News Note: US - China Dispute a Threat to Stability?

It is now obvious that the US and China are in a full fledged dispute over a number of issues with tariffs and trade making the biggest headlines. When President Trump first mentioned the possible use of tariffs against China, the idea conveyed was that he hoped that it would lead to discussions to actually remove tariffs and that we would never get into a world where both sides were engaged in real live trade war. 

Clearly, those hopes were not realized. The dispute seems to be only ramping up with both sides digging in. Critics of the President will say they knew this was coming and view it as very bad. Supporters will say that the US has to be taken seriously by China to obtain a fair end result. It is not our objective here to take sides on political issues so we won't on this situation. It is our job here to try and identify situations that might be a systemic risk to the present financial and monetary system. Now we have to view this situation as at least having that potential. 

I do see some signals that the US is getting more serious about taking on China over these issues and seems to view the situation as a matter of national security. Below I have pasted in some links and information to support my conclusion on this. 

When I see these kinds of things start showing up, it suggests to me that US intelligence agencies are gearing up to try and prepare the public that the US is ready to take actions that may result in adverse reactions (like from China for example). So, we have to monitor this situation as a potential risk to system stability (although likely minimal risk). Again, I watch the key markets for signals (stock markets, US dollar, gold).

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Jim Rickards announces on Twitter that he will make a classified presentation on the subject of "Financial Warfare with China" August 15, 2018 at Norfolk Naval base. This announcement follows two new articles on China that Jim releases. Both articles suggest that things between the US and China are not improving and that China can expect to pay a significant price domestically during the dispute with the US:

Keep Your Eye on China 

China's Plan to Tank Their Own Stock Market

Here is one quote extracted from the first article:

"Will China be able to pull off this Goldilocks approach to a potential credit crisis? Of course not. Nobody’s that good or that lucky. Still, the Communists will try and may be able to keep the greatest Ponzi scheme in history afloat in China for another year or so.

The endgame is still a financial crisis that the Chinese won’t see coming. In that case, China’s only solutions are to close the capital account, devalue the currency, nationalize the financial sector and put the malefactors in jail.

This story is getting worse because of the escalating trade war that shows no signs of letting up. On top of it we now must add an emerging-markets crisis as the crisis in Turkey threatens a spillover."

Note the emphasis on how much trouble all this is going to cause for China.

Next, recently TV host Mark Levin invited long time expert on China Michael Pillsbury on his program to discuss China. Please note this from the bio information on Mr. Pillsbury:

"Major academic advisers to Pillsbury at Columbia were Zbigniew Brzezinski and Michel Oksenberg, who later played key roles in the Jimmy Carter administration on policy toward both China and Afghanistan. Pillsbury studied the art and practice of bureaucratic politics with Roger Hilsman, President John Kennedy's intelligence director at the State Department and the author of Politics Of Policy Making In Defense and Foreign Affairs. At Stanford, Pillsbury's academic mentor was Mark Mancall, author of two books on the influence of ancient traditions on Chinese foreign policy."

. . . .

"During the Reagan administration, Dr. Pillsbury was the Assistant Under Secretary of Defense for Policy Planning and responsible for implementation of the program of covert aid known as the Reagan Doctrine. In 1975-76, while an analyst at the RAND Corporation, Michael Pillsbury published articles in Foreign Policy and International Security recommending that the United States establish intelligence and military ties with China. "

The ties with US past policy on China and (most likely) US Defense and Intelligence agencies that study how the US should deal with China seem pretty evident from Mr. Pillsbury's past. Please note he has worked with people on both sides of the political aisle for many years.

Below I have embedded the full TV interview with Mark Levin where they talk in depth about the current relations between the US and China. In this interview, I was struck by the tone taken by Mr. Pillsbury. He talked about how he and others in the past had encouraged the US to adopt a policy of cooperation and trust building with China in the belief that China was opening up its society and would move towards more democracy and free markets, etc.

In this interview, he says he and others were duped by China and clearly takes a completely different view. He says the US now needs to view China as a potential enemy and take a different approach to assert a stronger US position with China.

