Tin Foil Hats, Economic Reality and the Total Perspective Vortex

pmbug

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There are a lot of things in motion these days with Covid19 response efforts wreaking havoc on national economies across the globe. Many issues have been covered/discussed in separate "reality check" threads for individual nations, but it was inevitable that at some point, we'd need to take a step back and look at the big picture...

LONDON (Reuters) - From Brazil to Norway, policymakers are leaping to defend currencies against the onslaught of the dollar which scaled three-year peaks on Thursday, raising speculation that a joint move by the world’s biggest central banks may be in the offing.

A global stampede for dollar funding drove currencies across the world to multi-year or record lows against the greenback. Some relief came after the U.S. Federal Reserve opened $450 billion in swap lines to several central banks but the pressure broadly remains.

Coordinated central bank action remains unlikely for now, market watchers said. But these are unusual times, and Norway’s central bank on Thursday threatened to intervene to lift the crown, a step it has not taken in more than 20 years.
...
More: https://www.reuters.com/article/us-...ions-speculation-of-big-g7-move-idUSKBN2163UT

tl;dr - Currency wars may start heating up if the dollar keeps rising.
 

pmbug

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Shit is getting real...

As the markets continue to drop and the U.S. looks to Congress for agreement on a massive stimulus package to save the economy from impacts of the coronavirus pandemic, the newest offer by House Democrats includes a very forward-looking kind of stimulus: the creation of a ‘digital dollar’ and the establishment of ‘digital dollar wallets.’ In what will send shock waves through the cryptocurrency and blockchain industry, particularly for those following central bank digital currencies around the world, this signals the U.S. is serious in establishing infrastructure for a central bank digital currency.

Both Speaker Pelosi’s ‘Take Responsibility for Workers and Families Act’ and the ‘Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act (H.R. 6321),’ introduced by Chairwoman Maxine Waters of Financial Services Committee, introduced these concepts today as a way of delivering the economic stimulus payments to U.S. citizens.

The bill establishes a digital dollar, which it defines as ‘a balance expressed as a dollar value consisting of digital ledger entries that are recorded as liabilities in the accounts of any Federal Reserve Bank or ... an electronic unit of value, redeemable by an eligible financial institution (as determined by the Board of Governors of the Federal Reserve System).’ Additionally, a digital dollar wallet is identified as ‘a digital wallet or account, maintained by a Federal reserve bank on behalf of any person, that represents holdings in an electronic device or service that is used to store digital dollars that may be tied to a digital or physical identity.’

A mandate also requires all ‘member banks’ establish a ‘pass-through digital dollar wallet’ to all customers eligible for the stimulus. Member banks include those banks that are ‘members’ of the Federal Reserve and regulated by the Fed. Additionally, ‘Non-Member’ state banks - those that not members of the Federal Reserve and regulated by the FDIC - could opt-in to offer pass-through digital dollar wallets as well.

The Federal Reserve banks themselves would also make available a digital dollar wallet to any U.S. person eligible for the payments as well. Additionally, the U.S. Postal Service would aim to help unbanked individuals and/or those without proper ID to establish their identity be provided a digital dollar account, and would set up ATMs for customers to access their funds.
...
https://www.forbes.com/sites/jasonb...9mv0oajABnGBGtGEzVAbtyUHyo_AZ3gc#37f7969c4bea
 

pmbug

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Purportedly, it's a measure to help the poor who don't have bank accounts. It looks like this initial measure isn't designed to be a full fledged currency with payment system integrations at stores. It is likely going to allow an exchange rate between digital dollars and "normal" dollars though. "Unemcumbered interest rate policy on the zero bound" on the horizon?
 

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China's central bank is one step closer to issuing its official digital currency. It seems the People's Bank of China (PBC), in collaboration with private companies, has completed development of the sovereign digital currency's basic functions and is now drafting relevant laws to pave the way for its circulation, industry insiders said.
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https://www.globaltimes.cn/content/1183632.shtml

IMF recently posted transcript of an address given on 2/28/20:
Deputy Managing Director Tao Zhang’s Keynote Address on Central Bank Digital Currency

March 19, 2020

London School of Economics
February 28, 2020



It’s a real pleasure for me to be here for this conference on China’s Trade and Financial Globalization. I want to thank the Institute of Global Affairs of the London School of Economics for the invitation.

This afternoon, we’re going to take up a topic that everybody seems to be talking about these days – namely, central bank digital currency (or “CBDC” for short). This is a “widely accessible, digital form of fiat money that can be legal tender,” and a recent BIS survey of central banks shows that 80 percent were exploring CBDC.

