Interbank market news scan: Latest central bank, cryptocurrency, forex news links.

Bitcoin could be at risk of a further drop unless the digital coin climbs back above $40,000 soon. JPMorgan Strategists Say $40,000 Is Key Test for Bitcoin Boom – Bloomberg

Janet Yellen is expected to affirm the U.S.’s commitment to market-determined dollar value and give assurances that the U.S. won’t seek a weaker dollar for competitive trade advantage, the Wall Street Journal reported, citing Biden transition officials familiar with her preparation for her confirmation hearing. Yellen to Affirm Commitment to Market-Determined Dollar: WSJ – Bloomberg

Asian stocks dipped along with U.S. equity futures as investors greeted the week with a lack of risk appetite and traders looked ahead to data on the progress in China’s economic recovery. The dollar edged up. Stock Market Today: Dow, S&P Live Updates for Jan. 18, 2020 – Bloomberg

A stronger U.S. dollar is proving to be an early test for emerging-market currencies on the eve of Joe Biden’s inauguration. Emerging Markets Tested by Rising Dollar Ahead of Biden’s Return – Bloomberg

Oil extended losses in Asia on a stronger dollar and a still-surging coronavirus after slumping the most in almost four weeks on Friday following the release of disappointing U.S. economic data. Oil Extends Losses on Stronger Dollar and Still-Surging Virus – Bloomberg

The results of the first of the 24 forward foreign exchange auctions scheduled by the Bank of Ghana for 2021 indicate that the local forex market remains confident that the cedi will hold its own against the United States dollar at least through to the end of the first quarter of the year. Forex market expects stable 1st Quarter exchange rate (ghanaweb.com)

Government strategy: Why bitcoin will not be the world’s reserve currency

I read an interesting article appearing originally on the website Aikon on the prospect of bitcoin becoming the globe’s reserve currency. The author makes the following points in support of his argument.

Bitcoin is transparent. All transactions involving a bitcoin are reflected on a public ledger. Bitcoin transactions are decentralized. There is no central authority controlling bitcoin issuance, valuation, or settlement. Bitcoin is garnering more participants including individuals, institutional investors, and governments willing to invest in the technology and its tokens.

The world, according to the article, is at the threshold of a financial revolution with changes in the financial system being brought about by the strains on the economic system caused by the Covid-19 pandemic. The article argues that although the United States has engaged less with the global economy over the last twenty years, China, forecasted to provide the world with the next reserve currency, is avoiding completing the tasks necessary for taking the number one spot. Compounding what Aikon has determined as an unwillingness to do what it takes to get the spot is a collapsing U.S.-Chinese relationship.

Given the above negatives against a continued use of the U.S. dollar as the globe’s reserve currency, and the unlikeliness of the Chinese yuan taking this position, Aikon asserts that bitcoin is positioned to be the global reserve currency because, again, of decentralization and the cryptocurrencies underlying financial system. But if we applied the definition of a reserve currency to bitcoin, we should find that bitcoin is not ready to be a reserve currency.

First, bitcoin is not a currency. A currency is a unit of account, a store of value, and a medium for the exchange of goods and services. That a dollar price has been placed on a bitcoin may satisfy the unit of account assertion. The existence of digital wallets that can store bitcoin may further compound the assertion of bitcoin as a unit of account since a wallet provides a place to go and determine the amount of the digital asset that you have.

A store of value, on the other hand, I have my doubts. A currency should reflect an underlying economy and where that economy is functional ie executes rules for trade and commerce in various markets, the currency provides a store of value. Bitcoin has no attachment to an underlying, viable economy as evidenced by the third element of the definition of currency: bitcoin is not used as a medium of exchange in a volume so sufficient that, like the US dollar of the euro, no other currency is necessary for making a transaction in a particular political economy. Bitcoin is not a currency.

The proof that bitcoin is not a currency should be sufficient to negate bitcoin as a reserve currency as well. The website Investopedia provides the following definition of a reserve currency:

“A reserve currency is a large quantity of currency maintained by central banks and other major financial institutions to prepare for investments, transactions, and international debt obligations, or to influence their domestic exchange rate.”

Bitcoin’s current market capitalization is approximately $668 billion with approximately 18.6 million digital tokens in circulation. This pales in significance to U.S. dollar reserves of approximately $6.7 trillion. Bitcoin is allegedly capped at 21 million tokens. If all 21 million tokens were available today, to equal total US global reserves, bitcoin will have to be valued at approximately $319,000 a token. While some analysts have called a rise in bitcoin valuation up $400,000 a token, I have seen no estimates as to the likelihood anytime in the near future.

Based on current valuation and uncertainty given the token’s volatility of bitcoin market cap equaling global US reserves, I don’t see the US government implementing any immediate strategy to counter bitcoin as a new reserve currency.

