Banks

Fed Officials Ponder Funding Hedge Funds and Private Brokers Directly

14/01/2020 by Idelto Editor

On January 13, the New York Federal Reserve gave $60.7 billion to eligible private financial institutions by leveraging U.S. Treasurys and agency securities. With all the stimulus given to financial institutions since September, it hasn’t relieved the stress of economic uncertainty. Now the Fed is pondering giving money directly to hedge funds and private brokers in order to ease the current pressure and lack of liquidity within U.S. repo markets. Moreover, two Federal Reserve branch presidents have voiced concerns in regards to the American economy in 2020.

Also Read: Money and Democracy: Why You Never Get to Vote on the Most Important Part of Society

The Fed Wants to Ease Pressure Within Repo Markets by Directly Funding Hedge Funds and Private Brokers

The U.S. Federal Reserve has slashed interest rates three times since September 2019 and has pumped massive amounts of fiat into the hands of financial institutions by leveraging overnight repos and other monetary easing tactics. On Monday, the New York Fed provided eligible banks with $60.7 billion, with $30.2 billion toward agency securities and $30.5 billion in U.S. Treasurys. A few times a week since September, the Fed has been stimulating private banks in this fashion, giving them trillions of dollars.

Now the Fed is talking about giving cash directly to eligible hedge funds in order to help ease the demand within U.S. repo markets. Last week, Fed officials discussed a similar idea by creating a “standing repo facility” so private banks can access fiat reserves any time they want. Officials on Tuesday brought up the idea of hedge funds, smaller banks, and securities brokers borrowing funds from the Fed through the repo clearinghouse by pledging securities like government bonds.

According to market observers, the Fed wants to step away from repo-market operations. However, critics believe that lending funds directly to securities brokers and hedge funds could lead to a “hedge fund bailout.” After all the rate cuts and massive printing, numerous people believe “the Fed protects gamblers at the expense of the economy.” The chairperson of the Public Banking Institute Ellen Brown noted this week that the “repo market is little known to most people.” But the repo market is: “a $1-trillion-a-day credit machine, in which not just banks but hedge funds and other ‘shadow banks’ borrow to finance their trades,” Brown recently wrote. Brown’s scathing critique of the Fed’s monetary solutions further added:

The repo market is a fragile house of cards waiting for a strong wind to blow it down, propped up by misguided monetary policies that have forced central banks to underwrite its highly risky ventures.

Inflation and Asset Bubble Concerns Mount

The Public Banking Institute chairperson is not the only one worried, as two Federal Reserve Bank presidents have expressed “concerns,” seeing a surge in inflation and a growing asset bubble. Boston Fed President Eric Rosengren cited the real estate market as a potential area for a bubble.

Additionally, Federal Reserve Bank of Atlanta President Raphael Bostic told the public: “There’s not a lot that we have left to do to stimulate.” Following the statements from two Fed branch presidents, former Federal Reserve chair Ben Bernanke said if the central bank takes “extraordinary steps,” it could save the economy. Bernanke also detailed that’s what he and the Fed did during the 2008 Great Recession. During a speech delivered in San Diego Bernanke stressed:

A moderate increase in the inflation target or significantly greater reliance on active fiscal policy for economic stabilization, might become necessary.

In addition to the dreary outlook from former and present Fed employees, last week Rabobank executive Philip Marey said he believes the Fed will cut interest rates to zero. Despite Marey’s forecast, the central bank’s board seems reluctant to cut rates again. However, on January 14, the Swiss wealth giant UBS said the Fed will likely cut rates three times in 2020. “We think this tariff damage is going to push U.S. growth down … that’s actually going to trigger three Fed cuts, which is way off consensus, nobody believes that,” Arend Kapteyn, global head of economic research at UBS stated on Tuesday. At the time of writing, CME Group’s Fed Watch tool indicates that the probability of the Fed slashing rates again in 2020 is 50%.

