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?
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.
The top twelve destinations for U.S. exports are Canada, Mexico, China, Japan, Great Britain, France, Germany, Belgium, South Korea, Norway, Brazil, and Taiwan. There has been a mixed bag in terms of increases or decreases in each country’s cost of the US dollar since the beginning of 2021. Using currency data from OANDA, we identified the rate changes between 1 January 2021 and 18 March 2021.
1 January 2021
18 March 2021
(1) France, Germany, and Belgium use the euro as their currency. We refer to them collectively as the Eurozone.
Since January, countries seeing their currencies significantly strengthen against the dollar are Canada and Great Britain. On the other hand, Mexico, Japan, the Eurozone, South Korea, and Brazil have seen their currencies significantly weaken, making their cost to import U.S. product more expensive.
The primary mover of currency rates is supply and demand. The increased price of the dollar could be a result of this basic economic principal. Changes in bond yields may also have an impact on currency pricing as well as changes in policy rates imposed on banks due to their central banks’ policy initiatives.
During the same period in 2020, with the exception of Japan, all other top US trading partners saw their costs for US exports increase as shown in the following table:
1 January 2020
18 March 2020
The shut downs around the globe due to the pandemic we believe may be the significant factor behind the changes in direction of these currency pairs.
The Board of Governors of the Federal Reserve System today released the foreign exchange rates for the following foreign exchange pairs. Compare with exchange rates quoted by foreign exchange broker OANDA as of 9:59 PM EST: