The Morning Takeaway: Assessing the Legal and Political “Meteorology” of Foreign Exchange
Humans have no need to come in contact with each other but for the exchange of value. How the value deemed from interaction is determined will be based on an individual assessment of how much benefit is to be gleaned from what another has to exchange.
Determining the benefit of what another party has to exchange means incurring costs for gathering information. The more cogent and clear the better. Efforts are optimized and the information gathering becomes efficient. Understanding the environment producing the information is important. The environment places parameters on any information obtained. The environment within which the information is produced may lack characteristics necessary for producing the clearest information possible.
The value that is being exchanged also contains information about the environment it is coming out of. Take corn or any other agricultural commodity. For optimal growth, the environment that produces corn should provide a certain quality of soil, nutrients, water, and weather to create a quality yield. What is yielded should be able to provide you with information on the quality of soil, nutrients, water, and weather from whence the yield came.
This same approach should be taken to another commodity, currency. The “soil’ for this commodity is a nation’s central bank and to a lesser extent the commercial banks that act as distribution channels for the currency. The “soil” is impacted by the “weather” and “climate” generated by the level of transactions occurring within multiple markets in the political economy. These transactions deliver “rain” onto the soil and impact the yield in currency released into the political economy’s blood flow. And just like a corn crop can provide the farmer or the end user information about the environment that spawned the yield, so to can currency, or specifically, currency price movements, provide the trader with information about the central bank environment.
For the trader, it is important to assess the legal and political “meteorology” of the central bank environment. Without these assessments, the trader, whether purchasing currency tails for speculation or as part of an international business transaction, risks not capitalizing on the yields that foreign exchange can bring about.
For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.
Exchange rates of interest as of 11:45 am AST
Currency pair
Exchange rate
AUD/USD*
0.7352
EUR/USD*
1.1794
GBP/USD*
1.3714
USD/CAD*
1.2739
USD/CHF*
0.9192
USD/JPY*
109.3100
USD/XCD+
2.7000
USD/NGN+
410.9850
USD/MXN*
20.0353
Sources: *Reuters +OANDA
Rates reported by the Federal Reserve (Release Date 16 July 2021)
Banks should think of themselves as the private sector currency agents of the State. The currency encapsulates the economic, commercial, and social value of a political economy. A State-issued currency ties the State’s citizens to a particular value system while providing a mechanism that accounts for a citizen’s wealth and serves the citizen as a medium of exchange for goods and services, including the payment of taxes to the State.
Banks help distribute State-issued currency primarily through the creation of credit. Banks are a “port of call” for currency; receiving deposits from its customers, capital from its investors, and placing State-issued Treasurys, underwritten by the central bank, into its investment portfolio. Banks issue loans to their customers creating money in the process. This money can be deposited at other banks or used by consumers or businesses for purchases. The fees for financial services provided to consumers and the interest earned from lending to end users and producers provide the banks with income that, along with the income generated by businesses financed by banks, can be taxed by the State.
The fallout from the 2007-2008 financial meltdown has created a narrative that banks are entities separate from the State; private sector “bad boys” whose reckless behavior from creating financial instruments doomed to perform poorly caused people to lose jobs and credit to freeze. The narrative had citizens questioning why these misbehaving banks received bailouts from the U.S. government while ordinary citizens had to bear the brunt of the rippling effects throughout the economy.
The answer is simple. Selling debt instruments and earning fees for placing these instruments into the hands of investors part of the implicit agreement between the State and the banks as currency agents. Even as elected officials such as Senator Elizabeth Warren, Democrat of Massachusetts and Senator Bernie Sanders, Independent of Vermont, argue for increased regulation of America’s larger banks, the truth of the matter is that dismantling the mechanisms of banking would be too costly to the State’s currency distribution system. The State would have to re-write its laws to support an alternative system and for all the noise against the current system, seems to be in no rush to replace it.