What do you think about the Fed’s capital injections lately? What do you think about them giving funds directly to hedge funds, smaller banks, and securities brokers? Do you think the Fed will cut rates again in 2020? Let us know what you think about the central bank’s monetary schemes in the comments section below.

Image credits: Shutterstock, Wiki Commons, Fair Use, Wall Street Journal, Getty Images, and Pixabay.

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China Issues Digital Currency Guide for Party Cadres

14/01/2020 by Idelto Editor

Understanding a complex subject should be easier with access to educational materials. With blockchain and CBDC now part of Beijing’s political vocabulary, the Communist Party of China (CPC) has issued a guide to digital currencies meant to prepare party officials for upcoming changes in the country’s financial system.

Also read: China Saw $11.4 Billion in Crypto-Based Capital Flight Last Year

Handbook Educates Party Functionaries About the Impact of Digital Currencies

“Digital Currency: A Reader for Cadres” is part of a series of guides on various current topics, from artificial intelligence to blockchain technology, Bloomberg reported. The handbook has been released by the publishing house of the largest newspaper group in China, People’s Daily, and is now in printing for its second edition.

In 200 pages, the guide acquaints readers with important aspects of digital currencies. Its 23 articles cover not only the basics but also more sophisticated matters such as the impact these currencies could have on monetary systems and global finance, the publication details. Noting their goal is to assist CPC cadres in expanding their understanding of the underlying technology, the authors have stated on the cover:

Digital currency is inevitable in the course of history.

The guide comes out as China prepares to complete the development of its central bank issued digital currency (CBDC). The research into the matter started about five years ago but the People’s Bank of China (PBOC) stepped up its efforts after the announcement of Facebook’s Libra project last summer. Also, a Politburo meeting in October revealed that the Chinese leadership wants the country to gain an edge in the blockchain field.

No timetable has been released for the issuance of the sovereign coin yet but according to recent reports by Chinese media, the central bank has completed “top-level design, standard formulation, functional research and development” as well as “joint testing” of the digital yuan. PBOC is now focusing on establishing “stability, security, and control,” the bank’s Digital Currency Research Institute announced.

Launch Date of Digital Yuan Still Unknown

Despite the stated progress, a launch date was not announced. According to previously available information, the Digital Currency Electronic Payment (DCEP) system, as the project is also known, will be introduced with a two-tier approach. PBOC will first issue the currency to commercial banks, which will then distribute it to the public. In December, the 8btc crypto outlet reported that the digital currency will be piloted in Shenzhen, China’s tech hub, and the city of Suzhou.

The trials will be led by the People’s Bank of China and will be conducted with the help of four state-owned commercial banks: Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), Bank of China (BOC), and China Construction Bank (CCB). Three leading telecom operators, China Mobile, China Telecommunication and China Unicom, will also take part, the website detailed.

Parallel to the development of the digital yuan, Chinese authorities have been cracking down on platforms working with decentralized cryptocurrencies, with particular focus on exchanges and companies related to ICO projects. The government has also been busy dealing with serious issues in the traditional financial system, where a liquidity crisis is brewing on the interbank lending market with Beijing intervening to bail out several small banks. The debt-to-GDP ratio of China has reached 255% in the past decade. And the latest symptom of the hurting Chinese economy manifested itself in figures showing a 7.5% drop in passenger car sales last year, the second annual decline in a row.

What do you think about the digital currency guide issued by the Communist Party of China? Tell us in the comments section below.

Images courtesy of Shutterstock.

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Low Interest Rates Provide Precarious Protection Against Crisis, World Bank Warns

10/01/2020 by Idelto Editor

The latest global debt wave is the largest in the past five decades, the World Bank has acknowledged in a new report. The international institution notes that previous waves of broad-based debt accumulation lead to widespread financial crises. Historically low interest rates this time might not be sufficient to avoid the next meltdown.

