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Soapbox: Digital Dollars recede into the future

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Soapbox Digital Dollars

What’s behind the extreme swings of global markets?

On Monday this week, the Dow Jones Industrial Average fell 1,000 points, only to close about 100 points up on the previous day. The S&P 500 closed on 20 January below its 200-day moving average for the first time since 2020. On Monday it fell by as much as 4% but closed slightly higher. The Nasdaq is still headed for its biggest one-month loss since October 2008. The mini-flight from those assets perceived to be risky (tech stocks were badly hit) spilled over into cryptocurrencies. The leading crypto – Bitcoin – plunged by 50% from its peak of almost $69,000 2 ½ months ago. According to Bloomberg, “the most-speculative stuff is leading the way down… Cryptocurrencies were (and are) even more vulnerable to a sudden shift in investors’ faith”. Gold, however, rose, by around 2% in Dollar and Sterling terms.

Bitcoin’s nose-dive is bad news for El Salvador, whose President, Nayib Bukele, uses his mobile to trade public funds for Bitcoin. Some Salvadorans have claimed that money had gone missing from their digital wallets linked to Bitcoin, which has been legal tender in the country since last year. The International Monetary Fund (IMF) has urged El Salvador to drop its Bitcoin dalliance, but that message is likely to fall on deaf ears. El Salvador has been hoping for an IMF handout of $1 billion, but maybe more generous and less exigent donors – China, Russia maybe? – will step up.

Was it the rising tension between Russia and NATO over Ukraine? Was it an uncomfortable feeling that the US economic recovery is shakier than assumed? Or was it a sense among investors that finally the US Federal Reserve has to get serious about inflation – now shockingly around 7% officially – and will therefore raise interest rates several times this year? Shockingly, the Federal Open Market Committee (FOMC, the policymaking arm which sets interest rates) on Wednesday this week said it would leave the key interest rate at its record low of 0%-0.25%; it might start rate hikes in March.

According to a Gallup poll published this week almost 80% of Americans expect inflation to increase over the next six months – and, as we know, expectations about inflation often become a self-fulfilling prophecy. When the Fed eventually ends its purchases of Treasury and mortgage bonds borrowing costs will become higher, in addition to higher prices for everything else. And now that the IMF is pencilling-in global economic growth slowing this year to 4.4% (from an estimated 5.9% in 2021) the possibility is that with too much monetary tightening the US economy will suffer. The Fed is “at risk of tightening policy into a slowing economy” says one seasoned observer. The greatest impact of higher interest rates will be on – the US government, the world’s largest borrower, with almost $30 trillion in debts. In the US fiscal year of 2021, the federal government spent more than $562 billion in interest on this debt.

As some air squeaked from the ‘bubble of everything’, the US Federal Reserve published its white paper on a possible Dollar Central Bank Digital Currency (CBDC). CBDCs share their underlying technology – blockchain – with cryptocurrencies, but they differ in just about everything else. One commentator, disappointed at the report’s ‘on the one hand, on the other-ness’, dismissed it as “lame”. The report said: “the Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law”. The Fed’s report changed the CBDC landscape little, if at all. It stopped short of calling for a CBDC to be introduced, saying instead that it wants a public debate about it, taking in the views of Congress and other ‘stakeholders’. Digital Dollars may be on their way, but not yet.

While the Fed was publishing its report on The US Dollar in the Age of Digital Transformation, in the UK the upper house of Parliament, the House of Lords, published its own CBDC analysis, with the rather more sceptical title Central bank digital currencies: a solution in search of a problem?

The House of Lords report notes that more than 90 central banks are exploring CBDCs and thinks that’s because central banks are worried that big tech companies, such as Meta/Facebook, could issue their own digital currencies to the users of their vast networks, giving them tremendous market power. And there is the decline in the use of physical cash, which may undermine public confidence in the monetary system.

But a UK CBDC may pose significant risks, it adds. “These risks include state surveillance of people’s spending choices, financial instability as people convert bank deposits to CBDC during periods of economic stress, an increase in central bank power without sufficient scrutiny, and the creation of a centralised point of failure that would be a target for hostile nation state or criminal actors”.