Links to follow …
Interbank. Orum, which aims to speed up the amount of time it takes to transfer money between banks, announced today it has raised $56 million in a Series B round of funding. https://techcrunch.com/2021/06/29/orum-raises-56m/
Central banks. Investment decisions over the next three months will be influenced by forward guidance from central banks, according to global fund managers in Reuters polls who recommended increasing equity exposure and lowering bond holdings in June. https://finance.yahoo.com/news/funds-eye-central-banks-guidance-124802638.html
Central banks. Inflation is now an “influencer” of the Fed and the other central banks, but no more than that. The real question is how the central banks will respond to it, if at all, past their public comments. https://seekingalpha.com/article/4436858-central-banks-claim-check
Central banks, Federal Reserve. The Federal Reserve Board on Friday announced it will extend for a final time its Paycheck Protection Program Liquidity Facility, or PPPLF, by an additional month to July 30, 2021. The extension is being made as an operational accommodation to allow additional processing time for banks, community development financial institutions, and other financial institutions to pledge to the facility any Paycheck Protection Program, or PPP, loans approved by the Small Business Administration through the June 30 expiration of the PPP program. https://www.federalreserve.gov/newsevents/pressreleases/monetary20210625a.htm
U.S. Senate Committee on Banking, Housing, and Urban Affairs. Today, U.S. Senator Chris Van Hollen (D-Md.), a member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and Committee Chairman Sherrod Brown (D-Ohio) applauded the bipartisan House passage of their resolution to repeal the Trump Administration’s so-called True Lender Rule through the use of the Congressional Review Act. This regulation, finalized in the last months of the prior Administration, allows predatory lenders to skirt state laws meant to curb interest rates on loans and opens the doors for these lenders to prey on vulnerable consumers. The legislation now heads to the President’s desk for signature. https://www.banking.senate.gov/newsroom/majority/house-passes-van-hollen-brown-legislation-to-strike-down-trump-era-rent-a-bank-rule-sending-it-to-the-presidents-desk
U.S. House Committee on Financial Services. This week, Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, gave the following statement on the House floor urging the passage of Senate Joint Resolution 15, a resolution that invalidates the Trump Administration’s “True Lender” rule. https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=408055
Yesterday, on the Regional Government Securities Market, the Government of the Commonwealth of Dominica issued a 91-day Treasury bill raising $20 million. The pricing methodology used in the issue resulted in a discount rate of 3.96050%.
Today, the Government of Antigua and Barbuda is expected to auction a 180-day Treasury bill at EC$10 million at a maximum rate of 4%.
There were no trades yesterday on the Eastern Caribbean Securities Exchange.
Banks. Today the Swiss National Bank announced it’s participating in a wholesale central bank digital currency (CBDC) trial with the Banque de France, and the BIS Innovation Hub. The solution aims to use the digital Swiss Franc and digital Euro to settle cross border trades for financial instruments such as stock or bonds on a blockchain. The central banks don’t want the tests to be interpreted as a decision to launch a CBDC. https://www.ledgerinsights.com/central-banks-of-switzerland-france-in-wholesale-cbdc-trial/
Today, the Eastern Caribbean Securities Exchange reported that the following securities were exchanged on 9 June 2021:
800 East Caribbean Financial Holding Company Ltd shares traded at $4.00 per share, falling $.48, or 10.71%, from its previous price;
3,500 S.L. Horsford & Company Ltd shares traded at $2.00 per share with no change from yesterday’s price;
1,298 TDC shares traded at $1.25 per share, down 3.85% from its previous price; and
80 shares of Cable & Wireless St.Kitts & Nevis Ltd traded odd lot at $3.65 per share.
On the Regional Government Securities Market, the Government of Antigua and Barbuda’s 365-day Treasury bill auction raised $10 million with a discount rate of 4.30622%.
Scheduled for today, the Government of the Commonwealth of Dominica is expected to auction 91-day Treasury bills at EC$20 million at a maximum rate of 5%.
Source: Eastern Caribbean Securities Exchange
Eastern Caribbean Central Bank
The Eastern Caribbean Central Bank recently announced that DCash, the digital version of the Eastern Caribbean dollar (EC), is set to go live in Saint Vincent and the Grenadines by the end of June. According to the ECCB:
“The immediate objective of launching DCash in Saint Vincent and the Grenadines is to allow for the exchange of DCash for physical cash via the DCash Merchant-Teller network. These authorised entities will facilitate DCash to physical cash exchanges, thereby allowing faster, safer and cheaper cross-border person-to-person remittances. Emphasis will also be placed on establishing the DCash merchant network with focus on getting essential service providers DCash-ready. In addition, other DCash users will be able to send funds directly to users in SVG.”
