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Category: Bullion Bulletin

Bullion Bulletin: Sri Lanka is a straw in the wind

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Bullion Bulletin Sri Lanka

We are staggered in the West that inflation has officially reached its highest levels since 1982 – 7% in the US and more than 5% in the UK. Yet we should feel lucky – in Sri Lanka, the independent island nation at the tip of India, inflation is now running at an annual 14%. Which means the Sri Lankan rupee is annually losing 14% of its purchasing power.

Sri Lanka’s official foreign exchange reserves have been falling precipitously; there are fears the country could be approaching bankruptcy. It has shortages of many basic items, and frequent power cuts, as the country has run low on US Dollars to pay for imports.

Sri Lanka’s central bank governor Niward Cabral says that Sri Lanka sold some of its gold reserve in December 2020 to increase liquid foreign assets (cash). Sri Lanka’s central bank may have sold about 3.6 tonnes of gold out of 6.69 tonnes of gold reserves in early 2021, leaving it with about 3 tonnes of gold. The foreign reserves have now dropped to around $1.5 billion – which covers only one month of imports. Sri Lanka’s foreign debts are around $35 billion, some 10% or more of which is owed to China; it needs to repay about $4.5 billion this year.

As an example of how geopolitical power has shifted from West to East, Sri Lanka’s future has become dependent on its relations with China. Unable to repay a $1.4 billion loan for a port construction in southern Sri Lanka at Hambantota, it was forced to lease the facility to a Chinese company for 99 years in 2017. Sri Lanka has asked China to restructure its debt, which, given that Sri Lanka is a key part of China’s ‘Belt and Road Initiative’, is likely – but China may well demand a high price.

The World Bank says that 74 low-income countries will have to repay some $35 billion in debt repayments this year to official and private creditors, 45% more than in 2020. Ghana, El Salvador and Tunisia are also facing a worsening debt crisis. The World Bank suggests that as interest rates are once more rising and credit becomes more expensive, “the risk of disorderly defaults is growing”.

Bullion Bulletin: Reasons to be cheerful

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Back in 1979, the British punk front man, Ian Dury led his band, The Blockheads, in the ‘shopping list’ song Reasons To Be Cheerful. We all need to find reasons to be cheerful, given that we have just lived through ‘Blue Monday’ – the third Monday in January – which is supposedly the most depressing day of the year. The lyrics list lots of things for which Dury felt we should all be grateful for – including the juice of a carrot.

But there’s no convincing evidence that Blue Monday is sadder than any other day of the year. The pseudoscientific assertion that it’s the most depressing day was the 2005 creation of a psychologist, who was employed by a British PR company and travel firm, who wanted to drum up business and so staged a PR stunt.

Blue Monday is a PR stunt but gold isn’t. Gold and gold holders have many reasons to be cheerful as we dive further into 2022.

First of all, we need to remind ourselves that gold prices have risen 20% since Christmas 2019, when Covid-19 started appearing in the headlines. The price peaked in August 2020 and since then has stayed close to that all-time high. Other assets had much bigger returns; but who, at the start of 2021, would have guessed that investing in coal (of all things) would have seen a return of more than 160%, or that lead would have returned more than 18%? Hindsight is a wonderful gift, which sadly, none of us has.

Across 2021 gold lost almost 4% in US Dollar terms (although was up more than 3% in Euros and more than 6% in Japanese Yen) but other precious metals did worse – in US Dollars, platinum ended the year down by almost 10%, silver by more than 11% and palladium by more than 22%. 2021 was a lean year for gold, following two preceding fat years; the price went up by more than 18% in 2019 and more than 25% in 2020.

This year, the US Federal Reserve will push up interest rates, by three or perhaps four times, prompted by inflation now running very hot, at an annualised 7%. How fast and furious will interest rates rise? Higher interest rates don’t sound like a reason to be cheerful – they will mean a stronger Dollar and that is likely in turn to mean a weaker gold price.

Yet the World Gold Council (WGC) says that “gold has historically underperformed in the months leading up to a Fed tightening cycle, only to significantly outperform in the months following the first rate hike”.

So far this has played out – an underperforming gold price in 2021, as we all expect a Fed tightening cycle. Will the second half of that WGC view also turn out to be correct, with a “significant” outperformance following the start of a tightening monetary policy? Reasons to be Cheerful, indeed!


