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.

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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 Interbank Market News Scan: Jobs report adds to the argument that the U.S. is at full employment.

Interbank, Kazakhstan, tenge. “The Kazakh tenge KZT= weakened 2.6% to 509.70 per dollar on the interbank market on Friday, Eikon Refinitiv data showed.” See article here. Source: Nasdaq.

Interbank, China, foreign exchange. “The following are the central parity rates of the Chinese currency renminbi, or the yuan, against 24 major currencies announced on Friday by the China Foreign Exchange Trade System.” See article here. Source: Xinhuanet.

Interbank, Russia, stock market. “A Russian stock market analyst pulled out a bottle and drank to the death of Russia’s stock market during an interview live on local television. The clip went viral Thursday, a week into the Russian invasion of neighboring Ukraine and as Russia’s economy is hammered with Western sanctions.” See article here. Source: CNBC.

Interbank, blockchain, bitcoin. “Dr. Eswar Prasad, professor of Trade Policy at Cornell University and author of ‘The Future of Money: How the Digital Revolution is Transforming Currencies and Finance,’ discusses the pros and cons of Bitcoin as a currency.” See article here. Source: CNBC.

Interbank, money markets. “A closely-watched measure of money-market stress and dollar funding conditions rose again on Friday to its highest level since May 2020, as the knock-on effects of the war in Ukraine rippled out globally.” See article. Source: Reuters.

Interbank, United States, labor, jobs report. Non-farm payrolls rose by 678,000 in February while the unemployment rate fell to 3.8%. See report here. Source: U.S. Bureau of Labor Statistics.

Foreign exchange rates and dollar index as of 9:40 am AST

EUR/USD=1.10805

GBP/USD=1.33712

USD/CAD=1.26463

USD/MXN=20.6664

USD/NGN=415.42

USD/GHS=6.80185

USD/INR=75.7279

USD/JPY=115.606

USD/CNY=6.31788

USD/BTC=0.00002

Source: OANDA

Dollar Index-98.58

Source: MarketWatch

What could bitcoin represent to the Eastern Caribbean trader? Actual underlying trust and societal efficiencies …

If I traded a bitcoin for an Eastern Caribbean dollar, I would receive, according to data from OANDA, EC118,665. (Forgive me for using “EC” versus “XCD”. I am old school). If I then attempt to transact business in the United States or Europe, what could that bitcoin buy for me?

According to the website Decrypt, there are a growing number of vendors that accept bitcoin in exchange for their products. The categories include:

Used automobiles;

Private aircraft;

Houses;

Real estate investment trusts;

High-fashion clothing;

Restaurant food;

Virtual private networks and web services;

Booking hotels and flights; or

Commodities (gold, silver, platinum, etc.).

To profit from the aforementioned trade, I would wish to purchase goods and services that I would not be able to get in the Eastern Caribbean; purchase items at a cost lower than what I would face in the Eastern Caribbean; or, at the end of the day, convert that bitcoin into EC greater than EC118,665.

More importantly, as an independent trader, I could finance directly trade that I enter into with vendors in countries that accept bitcoin as legal tender, such as El Salvador. Rather than going to a bank and converting my EC for El Salvador’s colon, I could pay an El Salvador vendor directly with bitcoin, the country’s other legal tender.

Bitcoin could represent greater efficiency in trade between countries by turning a trader with the financial wherewithal into a “mini-bank.” The value of the currency he uses for trade, bitcoin or some other crypto, would be based on the underlying value of his services, goods, or knowledge, rather than on the general good faith and trust underlying fiat currencies. Blockchain ledger characteristics aside, a cryptocurrency capturing the trader’s reputation, insights, knowledge would go a much longer way with me where I can put together and engage with my own mini-community of traders in the goods and services I listed above. I could put together a community of actual producers and deal efficiently and directly with them, cutting out unnecessary middlemen along the way.

Could society benefit from such direct-financed trade? I think yes, particularly where cost savings flow to retailers and end-users. Eastern Caribbean traders should explore this model.

