Interbank market news scan: BIS releases paper on virtual banking; forex rates of interest to Atlanta; Ethereum strengthens slightly

Bank of International Settlements. Today, the Bank of International Settlements released a paper on virtual banking providing insights on the use of information capital as a substitute for tangible capital. The paper argues that information capital, comprised of an enterprise’s or individual’s digital data footprint, can be used as collateral for obtaining credit, thus increasing access to credit by small and medium businesses and low income individuals.

While the paper uses the Hong Kong market as a case study, I believe that if US-based banks and fintechs embarked on the same initiative, the following legal issues may arise. Can information capital be used as collateral when borrowing for the purpose of purchasing foreign currencies? Does the use of information capital raise discrimination issues where biases are embeded in the artificial intelligence programming? Are existing laws sufficient for protecting enterprise or individual data privacy where such data is encompassed in information capital used as collateral?

The link to the BIS paper can be found here.

Federal Reserve Bank of New York. Yesterday after the Board of Governors of the Federal Reserve announced that it would hold its interbank rate for overnight lending between 0 and .25%, the Federal Reserve Bank of New York announced that the reserve bank’s Open Market Trading Desk would increase its System Open Market Account holding of Treasury securities by at least $20 billion per month and its agency mortgage-backed securities by at least $10 billion per month. This reduced level of purchasing (down from a combined high of $120 billion per month at the beginning of the pandemic) will commence on 14 February 2022.

The link to the New York Fed’s announcement can be found here.

Interbank Market, Pakistan. The rupee held steady against the dollar at Rs176.98 but has been depreciating in value since 1 July 2021. See link to article here.

Foreign exchange rates as of 10:00 am EDT

EUR/USD=1.1282

GBP/USD=1.3500

USD/MXN=20.6258

USD/GTQ=7.5060

USD/NGN=414.7010

USD/GHS=6.1790

USD/VND=22,632.2000

USD/JPY=114.1900

USD/INR=74.8041

USD/BTC=0.00003

USD/ETH=0.00039

Source: OANDA

Retail traders should keep their eyes on the euro-dollar-yuan battle …

Foreign exchange rates of interest …

EUR-USD= 1.1346

EUR-CNY=7.2276

GBP-USD=1.3602

GBP-CNY=8.6651

USD-JPY=115.355

JPY-CNY=0.0552

Source: OANDA

The Morning Takeaway …

The political banter by the United States regarding China is in part driven by the perceived economic necessity to penetrate deeper into the Chinese market thus the rest of Asia. Turning a population in excess of one billion into a consumption machine is American capitalism’s dream. The other part of America’s obsession has to do with what I see as a socio-political incongruity; how dare the Chinese with their communist government and state-capitalist model dare to outdo the United States’ “big tent, we are all in this together, free market, free enterprise” model?

I think stuck in the middle of the battle is the Euro Zone, capital rich, relatively speaking, but energy resource poor. Europe takes a more practical approach to conflicts emanating out of Eurasia unlike the United States which prefers stand outside and throw rocks at the window of a perceived damsel in distress. When the rock throwing fails it then leverages its military prowess and knocks down a few doors. Given its past twenty year record in the Middle East and Central Asia, it should consider changing strategy.

The data …

JPY-CNY

On 13 December 2021, the JPY-CNY=0.0560. The exchange rate on 12 January 2022 at time of writing was 0.0552. The yuan over this 30-day period strengthened slightly against the yen. Compare this to USD-JPY where on 13 December 2021, the rate was at 113.551 versus the 115.335 rate as of 12 January 2022. The yen is weakening against the dollar.

GBP-CNY

On 13 December 2021, GBP-CNY was at 8.4252. By 12 January 2022, the exchange rate increased to 8.6651, indicating weakening of the yuan against the pound. Compare this to the GBP-USD exchange rate on 13 December 2021 which equaled 1.3238. On 12 January 2022, the rate increased to 1.3602, again reflecting a weakening of the dollar against the pound.

EUR-CNY

Lastly, the EUR-CNY=7.1829 on 13 December 2021. By 12 January 2022, the rate increased to 7.2276. The yuan appears to weaken over the 30-day period. Compare this to the EUR-USD on 13 December 2021 of 1.1288. The exchange rate increased to 1.1346, indicating a weakening in the dollar against the euro.

Retail traders should continue paying attention to the political environment that the above economies are being managed in.

Alton Drew

12.01.2022

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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.

Interbank Market News Scan: Nothing from the European Central Bank indicates the EUR-USD won’t stay flat …

The EUR-USD market …

The EUR-USD was trading around 1.1813 about 10:00 pm EST and I read nothing out of the European Central Bank this week that could impact the interbank market today.  The most recent comments out of the ECB regarding the European economy came during a speech by Isabel Schnabel, a member of the ECB’s Executive Board.

Ms Schnabel’s general assessment was that the economy is brightening for the Euro area and although Covid-19 is resurging, consumers and businesses appear upbeat about future economic performance.  Inflation, the universal economic buzzword, is at 3% per an August print, thus exceeding the ECB’s two-percent target rate.  Inflation, according to Ms Schnabel, is likely to keep growing through the end of 2021.

Meanwhile, real interest rates in Germany remain in the negative.  The rate for the ECB deposit facility is at -.50%.  This is the policy rate at which bank excess funds are deposited overnight with the ECB.  Banks, in essence, are paying the ECB to hold their excess funds.  