Bullion Bulletin: Where is the gold price headed?

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This is the $64 million question, one that won’t be definitively answered here. All we can do, both for compliance reasons and reasons of intellectual honesty, is to mention some of the views of which we are aware, and try to assess the biggest price influencers.

Latest brave soul to jump into the price forecasting business was David Lennox, of the Australian-based asset management firm Fat Prophets. He told the CNBC audience last week that as a consequence of inflation, US Dollar weakness, and geopolitical tension between major military powers that the gold price could “test new highs of $2,100” an ounce this year, but “we can’t see it travelling much beyond that price once it gets there”. Goldman Sachs analyst Damien Courvalin, was reported last November as seeing gold “at $2,000” in Q1 of 2022. The current lowest investment bank forecast that we have seen is ABN-AMRO’s $1,500 by the end of 2022; few forecasts suggest a return to the historic high of more than $2,067 in August 2020.

Uncertainty is still driving most markets – uncertainty over geopolitics, uncertainty over the Covid-19 derivations, uncertainty over interest rates, uncertainty over the rise of the cost of living. Perhaps the biggest factor overhanging the gold price and where it might be headed is what will happen to currently rock-bottom US interest rates.

The US Federal Reserve, the country’s central bank, published the minutes of its 14-15 December policy meeting last week. These minutes indicated that the Fed could push up interest rates faster and sooner than expected – Fed officials in any case expect to raise interest rates three times in 2022, and another three times in 2023, although it’s not clear to what level. Higher interest rates increase the opportunity cost of holding gold (i.e. the cost of not holding an alternative asset); for gold has no yield.

Higher interest rates are the key tool a central bank has when it’s confronted by inflation that’s in excess of that central bank’s target, which in the case of the US is about 2% a year. Average inflation in the US is now officially about 6%, although unofficially (and for individual items such as gasoline) it’s much higher.

But higher interest rates – or the mere threat of them – can spook investors. When the December Fed minutes were published and analysts concluded they were very “hawkish”, the S&P 500 closed down almost 2% and the tech-heavy Nasdaq Composite ended the day more than 3% lower.

The US economic recovery remains precarious, which explains perhaps why the Federal Reserve has not already pushed up interest rates. In December, the US economy add just 199,000 jobs, against an estimate by Dow Jones of 422,000. Yet at the same time the US unemployment rate fell to 3.9%, better than estimated and the lowest unemployment rate during the pandemic. Tightening credit, making money more expensive, loans more expensive, at the wrong time could easily knock the recovery off course.

On the one hand good news; on the other hand there’s less good news. This unclear picture was always likely as the world emerges from the Covid-19 pandemic. It makes the task of forecasting – forecasting anything, never mind the gold price – extremely fraught.

Bullion Bulletin: India doubles gold imports in 2021

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India gold Bullion Bulletin

Covid-19 wrought many unexpected changes around the world, not the least in India, where many weddings planned for 2020 were postponed to 2021.

When the first waves of the pandemic hit India in early 2020 the government responded by imposing strict lockdowns, which hit the country’s hospitality sector – and reduced the ability of families to get together in celebration.

Gold is a traditional wedding gift in India and a conventional dowry item. With an estimated 10 million weddings a year a lot of gold changes hands – probably more than half the gold in India each year is bought during the main wedding season, October to December, coinciding with auspicious dates in the Hindu calendar. About 80% of those 10 million marriages are Hindu.

Gold demand was subdued in India in the first few months of 2020 as fewer than usual weddings took place but, as the lockdowns eased from May 2021, people started to plan and carry out their postponed weddings. As a sign of the loosening strictures, foreign tourists were allowed into India from mid-October 2021. According to one Lucknow-based jewellery retailer quoted by Bloomberg: “customers were looking for gold-heavy ornaments rather than stone-studded ones, which hints at the trend that jewellery is again being bought with a lot of sensitivity toward its investment value”.

In other words, Indians are perhaps eyeing gold as a hedge against inflation – wholesale prices in India rose more than 14% in November according to the country’s commerce ministry, the highest since December 1991.