As of 2:06 am AST, a week that may see impeachment so far has no impact on currencies …

PairsFederal Reserve as of 8 January 2021OANDA as of 11 January 2021OANDA as of 13 January 2021 2:06 am AST
GBP/USD1.35831.35031.3588
USD/CAD1.26981.27691.2751
USD/CNH6.47506.47826.4582
USD/DKK6.06976.11156.1137
EUR/USD1.22521.21671.2165
USD/INR73.310073.409373.2619
USD/MXN19.941020.120319.9592
USD/JPY103.8900104.1600104.1100
USD/NOK8.40748.51598.5070
USD/SEK8.20858.28078.2834
USD/CHF0.88430.88920.8893
USD/BTC0.00000.0000
USD/ETH0.00090.0009
Sources: Federal Reserve, OANDA

House votes resolution asking Pence to use 25th amendment to remove Trump

Last night the U.S. House of Representatives passed the following House resolution in its attempts to remove President Donald Trump prior to the end of his term. House Res 21 reads as following:

This resolution calls upon Vice President Michael R. Pence (1) to immediately use his powers under section 4 of the Twenty-fifth Amendment to convene and mobilize the principal officers of the executive departments to declare that the President is unable to successfully discharge the duties and powers of his office, and (2) to transmit to the President pro tempore of the Senate and the Speaker of thHouse notice that he will be immediately assuming the powers and duties of the office as Acting President.

Vice-President Pence has reportedly said that he does not intend to invoke the 25th Amendment. This means that the House will likely move to the next stage of its strategy which is to vote articles of impeachment against Mr Trump. Given the Democrats majority in the House, passage is expected.

The articles of impeachment would then move to the Senate for a trial. Indications are that, unlike last year’s attempt to remove the President from office via impeachment where a Republican-controlled Senate voted not to remove the President, there may be enough support on the part of Senate Republicans to find Mr Trump liable for “high crimes and misdemeanors”, the standard under the U.S. Constitution for removal. Senate majority leader Mitch McConnell has signaled that Mr Trump’s behavior, where allegedly encouraged supporters to march last week on the Capitol, amounted to an impeachable offense.

The establishment wing of the Republican Party, now in damage control as a result of the storming of the Capitol by Trump supporters and the resulting deaths of five people, would like nothing more than to move on from the Trump era and start laying the groundwork for the 2022 mid-term elections.

I don’t expect impeachment actions to have any bearing on pending policy actions designed to impact the economy. With only seven days left until the change in government, attempts to remove Mr Trump are designed to score political points with an electorate, a significant amount of whom believe the actions of individuals storming the Capitol amounted to an insurrection attacking the country’s representative institutions of democracy.

A dollar in the cryptocurrency world is still worth zero …

If you brought a US dollar into the crypto world, there would be no demand for it. Not surprising since the digital asset, argues Nouriel Roubini, has yet to move into the realm of a true currency. With no political economy to overlay, bringing the dollar or dollar-denominated assets into “crypto-world” for sale means a trader in crypto-world laughing in your face. Does cryptocurrency want to enter the realm of real currency or would it prefer remain a speculative asset? And if so, how can an argument be sustained that cryptocurrency can be used to serve the under-banked or unbanked?

USD/BTC0.00000.0003
USD/ETH0.00090.0009
Source: OANDA

As 12:45 pm AST, the price of Bitcoin and Ethereum across certain currencies ….

BTC ETH 
BTC/USD=23510.50 ETH/USD=624.02 
BTC/EUR=19,290.00 ETH/EUR=512.00 
BTC/JPY=2,436,310.00 ETH/JPY=64,664.60 
BTC/CNH=153,182.00 ETH/CNH=4,065.75 
BTC/DKK=143,458.00 ETH/DKK=3,807.66 
BTC/CHF=20,933.10 ETH/CHF=555.606 
BTC/GBP=17,330.00 ETH/GBP=459.973 

Legal/Political Events Impacting Cryptocurrencies

No report at this time.

Bitcoin, Ether value in terms of certain currencies …

BTC/USD=23,512.70ETH=610.610
BTC/EUR=19,293.30ETH/EUR=501.034
BTC/JPY=2,433,610.00ETH/JPY=63,199.30
BTC/CNH=153,591.00ETH/CNH=3,988.66
BTC/DKK=143,499.00ETH/DKK=3,756.28
BTC/CHF=20,893.10ETH/CHF=542.580
BTC/GBP=17,480.70ETH/GBP=453.963
Source: OANDA

Legal/Political events impacting cryptocurrency

SEC Issues Statement and Requests Comment Regarding the Custody of Digital Asset Securities by Special Purpose Broker-Dealers

Washington D.C., Dec. 23, 2020 —

The Securities and Exchange Commission today issued a statement and request for comment regarding the custody of digital asset securities by broker-dealers in order to encourage innovation around the application of Securities Exchange Act Rule 15c3-3 to digital asset securities.

The statement sets forth the Commission’s position that, for a period of five years, a broker-dealer operating under the circumstances set forth in the statement will not be subject to a Commission enforcement action on the basis that the broker-dealer deems itself to have obtained and maintained physical possession or control of customer fully paid and excess margin digital asset securities for the purposes of paragraph (b)(1) of Rule 15c3-3. These circumstances, among other things, include that the broker-dealer limits its business to digital asset securities, establishes and implements policies and procedures reasonably designed to mitigate the risks associated with conducting a business in digital asset securities, and provides customers with certain disclosures regarding the risks of engaging in transactions involving digital asset securities.