Since 31 March 2021, the countries of St.Kitts-Nevis, St. Lucia, Antigua and Barbuda, and Grenada, have been using DCash.
Source: Eastern Caribbean Central Bank
European Central Bank
Today, the European Central Bank reported no change in its accommodative approach to stimulating the European economy. The ECB will maintain the rates for its main refinancing operations at 0%; its marginal lending facility at .25%; and its deposit facility at -.50%.
The ECB indicated in its statement that there will be acceleration of asset purchases under the Pandemic Emergency Purchase Programme (PEPP) at a total of EUR1,850 billion through March 2022. The ECB hopes to balance purchase of assets and reinvestment of proceeds from the assets in such a way as to move as close to a two percent inflation point without exceeding that level. Net monthly purchases under PEPP are expected to be maintained at EUR 20 billion through 2022.
Banks. Credit Agricole SA Chief Financial Officer Jerome Grivet speaks on Bloomberg Television about the bank’s trading performance, earnings and M&A strategy in Italy. The Paris-based lender’s profits jumped 64% to 1.05 billion euros ($1.27 billion) in the first quarter, boosted by a 17% rise in capital markets and investment banking revenue to 708 million euros, beating the highest analyst estimate. Credit Agricole CFO Jerome Grivet on Trading Revenue, Italy M&A, Q1 Earnings: Video – Bloomberg
Banks. Edward Bramson, the activist investor who targeted Barclays Plc, has said that business isn’t a science. But his three-year attempt to force through change at the British bank didn’t show much art either, hence his capitulation on Friday. Edward Bramson Picked a Bad Time to Bet Against Barclays Traders – Bloomberg
Banks. Wall Street firms have urged the Biden administration to ease the industry’s burden in complying with a flood of financial sanctions the U.S. has levied in recent years as a primary tool of foreign policy toward Russia, China, Iran and other adversaries. Banks Seek Biden’s Aid After Trump’s 1,000-Sanctions-a-Year Pace – Bloomberg
Banks, cryptocurrency, CBDC. As the cryptocurrency market continues to skyrocket – hitting a $1 trillion in February to double its market capitalization in just three months – enthusiasts such as Mark Cuban are increasing calls for the world to embrace digital and decentralized money. Cryptocurrencies, the billionaire said, are the future, especially as the world recovers from once-in-a-generation pandemic. Mark Cuban explains why crypto is the future, especially as the world recovers from a generational pandemic (msn.com)
Banks, prime brokerages. As Archegos has caused Credit Suisse to retrench in prime brokerage, it has set off a jockeying for clients by others. Dogecoin Is Up Because It’s Funny – Bloomberg
Banks. Long ago central banks secured a monopoly over the issuance of paper money. Now physical cash in the form of bank notes and coins is in terminal decline. But the monetary authorities don’t intend to allow cryptocurrencies to fill the void without a fight. Instead, they’re responding with their own version of a so-called “stablecoin”. These central bank digital currencies, or CBDCs, could turn out to be the most revolutionary financial innovation since, well, the inception of paper money. Chancellor: Central bank coin will crush the banks | Nasdaq
FedWatch: Fed chair Jerome Powell delivers remarks on the Community Reinvestment Act and the importance of community development …
“We see our robust supervisory approach as critical to addressing racial discrimination, which can limit consumers’ ability to improve their economic circumstances, including through access to homeownership and education.” — Jerome Powell
“Good afternoon. It is a pleasure to be with you today.
Together, over the past year, we have been making our way through a very difficult time. We are not out of the woods yet, but I am glad to say that we are now making real progress. While some countries are still suffering terribly in the grip of COVID-19, the economic outlook here in the United States has clearly brightened. Vaccination levels are rising. Fiscal and monetary policy are providing strong support. The economy is reopening, bringing stronger economic activity and job creation.
That is the high-level perspective—let’s call it the 30,000 foot view—and from that vantage point, we see improvement. But we should also take a look at what is happening at street level. Lives and livelihoods have been affected in ways that vary from person to person, family to family, and community to community. The economic downturn has not fallen evenly on all Americans, and those least able to bear the burden have been the hardest hit.