Partly as a result of all the pent-up weddings, 2021 was a banner year for India’s gold demand. Its volume of gold imports over 2021 shot up more than 144%, compared to the previous year, to 1,050 tonnes. The cost was around $55.7 billion, easily doubling 2020’s spend of some $22 billion and surpassing the previous high in 2011 of around $54 billion.

Bullion Bulletin: Money’s new asymmetric cold war

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Canada has joined Australia, the UK and the US in their diplomatic boycott of next February’s Winter Olympics in Beijing, all of them alleging that China is guilty of human rights abuses against the minority Muslim Uyghur population. China has warned the US that it will “pay a price” for this snub. What might that ‘price’ be?

Sir Jeremy Fleming, director of the UK’s GCHQ, the government communications headquarters, an intelligence and security agency, gave a hint of it recently: the big fear is China’s development of its own digital currency, the e-yuan, which China is heavily promoting in advance of its roll-out at the February Games. China will do its best to encourage not just its own citizens but also foreign visitors to the Games to use the e-yuan.

Fleming, one of the UK’s most senior spies, said though digital currencies offer a “great opportunity” there are also dangers. “If wrongly implemented it gives a hostile state the ability to surveil transactions… it gives them the ability… to be able to exercise control over what is conducted on those digital currencies” he said in an interview with the FT.

But the genie is already out of the bottle. Governments dislike the loss of control over money that private cryptocurrencies (such as Bitcoin) might pose, but they recognise the advantages offered by their digital technology – and they are pledging to move into the digital currency space. Yet outside China, where 140 million individuals and businesses have already signed-up to use the e-yuan, there has been more talk than action on official digital currencies.

The US Federal Reserve promised in May this year it would publish a research paper on its plans for a digital currency; this has yet to appear. The European Central Bank (ECB) said in July this year it was investigating over the next two years its own digital euro project. The Bank of England said in November it will “launch a consultation” next year on a UK Central Bank Digital Currency (CBDC).

CBDCs offer many advantages to governments but almost none to private individuals. Yet CBDCs will eventually replace government-sanctioned cash everywhere, which will make like simpler for central banks and governments, at the cost of an inevitable loss of privacy for individuals. Every single transaction via a CBDC – which is just a digital version of fiat currency – can be tracked. The anonymity to be had from using cash will disappear. That’s the main reason cryptocurrencies were created – to give individuals the chance of standing outside official supervision and control.

Fleming is not alone. His spying peer, Richard Moore, head of MI6, has said that China is trying to exert a “web of authoritarian control” around the world by luring the unsuspecting into “data traps”.

This is a new Cold War. Unlike the old one, it’s trickier to know where one stands, as the battle is already asymmetric; uneven, unequal, imbalanced. A digitalising world is promising to change what’s defined as money into computer code that can be easily tracked. Money is power; so too is data. If China is looking to sweep up vast amounts of personal data from the ways in which people spend their e-yuans, so too could other nations once they have their own CBDCs. Where China leads, the rest of the world follows. China is gobbling up huge amounts of gold every year. Perhaps it knows something we are just starting to understand?

Bullion Bulletin: Gold has its benefits

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Bullion Bulletin Gold Benefits

The World Gold Council (WGC), the trade body of the world’s gold industry, aims to stimulate and sustain demand for gold. It’s the go-to place for reliable data about gold in all its forms, whether jewellery, investment bars and coins, central bank gold reserves, or updates about responsible mining.

It also occasionally publishes useful and informative studies, the latest on the ‘social and economic contribution of gold mining’, in which the gold mining of nine countries is scrutinised. One of its “key findings” is that in 2020, the 28 members of the WGC contributed a great deal to the economies of the countries in which they operate: they paid $8.7bn in employee wages and $7.6bn in tax payments to governments in 38 host countries.

In many respects, this report resembles one the WGC published in June 1999. That earlier study – A Glittering Future? gold mining’s importance to sub-Saharan Africa and Heavily Indebted Poor Countries – was published in very different, but in some ways quite similar, circumstances.

The price of gold 23 years ago ranged between $285-$305 per ounce but started dropping in March to May 1999 on suggestions that the International Monetary Fund (IMF) might sell some of its gold, to fund debt relief in heavily indebted poor countries.

The late 1990s saw a wave of gold sales from the official sector, as its managers lost sight of the original reason (as a defensive buffer, to put it at its simplest) for building up gold reserves.