Also read: Another Bank Run Highlights China’s Brewing Financial Crisis

Largest, Fastest, Broadest Debt Wave

The risk of a new global financial crisis is one of the focal points in the January edition of the World Bank’s Global Economic Prospects report. There have been four waves of debt accumulation in the last 50 years, the institution remarks, but the one that started in 2010 represents the largest, fastest, and most broad-based increase in debt so far.

The bank warns that while current interest rate levels, which have reached historic lows in many countries around the world, are mitigating some of the risks associated with high debt, previous waves of debt accumulation have ended with widespread financial crises. Undoubtedly a warning for governments and central banks that other anti-crisis measures are needed.

While the crypto space maintains significantly higher interest rates than the fiat world, and platforms like Cred allow individuals to earn up to 10% on BTC and BCH holdings, many developed nations have continued to lower their benchmark rates. More than 20 European countries now have 0% interest rates and a few, such as Denmark and Switzerland, have been in negative territory for around five years.

“Policy options to reduce the likelihood of crises and lessen their impact should they materialize include building resilient monetary and fiscal frameworks, instituting robust supervisory and regulatory regimes, and following transparent debt management practices,” the authors of the report insist. World Bank Prospects Group Director Ayhan Kose elaborated:

Low global interest rates provide only a precarious protection against financial crises. The history of past waves of debt accumulation shows that these waves tend to have unhappy endings. In a fragile global environment, policy improvements are critical to minimize the risks associated with the current debt wave.

History Shows Mounting Debt Leads to Crises

Another report published by the World Bank this past December, titled “Global Waves of Debt: Causes and Consequences,” indicated that debt in emerging and developing economies has climbed to a record $55 trillion in 2018. The document contained a study of the four major debt accumulation periods since 1970 and concluded that the debt-to-GDP ratio of developing nations has climbed 54 percentage points since the start of the latest debt buildup a decade ago.

Around half of the national episodes of rapid debt growth in developing countries, which have totaled over 500 since 1970, were accompanied by financial crises that significantly weakened per-capita income and investment, the World Bank noted. “History shows that large debt surges often coincide with financial crises in developing countries, at great cost to the population. Policymakers should act promptly to enhance debt sustainability and reduce exposure to economic shocks,” commented Ceyla Pazarbasioglu, the World Bank Group’s Vice President for Equitable Growth, Finance, and Institutions.

The latest debt wave differs from the previous three, however, in several aspects. The World Bank points out that it involves a simultaneous accumulation in both public and private debt and it’s not limited to one or two regions. Debt is quite high in developing countries; it is twice the nominal level reached in 2007, the institution emphasizes.

A considerable portion of the debt increase has been driven by China. The debt-to-GDP ratio of the People’s Republic has risen 72 points to 255% since 2010. In the past months and years, a liquidity crisis has been brewing as well. The government in Beijing had to bail out several banks due to a credit crunch in the interbank lending market while also trying hard to stimulate lending for its slowing economy and ensure liquidity in its troubled banking sector.

Despite persisting downward risks, the global economy is expected to grow up to 2.5% in 2020. But according to the World Bank, this is likely to happen only if global investment and trade gradually recover from the weak levels observed in 2019. Although growth in emerging and developing economies is projected to reach 4.1% this year, growth among advanced economies is probably going to slow down to 1.4%.

What are your forecasts for the global economic and financial system in 2020? Share your expectations in the comments section below.

Images courtesy of Shutterstock.

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Bank Closures and Withdrawal Restrictions Anger Lebanese Citizens

08/01/2020 by Idelto Editor

Lebanese citizens have been dealing with economic hardship, as the country’s central bank imposed customer withdrawal limits last October. The problems have continued over the last two months, as ATMs have stopped dispensing cash and bank branches close doors in fear of angry clients. Regional reports disclose Lebanese bank customers often wait for hours in long lines at local branches only to be told the bank’s cash reserves have run dry.