Again, the point here is NOT to take a political position in regards to this situation (for or against US policy). The point here on this blog is to demonstrate that there are some signals showing up in public media that suggest the US is now serious about taking on China in ways that could disrupt the current financial and monetary system, so we need to watch these events and stay informed as they unfold to see what actually happens.

Here is the summary of this interview posted on YouTube:

Mark Levin sits down with Author Michael Pillsbury on Life Liberty & Levin on Fox News Sunday to discuss his book "The Hundred Year Marathon", as well as China stealing American technology over the past 40 years and more.
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Added note: With the news that the US and Mexico have agreed to a new trade deal and prospects for Canada to join in, some are suggesting this means the trade dispute with China will eventually fade away with some kind of new deal there as well. That may be, but as of this writing no deal has been made and attempts to restart talks were not successful. So, the above information should still be relevant and events should be monitored.

The Most Important Question Heading into this Fall for My Blog, The US, and the World

Is the Trump Economic Boom a Mirage? 

This is the lead question in a recent article by Jim Rickards that looks at whether or not current Fed policy might lead the US into a new recession. I cannot think of a more important question to consider at this time. The answer to that question will determine if regular blog articles continue here, if the US economy remains strong, what happens to the US dollar, and then even what will the impact be on the entire global economy. 

Below are some excerpts from the article by Jim Rickards and a few added comments. It is hard to overestimate how important the answer to this question really is. If the US economy is as strong as it is reported to be and is able to sustain a higher level of GDP, the political landscape tilts towards President Trump and against any substantial major changes in our present monetary system. This would mean that this blog would likely have little news to report or cover leading to no need for regular articles. Most voters will probably be happy enough to keep things pretty much as they are. The status quo remains likely to stay in place.

On the other hand, if the US economy is not as strong as it is reported be or cannot sustain a high enough level of GDP, the door opens for all kinds of disruption and change. The political environment likely changes. The markets and US dollar are likely less stable. We have to go on alert to watch for signals that another deep recession (or even a new crisis) could emerge. So the the stakes are very high in regards to the answer to this question. Below are some excerpts and then a few added comments.

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from Jim Rickards article - The Fed is on a Collision Course

"Is the Trump economic boom a mirage? The data say yes, but the Fed models say no. The Fed has a long track record of sticking to its model-based approach and missing major turns in the U.S. economy.

Current Fed policy will push the U.S. economy to the brink of recession later this year. When that happens, the Fed will have to reverse course and ease monetary policy. This will send the dollar crashing while gold and the euro soar."

. . . . 

"As for the Trump bump, growth in the first quarter of 2018 was 2.0%, slightly below the average since June 2009. Growth for all of 2017, Trump’s first year in office, was 2.6%, slightly above the 2.14% average in this recovery but not close to the 3.5% growth proclaimed by Trump’s supporters.

In short, growth under Trump looks a lot like growth under Obama, with no reason to expect that to change anytime soon. In fact, the head winds caused by the strong dollar, the trade wars and out-of-control deficit spending may slow the economy and bring future growth down below the average of the Obama years.

Into this mix of weak growth comes the Federal Reserve, which is tightening monetary policy, reducing the base money supply and supporting a strong dollar. All of these policies are associated with slower growth ahead, an inverted yield curve and a high probability of recession."

. . . . 

"Simultaneously, the Fed is reducing its balance sheet (destroying base money) at an annual tempo that will reach $600 billion per year by end of 2018. This policy is completely unprecedented in the 105-year history of the Fed, so its economic effects are unknown.

My estimate, and that of others, is that this balance sheet reduction policy is equivalent to four 0.25% rate hikes per year on top of the four already planned. The combined effect is the same as the Fed raising rates 2% per year off a near-zero rate base as recently as December 2015.

Bearing in mind that monetary policy works with a 12–18-month lag, this extraordinary tightening policy in a weak economy is almost certainly a recipe for a recession.

Why is the Fed tightening if the economy is fundamentally weak and the probability of a recession is so high?"