Contrast the ECB rate with the overnight interbank rate (fed funds rate) of the Federal Reserve which currently has a target rate of 0 to .25%. 

Ms Schnabel warned against premature tightening of rates.  She noted that while inflation may increase through the rest of the year, it may abate around the beginning of 2022.  She also cautioned that while inflation appears high, the economy is coming off of a pandemic-induced slow down and in real terms inflation is still low.

Ms Schnabel was kind enough not to use the word, “transitory.”

Otherwise, the ECB so far has been mum. So has the Federal Reserve as it gets ready for its Federal Open Market Committee meeting on September 22-23.  

Ms Schnabel’s comments also did not veer off from last week’s monetary policy decision to maintain the ECB’s €20 billion in monthly asset purchases while modifying the pace at which the ECB would make asset purchases.

Data from OANDA has the EUR-USD flat lining since 14 September but also reflecting a slight raise in the exchange rate since Ms Schnabel’s speech. While I do not expect the rate to fall below 1.1800, I don’t see an argument for now as to why the exchange rate will not continue to fall below 1.1800 by month’s end.  Like everyone else, I do not have a crystal ball.

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Interbank Market News Scan: Dollar, yuan see similar price increases in terms of Asian currencies. Euro has to play catch up.

25 August 2021

As US Vice-President Kamala Harris wraps up her Asia tour this week, I was curious to see how currency prices have moved since the Biden-Harris administration took office on 20 January 2021.  I see a battle for currency preference between the United States, the Eurozone, and China and so far, seven months into the Biden-Harris administration, the Eurozone is being left behind.

Where the dollar, the yuan, and the euro are priced in terms of the ringgit, Indian rupee, and the yen, the yuan has seen the greatest price increase since 20 January 2021.  For example, during the period 20 January 2021 to 25 August 2021, USD/JPY increased 6%; USD/MYR increased 4%, and the USD/INR increased 1.8% for an average of 3.93%.

During the same period, the CNY/JPY increased 6%; CNY/MYR increased 14%; and the CNY/INR increased 1.6% for an average of 7.2%.

Meanwhile, the euro got the least love with EUR/JPY increasing 2.9%; EUR/MYR relatively flat at 0.008%; and EUR/INR decreasing by 1.29%.  Using this bucket of Asian currencies, average euro increase is around .54%

In the immediate run, I don’t see dollar or euro prices in terms of the ringgit, yen, or Indian rupee increasing especially if Asian economies are somehow able to increase their respective economies productive capacities and increase trade with each other, taking advantage of their resource-rich environments.  The Harris-Biden administration’s fall in polling numbers as a result of perceived mismanagement of American withdrawal from Afghanistan and less than stellar campaign to get more of the American population vaccinated may likely weigh on the effectiveness of Ms Harris’ attempt to garner strategic trading partners in the region.  

Alton Drew

 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.

 Foreign exchange rates of interest as of 10:20 am EST

Currency PairFederal ReserveReuters
AUS/USD0.71330.7254
USD/BRL5.39905.2419
USD/CAD1.28531.2623
USD/CNY6.50126.4771
USD/DKK6.36126.3337
EUR/USD1.16901.1739
USD/HKD7.78977.7840
USD/INR74.350074.2250
USD/JPY109.7700109.9300
NZD/USD0.68300.6949
USD/MYR4.23854.2020
Sources: Federal Reserve, Reuters

Interbank Market News Scan: Canada sees no rush to issue a central bank digital coin …

Links you should follow ….

Foreign exchange. Luis Costa outlines commodity currencies that he is trading. This strategist outlines which currency commodities he’s trading (msn.com)

Foreign exchange. The Bank of Canada is thinking in more concrete terms about how its digital currency might look and work but it does not currently see a strong case for issuing one, a deputy governor said on Wednesday. Bank of Canada does not see currently see strong case for issuing digital currency | Nasdaq

Foreign exchange. After more than a year of slumber, investors are preparing for currency volatility to come roaring back to life. Currency FX Volatility Set for a Comeback on Looming Policy Shifts – Bloomberg

Foreign exchange. A dovish Federal Reserve and accelerating growth abroad are weighing on the dollar, a move that could be a boon for stocks and other assets. Analysis-Floundering dollar falls to bottom of global currency heap (msn.com)

Foreign exchange, cryptocurrency. ‘Bitcoin isn’t even a reliable hedge for risk-off events, let alone inflation shocks. It’s actually highly pro-cyclical…In difficult times, crypto assets don’t go up; they go down.’— Nouriel Roubini. Bitcoin isn’t a currency or financial asset, but ‘looks like a bubble’: Roubini (msn.com)

Foreign exchange rates of interest …

Changes in currency tails comprised of the euro, US dollar, and Canadian dollar and currencies out of the Eastern Caribbean, Dominican Republic, Haiti, and Jamaica remained relatively flat over the last 24 hours. Any tightening of rates on the part of major central banks is expected to have a significant impact on Caribbean currencies thus the purchasing power and cost of remittances sent back to the Caribbean.

Currency PairsRates as of 12:00 pm AST 27 May 2021Rates as of 10:45 am AST 26 May 2021
EUR/XCD3.30073.3055
USD/XCD2.70002.7000
CAD/XCD2.22492.2402
EUR/JMD182.7800181.2040
USD/JMD147.9460148.0130
CAD/JMD122.3780122.8050
USD/DOP56.479956.4454
USD/HTG88.663488.6591
Source: OANDA