In addition, the Commission is requesting comment to provide the Commission and its staff with an opportunity to gain additional insight into the evolving standards and best practices with respect to custody of digital asset securities. Such insights will serve to inform any potential future Commission action in this space.

The Commission statement and request for comment are published on the Commission’s website and will become effective 60 days after publication in the Federal Register. The Commission welcomes engagement from interested parties on these issues.

Source: U.S. Securities and Exchange Commission

As of 12:12 pm AST, Bitcoin & Ether continue their climb …

BTC/USD=23,243.40 ETH/USD=623.883

BTC/EUR=19,040.60 ETH/USD=511.073

BTC/JPY=2,404,680 ETH/JPY=64,544.60

BTC/CNH=151,935 ETH/CNH=4,078.12

BTC/DKK=141,646 ETH/DKK=3,801.95

BTC/CHF=20,604 ETH/CHF=553.038

BTC/GBP=17,408.20 ETH/GBP=467.258

Source: OANDA

Legal/Political news impacting crypto markets

CFTC releases guide on position limits rule for exchange-traded futures contracts

Washington, D.C. — The Commodity Futures Trading Commission’s Division of Market Oversight (DMO) today released a staff workbook to provide guidance to market participants on which exchange-traded futures contracts would be subject to the position limits rule the Commission approved in October. [See CFTC Press Release No. 8287-20]

“DMO is providing this workbook to market participants to promote transparent regulation of the derivatives markets,” said DMO Director Dorothy DeWitt. “DMO staff has worked extensively with our exchanges to identify the right set of contracts that are referenced futures contracts under our new position limits rule.”

The staff workbook provides a list of the core referenced futures contracts, along with a non-exhaustive list of linked referenced contracts (i.e., cash-settled futures contracts and options on futures contracts that are linked to a core referenced futures contract), that would be subject to federal position limits in connection with the position limits final rule.  

Source: Commodity Futures Trading Commission

As of 8:45 pm AST, the exchange rates for bitcoin and ether in various currencies as Brexit deadline is missed …

BTC/USD=22,898.00 ETR/USD=622.253

BTC/EUR=18,700.50 ETR/USD=507.607

BTC/JPY= 2,367,860 ETR/JPY=64,273.40

BTC/CNH=149,400.00 ETR/CNH=4,055.33

BTC/DKK=139,103.00 ETR/DKK=3,775.82

BTC/CHF=20,241.70 ETR/CHF=549.443

BTC/GBP=16,955.60 ETR/GBP=460.245

Source: OANDA

Legal/Political news impacting cryptocurrencies …

Brexit

Brexit talks are being described as “difficult” as the United Kingdom continues discussions with the European Union over their trading relationship. Bloomberg reported that talks would resume between the European Union and the United Kingdom on Monday. The two major issues dogging the talks are access to fishing waters and subsidies for businesses.

Pandemic Relief

Reuters reports that both chambers of Congress have reached agreement on a bill to provide relief for the ill effects of the pandemic. The bill calls for $900 billion in relief spending. The bill provides for $600 in direct payments to individuals and an additional $300 a week in unemployment payments.

As of 11:30 am AST 10 December 2020, Foreign exchange rates between U.S., select countries in East Africa, West Africa, the Caribbean, and Asia, and BitCoin

As of  11:30 am AST, 10 December 2020:

How to read the chart:

CAD/USD: If you come to the United States with one Canadian dollar (CAD)and wish to sell it for a US dollar (USD), the market price is .78103 USD.

USD/CAD: If you take a US dollar (USD) to Canada and wish to sell it for a Canadian dollar (CAD), the market price is 1.28018 CAD

CAD/USD=0.78103   USD/CAD=1.28018

CNH/USD= 0.15339   USD/CNH=6.51820

EUR/USD= 1.21037   USD/EUR=0.82610

DKK/USD =0.16260   USD/DKK=6.14831

NGN/USD= 0.00260   USD/NGN=379.384

JPY/USD=0.00960   USD/JPY=104.19

INR/USD=0.01356      USD/INR=73.5975

JMD/USD=0.00683    USD/JMD=143.446

GYD/USD=0.00469       USD/GYD= 205.184

GHS/USD=0.17031     USD/GHS= 5.84142

XCD/USD=0.37037        USD/XCD= 2.70

KES/USD = 0.00889     USD/KES= 110.408

BBD/USD = 0.50000     USD/BBD = 2.0000

TTD/USD = .14459         USD/TTD= 6.66797

BTC/USD= 18252.40     USD/BTC= 0.00005

Source: OANDA

Major political/legal event impacting foreign exchange

BIS releases Basel III monitoring results on banks

Today, the Bank of International Settlements Basel III committee released results of its survey determining compliance with bank capital requirements developed in 2010 under the Basel III framework.  The framework was developed in response to the financial crisis of 2008.  The objective of Basel III was to modify bank capital requirements thus leading to less variability in a bank’s risk weighted assets.

The survey announced today found that banks were continuing to make progress toward meeting the Basel III requirements and that bank liquidity ratios pre-Covid have been improving.  

Source: Bank of International Settlements