. . . . . 

Click here to read the full article and see Jim's answer

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My added comments: This article lays out very well a situation I have been monitoring in terms of what to do about regular blog articles here. If the US economy holds up and really does sustain a strong level of GDP, not much is likely to change very soon. Most people will be happy (or at least satisfied) and the present system is unlikely to be at major risk for a game changing crisis. As I have mentioned here, there is no reason to continue to try and cover an event that is not happening (major monetary system change) just for the sake of trying to produce regular blog articles.

On the other hand, if the situation goes the other way, things could change a lot and then the door to major monetary system change could also open up. Just imagine if things do go south with the US economy. Political opponents of President Trump will seize upon the situation to disrupt his agenda and undercut his political power base. I think it is reasonable to guess that President Trump will point a finger directly at the Fed as the cause of the problem (too tight monetary policy). This would be a very messy situation with all kinds of potential for disruptive changes with the huge political divide that exists today in the US and the country essentially split in half. 

Also, it is not as though no one is urging the President to be more proactive on the concept of monetary reform. The Wall Street Journal recently called on him to use the current environment to educate the public on why reform is needed and start the process. Dr. Judy Shelton has said this might be the right time to think about monetary system reform. The New York Sun has gone a step further in this article and suggested that if the President does not become more proactive in educating the public on this issue and seizing the opportunity, he may find himself in some political trouble if the economy does take a downturn.

This is why I originally decided to see how things go until this fall in terms of future regular blog articles. By the time the November 2018 elections take place, we should have a decent idea where things are headed. The 2018 mid term elections probably either keep the Trump Administration economic agenda in place or severely disrupt it if the Democrats take control of the US House of Representatives. If the Trump economic boom shows signs of being a mirage before the elections, the prospects for change go up. If the economy seems to be doing fine, the prospects for major change go down.

It's a gigantic question and the answer has worldwide implications. We won't try to make any predictions here. All we can do is just observe what actually happens and report it. 
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Added news notes 8-27-18:

Another article calling for monetary system reform - this one says events in Turkey provide another example as to why it's needed. Here's a quote from the article:

"The lesson to learn from the Turkish crisis does not only concern Turkey. It is one more crisis which calls for a reform of the international monetary system."


CNBC - US - Mexico reach trade agreement and new NAFTA deal anticipated

CNBC - Markets not worried about Trump because of the "Pence Put"

US House Financial Services Committee on "The Future of Money - Digital Currency"

It seems that the US House of Representatives has now started to look into issues we have been presenting here for some time. On July 18, 2018, the Financial Services Committtee of the House of Representatives held a hearing entitled:  The Future of Money - Digital Currency.

CoinTelegraph covered the hearing a bit in this recent article. Since we have covered this pretty extensively here and have been able to get direct input from one of the leading experts in the world on this topic, we will delve into this hearing to demonstrate why we do not think we will be seeing central bank digital currencies any time soon from major central banks such as the Federal Reserve. Below are excerpts from the testimony of the experts who appeared at this hearing and then some added comments and observations. I added some underlines for emphasis.

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Dr. Rodney J. Garratt - (UC Santa Barbara)  - Conclusion Section of Testimony:


"In conclusion, I believe that the Federal Reserve will, at some point in the future, need to respond to the disappearance of cash and I have given some reasons why it might consider offering some form of retail-oriented central bank cryptocurrency. 

There are, however, many issues related to the viability and security of this technology that need to be fully resolved before adoption. Moreover, a much deeper understanding of the monetary policy and financial stability issues is needed. On the wholesale side, the DDR (Digital Depository Receipt) concept allows financial market infrastructures to build clearing and settlement features onto distributed ledger platforms by leveraging conventional central bank accounts without introducing a new category of central bank money."


