additional income is for public policy to encourage high yield on capital.  The consumer who flips her mindset from shopper to investor needs an environment where her savings can accumulate at a faster rate; where higher residuals can be reinvested into her principal holdings and create appreciation.  Public policy should support full employment of capital and maximum prices for capital. How does the US get there?

One way to get there is for banks to abandon their risk-based interest rate pricing model, where higher interest rates is the price that riskier customers must pay for borrowed funds.  Rather, banks should abandon consumer lending altogether.  Lending money to a consumer in a stagnant income, labor replaced by automation environment so that the consumer can build a deck, finish a basement, or send a kid to school is what I call low value enterprise lending where the loan is being applied to a consumer’s wage income versus residuals the asset provides.

Instead, interest rates should reflect the competition between borrowers seeking to demonstrate their enterprise ideas will provide the greatest returns to capital and equity.  High interest rates should not be charged because of a high risk of failure.  Rather, high rates should be charged because where the lender sees high returns to equity in the enterprise, the lender seeks to capture some of that value.

Banks, then, should abandon consumer lending and put energy and resources into commercial or merchant banking.  Consumer involvement in banking should be limited to establishing savings or investment accounts with banks or owning stocks in banks.

Again, the upside from this model for banks, a focus on lending to merchants that leverage real assets to make income.  The upside for the consumer is less borrowing and more investing thus greater capital formation.  Also, the consumer may learn how to plan purchases over a long term versus seeking the psychic value of getting something now and paying for it later.  For example, a consumer may put away cash over some determined period of time to purchase that new deck without having to burden themselves with debt.

Or, a consumer may seek out a group of private consumer lenders who are not connected to the banking system thus reducing the chances of shock to the system should a borrower renege on a loan.  They will be forced to rely on the courts, lawyers, and mediators for resolving any conflicts with private lenders.