The Bank of England (BoE) and the UK Treasury said in May 1999 that they would sell almost 60% of Britain’s official gold reserves, 415 tonnes. The gold price fell to $256.45 an ounce on 9 August 1999. The IMF came under considerable pressure to sell some of its gold to finance debt relief for HPICs (heavily indebted poor countries), defined by the World Bank and the IMF as a countries with an unsustainable external debt burden. In 1999-2000, the IMF sold about an eighth of its gold (about 12.9 million ounces) to help finance debt relief.

Today, the world is struggling to cope with COVID-19 and the external debt of developing countries is a multiple of what it was in 1999; about $10.6 trillion compared to $2.3 trillion back then. As UNCTAD (the UN Conference on Trade and Development) puts it: “it threatens to turn what was already a dire situation prior to the pandemic into a series of sovereign defaults”.

It’s no surprise therefore that campaigners such as the Jubilee Debt Campaign are eyeing the IMF’s 2,814 tonnes of gold and calling for some of it to be sold to help reduce the debt levels of Least Developed Countries. So far this suggestion has fallen on stony ground. In October 2020, an IMF spokesman said: “the IMF has approved emergency financing of over $10 billion to 47 low-income countries since March…”

Calls for the IMF to sell some more gold to help finance debt relief are likely to grow in the coming months, as sovereign debt defaults turn from a nasty possibility into a reality. All that can be said is that for gold supporters August 1999 seemed like doomsday – yet the gold price has gone up by around 600% since then. The gold market is robust enough to withstand any official sector sales; individuals recognise that despite its ups and downs, gold has proved itself a secure method of holding long-term value, as the WGC’s studies remind us.


Bullion Bulletin: India sows confusion over crypto policy

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Bullion India Crypto

India’s policy towards cryptocurrencies has taken a few swerves. Unlike gold, which has a secure place in Indian hearts and minds, cryptocurrencies are the new kid on the block. As many as 20 million Indians have bought cryptocurrencies and have spent about 400 billion Rupees (around $5.3 billion) on them. The most popular cryptocurrency in India is Bitcoin, which dominates on the global stage too.

But the Indian Parliament, the Lok Sabha, will consider a Bill in the current session that might have a profound impact on cryptocurrencies and also India’s payments systems. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 – would, says the official announcement, “prohibit all private cryptocurrencies in India” but allow “certain exceptions to promote the underlying technology of cryptocurrency and its uses”. What those exceptions might be has yet to be specified.

The Bill will also “create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India”. Central Bank Digital Currencies (CBDCs) are a hot topic for central bankers these days, as cryptocurrency developments have pushed them into fast-evolving technology as they try to protect their control over money.

India’s finance minister, Pankaj Chaudhary, says the government has already received a proposal from the Reserve Bank of India (RBI, India’s central bank) to amend the Reserve Bank of India Act 134, to “enhance the scope of the definition of ‘bank note’ to include currency in digital form” and that the RBI has been working on an “implementation strategy” to roll out a CBDC “with little or no disruption”.

There are two strands to this news. The most immediate is that the leading cryptocurrencies fell in value by as much as 20% when this news broke. India is (or was) potentially a huge market for cryptocurrencies, even though only around 50% of the country’s 1.4 billion people can access the internet. A tightening of the screws on India’s crypto market follows the crypto-crackdown earlier this year in China. Having the world’s biggest markets officially reduced cannot be good news for cryptocurrency warriors.

But perhaps the longer-term and more important strand is the clear signal that India is going all-out for a CBDC. The development of a digi-rupee may be slow and its implementation may be cumbersome; but Narendra Modi’s government has nailed its colours to this mast.

How might this affect gold? Indians buy a lot of gold but the country’s gold reserves amount to some half a gram per person; match that against Switzerland, with reserves of some 136 per capita. But most of India’s gold is in private hands – it’s estimated that as much as 25,000 tonnes is privately held by individuals and families. Imported gold is regularly the second most-costly import item (after crude oil) for India.

Why do Indians accumulate gold? The fundamental reason is trust. Since independence in 1947 there have been three official devaluations of the Indian Rupee. In 1947 the exchange rate was $1/INR1; today it’s $1/INR75. Gold for Indians is physically safer, and arguably financially more reliable. The country’s CBDC will be controlled, when it comes, by the government; to become a reliable and universally accepted currency will require considerable trust.