Dr. Michel J. Norbert  - (Heritage Foundation)  - Conclusion Section of Testimony:

Conclusion 

"Globally, there has been a steady shift away from paper-based payments during the past few decades, but cash remains a widely preferred option. This shift has occurred as technology changed, thus making it easier to facilitate consumer exchanges electronically. If the federal government would simply allow these changes to take place, there would be no particularly unique problem—the trends toward a less-cash society would likely continue, and consumers would likely use various forms of money, including cash and cryptocurrencies. Criminals may find it more expedient to transfer money anonymously via the Internet, but they have surely found it easier to commit crimes with the advent of better automobiles, computers, and communication devices. None of these items should be criminalized.

The U.S. government should treat all forms of currency, even cryptocurrencies, in a neutral manner. It should remove legal barriers to using alternative forms of money, and it should avoid providing any single form of money with a legal advantage, thus allowing competitive market forces to expose weaknesses and inefficiencies in existing alternatives. The competitive process is the optimal approach to discovering what people view as the best means of payment, and allowing people to access such alternative means of payment is the best way to provide a powerful check on the government’s ability to diminish the quality of money. The same concept—allowing competitive processes to work—applies equally to new applications of blockchain technologies: The federal government should not impose regulations that unduly hinder the development of these applications. Congress should work diligently to eliminate tax and other legal impediments to the development of alternative currencies as well as new applications for blockchain technologies.

The federal government currently has a partial monopoly on the production of money, and this monopoly necessarily limits the extent to which competitive processes can strengthen money. It also exposes the means of payment for all goods and services to the mistakes of a single government entity. Congress should ensure that this monopoly is not extended via the use of federally mandated digital money, especially via retail digital accounts at the Federal Reserve (including a central-bankbacked cryptocurrency). Implementing any such policy would effectively nationalize private credit markets because no private company (or individual) would be able to compete with the federal government. Because people are so vulnerable to the abuse of money (including modern monetary policy errors), Congress should not interfere with citizens’ ability to opt out of official currency."

Dr. Eswar S. Prasad  - (Cornell University)  -  from Conclusion Section of Testimony:

"The dominance of the dollar as a vehicle currency, followed by the euro, is related to the depth and liquidity of most currency pairs with the dollar (and the euro), which reduces the associated transaction costs. This dominance is unlikely to persist and could even result in an erosion of the dollar’s role as a unit of account. For instance, the denomination of all oil contracts in dollars could easily give away to denomination and settlement of contracts for oil and other commodities in other currencies, perhaps even emerging market currencies such as the renminbi.

Notwithstanding any such changes, the role of reserve currencies as stores of value are not likely to be affected. Safe financial assets—assets that are perceived as maintaining most of their principal value even in terms of extreme national or global financial stress—have many attributes that cannot be matched by nonofficial cryptocurrencies.

The key technical attributes include liquidity and depth of the relevant financial instruments denominated in these currencies, such as U.S. Treasuries. More importantly, both domestic and foreign investors tend to place their trust in such currencies during times of financial crisis since they are backed by a powerful institutional framework. The elements of such a framework include an institutionalized system of checks and balances, the rule of law, and a trusted central bank. These elements provide a security blanket to investors that the value of those investments will be largely protected and that investors, both domestic and foreign, will be treated fairly.

While reserve currencies might not be challenged as stores of value, digital versions of extant reserve currencies and improved cross-border transaction channels could intensify competition among reserve currencies themselves. In short, the finance-related technological developments that are on the horizon portend important changes to domestic and international financial markets but a revolution in the international monetary system is not quite on the cards for the foreseeable future."

Alex J. Pollock - (R Street Institute)  -  from Conclusion Section of Testimony:

The Future of Money

"There is no doubt that the digitalization of financial transactions, records, access to information, and communication will continue to increase, and that the electronic networks underlying the activity continue to grow more intense and omnipresent. But the fundamental nature of money, it seems to me, will not change. It will either be:

 -- The monopoly issuance of a fiat currency by the central bank as part of the government, backed by the power of the government. That the whole world operates on such currencies is a remarkable—and dangerous—invention of the 20th century.

--  Or if private currencies do again develop, they will, as in the past, have to be based on a credible claim to reliable assets. With Hayek, we could hope (without much hope) that this might bring competition for government fiat money.