I’ll start by laying out what I see as some of the main pros and cons of CBDC, as well as their international implications. I’ll say a few words about a few recent pilot experiences with these currencies, and also about some variants and alternatives to CBDCs. Finally, I will close by sharing what the IMF is doing in this area.
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At the IMF, we have been ramping up our research, analysis, and overall thinking on CBDCs, and indeed, on Fintech in general. Together with the World Bank, the IMF produced the Bali Fintech Agenda, which offers a framework to guide policymakers in thinking about how to regulate Fintech in their jurisdictions. We also routinely publish Fintech Notes, Staff Discussion Notes and Working papers on issues related to Fintech and CBDC, specifically. In January, for instance, we came out with a note on “Institutional Arrangements for Fintech Regulation and Supervision” and another on the “Regulation of Crypto-Assets.” And we also collaborate with other international organizations and standard setters, such as the Financial Stability Board (FSB) and Committee on Payments and Market Infrastructure (CPMI). The Fund is also a member of the G7 Working Group on Digital Payments.
...
https://www.imf.org/en/News/Article...note-address-on-central-bank-digital-currency

It certainly looks like the ball is already rolling downhill.
 

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The Fed has announced a lot of programs within the last couple of weeks to stabilize credit markets and bank liquidity. Now they announced one for foreign banks (unspecified, but likely European I'd imagine).
The Federal Reserve on Tuesday announced the establishment of a temporary repurchase agreement facility for foreign and international monetary authorities (FIMA Repo Facility) to help support the smooth functioning of financial markets, including the U.S. Treasury market, and thus maintain the supply of credit to U.S. households and businesses. The FIMA Repo Facility will allow FIMA account holders, which consist of central banks and other international monetary authorities with accounts at the Federal Reserve Bank of New York, to enter into repurchase agreements with the Federal Reserve. In these transactions, FIMA account holders temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions. This facility should help support the smooth functioning of the U.S. Treasury market by providing an alternative temporary source of U.S. dollars other than sales of securities in the open market. It should also serve, along with the U.S. dollar liquidity swap lines the Federal Reserve has established with other central banks, to help ease strains in global U.S. dollar funding markets.

The Federal Reserve provides U.S. dollar-denominated banking services to FIMA account holders in support of Federal Reserve objectives and in recognition of the U.S. dollar's predominant role as an international currency. The FIMA Repo Facility, which adds to the range of services the Federal Reserve provides, will be available beginning April 6 and will continue for at least 6 months.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200331a.htm
 

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The United States opposes creation of liquidity through issuance of the International Monetary Fund’s Special Drawing Rights (SDRs) as part of the response to the coronavirus pandemic, U.S. Treasury Secretary Steven Mnuchin said on Thursday.

In a statement to the IMF’s steering committee, Mnuchin said 70% of the funds created through an SDR allocation, something akin to a central bank “printing” new money, would go to G20 countries that did not need it, while only 3% would go to low-income countries.

Instead, he said, members should contribute to two IMF facilities that provide funds to the poorest countries, and the U.S. government was exploring such a contribution itself.
https://www.reuters.com/article/us-...l-drawing-rights-to-imf-members-idUSKCN21Y1QU

Looks like USA isn't on board with the NWO plan for SDRs as professed by Rickards. I guess Mnuchin, Powell, et. al. think the Fed can swallow the bomb and absorb the impact intact.

 

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Rickards addressed the IMF/SDR issue two days ago:

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A normal SDR printing exercise requires that the total SDRs be issued to all IMF members in proportion to their voting rights in the IMF. This means that U.S. adversaries such as Iran and China would get part of the bailout money along with more needy countries in Africa and Latin America.

The U.S. is now holding up the new issuance of new SDRs for exactly this reason.

We’ll see how this impasse gets resolved. Perhaps new SDRs will be issued right away. But as the depression lingers and the Fed’s impotence is exposed, the issue of printing a trillion SDRs will be back on the table.

China may have their own conditions such as a diminution in the role of the dollar as a global reserve currency. The U.S. may be more desperate when the time comes. Either way, this issue will not go away.
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https://dailyreckoning.com/trump-says-no-to-world-money/
 

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... the clearest signal of provocative and ambitious Chinese intent. That came from the People’s Bank of China’s fix for the Chinese currency to start the week. This is the level the central bank sets as a guide for the market, and the exchange rate can vary from it by no more than 2% in either direction — it effectively tells the world how far China is prepared to allow its currency to move. And Monday’s fix against the dollar was the weakest since 2008.