Crypto crash

“When there’s no stability, people look for alternative solutions”. That quote deserves to be engraved on the heart of every central banker and government finance minister. It belongs to ‘Orhan’, said to be a 39-year-old Turkish web security expert, who was interviewed in the Financial Times about the surge in cryptocurrency trading in Turkey, which in 2021 was an estimated 10 times greater than 2020. The temptation of cryptocurrencies for Turks had been that it was seen as a protection against the declining purchasing power of the Lira, the country’s fiat currency. By the end of 2021 the Turkish lira had lost around 40% of its value against the US Dollar. With the slide in cryptocurrencies, that protection now looks weaker.

Russia’s central bank, which is planning its own (rouble) CBDC, has now proposed a ban on the use and creation of cryptocurrencies on Russian territory, because, (it says) of threats to financial stability, and to protect citizens’ wellbeing and monetary policy sovereignty. Cryptocurrencies were given legal status in Russia in 2020 but were barred from use as a means of payment. Following China’s ban on all cryptocurrency transactions and mining last September, Russia became the third-biggest cryptocurrency miner, after the US and Kazakhstan.

Cryptocurrencies had a good pandemic, achieving a global market value estimated at $3 trillion at the peak (now halved), thanks in part to the massive monetary stimulus from the US administration. One commentator suggests that “over the last five years, its massive price gains appear to be driven by a heady mix of speculation, network effects, and hype”.

Meanwhile, Russia’s central bank has been steadily building up its official gold reserves, which now are higher than its US Dollar reserves. The rouble has slid to around 79 to the Dollar, its lowest since late 2020. On the other hand Russia is very happy that one of its major exports, crude oil, has now hit $90 per barrel, the first time that level has been seen in seven years.

Threats to global payments

To Winston Churchill is attributed the saying “to jaw-jaw is always better than to war-war”; we must hope that Presidents Putin and Biden agree. They have much more in common than they perhaps realise, not the least of which is the international SWIFT (Society for Worldwide Interbank Financial Telecommunications) payments’ system, which is a secure communications platform used by financial institutions, although it does not hold or move money and securities. Each year it facilitates trillions of Dollars in cross-border payments; it is trusted by all.

The 11,000 SWIFT member institutions sent more than 35 million transactions per day through the network in 2020. Prior to SWIFT, Telex was the only available means of message confirmation for international funds transfer. Telex was slow, insecure concerns, prone to human error, and lacked a unified system of codes to name banks and describe transactions, which SWIFT has had since its formation in 1973.

President Biden has dropped strong hints that cutting Russia off from the SWIFT system might be one of the sanctions imposed against Russia if it invades or conducts and incursion into Ukraine. SWIFT is governed by Belgian and EU law, so it could ignore the US, but the US might indulge in some arm-twisting to get it to cooperate. Cutting Russia out of SWIFT is a ‘nuclear’ option but one that Russia might feel it can shrug off; like the US’s other major ideological opponent, China, Russia has been busily constructing its own domestic financial communications system, called the System for Transfer of Financial Messages (SPFS), with more than 400 member banks. By 2020 the SPFS handled 20% of all domestic financial communications. China’s SWIFT alternative is called the Cross-Border Interbank Payment System (CIPS). But China is backing more than one horse; a year ago it became known that China had created a new entity, Finance Gateway Information Services, 55% of which is owned by SWIFT and the other 45% by China’s central bank and other Chinese entities, including CIPS. Finance Gateway is charged with information system integration, data processing and tech consultancy.

Reserve status fight

Both Russia and China are clearly taking steps to shore up their financial ramparts against any high-level sanctions by the US. While the rouble can only dream of achieving global reserve currency status, that’s not true of China’s yuan. Co-opting SWIFT, by approaching with stealth, China is playing a much cannier game than seeking outright naked conflict.

At Beijing’s Winter Olympics starting next week, China’s own CBDC, the e-yuan, will be much in evidence. Despite its zero-Covid policy, the number of athletes and visitors will be large; they will all be encouraged to use the CBDC, for taxis, luggage-trolleys, restaurants. And meanwhile, digital Dollars recede into the future.