Alton Drew

02.17.2022

Foreign exchange rates of interest to Atlanta’s immigrant community as 6:44 am EDT …

EUR/USD=1.13684

GBP/USD=1.35643

USD/MXN=20.3469

USD/GTQ=7.52098

USD/NGN=415.318

USD/GHS=6.47201

USD/INR=74.9746

USD/XCD=2.70

USD/DOP=56.479

USD/JMD=155.725

USD/GYD=200.6

USD/BTC=0.00002

USD/ETH=0.00032

Source: OANDA

Dollar Index=95.81

Source: MarketWatch

Interbank Market News Scan: Foreign exchange rates of interest to Atlanta’s immigrant community

EUR/USD=1.13212

GBP/USD=1.35297

USD/MXN=20.4726

USD/GTQ=7.53121

USD/NGN=415.91

USD/GHS=6.40152

USD/VND=22,724.6

USD/JPY=115.436

USD/KEW=1,196.68

USD/INR=75.4918

USD/BTC=0.00002

USD/ETH=00035

Source: OANDA

Dollar Index=96.01

Source: MarketWatch

Federal Reserve data

M2 money stock= $21,638.1 billion (December 2021)

M2 money stock change from December 2020 to December 2021: 13.1%

Effective federal funds rate: .08%

Bank prime loan rate: 3.25%

Source: Board of Governors of the Federal Reserve System

Interbank Market News Scan: Pakistan rupee losing against the dollar; Reserve Bank of Australia under pressure to hike rates; Bitcoin strengthens.

Interbank, State Bank of Pakistan. “The rupee continued to register marginal losses against the US dollar on Wednesday amid a slight uptick in greenback demand from importers.” See article here. Source: GeoNews

Interbank, Reserve Bank of Australia. “Bonds extended their losses as financial markets ramped up the pressure on the Reserve Bank of Australia to raise the cash rate as soon as May, in response to persistent inflationary pressures challenging its dovish stance.” See article here. Source: Financial Review

Interbank, Nepal Rastra Bank. “Foreign reserves have depleted due to high imports in the country. According to the data released by Nepal Rastra Bank (NRB) the current foreign reserves can support the import of goods and services for six and half months only.” See article here. Source: Khabarhub

Interbank, Bangladesh. “The Bangladesh Bank has asked foreign-currency dealer banks to submit their daily exchange position statements using a new rationalised input template (RTI) to ensure better monitoring. In a circular on Monday, the central bank said it had decided to replace the existing RTI for further convenience of supervision.” See article here. Source: The Business Standard

Foreign exchange, India, travel. “With countries around the globe opening doors to vaccinated travelers, foreign travel bookings are witnessing a massive surge in India. The rise in globetrotting among Indians has led to a considerable increase in forex transactions as well.” See article here. Source: IndianWeb2

Foreign exchange, South Africa, rand. “A generally weakening rand and mounting inflationary pressures have meant the South African Reserve Bank (SARB) has once again raised interest rates, to the distinct detriment of the weakest members of our society.” — Brian Benfield. See article here. Source: BizNews 

Foreign exchange rates of interest as of 9:18 am EDT

EUR/USD=1.1418

GBP/USD=1.3539

USD/MXN=20.6288

USD/GTQ=7.5230

USD/NGN=415.644

USD/GHS=6.3541

USD/VND=22,706.1

USD/JPY=115.431

USD/INR=74.6417

USD/BTC=0.00002

USD/ETH=0.00032

Source: OANDA

Dollar Index=95.47

Source: MarketWatch

Interbank Market News Scan: China’s overnight bank rate decreases; Ukraine’s hryvnia shows strength; Bitcoin strengthens.

