Bonfire of the banknotes

Destruction of banknotes is an offence in the US, but despite this law people have publicly burned Dollar banknotes without apparent consequences. In the UK it's not illegal to destroy a banknote (although oddly under the Currency and Banknotes Act of 1928 it is illegal to deface one). So why have six advertisements for an Islamic investment platform - Wahed Invest - been banned by the Advertising Standards Authority (ASA)? The banned posters - mainly displayed on the London Underground - showed images of the Muslim preacher Ismail ibn Musa Menk, Grand Mufti of Zimbabwe, holding an open briefcase apparently full of US Dollars and Euros in flames, with the slogan "withdraw from Riba" (Arabic for 'excess') and "join the money revolution". Wahed Invest, based in New York and regulated in the UK by the Financial Conduct Authority, claims it is fully compliant with Shariah, the Islamic principles governing Muslim life.

The ASA - a self-regulatory body  which has no powers to enforce its decisions - says it has banned Wahed's ads after it received 75 complaints that the ads were 'offensive'. Wahed's defense was that showing a load of banknotes in flames illustrated its argument that a banknote's value goes up in smoke when inflation grows faster than savings. That is not only an accurate claim; it also seems remarkably inoffensive. The possibility that the 75 complaints may have stemmed from Islamophobia seems not to have been considered by the ASA. In fact the ASA seems to have succumbed to demagoguery - giving in to prejudices and desires rather than deploying rational argument. The European Commission takes a more intelligent attitude - it says that the "destruction of small quantities of euro banknotes or coins by an individual should neither be prohibited nor penalised."

Central bank targets up in smoke

Inflation in the UK, US and Eurozone is still maintaining a faster rate than any of those regions central banks desire. They all aim to achieve inflation of 2%/year. In the UK the Consumer Prices Index (CPI) was 2.6% and the CPI including owner occupiers housing costs was 3.5% in November; in the US that same month the CPI was 2.7% while in the Eurozone it was 2.3%. These regions' bank deposit interest rates at best are a fraction higher than the inflation rates. Wahed Invest has a point. Inflation may be much lower than it was but the impact on consumers remains painful. In the US a cart of groceries that cost $100 in 2021 costs $120 today. Wage rises in the US in November averaged 4.3% and have grown above inflation in the UK. In the Eurozone wage growth in Q3 2024 hit 5.42%, the highest level since 1993.

In 10 days the US will see the inauguration of the most controversial President for many years. He has vowed to impose tariffs on American imports from countries he regards as damaging to the US economy; he has said he wants America to possess the Panama Canal and Greenland; he promises to make sweeping tax cuts. If only 50% of his promises come to fruition the effect will be to radically shake up the global economy and politics. And government borrowing costs are on the rise, as investors in government bonds fear the 'sticky' inflation and widening fiscal deficits.

Avoid the tariff threats

Donald Trump, whose fundamental tenet is to make America great again, hopes that tariffs will make domestic production more competitive and bring in revenue to the US state machine. But tariffs are a double-edged weapon. Above all, they will stoke inflation for US consumers, who will have to pay more for the goods they want. They may also provoke retaliatory tariffs and slow global economic activity, to the detriment of all. There is no consensus about what President Trump will actually try to do once in office.

But there is a unanimity that his term in office will be characterized by uncertainty. Trump's unpredictability is not necessarily a bad thing; it might keep those countries and leaders who are keen on humbling the US on their toes. However, it may also mean some economic turmoil. Europe is already arguably in stagflation and despite looking rosy right now the US may not be far off the same, particularly if the President's plans go spectacularly awry. There is one asset that is unarguably resistant to stagflation's rocks - gold. The gold price rose by more than 20% last year; such a stellar return may not be repeated this year, but it will probably more than keep pace with inflation.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.