Where does all this leave gold? Sitting comfortably, I’d propose. Gold has been an internationally accepted form of payment for centuries; it has undergone periods of inflation, deflation, cold wars, hot wars, government hostility and the mockery of the conventionally-minded. And now, with Glint, gold finally has its very own super-fast payments system.

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.


Soapbox: Trust – a precious commodity

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Trust Hands Image

The US Congress says that the motto “in God we trust” must appear on all America’s banknotes and coins. Trust is a precious commodity. Sadly there is precious little of it in today’s US. Cracks are even starting to appear within the senior ranks of the President’s Democratic Party; distrust is spreading. Maybe all political life is like this.

The Democratic Senator, Elizabeth Warren, who briefly was considered the front-runner for nomination as the party’s presidential candidate in 2020, has denounced the chair of the US Federal Reserve, Jerome Powell, as a “dangerous man”. Warren’s words are a bit like breaking wind in front of the Queen; just not done.

Powell is ‘dangerous’ in Warren’s opinion not because of his supremely relaxed view of where inflation may be headed – he is sticking to the mantra that the high inflation level is ‘transitory’ – but because his actions are making it too easy for big banks to take on big risks.

Maybe President Biden will succeed in getting his nominee for the Office of the Comptroller of the Currency (OCC) accepted by Congress. The OCC is an obscure but hugely powerful independent bureau within the US Treasury which regulates and supervises all domestic and foreign banks operating in the US. She is the Kazakh-born, Saule Omarova, a Cornell academic who specializes in the regulation of financial institutions.

Omarova published a paper this year titled The People’s Ledger: How to Democratize Money and Finance the Economy. This ‘People’s Ledger’ is partly an expansion of the Central Bank Digital Currency (CBDC) debate: “The Article’s goal is not to repackage familiar prescriptions but to expand the boundaries – and to sharpen the focus – of the currently fragmented public debate on what “democratizing finance” means in today’s complex world. Doing so is especially urgent in light of the ongoing digitization of finance, which includes rapid proliferation of privately-issued digital money and privately-run digital payments systems. Notwithstanding their rhetoric of democratization, these technologies threaten to undermine the fundamental balance of the sovereign public’s and private actors’ relative powers and roles in the financial system”. Omarova’s ambition is to end banking as we know it, and centralise it under the authority of the Fed, and in the process kill off cryptocurrencies.

Warren meanwhile, used the Archegos Capital debacle from April this year as a stick to beat Powell with, although it’s far from clear that, as the law stood, Powell could have done anything to prevent that costly collapse.

Warren, who made her name as a professor of bankruptcy law and came more forcefully to public prominence during the 2008 financial crash, is one of the leading figures on the left wing of the Democratic Party. She came up with the idea for and established the Consumer Financial Protection Bureau under President Barack Obama.

She told a Senate banking committee that she will oppose Powell’s re-nomination (his term at the Fed ends in February 2022), adding that “I came to Washington after the 2008 crash to make sure that nothing like that would ever happen again. Your record gives me grave concern”. I am sure that Omarova would sympathise with that.

That the American public – the world even – can have trust in the Fed, America’s central bank and its chair and governors is critical. Fiat money, the Dollars and Cents created by the Fed, is entirely built on trust. The erosion of trust in fiat money is one major explanation of the explosion of cryptocurrencies; people are seeking a form of investment and/or money that they can trust not to lose value.

Fed resignations

That’s why the resignation this week of two senior Fed officials, Robert Kaplan and Eric Rosengren, respectively the presidents of the Dallas and Boston branches of the Fed, is not just embarrassing but highly damaging to trust. They owned and traded shares in companies and real estate investment trusts last year, when the Fed gave enormous boosts to all kinds of markets by making money and the borrowing of money cheap.

The definition of insider trading is the trading of a stock to one’s own advantage through having access to confidential information. Even if Kaplan and Rosengren are not thought to be guilty of insider trading, they certainly benefitted from the strong general rise in stock prices – the S&P 500 gained more than 16% last year, while the Nasdaq composite soared by more than 43%. Powell said that the appearance of a conflict of interest is “obviously unacceptable”. According to Daniel Taylor, a professor at the Wharton School, the business school of the University of Pennsylvania, “most Americans today believe the stock market is rigged, and they’re right”.