Interbank, China. “The overnight Shanghai Interbank Offered Rate (Shibor), which measures the borrowing cost of China’s interbank market, decreased 4.3 basis points to 2.112 percent Monday.” See article here. Source: China.org.cn

Interbank, Pakistan. “Pakistani rupee continued to rise against the US dollar in the inter-bank market on Monday due to positive sentiments generated by the release of a $1 billion tranche by the International Monetary Fund (IMF).” See article here. Source: GeoNews

Interbank, Bank of England, inflation. “Almost certainly, 2022 will also see the most above-target inflation numbers since that change. The Bank will be heavily criticised and proposals will be made for reform. What has gone wrong?” See article here. Source: The Critic

Foreign exchange, National Bank of Ukraine. “Last week the hryvnia exchange rate has somewhat stabilized amid a decrease in rising demand for currency and increase in supply of currency, the press service of the National Bank of Ukraine (NBU) wrote on Facebook.” See article here. Source: Ukrinform

Foreign exchange rates of interest …

EUR/USD=1.1451

GBP/USD=1.3527

USD/MXN=20.667

USD/GTQ=7.5163

USD/NGN=415.7

USD/GHS=6.3313

USD/VND=22,646.8

USD/JPY=115.191

USD/INR=74.497

USD/BTC=0.00002

USD/ETH=0.00034

Source: OANDA

DXY=95.58 Source: MarketWatch

Interbank Market News Scan: Foreign exchange and crypto rates of interest as 9:51 am EDT

EUR/USD=1.1294

GBP/USD=1.3550

USD/MXN=20.5450

USD/GTQ=7.5086

USD/NGN=415.203

USD/GHS=6.2762

USD/VND=22,646.7

USD/JPY=114.49

USD/INR=74.7325

USD/BTC=0.00003

USD/ETH=0.00036

Source: OANDA

MarketWatch Dollar Index: 95.53

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

EUR/USD=1.1180

GBP/USD=1.3406

USD/MXN=20.7530

USD/GTQ=7.5208

USD/NGN=414.8790

USD/GHS=6.1895

USD/VND=22,633.9000

USD/JPY=115.0500

USD/INR=75.1226

USD/BTC=0.00003

USD/ETH=0.00041

Source: OANDA

Interbank Market News Scan: China is graying and will need to revamp its demographic policies ….

Links to follow today ….

Central banks, China. A pension deficit and looming debt crisis driven by a rapidly greying population. That’s the nightmare scenario for Chinese authorities, including the nation’s central bank, who are increasingly worried about the financial implications of the country’s demographic challenges. China population: what’s driving central bank concern about the nation’s ageing workforce? | South China Morning Post (scmp.com)

Central banks, CBDCs. The proposed authoritarian evolution of centrally issued digital currencies takes the world closer to dystopia. Central Bank Digital Currencies And The Orwellian New World Order | Nasdaq

Central banks, bitcoin. Billionaire investor Mike Novogratz said Thursday the surge in cryptocurrencies is serving as a referendum on the perceived ability of the Federal Reserve to manage risks facing the world’s largest economy and suggested people continue to buy into bitcoin. Billionaire investor Mike Novogratz says the record-breaking rally in crypto shows a lack of faith in the Fed – and cites central-bank uncertainty as a reason for bitcoin’s latest surge (msn.com)

Central banks, Bank of Canada. The Bank of Canada sent out a warning to investors this week that inflation still matters. In a surprise move, it accelerated the timetable for a possible interest-rate increase and began paring back its bond purchases on Wednesday. That made Canada the first major economy to signal its intent to reduce emergency levels of monetary stimulus. Inflation Forces the Bank of Canada’s Hand Ahead of Fed and ECB (msn.com)

As we enter a new week, the rates to start your day ….

As of 11:30 am EST, Bloomberg reports that the yield on the three-month Treasury note closed at 0.02% last Friday while the two-year note closed at 0.16%. The ten-year and thirty-year Treasurys closed Friday at 1.56% and 2.23%, 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 5:30 pm EST….

Currency PairsRates as of 5:30 pm EST 25 April 2021
EUR/USD1.1890
GBP/USD1.3718
USD/CAD1.2568
AUD/USD0.7625
USD/JPY108.0210
USD/NOK8.5402
USD/CHF0.9417
USD/SEK8.7274
USD/MEX20.5078
Source: OANDA