Interbank market, central banks, foreign exchange: Will Joe Biden, GOP meeting signal increased public capital spending?

The strategy takeaway …

Joe Biden positions himself as mediator as GOP presents a non-stimulative pandemic plan.

President Joe Biden is scheduled to meet with today at 5 pm EST with 10 centrist and conservative Republican senators to discuss a $619 billion pandemic relief program. Specifically, the GOP offering proposes the following:

$160 billion in direct pandemic response;

$132 billion in additional unemployment insurance;

$20 billion to fund childcare and a development block grant;

$20 billion to fund a “get back to school” initiative;

$50 billion to small businesses including another itineration of the Paycheck Protection Program;

$220 billion in direct payments to households;

$12 billion for nutritional support programs; and

$4 billion for behavioral support services.

The total GOP package is roughly one-third of the $1.9 trillion proposals favored by most Democrats. Mr Biden has been reportedly receiving pushback from the more progressive wing of his party regarding his willingness to sit down and listen to the GOP proposals. Progressive Democrats prefer that the Senate GOP negotiate directly with Senate Democrats versus conducting an end-around with the President.

The dollar likely climbs with growth in gross domestic product and positive growth in its commodities and equities markets. Infrastructure spends would also attract capital to the United States thus driving up demand for the dollar resulting in its appreciation. The GOP’s proposal does not, in my opinion, stimulate growth that can be expressed in currencies. The “stimulus” is more of a pandemic band-aid designed to keep the United States together until an economy that is more familiar comes along.

At best, traders should view the GOP’s strategy for stimulus as non-dynamic due to a lack of emphasis on non-capital driven items. Mr Biden’s American Rescue Plan does not appear to do more than be a bigger band-aid for households versus actual stimulation of economic growth.

Mr Biden’s American Rescue Plan touts a total of $1.9 trillion in funding. The Plan also focuses on extended unemployment insurance, direct pandemic payments to households, higher minimum wage, increased food aid, and expanded child tax credit, and continued foreclosure and eviction moratoriums. No emphasis on infrastructure or the other classic big ticket, shovel ready items that attracts capital expenditures.

Short of a significant lift on restrictions that limit travel and gatherings that would lead to reigniting economic activity, I don’t see much in either the GOP or Mr Biden’s plans that will bring back better.

The interbank market news scan …

President Joe Biden and Democratic congressional leaders must decide whether to break the administration’s $1.9 trillion Covid-19 relief proposal into pieces after a scaled-down Republican plan emerged. Republican Stimulus Offer Challenges Biden to Split Aid Bill (msn.com)

The group of 10 Republican senators seeking to negotiate with President Biden on a new round of COVID-19 relief unveiled details of their proposal on Monday, hours before the lawmakers are set to meet with the president at the White House. GOP senators detail $618 billion COVID relief counteroffer (msn.com)

GOP proposed sixth Covid-19 relief package. Proposed Sixth Covid Relief Package.pdf (senate.gov)

As President Joe Biden prepares to meet with Republican senators on Monday to discuss his proposed $1.9 trillion COVID-19 relief bill, progressives have urged the commander-in-chief to move ahead with his stimulus plan regardless of whether the GOP supports it. Progressives Dismiss Joe Biden’s Bipartisan Effort on COVID Relief, Demand Action Now (msn.com)

Ghana’s central bank on Monday kept its main interest rate unchanged at 14.5%, Governor Ernest Addison said in a statement. Ghana central bank holds key rate at 14.5% | Nasdaq

The Australian and New Zealand dollars were little changed on Monday ahead of a central bank meeting as cautious currency traders watched on while a wave of runaway retail investors unsettled equity markets. Australian dollar trades fractionally higher head of central bank meeting | Reuters

Cryptocurrency XRP tumbled into the red on Monday, after rising more than 50% in early trading, as a “pump and hold” scheme organized by day traders ran into trouble.https://www.consumersadvocate.org/widgets/text_list?pcuid=cf4d004eb5b1

Yet “meme” currency Dogecoin held on gains of around 34% as amateur investors zeroed in on new assets in the wake of the GameStop saga and Elon Musk boosted interest in cryptocurrencies. XRP falls sharply after soaring 50% but Dogecoin is holding on, with day traders looking for new targets and Elon Musk fanning interest (msn.com)