The pain is all the greater in light of the gains we had seen in the years prior to the pandemic. COVID swept in as the United States was experiencing the longest expansion on record. Unemployment was at 50-year lows, and inflation remained under control. Wages were moving up, particularly for the lowest-paid workers. Long-standing racial disparities in unemployment were narrowing, and many who had struggled for years were finding jobs. It was not until the later years of that expansion that its benefits had started to reach those on the margins. During our Fed Listens events, we met with people around the country and heard repeatedly about the life-changing gains of the strong labor market, particularly at the lower end of the income spectrum. Just a few months later, those stories changed to ones of job losses, overextended support services, and businesses built over generations closing their doors for good.
While the recovery is gathering strength, it has been slower for those in lower-paid jobs: Almost 20 percent of workers who were in the lowest earnings quartile in February of 2020 were not employed a year later, compared to 6 percent for workers in the highest quartile.1
The Fed’s latest Survey of Household Economics and Decisionmaking—or SHED report—which will be published later this month, will show that, for prime-age adults without a bachelor’s degree, 20 percent saw layoffs in 2020 versus 12 percent for college-educated workers. And more than 20 percent of Black and Hispanic prime-age workers were laid off compared to 14 percent of white workers over the same period.
Small businesses have also faced immense difficulties. Fed research found that 80 percent of those surveyed reported a decline in revenue, with two-thirds of those businesses experiencing losses of at least 25 percent.2 A recent Federal Reserve special report looked specifically at the impact on businesses owned by people of color, who reported greater challenges. For example, 67 percent of both Asian- and Black-owned firms and 63 percent of Hispanic-owned firms had to reduce their operations compared to 54 percent for their white counterparts.3
Our upcoming SHED report notes that 22 percent of parents were either not working or working less because of disruptions to childcare or in-person schooling. Black and Hispanic mothers—36 percent and 30 percent, respectively—were disproportionately affected. In a similar vein, labor force participation declined around 4 percentage points for Black and Hispanic women compared to 1.6 percentage points for white women and about 2 percentage points for men overall.4 The Fed is focused on these long-standing disparities because they weigh on the productive capacity of our economy. We will only reach our full potential when everyone can contribute to, and share in, the benefits of prosperity.
Achieving broadly shared prosperity will take action from across society, from fiscal and other government policy to private-sector initiatives to the work everyone here does. The Fed can contribute as well. Using our monetary policy tools, the Fed promotes maximum employment and price stability—two foundations of a strong, stable economy that can improve economic outcomes for all Americans. We view maximum employment as a broad and inclusive goal. Those who have historically been left behind stand the best chance of prospering in a strong economy with plentiful job opportunities. Our recent history highlights both the benefits of a strong economy and the severe costs of a weak one.
Supervisory tools also have a role to play. As part of our policy responsibilities, the Board of Governors enforces both the Fair Housing Act and the Equal Credit Opportunity Act, the federal fair lending laws that prohibit discrimination in lending. Violations of the fair lending laws, along with other illegal credit practices, are taken into account during bank evaluations under the Community Reinvestment Act (CRA). We see our robust supervisory approach as critical to addressing racial discrimination, which can limit consumers’ ability to improve their economic circumstances, including through access to homeownership and education.
The Fed’s community development function plays a role as well, studying what works, convening stakeholders on both the national and District level, and helping financial institutions find opportunities to invest and expand credit opportunities in low- and moderate-income communities.
The economic landscape has changed, and efforts to provide access and credit to communities must change with it. Last year, the Fed issued a proposal for a strengthened, modernized CRA framework, with the objective of building broad support among both external stakeholders and participating agencies. Our goal is to strengthen the core purpose of meeting the credit needs of low- and moderate-income communities. We especially appreciated NCRC’s feedback on the proposal.
We will continue to do our part, and we appreciate the ways our work and that of NCRC members have intersected. Last April, for instance, the Fed expanded the Paycheck Protection Program Liquidity Facility in order to broaden its reach to include some nondepository lenders. That included CDFI (community development financial institution) loan funds, which many of the people here represent. Your work provided small businesses with invaluable technical assistance to help them weather the downturn, and you have helped them get the funds they need to support their businesses.
