As expected the Federal Reserve cut its interest rate by 0.25% yesterday. The target rate is now 1.75% – 2%. It wasn’t very exciting, except something strange happened and the overnight rate immediately went above the target rate causing the Federal Reserve to inject emergency funding for the first time in 10 years. It spiked as high as 10% earlier in the week.
Suffice to say it’s a tiny bit embarrassing for the Chairman of the Fed to declare that everything is fine and while he’s saying that the overnight funding markets go into meltdown. Rather giving the impression that he’s lost control of monetary policy.
Fortunately, the Federal Reserve had the answer. They printed some money and handed it out, this made the problem go away. We’ll be seeing rather more of this ‘technical solution’ in the next few years.
Santander settles bonds on ethereum
This week, Spanish bank Santander became the first company to issue and settle a bond trade on a public blockchain. The trade consisted of US$20 million worth of debt issuance in combination with another set of tokens representing cash held in escrow.
Bond issuance has been done before on the blockchain, notably both the World Bank and Societe Generale having publicly issued tokenised debt on Ethereum. This time though, the settlement took place using a stablecoin. So, put more simply, a digital representation of the debt and also of the money used to pay it back.
Return of QE
To the surprise of nobody, quantitative easing returned to Europe last week. This has been flagged for months now and so the only question was how much. As it turned out, the purchases are at the lower end of the scale, ‘only’ 20 billion euros per month.
That Europe needs more QE shows that the original QE hasn’t worked and that Europe’s economies are in real difficulty. The steady drip feed of this news began in April and so barely caused a stir when it was announced, even though it really is bad news.
The strategy of normalising the abonormal in monetary policy is working though. Negative interest rates have been flagged by the IMF this year, open discussions about how they ‘can work’ took place at the Jackson Hole banking conference in the US last month. It’s a straightforward system actually, as you will see:
Borrower: “Can I borrow your car?”
Lender: “Yes, but while you have my car, I will not have a car”
Borrower: “That’s correct and you will also need to pay me ……..and walk to wherever you are going”
We have high hopes for this new global strategy.
Square gives $100k grant
Jack Dorsey founded payments company Square gave a $100k donation to an apparent competitor this week, BTC PayServer. Best explained in their own tweets below. Square’s market cap is around US$25 billion, they are a very big payments company from the guy who founded twitter, who’s also very long bitcoin.
Facebook’s Libra drew the ire of France and Germany last week. In a joint statement from the French and German finance ministers:
“We are both deeply convinced that the currency matters should remain in the hands of governments,” said Le Maire.“This is a matter of sovereignty.”
At the same meeting this was followed up by an ECB board member announcing
“We need to step up our thinking on a central bank digital currency”
To be fair to the European Central Bank, some of their research on cryptocurrency is excellent. They clearly understand it well and the message that this is a genuine threat to monetary sovereignty is making its way up to the mahogany table.
Unfortunately for the digital euro salesmen, their track record is not great. Since 2014 the Euro has lost 97% of its value against bitcoin. They won’t get that back by launching a shiny digital version.