President Biden is believed to trust Jerome Powell, but many in his party don’t. Jerome Powell, a Republican, has already gained the Treasury Secretary, Janet Yellen’s backing for another stint as chair of the Fed. Will Biden stick to his guns, or knuckle under to the more “progressive” members of his party? In saying she doesn’t trust Jerome Powell, Warren knew that she has the backing of many influential members of the Democratic Party.

In 2022 the Democrats, with their slim grasp on government, will face mid-term elections. Biden will be aware that Bill Clinton in 1993-4 and Barack Obama in 2009-10 saw that precious commodity, trust, ebb away from them in their own mid-term contests. President Biden has clearly decided that his best chance of success is to make a much bigger splash.

He proposes more than $5 trillion (£3.71 trillion) in new spending initiatives over the next decade, far more than Clinton or Obama ever offered, to be partially paid for by tax increases on corporations and affluent families. On cultural and social issues, Democrats are pursuing a much bigger agenda under Biden than either Clinton or Obama. Biden is endorsing measures related to an array of liberal priorities, including election reform; police accountability; citizenship for young undocumented immigrants; statehood for Washington, D.C.; LGBTQ rights; and gun control.

This is a big and risky agenda for a president whose approval ratings are less than 50% , who has only a tiny majority in the House of Representatives and a Senate split 50-50, and with an economy that’s yet to get back on track after the Covid-19 pandemic.

Trust in gold

Trust is a precious commodity. But it’s not something we can use as money. The world is emerging from a health crisis and may be entering a financial crisis. The hints of that crisis are coming thick and fast – China’s Evergrande mammoth debt problems, debt ceiling kerfuffles in the US, nervousness in stock markets as the Fed might/might not slow/stop its quantitative easing – there are too many to mention.

Fortunately, there is something one can trust and use as money, of course that is gold, trusted for millennia and as relevant today as it was two thousand years ago. At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power. We strongly believe that gold is the fairest and most reliable currency on the planet, but 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.

Crowdfunding is now live!

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We’re all delighted that our crowdfunding round is now available in both the UK & US – we’ve got off to a flying start already surpassing £1m in the UK & Europe through Seedrs just a few days after the public launch. US investors can visit Republic to join the Glint crowdfunding community.

A reminder of Glint’s mission: we are democratising and digitising real gold to be used as everyday money. Your support is vital in helping our growth as we continue to offer a real alternative to a failing monetary system.

Just in the last few days we’ve had several stark reminders of why a reform of the current financial system is so vital.

In the last week, we’ve seen inflation stats from China, the UK and the US – up 0.9%, 1.5% and 2.6% respectively. The UK will surpass the Bank of England’s 2% target and hit 2.5% later this year whilst in the US it could even hit 6%. This is staggering and has a frankly terrifying impact on the value of our cash and savings.

Last week, the FTSE 100 fell by around 2.5%, losing almost £50bn whilst the Dow Jones saw a 3% drop over 48 hours.

And the cryptocurrency market is collapsing around us. Elon Musk’s tweet suggesting that Tesla would exit the Bitcoin market sent prices plummeting. As prices stabilised and then began to recover, news from China that it was cracking down on crypto and tightening restrictions on financial institutions with services dealing with the digital currencies, sent crypto prices into freefall – the price of Bitcoin dropped a third in less than 24 hours. Some investors will have seen thousands wiped off their portfolios within a matter of minutes.

All the while, gold has been going under the radar. It’s seen its value rise by around 10% in just six weeks and after being maligned for months is suddenly one of the only assets performing well.

Of course, gold’s value can decline, but it has been a store of value for centuries and has proven its long-term reliability. In my view, the current climate makes gold once again the premier hedge against inflation, uncertainty and the erosion of our purchasing power.

Now is the perfect time to invest in gold and invest in Glint to be part of the future of money.

Jason Cozens


Soapbox: Negative interest is no answer

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Governments have thrown just about everything at their economies since the terrible impact of lockdowns eliminated millions of jobs and slashed growth.

Their efforts – trillions in ‘stimulus’ spending, helicopter money, interest rate cuts, ‘furlough’ schemes, holidays on this and that tax – have had some hefty unintended consequences. The pace of developments has been remarkable. One of the macro-economic tools that’s been tried is cutting interest rates, and even making them negative – in other words you would have to pay a bank to deposit your money.