Bullion Bulletin: All the gold in the world

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Bullion Bulletin Gold Image

One of the major selling-points – a unique selling point (USP) if you like – of Bitcoin is its promise that supply will be limited. Supposedly just 21 million coins will ever be created; as of August 2021, 18.77 million have been mined. The origins of Bitcoin are fairly well-known; the first two developers were Satoshi Nakamoto, a mysterious figure whose existence has been questioned and Martti Malmi, a Finnish software engineer. According to, “Bitcoin is controlled by all Bitcoin users around the world… nobody owns the Bitcoin network… nobody can speak with authority in the name of Bitcoin”.

Limited supply, controlled by no individual or group, virtually indestructible, highly valued and used as a form of money… that’s gold! But all those qualities are also aspired to by Bitcoin (and other forms of computer-created digital tokens). No-one seems to agree what Bitcoin actually is: the US Treasury categorises Bitcoin as a decentralised virtual currency; the Commodity Futures Trading Commission classifies it as a commodity; the Internal Revenue Service classifies it as an asset. For some, notably former US Presidential hopeful Hillary Clinton, Bitcoin is a threat to the US Dollar’s reserve currency status and “has the potential” for destabilising nations.

Yet if one of Bitcoin’s USPs is its inherent scarcity – which could be overturned if all Bitcoin network users agreed – then surely that’s one of gold’s USPs too. And even though people might long for more gold to be produced, that longing counts for nothing – especially in a world which is inexorably moving against environmental depredations of any kind.

Virtually indestructible, almost all of the gold that has been mined is still around. The World Gold Council (WGC) estimates that total above-ground gold stocks are around 201,000 tonnes, and 53,000 tonnes are under the earth. Jewellery accounts for 46% of the above-ground stock, says the WGC, official holdings 17%, private investment 22%.

If the current rate of production continues at around 3,000 tonnes a year, then known underground gold reserves will run dry in 17.6 years. Of course new gold reefs could be discovered, although in the last three years none have been found. According to S&P Global Intelligence in June 2020, “with production from existing mines expected to begin decreasing in 2022, there is a need for more high-quality assets that can be developed in the medium term”.

One source of additional gold supply is unavailable to Bitcoin – recycling. If new gold supply begins to slow, then the law of supply and demand should hold true – and the price ought to rise. That may encourage some holders of physical gold to sell, which would increase supply. But when prices are going up, the temptation is to hold on for future further gains.

When 21 million Bitcoins have been mined, and if the promises of Bitcoin’s fans hold true (that its price will skyrocket) then its ‘community’ will be sorely tempted to mine more; and fraudulent Bitcoins and Bitcoin scams will become more commonplace. The supply of cryptocurrencies is theoretically unlimited. Bitcoin is currently the favourite; will it always be?

With Glint’s allocated gold, you know your money is safe. While the world tries to figure out what Bitcoin actually is, we have centuries of history that have established gold as money.

Bullion Bulletin: For Muslims, cryptocurrency is haram

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cryptocurrency muslim

A new ruling by Indonesia’s National Ulema Council (MUI) has judged that cryptocurrencies are haram, or banned, on the grounds that it is associated with uncertainty, unlawful betting and harm.

Judging what is halal – i.e. permissible – or haram, that which is not permitted for the Islamic faithful – is tricky, even for Islamic scholars. According to professor Abdulrazaq Alaro, Head of Islamic Law at the University of Ilorin in Nigeria, it is haram to trade in cryptocurrency as it has no intrinsic value, there is high volatility and excessive uncertainty, and a high risk that is akin to gambling; trading in cryptocurrencies is just like a bubble that had the potential of bursting. Moreover, cryptos are used for illicit activities, are plagued by ambiguity and anonymity, and they are not issued/regulated by any government or constituted Shariah (or religious) authority. The Grand Mufti of Egypt – Shaykh Shawki Allam – agrees, as does Shaykh Haitham al-Haddad, chair of the fatwa committee of the Islamic Council of Europe. Other Muslim scholars disagree. The United Arab Emirates has allowed crypto trading in Dubai’s free zone; Bahrain has allowed crypto assets since 2019.

