Interbank market news scan: Facebook’s Diem can help the dollar remain the global reserve currency …

Links to follow today ….

Central banks, ECB. Global stocks held steady on Thursday ahead of the European Central Bank’s monetary policy update and despite COVID-19 lockdown restrictions in Europe being extended and cases rising globally. Global stocks stabilize ahead of European Central Bank meeting despite steep rise in COVID-19 cases in Asia | Markets Insider (businessinsider.com)

Central banks, Norway. Norway’s central bank will test various technical solutions for a central bank digital currency (CBDC) over the next two years, it said on Thursday. Norway to test solutions for digital central bank currency | Nasdaq

Central banks, Canada. The Federal Reserve and the Bank of Canada will use drastically different playbooks for the remainder of their nations’ respective economic recoveries. The US central bank has indicated it will leave rates near zero for the foreseeable future, and that it isn’t even considering reining in its emergency asset purchases. Canada’s central bank is taking surprising steps to cool the nation’s red-hot virus recovery – and the approach directly conflicts with the Fed’s ultra-easy stance, even with the US further along (msn.com)

Central banks, remittances, Kenya. Remittance inflows into Kenya in March were up 27% year on year to $290.8 million, the central bank said on Wednesday. Kenya’s remittance inflows in March up 27% yr/yr -central bank | Reuters

Central banks, United Kingdom, ECB. Sterling slipped on Thursday, holding below $1.40 before a European Central Bank meeting, as investors weighed up the outlook for an economic recovery from COVID-19 in the UK. Sterling slips versus euro; currency markets quiet ahead of ECB meeting | Nasdaq

Central banks, Facebook, cryptocurrency. Now known as diem, the Facebook-backed digital coin is expected to launch later this year, albeit in a much more limited form. When it finally arrives, diem won’t come with the same fanfare and controversy of the original idea envisioned by the social media giant nearly two years ago. Facebook-backed Diem aims to launch digital currency pilot in 2021 (cnbc.com)

Central banks, ECB, digital currency. Only a few years ago, central bank digital currency (CBDC) was seen as something exotic. Sweden’s Riksbank was alone among high-income countries in exploring it, a fact attributed to its population’s uniquely low use of cash. Now official e-currencies have gone mainstream. www.ft.com

The market opening. The rates to start your day ….

As of 8:10 am EST, Bloomberg reports that the yield on the three-month Treasury note is at 0.01%, down from yesterday’s 0.03% while the two-year note remained at yesterday’s 0.15% rate. The ten-year and thirty-year Treasurys are trading at 1.57% and 2.27%, respectively and relatively unchanged from yesterday.

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%. All three rates unchanged from yesterday.

Exchange rates of interest as of 8:45 am EST….

Currency PairsRates as of 8:45 am EST 22 April 2021Rates as of 9:55 am EST 21 April 2021Percentage change in rates
EUR/USD1.17931.2024-1.9%
GBP/USD1.37851.3891-.0076%
USD/CAD1.25721.2629-.0045%
CAD/XCD2.14622.1462unchanged
USD/XCD2.70002.7000unchanged
USD/TTD6.66916.6721-.0004%
USD/BBD2.00002.0000unchanged
CAD/TTD5.30125.3050unchanged
CAD/BBD1.58991.5874unchanged
Source: OANDA

The Opening Takeaway: Could Facebook’s cryptocurrency be the longer term digital play?

Facebook appears to be leveraging the experience it has garnered on America’s Capitol Hill. When the Facebook-backed digital coin Libra found itself targeted by backlash from members of Congress, the company and its stable coin project partners had to go back to the drawing board which included a rebrand of the coin (from Libra to Diem); a little reorganizing of the stable coin project’s membership; and pursuing a payment services license from Switzerland’s financial regulators. See Facebook-backed Diem aims to launch digital currency pilot in 2021 (cnbc.com).

By going the stable coin route, where a cryptocurrency pegs its value to the value of a country’s currency, in this case, the United States, Facebook and its Diem partners, knowingly or not, have made baby steps to pacifying government critics in the US who are concerned about Diem’s threat to the stability of the US political-economic system. This is simply code for “We have to stop Facebook from disrupting our tax and customs regime.” The claims of concern over privacy also seem a bit bogus given that Congress has passed up a number of times over the last decade and a half to promulgate any comprehensive laws that would not only have codified network neutrality but also privacy over America’s digital networks. Besides, as the US slowly gets to testing its own central bank issued digital coin, it too will have to address why taxpayers should be less concerned about government intrusion into privacy as opposed to Facebook.

Facebook is in a position to leverage its network effect generated by over 2 billion daily users and its e-commerce and advertising platform. Its subscribers can enjoy some sort of “dual nation” status where they exchange goods and services on Facebook’s platform using Diem, thus creating a sense of exclusivity. Sort of like an Amazon Prime membership on steroids where only members i.e. Diem-using subscribers, can come and play. And knowing that Diem can be exchanged for US dollars will put Facebook subscribers’ minds at ease. If the Facebook subscriber is not concerned about convertibility, then the US government should have less of a consumer protection argument to throw around.

Another potential benefit may carry over to the Federal Reserve. As it hems and haws over the development of a central bank issued digital currency, it could study the Facebook template, observing in real time how a digital nation-state operates. Also, there is the potential for a test case for conducting digital foreign currency exchange made easier due to Diem being a stable coin.