Also read: Problems Escalate in Venezuela as Millions Rush to Spend Petros

Lebanon’s Association of Banks Shuts Banks Down Again as Protests Continue

During the last few months, banking customers in Lebanon have been dealing with withdrawal limits and cash shortages throughout the country. News.Bitcoin.com reported on the start of the friction between the country’s citizens and Lebanon’s central bank. At the time the financial institution (Banque du Liban or BDL) imposed cash withdrawal limits across the country and bank customers were only allowed to withdraw $1,000 per week.

After the withdrawal restrictions, Lebanese citizens began protesting as the nationwide cash crisis saw emptied ATMs and a slew of banking institutions closed. The problems continued into November, as banks remained closed because they were constantly dealing with protestors and angry clients. Demonstrators say Lebanon’s central bank and the country’s smaller financial institutions mismanaged the country’s wealth.

In 2020, the situation in Lebanon remains the same and local reports detail on January 4, banks in northern Lebanon started closing again. Lebanon’s National News Agency said that lenders “balked at customer anger over a liquidity crisis.” AFP reports that banks in the northern region of Akkar locked the doors and shut down on Friday and Saturday. Sources noted that Lebanon’s Association of Banks called the branches and told them to shut down “until further notice.”

Lebanon’s citizens have been protesting the BDL enforced withdrawal restrictions since October 16, 2019.

A 10-Hour Standoff Between Bank Employees and an Angry Customer

AFP also added that angry customers went to a bank office in Halba in order to protest the withdrawal limits. The demonstration ended with a 10-hour standoff between a customer and the bank’s officials. The customer said he wouldn’t leave the bank branch unless he was compensated with his money, but he was escorted out by law enforcement to a local hospital. As the man was ushered to the clinic, bank officials promised the man his funds were safe. That same day, Lebanon’s Association of Banks made a call to certain branches and told them to shut down. The banking organization cited the demonstrations as a “threat to the lives and safety banking employees.”

The news from Lebanon follows the restrictions on withdrawals Indian banks levied after the Reserve Bank of India (RBI) imposed strict restrictions at the end of September. Similarly to the Lebanese situation, Indian bank clients protested the rules and several arrests took place after the RBI placed regulatory guidelines on more than 100 branches.

In Lebanon, it’s become a common sight to see people crying or screaming inside bank branches as Lebanese banking clients believe financial institutions have mismanaged their life savings. Last Friday, Lebanon’s Melhem Khalaf, the head of the Lebanese Bar Association, said the Lebanon central bank’s withdrawal restrictions are “unconstitutional.”

What do you think of the situation at Lebanese banks and lending institutions? What do you think of Lebanon’s central bank restricting people from accessing their savings? Do you think cryptocurrencies are the answer to problems like these? Let us know in the comments section below.

Images courtesy of Shutterstock, Reddit, Al Jazeera, Wiki Commons, Pixabay, and Fair Use.

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A Deep Dive Into Satoshi’s 11-Year Old Bitcoin Genesis Block

03/01/2020 by Idelto Editor

11 years ago today, Satoshi Nakamoto launched the Bitcoin network at approximately 18:15:05 UTC and the world hasn’t been the same since. The Bitcoin blockchain came to life on January 3, 2009, and so far, more than 600,000 blocks have been mined into existence. Nakamoto’s genesis block is special and the hardcoded block has a few unique characteristics compared to the rest of the chain of blocks that followed.

Also Read: BTC’s Hashrate Touches 120 Exahash, But the Price Has Not Followed

The Genesis Block

This week the cryptocurrency community is celebrating the 11th anniversary of the Bitcoin network. Satoshi brought the network to the world two months after publishing the whitepaper on October 31, 2008. The launch of the Bitcoin blockchain started with a hardcoded block called the ‘genesis block’ or ‘block zero.’