China left its currency fixed at an unrealistically weak level for several years after it acceded to the World Trade Organization in 2001. After 2005, it agreed on a swift appreciation, which halted in the spring of 2008 as the credit crisis took hold. In 2010 it was allowed to resume a steady climb. Since its shock devaluation in 2015, which caused a minor global crisis, the trend has been toward letting the currency weaken, particularly when China might want to send a message — as it did when the fix reached its previous post-2008 low in the days after the U.S. announced new tariffs on China in August last year. A weaker currency tends to make China more competitive, and makes life harder for U.S. exporters. So this can be seen as a very provocative gesture. Could China conceivably be prepared to let the yuan move all the way back to 8.0 per dollar?
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https://www.bloomberg.com/opinion/a...-s-weaker-yuan-fix-is-the-real-cold-war-salvo
 

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... the Executive Committee of the Italian Banking Association recently approved new general guidelines for a CBDC.
"Italian banks are available to participate in projects and experiments of a digital currency of the European Central Bank, contributing, thanks to the skills acquired in the construction of infrastructures and distributed governance, to speed up the implementation of a European-level initiative in a first nation. Since last year, the ABI has set up a working group dedicated to deepening the aspects related to digital coins and crypto-assets. Hence the 10 considerations shared by the Executive Committee," the Italian baking association said on its website.
Here are the ten criteria for an Italian CBDC:
  1. Monetary stability and full compliance with the European regulatory framework must be preserved as a matter of priority.
  2. Italian banks are already operating on a Distributed ledger technology DLT infrastructure with the Spunta project. They are intended to be part of the change brought about by an important innovation such as digital coins.
  3. A programmable digital currency represents an innovation in the financial field capable of profoundly revolutionizing money and exchange. This is a transformation capable of bringing significant potential added value, particularly in terms of the efficiency of the operating and management processes. Hence the importance of dedicating attention and energy to develop, quickly and with the collaboration of all the ecosystem players, useful tools first of all for the development of the Euro area.
  4. Digital money needs to be fully trusted by citizens. To this end, it is essential that the highest standards of regulatory compliance, safety and supervision are adhered to.
  5. In particular, a Central Bank Digital Currency, thanks to the central role played by the Central Bank, represents the tool that more than any other can reconcile the needs of innovation, in line with the current reference framework of rules, existing instruments and interoperability with the analog world. The existence of such an instrument could at the same time reduce the attractiveness of instruments of comparable use but issued by private individuals or (in cases of complete decentralization) which cannot be identified, characterized by an intrinsically higher risk profile.
  6. With the aim of fully explaining the transformative potential of these instruments, the possibility, at the moment of study, of issuing a European CBDC intended for the public, which could represent an evolution of cash, is of particular interest. Thanks to the role of the banks, it is possible to identify technical solutions and reference models to preserve the current characteristics of cash, while introducing many benefits of the digital world (already proper to electronic payment instruments), such as the possibility of not losing the own money and, in this period of strong attention to health risk, to operate in contactless mode.
  7. Detailed work will lead to the identification of the distribution, conservation and exchange model of digital currencies that best fits the customer's service needs, to maintain the effectiveness of the monetary policy transmission mechanisms and regulatory compliance. Of course, in each of these objectives, the role of banks is crucial.
  8. Achieving high ease of use, while ensuring full interoperability between the digital and analog world and a total level of circularity between all the players in the ecosystem, represents a success factor in the diffusion of these tools.
  9. Particular attention must be paid, according to the technological choices that will be adopted, to the citizens' personal data protection profiles.
  10. Projecting these reflections into the future, it is possible to affirm that the availability of a CBDC will enable a series of use cases of great interest: to favor the transmission of value between peers, thus also facilitating the logic of exchange between person and machine and between machine and machine; allow the settlement of cross-border peer-to-peer transactions, mitigating the interest rate, exchange rate and counterparty risk; Promote, thanks to the programmability characteristic of these currencies, the execution of exchanges upon the occurrence of predefined conditions, ultimately reducing administrative processes.
...
 

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I searched around to see if there were any developments on the INSTEX story that I might have missed in the last few months. There hasn't been any news report of INSTEX beyond the March/April report of it's first use. I did find this. It might develop into something, or it might just be a nothingburger.

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Returning to South Korea, he said the two countries have been working on a special trade vehicle, similar to that established with the European Union, which would allow Iran to complete humanitarian transactions using the money locked in Korean banks.
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The EU mechanism -- known as Instex -- provides European companies with a trading vehicle to sell goods and services to Iran without using dollars, routing transactions through U.S. banks, or moving money across the Iranian border. But its impact has been limited due to companies’ fears over the reach of American penalties.
...
 

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I've been posting updates on what the Fed has been doing with their balance sheet expansion brrrrrrt projects in the American Reality Check thread. But it seems that central bank policy is being coordinated globally as many central banks are all doing similar things. So this news bit seems appropriate for this thread...
The Fed has been cutting back for weeks on its asset purchases, and on its last weekly balance sheet, its total assets actually fell by $74 billion. Now Bank of England Governor Andrew Bailey published a piece on Bloomberg Opinion today in which he wrote that these massive central-bank balance sheets – he was talking in global terms – “mustn’t become a permanent feature.”