Lastly, from a foreign policy perspective, the US should look favorably on more of the world’s economies having indirect access to the dollar via Facebook’s stable coin. Using, buying, and selling Diem amounts to using, buying, and selling US dollars. This indirect use of the greenback would keep the dollar out front as the world’s reserve currency.

Alton Drew

Interbank market news scan: Jamaica closer to testing central bank digital currencies; Bitcoin is the world’s 3rd largest currency in total value …

The Strategic Takeaway: Governments of varying size from the United States to Jamaica are ready to compete with the threat alternative digital currencies like bitcoin poses to nation-state payment systems. Traders and investors should keep their eyes on the long term viability of cryptocurrencies in the current political environment. Even as larger financial institutions consider bitcoin as a hedge against declines in other assets including the dollar and consumers see more opportunities to use cryptocurrencies to purchase goods and services, nation-states will only tolerate the threat to their payment systems for so long.

Cryptocurrency issuers and the exchanges that support them will have to make the political and legal arguments that support their incorporation into a nation-state’s payment system. Central bank digital currencies have the potential of offering a faster payments system for the average consumer. Claims of decentralization, anonymity, and democratization of finance may fall on deaf ears if central bank digital currencies offer the average consumer a significant improvement over what the consumer is comfortable with.

In the meantime, cryptocurrency stakeholders should be prepared for closer regulatory scrutiny including threats of stringent regulation especially if there are either mass losses in cryptocurrency valuations or if investors are subjected to massive and/or frequent amounts of fraud.

Cryptocurrencies. Cryptocurrencies have emerged as a financial instrument over the last year, but have reached new heights over the last quarter, becoming financial equality tools and placing power back in the hands of investors. How cryptomarkets revolutionised financial freedom (raconteur.net)

Stablecoins. Thailand’s central bank said it will issue regulations on asset-backed stablecoins this year after warning against the illegal use of a new baht-denominated stablecoin that was created outside the country. Thai Central Bank to Regulate Stablecoins This Year | Nasdaq

Cryptocurrencies. Now the third-largest cryptocurrency by market cap, Cardano (CCC:ADA-USD) is alive with buzz in the crypto community. Indeed, Cardano is one of those alt coins that gets less attention these days, mainly due to the sheer size of rivals Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD) 3 Reasons Why Cardano Has Outperformed So Impressively (yahoo.com)

Central Bank Digital Currency. Most of global payments are already digital, yet a central bank digital currency would provide risk-free, central-bank backed money denominated in a national unit of account — like cash, though updated to the demands of a digital financial system. Here’s How a Central Bank Digital Currency Could Work (msn.com)

Central Bank Digital Currency. After quietly exploring the viability of a central bank digital currency (CBDC) for some time, Bank of Jamaica (BOJ) took the decision in May 2020, as a part of our ongoing retail payments reform, to venture into this digital innovation that is fast becoming a feature of global central banks. A primer on BOJ’s central bank digital currency (jamaicaobserver.com)

Cryptocurrency. Deutsche Bank has published a report stating that bitcoin is too important to ignore, noting that it is now the third-largest currency in terms of the total value in circulation. Deutsche Bank: Bitcoin Now 3rd Largest Currency, Too Important to Ignore – Markets and Prices Bitcoin News

Currency pair20 January 202122 March 2021Percentage change
ADA/USD *.381.18210.5
BTC/USD36,841.7058,335.0058.3
ETH/USD1,358.491,813.6833.5
LTC/USD159.13200.6526.1
Source: OANDA *Yahoo Finance

Interbank market news scan: Europe wants to flex its “digital sovereign” muscle; UN recommendations on illicit cross border finance …

For deeper research and analysis on the following news links, contact us….

Cross border data flows:

Now is the time for Europe to be digitally sovereign,” German Chancellor Angela Merkel, Danish Prime Minister Mette Frederiksen, Estonian Prime Minister Kaja Kallas, and Finnish Prime Minister Sanna Marin say in a joint letter. “We have to foster the Digital Single Market in all its dimensions where innovation can thrive and data flow freely. https://europeansting.com/2021/03/16/what-is-digital-sovereignty-and-why-is-europe-so-interested-in-it/

United Nations targets corruption and illicit cross-border finance. https://www.jdsupra.com/legalnews/united-nations-targets-corruption-and-6325615/

Stablecoins:

Visa CEO Al Kelly dug into the credit card company’s crypto-focused strategy in a podcast appearance this week. https://www.theblockcrypto.com/linked/98552/visa-ceo-podcast-bitcoin-stablecoins

Dollar stablecoins have become a compelling option for individuals and businesses in markets facing local currency volatility and hyperinflation … https://www.coindesk.com/nigerians-turn-to-stablecoins-for-protection-against-inflation

Decentralized Finance …

Iron Finance is a partially collateralized stablecoin platform based on the Binance Smart Chain (BSC).

It reported that on March 16, two Iron Finance vFarm pools were “subject to an incident”. This ordeal resulted in the loss of user deposits. https://beincrypto.com/iron-finance-defi-exploit-explained-post-mortem/

8:58 am EST, 17 March 2021