The block is unique because it has a 50 BTC reward subsidy that can never be spent. Alternative coins that have copied Bitcoin’s framework also use a hardcoded block to start a new chain. Most early bitcoin blocks and the hash of the genesis block have two more leading hex zeroes. In addition to this characteristic, block zero has a message in the coinbase parameter, which represents a possible reminder of why the cryptocurrency was created. The genesis block’s message reads:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

During the last 11 years, members of the crypto community have sent small fractions of BTC to the genesis block’s address. To date, block zero has 68.13 BTC, which is 18.13 BTC ($131,527) more than it originally started with. There are messages sent with the satoshis as well, as most transaction messages sent to block zero beg Bitcoin’s creator for money. Three people sent the address some funds today, and there’s been a number of satoshis sent to the address all week long. An interesting fact about the 18.13 BTC worth of outputs sent to block zero is that the funds can be spent, if Nakamoto still possesses the keys to the wallet address. Another interesting fact about the “bailout for banks” quote is that Satoshi added the statement twice into the codebase. When someone decrypts the original hexadecimal format, the “bailout for banks” quote is also written backward.

Seven-Day Theory

No one knows who Satoshi Nakamoto was, but many people believe that Bitcoin’s creator was a Microsoft user. Bitcoin version 0.1, the original Bitcoin codebase implementation, is written in the coding language C++ and blocks that were mined in the early days used a Windows GUI mining application. Nakamoto mined the first bitcoin blocks after block zero by leveraging a central processing unit (CPU), which is much less powerful than the warehouses filled with ASICs today. The network did not kick into gear right away and unlike today, with blocks processed roughly every 10 minutes, the subsequent block after the genesis block took six days. There are those that assume Bitcoin’s creator took a break between block zero and block one. Some say Nakamoto purposefully made it so the timeline was similar to the Bible’s Genesis tale when the earth was created in seven days.

Hal Finney was the first person to transact with BTC in coordination with Satoshi Nakamoto. The first transaction took place three days after block one and coins were sent to Hal Finney from block nine. Finney told the world a few days earlier he was “running Bitcoin” on Twitter on January 10, 2009. In addition to the very first transaction, Nakamoto had decided to send BTC to other network participants on the same day he sent funds to Finney. The veteran cryptographer Finney told the public in 2013 that he was the first person to mine Bitcoin alongside Nakamoto. “When Satoshi announced the first release of the software, I grabbed it right away — I think I was the first person besides Satoshi to run bitcoin,” explained Finney.

Nakamoto’s Pre-Release Source Code Tells a Story

While examining the first versions of the Bitcoin source code, which was a pre-code release prior to Jan. 3, 2009 distributed to bitcointalk.org member “Cryddit,” people have found some interesting details. The source code mentions certain terminology that crypto users did not know Nakamoto used at the time. For instance, he referred to the blockchain as a “timechain” and the words “bitcoin miner” can be found as well. The words “bitcoin miner” in the early code are meaningful to some individuals because Nakamoto never used that term within the original whitepaper.

Other intriguing words can be found in the early code like how Nakamoto referred to Bitcoin’s smaller units as “coin” (1,000,000) and “cent” (10,000) rather than today’s popular term “satoshis.” The source code also describes the “timechain” as “a tree-shaped structure starting with the genesis block at the root.” The pre-release Bitcoin code also contained early framework for an IRC Client, a peer-to-peer marketplace and a virtual poker game.

To a great number of people, Nakamoto’s code and initial Bitcoin launch on January 3 were the start of a monetary revolution. The software has sparked the idea that peer-to-peer and censorship-resistant money can exist, removed from governments, corporations, and any single entity. Bitcoin has also given birth to over 4,000 individual blockchain networks that have allowed transactions between global individuals across any border. The fact that the Bitcoin network and the protocol’s offspring continue to thrive today after 11 years is quite a milestone. Nakamoto’s creation has been a gift that keeps on giving.

What do you think about the 11-year anniversary of the genesis block and Satoshi Nakamoto’s infamous creation? Let us know what you think about this subject in the comments section below.

Image credits: Shutterstock, bitcointalk.org, cypherpunk mailing list, pre-release code, Twitter, Wiki Commons, Fair Use, and Pixabay.

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