NCRC member groups have contributed in so many ways. You helped workers who lost their jobs get retrained. You supported working parents. You helped homeowners struggling with payments and connected renters to federal assistance programs. You brought more people into the banking system, helped strengthen financial literacy and capabilities, and worked to address digital divides in areas of need—particularly in rural communities—at a time when connectivity is essential.
I would like to close by saying thank you. You have been working hard through this crisis, and an enormous amount of work still lies ahead. But what you do is essential. You provide an invaluable service: You make people’s lives better. There is no higher calling.
Payment systems. The Bank of Thailand (BoT) and the Monetary Authority of Singapore (MAS) today launched the linkage of Thailand’s PromptPay and Singapore’s PayNow real-time retail payment systems. In a joint statement, the BoT and MAS said the linkage, the first of its kind globally, will enable customers of participating banks in Thailand and Singapore to transfer funds of up to S$1,000 or 25,000 baht daily across the two countries, using just a mobile number. Thailand, Singapore launch world’s first linkage of real-time payment systems | The Edge Markets
Payment systems. The launch of Saudi Arabia’s first instant payments system is another step towards the kingdom’s ambitious proposals to have a 70 percent cashless society as part of the Saudi’s Vision 2030, according to Takreem El-Tohamy, general manager, IBM Middle East and Africa. Saudi launches instant payment system in drive towards cashless society – Arabianbusiness
Payment systems. Embracing new payment rails, and enhancing the value of existing ones, remains a key part of promoting overall payment innovation. But as real-time payment networks proliferate, a new challenge is on the rise: enabling interoperability between these rails on both a domestic and international scale. Real-Time Payments Seek Interoperability | PYMNTS.com
Payment systems. Digital payment services developed by U.S. tech giants such as Apple and Alphabet’s Google risk reinforcing their market power by giving them greater sway over consumers’ data, France’s antitrust authority said on Thursday. French watchdog warns of big tech’s sway over payment services (yahoo.com)
Cryptocurrency, ether, bitcoin. Ether hit an all-time high Thursday as bitcoin’s dominance of the cryptocurrency market declined. The world’s second-largest digital currency by market value surged to a fresh record of $2,774 Thursday morning, according to data from Coin Metrics. Bitcoin, the top digital coin, was slightly lower at a price of $54,471. Digital currency ether hits a record high, stealing bitcoin’s limelight (msn.com)
Payment systems. SIBS actively pursues its contribution to payments digitization on a global scale with the development and operationalization of a new payments platform in the African continent, supporting the national payment system of São Tomé and Príncipe. Sibs to launch payments system in São Tomé and Príncipe (finextra.com)
Payment systems. Amazon is expanding its palm-scanning payment system to a Whole Foods store in Seattle, the company announced Wednesday, the first of many planned rollouts at other locations. Amazon will initially roll out Amazon One at the Whole Foods in Seattle’s Capitol Hill neighborhood, not far from the company’s headquarters, before launching the system at seven Seattle-area Whole Foods in coming months. Amazon is bringing palm-scanning payment system to Whole Foods stores (msn.com)
Payment systems. Business technology company Deluxe (DLX) has agreed to acquire First American Payment Systems for $960 million in cash, the company said in a statement. Deluxe believes that this deal will accelerate the company’s transformation into a leading payments technology company as part of its “One Deluxe” strategy. Deluxe To Buy First American Payment Systems For $960 Mln Cash | Nasdaq
Central banks, Riksbank. Sweden’s central bank kept monetary policy unchanged on Tuesday as expected, vowing to support the economy as long as needed amid uncertainty over the speed of recovery from the effects of the pandemic. Swedish central bank leaves policy unchanged amid COVID uncertainty | Nasdaq
Central banks, Central Bank of Iran. A developing strategy to mitigate the crippling effect of economic sanctions could see cryptocurrencies being used by Iranian firms to pay for imports such as raw materials and electronics. Iran is continuing to explore the potential use of cryptocurrency as a tool for mitigating the devastating impact of economic sanctions imposed by the United States. Iran’s central bank says officially mined crypto can be used to pay for imports (cointelegraph.com)