It is clear that having a fiat currency is far too precious and profitable for governments for them ever to go back to a government currency backed and convertible into actual assets, whether gold coins or otherwise.

Government fiat currencies will operate in increasingly digitalized forms. Still, paper money will retain its advantages of secure privacy, immediate settlement without intermediaries, and the ability to function when the electricity is shut down. Recently I was amazed to find that my younger son, an up and-coming banking officer, was walking around with the total of one dollar in his wallet, but of course with a well-used debit card. As this generational difference indicates, doubtless our ideas of money will grow ever more dependent on having the electricity on at all times and everywhere.

Attempts at private fiat currencies, with no claim to any underlying assets, in my view have a very low probability of ever achieving widespread acceptance and functioning as money.

An increase of the monopoly power of central banks, which already have too much, should be avoided."

Watch the full hearing just above

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Observation and Comments:

The testimony at this hearing as presented selectively above conforms very well to what we have been reporting here for some time and what experts tell have told us. The advent of cryptocurrencies (such as Bitcoin) and the much touted blockchain technology has created a global discussion about what can be money. Also, will central banks respond to private initiatives to create competing currencies by creating their own versions?

What we have discovered here is that while this topic is very popular in terms of academic studies, panel discussions, and even congressional hearings such as this one, the mainstream banking and central banking industry moves very slowly towards any kind of major change. It is clearly easier to talk about than to implement in the real world.

Please notice the portions of the testimony of the experts underlined above. There is no indication from these experts that we are close to any major central bank creating a central bank digital currency (CBDC) running on a blockchain platform (and certainly not the Federal Reserve). We see some smaller central banks playing around with the idea, but no major movement or trend in that direction so far.

A couple of the experts quoted above even argue in their testimony that a central bank digital currency is a bad idea and oppose anything that might tend to give central banks even more monopoly control over money than they have now.

The point here is that it is obvious there is no consensus right now that major central banks should or will move forward with central bank digital currencies at this time. 

The words of KlickEx CEO Robert Bell offered in his recent interview here come to mind:

"The technology for real time payments has existed for a long time. The technology, like military technology, often takes a decade or more to test and prove and deploy - and can be 30 years old before it goes live, unless in wartime."

If major banks and central banks move this slowly towards adopting simple real time payments systems to move money across borders more quickly and less expensively, just imagine how long they will probably be studying and discussing the concept of a central bank digital currency. Even if they can figure out the technology to implement it, the political process of obtaining consensus remains a formidable obstacle to change. 

Without a crisis to speed things up, this industry tends to move towards change in terms of decades. This is exactly what we have reported here for some time now.

BIS Newsletter - Implications of Low Interest Rates

The Bank for International Settlements publishes a newsletter featuring a variety of articles and studies available from them. The latest newsletter from BIS is pasted in below and features a study on the implications of long term low interest rates. BIS continues to say that there is the potential for long term low interest rates to "affect financial stability".

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August 2018 Implications of low interest rates  Prolonged low market interest rates could affect financial stability, the Committee on the Global Financial System finds. First G-SIB methodology review finalised The Basel Committee’s framework for identifying the systemic importance of global banks is working as intended. Principles for financial market infrastructures Jurisdictions are making progress towards implementing international standards for payment, clearing and settlement systems. Bond issuance continues to fuel global liquidity Dollar credit to non-bank borrowers outside the US rose to $11.5 trillion in Q1, driven by international bonds. US dollar and euro credit to non-residents continued to expand  Innovative technology in financial supervision (suptech) Financial sector supervisors are getting tech-savvy. This FSI Insights paper explores early experiences in using innovative technologies for supervision work. More BIS publications  BIS Working Paper: Gauging procyclicality and financial vulnerability in Asia through the BIS banking and financial statistics Can BIS data help to gauge financial vulnerability? BIS statistics sent warning signals ahead of the 1997 Asian financial crisis.  BIS Paper: Low for long or turning point? Papers from the 16th BIS Annual Conference feature research and discussions by central bank Governors, leading academics and former public officials. BCBS Working Paper: Survey on the interaction of regulatory instruments: results and analysis The Basel Committee publishes further results and analysis of a survey on how multiple regulatory instruments interact. ---------------------------------------------------------------------------------------- My added comments: One article above notes that non bank borrowing of US dollar denominated debt by foreign countries continued to climb higher up to $11. 5 trillion. The article also states: "The US dollar accounted for by far the largest share of outstanding foreign currency credit to non-bank borrowers in EMEs, at $3.7 trillion at end-March 2018, followed by the euro (€644 billion, or about $790 billion) and the yen (¥8 trillion, or $70 billion)." (see detailed report here) Two points to keep in mind: 1- as the US dollar index goes higher, paying off this debt in US dollars becomes harder for the borrowers and the risk of default rises 2- Please note that as of this report (March 2018) borrowing in US dollars is still far ahead of any other currency. They don't even mention the yuan in this paragraph