In February, the Bank of England (BoE) formally told the UK’s high street banks they had six months to prepare for negative rates. The possibility of negative interest rates should send shivers down everyone’s spine. This week we may learn if the BoE intends following through on its warning.

A shift into negative rates will however do little to get the economy moving again. It may produce its own distortions – and market distortions can last much longer than the policy changes that gave rise to them. There’s always a time lag.

For example, few people this time last year would have forecast that household wealth would have soared under the pandemic – yet it has. In March average US household income went up by more than 21%, the largest monthly rise since 1959. UK households that same month put £16.2 billion into their bank accounts, 3.4 times the monthly average for the year to February 2020, prior to the first UK lockdown.

In the UK, we have an extra twist. The UK Chancellor Rishi Sunak announced in July 2020 a temporary stamp duty holiday. Stamp duty is the tax levied by the UK government on residential property – on homes. Sunak cut the rate to zero for all properties sold for less than £500,000 ($693,000) until the end of March. He later extended this until the end of June this year. It’s not clear why the Chancellor chose this policy instrument in the anti-Covid/economic slump fight but its effect has been to create a “red hot” property market according to one UK mortgage adviser.


Governments lack dexterity

Demand for mortgages in the UK has become “red hot” and – the laws of supply and demand being what they are – average UK house prices went up by an astonishing 7.3% in April year-on-year. In the US, house prices rose by 16% in the past 12 months. The price of lumber – the main component in the typical US house – has risen by more than 230% since the start of the Covid-19 pandemic. UK household wealth has risen to record levels, the equivalent of £172,000 ($238,400) per person. In the US, personal incomes went up by 21.1% in March against the previous month – the highest jump since 1946.

US citizens – even those working and living abroad – have received their $1,400 Biden “stimulus check”. Some UK citizens have been paid by the government while their job is put on pause (“furloughed”).

But the hand of government is by definition clumsy. All state instruments are blunt; they’re not built to take account of individual cases. Thus the Legatum Institute, a think-tank in the UK, estimated last November that almost 700,000 people had been pushed into “poverty” in the UK as a result of the Covid-induced economic crisis. Human Rights Watch, the international NGO, said that eight million more US citizens were living in poverty in January this year than six months’ previously.

The gap between the “haves” and the “have nots” has just got bigger; the collective wealth of the more than 600 US billionaires has gone up by 36% during the pandemic. The richest 1% of Americans have added about $4.8 trillion of wealth from the end of March to the end of December 2020.


Continental lessons



We should be wary therefore of any attempt to stimulate growth by making interest rates negative. The money that would supposedly be teased out and put to productive use (into the “real” economy of making things people need to buy) will not necessarily end up there. Those who put their spare cash in banks would find themselves forced to pay for the privilege. Savers in cash are already punished by record low-interest rates; they would suffer even more punishment if rates went negative.

Nor is there any guarantee that the cash would flow into the economy; since the European Central Bank (ECB) introduced a negative deposit rate in 2014 physical cash holdings in Germany have trebled to €43.4 billion ($52 billion, £37 billion). People prefer to hold cash than pay banks, or to risk it by investing it. People have become even more wary of spending on anything but tangible assets in the wake of Covid. In the seven years since then the 19 countries within the Euro area have grown very sluggishly – peaking at 2.6% gross domestic product (GDP) growth in 2017 and as low as 1.3% in 2019 – the year before Covid-19 struck. Their example of negative interest rates does not seem to encourage growth.

Governments right now want to see their populations spending, injecting money into the economy and theoretically driving economic growth. Negative interest rates – which would have a knock-on effect on many financial products and institutions, from tracker funds to banks – are not the answer when economic growth already appears to be rebounding. The “reflation trade” has become a buzz phrase in recent weeks; crafting policy to ensure that inflation does not get out of hand is rapidly becoming the main concern for the US and others.

With interest rates so low, taxes bound to rise, prices soaring – lumber is only one example – protecting what one has is becoming daily more important. The gold price is having one of its periodic dips; but if history is any guide, then gold remains an important part of anyone’s portfolio.