Links you should be following:
Central banks, Bank of England. The UK is ahead of the curve when it comes to digital currency adoption, according to new research. A report by PwC reveals the UK is fifth in the world when it comes to preparing for the adoption of a central digital currency although a consumer offer remains a while off yet. UK leads race across Europe to introduce interbank digital currency (msn.com)
Central banks, Central Bank of Nigeria. It is the norm to hear talks around the need for convergence in Nigeria’s foreign exchange (FX) markets. This implies that there is mispricing. Historically, this mispricing has always been between the parallel market rate, which trades at a premium to the CBN’s managed rates across different FX windows. Liquidity, price discovery in Nigeria’s FX market Opinion — The Guardian Nigeria News – Nigeria and World News
Central banks, Federal Reserve. Excess cash in the financial system has pressured overnight interest rates, in some instances pushing them negative, which, analysts said, could prompt the Federal Reserve to lift the short-term rates it manages. EXPLAINER-U.S. repo market flirts with negative rates as Fed seeks to absorb excess cash | Nasdaq
Central Banks, Central Bank of the Bahamas. The Bahamas and Cambodia rank as the two top central bank digital currencies. Bahamas Ranks First in CBDCs, China’s Digital Yuan Third: PwC Report – BeInCrypto
Central banks, Central Bank of India. The rupee advanced by 23 paise to 74.64 against the US dollar in opening trade on Tuesday, tracking weaker dollar against key rivals and a positive trend in the domestic equity market. Forex traders said the government’s decision to open COVID vaccination to all above 18 years from May 1 lifted investor sentiment. Rupee Rises 23 Paise to 74.64 Against US Dollar in Early Trade (msn.com)
The market is opening. The rates to start your day:
As of 8:59 am, Bloomberg reports that the three month yield on U.S. Treasurys is at 0.02% while the two-year comes in at .16%. The ten-year Treasurys are trading at 1.60% and 2.30%, 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%.
The Opening Takeaway: I Expect the Federal Reserve, US Treasury to Pull the Trigger on Cryptocurrency.
Yesterday, the markets saw some pull back in shares for Coinbase (Nasdaq:COIN) with the cryptocurrency exchange closing yesterday at $332.75, down from a high of $409.62 back on 14 April. The pull back was reportedly expected among some analysts as some investors took a little cream off the top. From a market perspective, I was not impressed with the offering. In the end, Coinbase is a market exchange platform for cryptocurrency relying on transactional fees for its survival and maintaining credibility among market participants as an information finder and margin provider for traders.
How well Coinbase does is a direct function of how well cryptocurrency does. As long as cryptocurrency stays in its digital asset lane, it may need not worry about too much regulation. Should it dip its toe further into the currency lane, that is where bitcoin, ethereum, dogecoin, etc., may find themselves in a world of hurt.
A currency’s legitimacy comes from the “king.” The king airdrops the currency throughout his jurisdiction for the purpose of washing and compounding it through a jurisdiction’s merchants, producers, and consumers. The currency says a lot about the economic value of the king’s jurisdiction and to maintain the prevailing narrative the currency represents, the king must control or heavily influence its value and circulation. The decentralized financial mechanism that cryptocurrency survives on does not fit into the command and control scheme of the king.
So far the US Federal Reserve has been ambivalent about its view of cryptocurrency. The US Treasury has been a bit clearer about its view of cryptocurrency as a currency based on Janet Yellen’s concerns about cryptocurrency being used for nefarious activities such as money laundering and drug trafficking. Neither the Federal Reserve or the US Treasury has expressed their concerns based on the philosophical underpinnings of currency, but I believe that when it is time for the central bank and the Treasury Department to pull the public policy trigger, control of the currency will be the ultimate public policy rationale.
Countries such as The Bahamas and Cambodia (see the links above) are not waiting. In the interbank, foreign currency exchange world, The Bahamas and Cambodia are near non-existent, but in the digital space they are the leaders in issuing central bank digital currency, taking digital payments to the next level. Over 60 countries are experimenting with or planning deployment of central bank digital currencies where their fiat currencies are tethered to block chain digital technology. Critics argue the point that outside of the digital tethering, a central bank issued digital currency does not increase the value of the fiat currency much. Maybe.
Other than requiring more use out of your cellphone or apps on your desktop, a central bank bank-issued digital coin may seem like mere aesthetics, but what is being ignored is the increased control that the government and central banks can exercise over the currency. Taking it to the extreme, I can see a government requiring that all transactions conducted within its jurisdiction be done via its central bank-issued digital currency with the primary reason being ensuring the collection of taxes on these transactions while better monitoring nefarious activities. I can see such a move beginning in countries that place less emphasis on free markets or individual privacy. The US will hem and haw over such a move especially when it sees China doing it, but if digitisation puts China out further ahead then I can see the United States capitulating to the new digital reality.
As for bitcoin, ethereum, and other cryptocurrencies, they may end up staying in the digital asset space. Their calling card is built on decentralized finance and opaqueness. They won’t become universally used currency for the masses.