Robert Bell of KlickEx Comments on Monetary System Reform

Readers here know that we have featured New Zealand based KlickEx on the blog several times in the past. KlickEx is on the front lines of innovative technology for cross border payments systems and for technologies that can be used by central banks.

KlickEx Founder Robert Bell is recognized globally as an expert in payments technology and for creative ideas on how to promote financial inclusion in places where it is needed the most (such as the islands of the South Pacific). Robert has also been a great mentor, willing to share his knowledge and experience on the issues we cover here over the past few years.

Robert kindly agreed to do a Q&A style interview for readers here discussing his thoughts on the current status of monetary system reform and its potential for the future. He works with central banks and banks around the world, specializing in real time cross border payments that help promote financial inclusion. 

Last fall he announced a partnership with IBM and Stellar to implement what he described as the first institutional scale payments system to run on a blockchain platform (which we covered here). So he brings us an inside perspective on the latest information available regarding what is happening in Fintech and the potential for monetary system reform globally.

Robert Bell - KlickEx

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Q: After the 2008 financial crisis, many people felt that some kind of major reform to the existing US dollar based monetary system was close at hand. In fact, that was the very reason this blog was launched. Why do you think we have not seen any major reform to the global monetary system so far at this point in time?

A: Wow. This is a great question. I was one of the people who wanted to see the reform - very much - as I was inside banking at the time, and was more convinced than most, that banking as we knew it, wasn't as important as people inside the industry believed it was (as it stood then). 

In my opinion, at that time, central banks were sitting on their hands, believing in a set of financial theories that were very incomplete, and as a result,  what we saw was an utter embarrassment to the establishment. The bit I think was worst, was called the Capital Asset Pricing Model, and it had an extremely stupid assumption: That the market knows best. It allowed mathematical proofs to be built on this, and as we know, the market doesn't always know. It's the best we have, but it's almost never correct, otherwise it wouldn't change so much every day.

The danger of this is a complete lack of inherent responsibility to disclose what you know of what you sell. A lack of good faith. And CAPM eventually leads bankers to believe that something is of merit, if someone else will buy it, no matter how bad it is, no questions asked. And others buy things, because math tells them too. It's very dangerous. That led to what was primarily a greed and stupidity crisis. And it was potentially unbounded in scale. It wasn't really anything to do with the structural functioning of the system, but the human institutions that run it, in the back rooms, and the ethics involved on risk and honesty when things are bought and sold. 

When it all fell down, the people managing billions and trillions of dollars of assets allocation based on assumptions that profit alone, and worse still, short term profit, was the sole important measure of virtue, were at fault. A new system of any sort, doesn't change this. A Blockchain doesn't either. People will still find their way in - or worse - sell rubbish claiming to be gold. And that's the problem with "the system": People's desire to short change others as quickly and as comprehensively as they can get away with. And that's nothing to do with computer science.


Q: KlickEx has been at the forefront of Fintech innovation in payments systems as proven by your recent partnership with IBM and Stellar. Do you think that cross border payments system technology will eventually be adapted for use by central banks in reforming the overall monetary system?