The head of Hong Kong Monetary Authority has rejected lawmakers’ call to dip into the HK$4.5 trillion (US$581 billion) Exchange Fund to finance the government’s rescue packages for companies and individuals hard hit by the Covid-19 pandemic, saying such a move would hurt the fund’s ability to defend the local currency. Hong Kong wants to keep its US$581 billion war chest for defending the currency instead of the economy, monetary chief says | South China Morning Post (scmp.com)

Interbank market news scan as of 12:25 pm AST: Cryptocurrency, central banks, foreign exchange

Bitcoin investors need to be prepared to “lose all their money,” European Central Bank governing council member Gabriel Makhlouf said, the latest warning from a central banker on the cryptocurrency. Bitcoin (BTC USD) Cryptocurrency Investors May Lose Everything, Banker Warns – Bloomberg

Colombia’s central bank board on Friday decided to maintain the benchmark interest rate at the historic low of 1.75% for a fourth consecutive month in a majority vote during its first meeting of the year. Colombia’s central bank holds interest rate at 1.75% in majority vote | Nasdaq

A Lebanese prosecutor charged central bank Governor Riad Salameh with dereliction of duty and breach of trust over the alleged misuse millions of dollars provided by the regulator last year. Lebanese Judge Charges Central Bank Governor Over FX Misuse (msn.com)

Treasury Secretary Janet Yellen faces one more headache on an agenda packed with everything from Covid-19 relief to addressing inequality and overhauling tax policy: tensions over foreign-exchange intervention. Yellen Faces ‘Currency War’ Redux as Strong Dollar Ditched – Bloomberg

India plans to introduce a law to ban private cryptocurrencies such as bitcoin and put in place a framework for an official digital currency to be issued by the central bank, according to a legislative agenda listed by the government. India proposes law to ban cryptocurrencies, create official digital currency (msn.com)

Apollo Currency (CURRENCY:APL) traded up 6.8% against the dollar during the twenty-four hour period ending at 13:00 PM Eastern on January 29th. Apollo Currency has a market capitalization of $13.98 million and approximately $1.63 million worth of Apollo Currency was traded on exchanges in the last day. Apollo Currency (APL) Price Up 7.5% Over Last 7 Days – Modern Readers

Interbank market scan as of 11:03 am AST: Central banks, foreign exchange

Currency pairsExchange Rate as of 11:07am AST 28 January 2021Exchange Rate as of 12:10 pm AST 29 January 2021
AUD/USD0.76810.7695
USD/CAD1.27741.2766
USD/CNY6.48226.4291
EUR/USD1.21181.2148
USD/INR73.050072.8335
GBP/USD1.37151.3722
USD/JPY104.0600104.7100
USD/MXN20.700020.2232
USD/DKK6.15546.1206
USD/NOK8.62428.5291
Source: Reuters

The Chinese yuan exhibited increased strength against the U.S. dollar. This may be due in part to decision of the People’s Bank of China to be more hawkish on interest rates and modifying the interbank market rate of the yuan to reflect tightening liquidity. (See links to two articles below).

News from the federal government …

Yesterday, the White House released the following statement addressing a call between members of the National Security Council and the European Commission:

“National Security Advisor Jake Sullivan spoke by phone today with European Commission President Ursula von der Leyen’s Head of Cabinet Bjoern Seibert. Mr. Sullivan underscored President Biden’s commitment to the transatlantic alliance and his intention to repair and revitalize the U.S.-EU partnership, including our trade and investment relationship. They discussed the importance of close U.S.-EU cooperation on the COVID-19 pandemic and global health security, as well as the global economic recovery and climate change. They also agreed to work together on issues of mutual concern, including China and Turkey.”

In other news: The markets ….