With about a quarter of the world’s population being Muslim, and the rapid growth of cryptocurrencies, deciding whether they and their use is halal or haram is clearly vital. Asrorun Niam Sholeh, head of religious decrees with Indonesia’s MUI, has said that if cryptocurrency as a commodity or digital asset can abide by Shariah tenets and can show a clear benefit, then it can be traded. Crypto transactions amounted to 370 trillion rupiah ($26 billion) in the first five months of the year in Indonesia. Indonesia’s central bank is considering the adoption of a central bank digital currency.

The MUI’s decision doesn’t mean all cryptocurrency trading will be stopped in Indonesia, but it could deter Muslims from investing in the assets and make local institutions reconsider issuing crypto assets.

What of gold and Islam? Muslim men it seems are not allowed to wear gold, although Muslim women are. Under Shariah law gold is generally considered a ‘Ribawi’ item, meaning the world’s 1.8 billion Muslims can’t trade it for future value, or for speculation. But they can, however, use gold as a currency; and Muslim women can own and wear gold jewelry.

Bullion Bulletin: Nigeria gets the e-currency bug

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Bullion Bulletin Nigeria

Regular readers will know that The Treasury closely watches developments in the digital currency world. We’re convinced that while the use of cash is in decline, governments will fight tooth and nail to retain control over fiat currencies, because control over what we use as money is what really gives governments their power.

This largely explains the explosive growth of cryptocurrencies since the creation of Bitcoin. All the different types and models of cryptocurrencies share at least one thing – a determination to wrest control over currency out of the hands of governments and to place it in the hands of individuals none of whom can debauch the currency.

It hasn’t worked quite like that ideal. Bitcoin was developed in 2009, a conscious reaction against the turmoil of the 2008 global financial crash. We are still living through the ripples of the 2008 crash – many trillions of Dollars spent in quantitative easing (QE) programmes have been expended around the world since then.

Money, thought Bitcoin’s creators, was too precious to be left in the hands of governments and their lackeys. We need a form of money that’s stable, independent, for everyone – not just a privileged few. That’s part of the Bitcoin (and its imitators) philosophy and it’s what Glint believes too.

This is why the steady roll-out of Central Bank Digital Currencies (CBDCs) is so important. Representatives of the official sector – governments, central banks, international financial institutions – make a lot of noise about CBDCs being a cheaper and faster way of moving money around the world, or being about extending greater financial inclusion to the unbanked poor, and these things might be true.

But the real reasons why they are all going to embrace CBDCs is that if they wish to maintain control over currencies they need to use new technology or be left behind; and they are nervous that their control over what can and cannot be used as legal tender is slowly slipping away.

In October the G7, the world’s wealthiest liberal democracies issued guidelines for CBDCs, which said in part that any CBDC must “support and do no harm” to the bank’s ability to fulfil its mandate on monetary and financial stability, and must also meet rigorous standards. Such currencies must not infringe upon the central banks’ mandates, and they must meet rigorous standards of privacy, transparency and accountability for protection of user data, said the G7.

Meanwhile countries are rapidly adopting CBDCs. Nine months ago Nigeria’s central bank effectively banned all private cryptocurrencies, which had (understandably) been thriving in the country where the currency – the Naira – has lost 78% of its value against the US Dollar in the last two decades.

Yet Nigeria has now launched its own CBDC, the ‘eNaira’, even though more than half of Nigerians don’t have a bank account and 95% of transactions are still done in cash. The informal economy represents more than half of Nigeria’s gross domestic product (GDP). According to the Atlantic Council’s tracker, 87 countries, representing 90% of global GDP, are now “exploring” a CBDC, up from 35 in May 2020.

Some Nigerians are concerned that the eNaira will make it even easier than it already is for the government to examine and shut down accounts belonging to political opponents. That’s not a concern for China, which is preparing to introduce to the world its own CBDC at the February 2022 Beijing Winter Olympics.

But can you imagine the complete paralysis the long-deliberated eDollar will face? Jerome Powell, chairman of the US Federal Reserve, said towards the end of September that a US CBDC “is such a fundamental issue, it would be ideal if this were to be a product of broad consultation and ultimately authorising legislation from Congress”.

In other words, he threw this particular hot potato into someone else’s lap. Democracy is great – just rather slow.