A: Yes and no. The systems will be put in place, but it's unlikely that central banks will run it. The issues central banks face here are primarily around jurisdiction; and how to manage conflicts of interest between factions of a super-national governance body is a large body of work that has to be established and maintained. It's what happened in Europe with the  Sovereign Debt Crisis, and it's what happens when Bitcoin Exchanges fail. But countries cannot fail, we don't have that luxury in Developed Markets; else they'd be emerging markets...! 

So the systems end up being owned by banks and then become narrowly focused on providing tools to the biggest banks (SWIFT, CLS), excluding smaller ones. The ones owned by government (FedACH, SEPA) are slow and inefficient and end up ineptly serving the lowest common denominator. The ones in the NGO (non governmental organization) sector lack drive and are often berated by Bank and Government competitors, to the point where good initiatives get lost (e. g. Gates Foundation's MojaLoop) in the same way Government ones do. Exceptions are Visa and Master Card, and China Union Pay, vs American Express. 

To answer the second part of the question, the system isn't necessarily broken, it's just slow. The technology for real time payments has existed for a long time. The technology, like military technology, often takes a decade or more to test and prove and deploy - and can be 30 years old before it goes live, unless in wartime. Banking is similar - it's not about how fast you can go when the trajectory is upwards and exciting, but about how slowly you go downward when the trajectory is negative and terrifying.                                             (note: I added the underline for emphasis)

Q: Do you see a future for private blockchain based cryptocurrencies to evolve into a viable and sustainable alternative to the current monetary system?

A: The key there is cryptocurrency. Blockchain is just another database system, that is almost free to adopt, but increasingly expensive to maintain. We know, a bank will spend a billion dollars on a system that promises to be nearly free in the long term. Blockchain is the opposite. Which makes it perfect for startups. It's brilliantly free to copy, clone or fork, but try and make it run at a billion transactions per second for under a cent per instance, and it is a monumental failure on a scale that the world has never seen (compared to the claims made). It's just lucky that cryptocurrencies have no scale, otherwise the colossal impossibility would be a realised failure. 

The entire market cap of cryptocurrencies, is less than about an hour of what banks transact over morning coffee, day in and day out. Banks have capacity to process more than 10 Quadrillion transactions per year. Cryptocurrencies have so many flaws, that most people don't have the skills to acknowledge or even recognize that...

They just know it's cheap to start, and easy to raise money for it.  That's not to say it's all doom and gloom, but just like any technology, and just like the Blockchain solution we've seen in the Pacific, it's not really what technology is used, but who is using it that is most important. As you've seen with IBM, Stellar, and KlickEx, knowledge over enthusiasm will steer the direction of change in the monetary system going forward, I believe.


Q: Five years from now, do you think the global monetary system will look very different from what it is now or pretty much the same?

A: Very similar. Just faster. There will be less change than moving from Windows95 to Windows2000 - or from Skype to WhatsApp, for the younger generation. Or perhaps a similar difference between the special effects in Hollywood movies between the movies Terminator and Terminator 2. What will noticeably vary is what can be done on top of the existing infrastructure. 

Today's infrastructure is very efficient if you are a large bank. But those efficiencies don't filter down to people (end users). And people are getting a bit sick of being excluded from efficiency. This is our experience - and what we've been working on in the Pacific: taking the long-standing abilities of banks to price and trade foreign exchange, millions of times per second, at fractions of a percent per time, and sharing that with more people.

Q: What else would you like to say to our audience about the future of the global monetary system?

A: Have some faith. Be noisy with your frustrations. When we (KlickEx) started, banks would lobby with all their might, saying that nobody cared about real time payments - and that payments were risky (when the source of risk is actually the customer initiating the payments). 

They battled with all their hearts - because of colossal benefits to banks of status quo - but eventually fell to inevitable modernisation with the pressures of competition. The system is better now, than it's ever been. And it's still better than any alternative. However, everything can improve. It it's not free and instant, it can be improved. So watch this space!                                                                                          (note: I added the underline for emphasis)


Thank you for your time and willingness to share your knowledge and real world experience. I am struck by your comments about how much the current banking system likes the status quo and how long it takes new technology to be tested and deployed. This is very much in line with what we have been reporting here on this blog. Things tend to move slowly unless some kind of crisis (like war in your analogy to military technology above) speeds things up.