“As economies recover, it’s likely that some of the exceptional monetary stimulus will need to be withdrawn,” he said. And this shedding of part of the bonds that had been purchased would happen before the central bank raises interest rates, he said.

This is the opposite of how the Fed did it last time: It started raising rates in December 2015 and started shedding Treasury securities and MBS in October 2017.

This time, the Fed front-loaded $2.8 trillion in QE and has already started shedding some of it even as FOMC members don’t see interest rate hikes through 2022. This is a big shift, of reducing the balance sheet first, and then raising rates.

In Bailey’s piece, there was no word of negative interest rates or yield curve control. What he is saying is that the balance sheet became the primary tool for adding stimulus and will become the primary tool for withdrawing stimulus, as interest rates remain near-zero.

And he is saying that the BOE’s balance sheet isn’t going to stay this massive for long and that it will undo some of the accommodation as the economy figures out where the new normal is.

The Fed is leading. The BOE is publishing the reasoning for other central banks to do the same.
...

The thing is, I'm not sure they *can* unwind the balance sheets. The last time the Fed tried to shrink their balance sheet from the end of QE3 level, they didn't get too far before the financial markets started showing signs of duress (and the repo market broke down in September 2019).
 

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A few days ago, Goldman Sachs warned:
A record high price for gold, known as the currency of last resort, is raising questions about the U.S. dollar's future as the world's reserve currency, according to a Goldman Sachs research note published Tuesday.
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"Combined with a record level of debt accumulation by the US government, real concerns around the longevity of the US dollar as a reserve currency have started to emerge," the analysts wrote.
...

South China Morning Post now reports:
The unnatural calm that settled over financial markets in the wake in the Covid-19 pandemic is being disturbed by ominous signs that the US dollar is in trouble. This is not just a matter of risk-off moments or yield differentials, as some suggest. Something more fundamental is at work.

What makes the behaviour of the dollar particularly ominous is that the world’s key currency is sliding not only against benchmarks such as gold and silver but also against many measures of value including other key currencies. A general depreciation of the world’s leading currency is rare.

The dollar is at a two-year low against a basket of currencies and US Federal Reserve chairman Jerome Powell’s statement on July 29 that the Fed will keep monetary policy very loose, at least until the end of this year, portends further weakness.

Even if the main reserve and transaction currency is not exactly tottering, its wobbles hint at scenarios where it has to share pole position with other currencies, an unstable state in itself. Conventional wisdom holds that the dollar will retain pole position as the paramount global currency because the euro is not in a position to offer a real challenge and China is cautious about dismantling yuan exchange controls, while the Japanese yen is not a serious contender.

Recent events suggest, however, that the dollar could erode from within as the US retreats increasingly from international obligations and as its domestic economy weakens. In that case, some of the many exporters dependent on China could be persuaded to accept more yuan transactions.

Dollar depreciation could, as some suggest, simply reflect the fact that financial managers everywhere are “rotating” out of the US currency in search of yield as real or inflation-adjusted returns on dollar securities hit zero or even negative levels.

This is obviously a factor but there is certainly more to the dollar's decline than just yield. As suggested here before, confidence in currencies and faith in them as measures of value and as mediums of exchange cannot survive the idea that their supply is virtually endless.
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Which brings us back to the dollar, with markets seeing a debased currency hardly worth the paper it is printed on. They are buying precious metals instead, and non-dollar currencies. This is dangerous because many things could fall with the dollar, from global reserves and trade, to banking and financial transactions and commodities.

The US could be the biggest loser. The exorbitant privilege it enjoys because the dollar is the global currency means the US does not face balance-of-payments crises while it imports in its own currency. But the dollar world could go the same way as the sterling area, into obscurity.

I don't know that the G8/G20/Davos braintrust has a plan for the post-king dollar world, but we might be getting a lot closer to it regardless.
 

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Ah the CFR, ..........
From Standard Oil to Chase Manhattan, from the Council of Foreign Relations to the Trilateral Commission, from the World Bank to the Bilderberg Group the Rockefeller brothers have used the Iron Fist of 20th century capitalism, Americo-Anglo style. They have played geopolitical hardball, been instrumental in overthrowing governments abroad as well as controlling both political parties, even the supposed enemies, the Neo-Cons and the Neo-liberals domestically. The have worked through the eugenics movement for most of the 20th century to sterilize people living on the capitalist “periphery” and they have propagandized for “population control”. They also play political softball through innocent sounding Think Tanks, Foundations, and Universities to train the next generation of Rockefellers as well as spread its ideology through books, journals, and newspapers.
from - https://socialistplanningbeyondcapi...-family-and-the-council-of-foreign-relations/

seems like they are all showing their hand a lot these days ....

https://www.weforum.org/great-reset/
 
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pmbug

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Wow. That second link.... The Davos people are advertising an initiative for "The Great Reset". That's an ominous (and/or ambitious) title.
 
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