Julian Evans-Pritchard, Senior China Economist at Capital Economics suggests that the People Bank of China (PBOC) could be delivering a hawkish signal, in light of the recent surge in the interbank rates. PBOC: Surge in interbank rates is a hawkish signal – Capital Economics (fxstreet.com)

China’s yuan firmed on Thursday, as tight interbank liquidity heading into Lunar New Year pushed money markets rates higher, though gains were limited as a global stock market rout increased safe-harbour demand for assets like the dollar. China’s yuan inches up as tight liquidity pushes interbank rates higher | Nasdaq

Sweden’s central bank said it had agreed with the U.S. Federal Reserve to extend a $60 billion swap agreement signed during spring last year until Sept. 30 this year. Sweden’s Central Bank Extends Swap Arrangement With U.S. Federal Reserve | Investing News | US News

Bank of America was ringing alarm bells over equities on Friday, as it warned a correction is looming. Get ready for a 10% stock drop, driven by the 3 ‘Rs,’ warns Bank of America (msn.com)

The Central Bank of Nigeria plans to obtain all the necessary approvals required to start the operations of a proposed commodities exchange within the next 90 days, Governor Godwin Emefiele said on Thursday. Nigeria Commodities Exchange to Start in 90 Days to Help Stabilize Food Prices – Bloomberg

The value of Dogecoin, a joke cryptocurrency that launched back in 2013, hit record levels on Thursday. Its price rose by more than 800 percent, reaching around $0.082, which raised its market value to around $7 billion, according to Coindesk, which monitors cryptocurrency prices. Dogecoin Price Tracker, Update as Cryptocurrency Value Skyrockets (msn.com)

Robinhood has restricted trading in cryptocurrencies a day after blocking new purchases of 13 stocks amid “extraordinary market conditions,” the app said. Robinhood Blocks Cryptocurrency Trading, Blames ‘Extraordinary Market Conditions’ (msn.com)

“Guys,” he told them, “I don’t know if bitcoin goes lower next month, but I think over the course of time, bitcoin will be higher.” To be more exact, Denier predicts the cryptocurrency will surge to $US55,000 per coin by the end of 2021, a 70% increase from its current price of around $US32,200. Webull CEO Anthony Denier predicts Bitcoin will surge to $55,000 by the end of 2021. He told us why he’s bullish on the cryptocurrency long-term. (msn.com)

Interbank market news scan: As of 1:22 pm AST, Central banks, cryptocurrency, foreign exchange

Central banks across Asia are starting the year juggling policy reviews and political pressure to do more to support their economies. Asian Central Banks Start Year Juggling Politics, Policy Reviews (msn.com)

The ECB’s Governing Council, led by President Christine Lagarde, will now likely pause for the foreseeable future and use this week’s meeting to steer markets in a new direction, as well as discussing the strength of the euro. After unprecedented stimulus, the European Central Bank is set for a change of focus (msn.com)

The French central bank said on Monday it would exit from coal and limit exposure to gas and oil in its investment portfolio by 2024 as part of a shift towards more environmentally friendly assets. French central bank to exit coal, cap oil and gas investments | Reuters

Janet Yellen, who is expected to lead the Treasury Department for the incoming Biden Administration, described cryptocurrencies as a “particular concern” when it comes to terrorist financing. Biden Treasury pick Janet Yellen warns cryptocurrency poses terrorism risk (msn.com)

Even after setting a new record high of $1,439 on Monday, the rally for Ethereum’s ether cryptocurrency may have only just begun, according to Fundstrat Global Advisors strategist David Grider. Ether’s Rise to Record Highs May Propel Cryptocurrency to $10.5K: Fundstrat Global – CoinDesk

Lacalle believes that “numerous governments would be very very happy to implement strict regulations on cryptocurrencies,” noting that it is “fundamentally because, as we are seeing, cryptocurrencies are rising dramatically as a response to a very aggressive policy from central banks.” Economist Slams ECB Chief Lagarde’s Bitcoin Remarks as Dangerous for Cryptocurrency Regulation – Regulation Bitcoin News

Interbank market news scan, at 1:04 am AST: Latest news on central banks, cryptocurrency, foreign exchange …

The dollar slipped from close to its highest in nearly one month on Tuesday as caution set in before U.S. Treasury Secretary nominee Janet Yellen testifies later, with traders keeping a close eye on the policies of the incoming Joe Biden government. Dollar retreats from one-month high as traders eye Biden’s FX policy | Reuters

Among the many races the pandemic has accelerated, none is so pointless as the issuance of central-bank digital currencies. The Canadian government, which should know better, has jumped into the fray despite earlier opposition. Reversing comments made in February 2020, Bank of Canada deputy governor Timothy Lane now believes state involvement in cryptocurrencies is a pressing matter. Along with its G7 partners, Canada has been exploring central-bank digital currencies since 2017 but the race suddenly sped up in mid-October. Central banks should stay clear of cryptocurrencies – Canadian Investor