Before we finish up, I noticed that recently you announced the news that the KlickEx Foundation will be active in a number of interesting projects to improve lives and living conditions in the South Pacific. Could you share a bit of that news with us and your level of excitement about taking on this project?

A: Thanks for asking! We have done a huge amount of good work already, seeking to advance the interests of our communities though monetary technology and instrument innovation. They may not seem like overlapping spheres of influence - but we have learned that they really are. We've channeled more than a billion dollars of direct private aid into almost 70% of the households in our markets in the Pacific - and have been cited by the UN for lifting household income by over 20% of GDP per capita.

We have a huge range of additional programs going too, from nutritional programs that have become the highest rated TV Series in our market, to our ocean filters that promise to remove the equivalent of millions of plastic bags worth of micro-waste per week. We have robotic farming and renewable energy programs, combined with micro-nutrient organic agriculture and Industrial scale environmental carbon reclamation harvesting. All of these projects are funded from monetary services that are saving families millions of dollars per week in one of the most underpopulated, but ecologically significant regions in the world. So yes, we're not only talking about the work were doing in banking, where there is much more to be done, but also in the physical environments where our stakeholders live. It's a big challenge - but scale isn't something we've shied away from yet.

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My added comments: I really appreciate Robert taking time from a very busy schedule to share these thoughts with readers here. As you can see, Robert is a creative problem solver working in a sector that traditionally prefers the status quo and moves very slowly and cautiously towards any significant change. I found this comment about Robert on the KlickEx web site attributed to Jesse Lund of IBM who is partnered with Robert and KlickEx in the Pacific region (see what our clients say):

"In over two decades working in financial services, fintech, and technology, I have never encountered a more gifted financial professional than Rob. His ingenuity and creativity is rivaled only by his integrity"  ---------  Jesse Lund - Blockchain and Digital Currencies at IBM

I would second that statement. Having known Robert now for a few years and with lots of email exchanges over that time to discuss events and issues, I am struck by his incredible perseverance and desire to not only build a world class company, but to do what he can to make the world a better place along the way within his sphere of influence. We need more people in the private sector like this doing more things like this.

The KlickEx Foundation is the fulfillment of his deep desire to give back to the community in tangible and practical ways that really impact people's lives. I don't know very many people who would invest a considerable portion of their profits and give up significant personal time (while managing a very busy schedule) to attack a growing problem like the proliferation of plastic in the oceans. Everyone agrees this is genuine problem. Robert is doing what he does. He is not complaining about the problem or the causes of it, he is trying to help be a part of fixing the problem. 

I hope any readers here who have an interest in the problem of plastic buildup in the oceans or other projects that the KlickEx Foundation is tackling will visit their web site and take a look at the work being done. If you find the projects of interest, you might consider helping them out. Anyone can help with a donation (any size is appreciated) if you are able. 

You can also help out just by making others aware of the Foundation and it's web site link. You never know who might want to help out if they only knew of the work being done. Any form of help is meaningful and much appreciated! If you have questions about the Foundation or its projects, there is a contact form available here.

Added news note 6pm 8-12-18: Robert Bell advised me today that at the moment his thoughts are focused on the people of Vanuatu as they deal with a volcanic eruption that is forcing the evacuation of thousands of people off the tiny island of Ambae. So we hope that efforts to keep everyone safe will be successful and the aid needed there will be able to get through to those who need it.

Added note: For the record, I do not have any financial affiliation with KlickEx or the KlickEx Foundation. I included the information above related to the Foundation simply because I was impressed with their work and goals. Robert did not ask me to promote the KlickEx Foundation in any way. 

I view Robert as a global expert in Fintech and cover his views as news related to the potential for monetary system reform from someone who is on the front lines of what is happening currently in the real world on a daily basis. Because of this, I will add this article to our marketplace of ideas for monetary reform page.