China’s Blockchain-based Service Network (BSN) – a permissioned blockchain network for building decentralized applications and tokens – plans on releasing a beta central bank digital currency (CBDC) as early as the second half of 2021. https://www.nasdaq.com/articles/chinas-blockchain-based-service-network-to-integrate-central-bank-digital-currency-2021-01

Frank Giustra, billionaire investor and mining financier, is warning that governments and central banks are going to do everything they can to stifle Bitcoin’s journey towards universal adoption. https://dailyhodl.com/2021/01/17/billionaire-investor-says-central-banks-will-stop-at-nothing-to-clamp-down-on-bitcoin/

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

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.

As of 12:07 pm AST, Bitcoin and Ethereum exchange rates as US Senate ponders $2000 checks for hurting households …

BTC/USD=26,950.30ETH=719.429 
BTC/EUR=22,062.30ETH/EUR=588.96 
BTC/JPY=2,792,990.00ETH/JPY=74,558.10 
BTC/CNH=175,910.00ETH/CNH=4,695.87 
BTC/DKK=164,071.00ETH/DKK=4,379.82 
BTC/CHF=23,971.50ETH/CHF=639.912 
BTC/GBP=19,949.70ETH/GBP=532.551 
   
Source: OANDA

Legal/Political Events Impacting Cryptocurrency

No events of significance at this time.

How the regulator’s mindset may impact cryptocurrency …

An article today in Bloomberg discussing how a Biden administration would address the regulation of cryptocurrency has me putting myself in the place of the regulator. What is the U.S. Securities and Exchange Commission’s world view of digital assets? How will the Commodity Futures Trading Commission’s view toward regulation of exchanges evolve? Will the Board of Governors of the Federal Reserve System view the payment system aspect of cryptocurrency as a threat to the current national and global payment system regime or as a welcome supplement that brings more efficiency and transparency?

Clarity on what may happen on the regulatory side of cryptocurrency requires that the trader first take a top-down view of how governments view the world and especially how they view markets. You will never hear a regulator utter the term “free markets.” That phrase is best suited for the rhetoric of politicians who inherit worn out campaign slogans and reboot them for the latest run for office. I doubt they themselves, a significant number of whom are not trained in economics, truly understand what a market is or can likely identify threats to it. Compound markets for digital assets with the mechanics of payment systems and the politician’s eyes glaze over and she falls back to what she knows best: sloganeering tainted with tropes that appeal to individualism, consumerism, collectivism, or whatever narrative they believe their constituency will buy into.

The professional regulator, on the other hand, uses law and regulatory code as a front or an excuse. Statutes and codes give the professional regulator cover for their underlying philosophy and narrative. Unlike the elected official who only spends minutes on issues of markets and their regulation, the professional regulator is the expert spending years developing her own philosophy and transitive narrative and reconciling that philosophy and narrative with at times archaic statutes that the elected official has dumped on her to interpret. With archaic statutes and codes as cover for the regulator, it is the trader’s task not only to generate returns from holding a digital asset but to best understand what that regulator’s philosophy is.

There are two types of regulator. One I term as the myopic regulator. This regulator focuses on the black letter of the law and the code. Their focus is primarily on whether the market participants are following the rules on the books. He does not take into consideration any wider view of the philosophy behind markets and regulation. If the rules are skewed more to trader protection, his interest will be in outcomes that favor trader protection. If the rules skew more toward brokerage or platform protection, the regulator’s interest will be in outcomes favoring platform protection.

On the other side is what I term the universal regulator. They have managed to synthesize the role of government, traders, and platforms. They have an interest in maintaining the viability of the market system. Government’s role, in their view, is to provide for an efficient and productive trading post where there is sufficient transparency between traders and where the exchange platform ensures speed, efficiency, and clarity of trade because without these characteristics, the American markets as a whole become less viable, less reliable. Government will expand or contract in order to meet its universal role.

The trader should be mindful of this regulatory environment, particularly the tug-of-war between more or less regulation of exchanges. Eventually the trader pays the price in terms of transparency, price fairness, and the level of fees, especially where trade is her primary means of livelihood and income. After all, trade boils down to an information game and staying informed on government actions as well as on how government itself can disrupt information flow is important to the trader’s success.