Reuters -- Russia Says BRICS Nations Favor Common Payment System

Russia and other BRICS nations have long been talking about various ways to bypass the US dollar based global payments system. While nothing major has happened there yet, here is yet another article appearing in Reuters quoting Russian officials on this topic. Below is a brief excerpt.

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"Brazil, Russia, India, China and South Africa, a group of major emerging economies known as BRICS, back the idea of developing a common payment system, a Russian official said on Thursday.

Russia and its BRICS peers have been looking for ways to decrease their dependence on the U.S. dollar and have advocated using their national currencies in mutual trade."

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This article in the South China Morning Post says China is encouraging Chinese corporations to "diversify away for US dollar debt". In this case Euro based debt is promoted by the Chinese government.

Added comment: The article also says the BRICS nations has "discussed" the idea of using a "common cryptocurrency for mutual payments". However, it also goes on to point out that in the past Russian officials have spoken out against cryptocurrencies. So far, this all seems to be an area where a lot of study and discussion takes place, but no actual payments system based on any kind of cryptocurrency has emerged out of it.

Additional added note: The ongoing major repo operation at the US Fed continues to generate a lot of speculation. As the "temporary" program seems to expand further out into the future, more and more skeptics are raising questions as to what is going on here. 

Some suggest the Fed is trying to cover up some kind of problem inside the banking system. Meanwhile, the Fed continues to insist nothing unusual is going on with Chairman Powell directly stating that in this recent written testimony to Congress as follows:

"In response to the funding pressures in money markets that emerged in mid-September, we decided to maintain a level of reserves at or above the level that prevailed in early September. To achieve this level of reserves, we announced in mid-October that we would purchase Treasury bills at least into the second quarter of next year and would continue temporary open market operations at least through January. These actions are purely technical measures to support the effective implementation of monetary policy as we continue to learn about the appropriate level of reserves. They do not represent a change in the stance of monetary policy."

This article appearing in non mainstream Wall Street on Parade is an example of the kind of skeptical analysis of these unsual Fed actions. It points out that two congressmen from Texas raised questions to Chairman Powell about all this. It quotes Chairman Powell responding to these questions at one point in this way (I added underline for emphasis):

"Powell: “We’re doing a lot of forensic work to understand why. Some of that may be reserves – the level of reserves needs to be higher than we thought, which means our balance sheet a little bigger. There may also be aspects of our supervisory and regulatory practice that we can look at that would allow the liquidity that we have, that we think is the appropriate level, to flow more freely in the system. Without, though, undermining safety and soundness.”

This recent article in Zero Hedge points out that the "little bigger balance sheet" has already jumped up to over $4 Trillion once again and represents a very rapid reversal of all the hard fought efforts to reduce their balance sheet with its QT (Quantitative Tightening) program. So it is not surprising we see articles like the one in Zero hedge questioning all this. 

We have stated here that readers should follow this closely over time to see if "there is nothing to see here" or if something troubling is going on inside the banking system that the Fed prefers not to make public. It is worth pointing out that the last major financial crisis in 2008 supposedly "caught everyone by surprise" and that the Fed obviously would not want to create public panic by announcing some kind of major problem even if they are working on some kind of problem behind the scenes. As always, time will give us the answer.

Input from Readers

With not much new to report here, I did get some reader emails suggesting various articles that might be of interest to readers here. So below I have pasted in the links to those articles with a brief excerpt from each just below the link.

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The Guardian - How Big Tech is Dragging Us Towards the Next Crash


"In every major economic downturn in US history, the ‘villains’ have been the ‘heroes’ during the preceding boom,” said the late, great management guru Peter Drucker. I cannot help but wonder if that might be the case over the next few years, as the United States (and possibly the world) heads toward its next big slowdown. Downturns historically come about once every decade, and it has been more than that since the 2008 financial crisis. Back then, banks were the “too-big-to-fail” institutions responsible for our falling stock portfolios, home prices and salaries. Technology companies, by contrast, have led the market upswing over the past decade. But this time around, it is the big tech firms that could play the spoiler role."

Click here to read the full article in The Guardian

The Maghreb Times - Tunisia is First Country to Issue a Central Bank Digital Currency

"Tunisia has announced the launch of its digital currency, the ‘E-dinar.’ With this, the tiny North African country claims to be the first country to launch a central bank digital currency (CBDC)."

Click here to read the full article in The Maghreb Times

The Block - China's President wants Country to  Be Blockchain Leader

"China's President Xi Jinping said on Thursday that the country's communist party should regard blockchain as a core technology for important innovative breakthroughs and should commit to accelerating the development of the technology, according to a report from Xinhua.net."

Click here to read the full article in The Blockcrypto.com

BIS Report on Chinese "Shadow Banking"

Abstract

"Banks' shadow, or money creation by banks beyond traditional loans, plays an important role in China's money-creation process, posing a number of challenges to monetary policy operations and financial risk management. This paper analyzes the money-creation mechanisms of China's shadow banking sector in detail, provides accurate measurements, investigates its effects on financial risk, and surveys recent regulation. To strengthen supervision, China's regulators should closely track the evolution of various shadow banking channels, both on- and off-balance sheet. Specific macroprudential regulation tools, such as asset reserves and risk reserves, should be applied separately to banks' shadow and traditional shadow banking."

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My added comments: A thank you to readers for their input and forwarding the links to these articles. Always appreciate the help.

Added note: I like to include these kinds of stories when I see people doing good things to help out a neighbor. This one happened to take place right nearby us, but got some national attention. Enjoy:

https://twitter.com/LateNightSeth/status/1194668749967831040

Pre Holiday Update

As we head into the Holiday Season, I expect that there is not likely to be much new information to report here related to any kind of major monetary system reform. This post will attempt to serve as an update on things based on the information available at this time. Below is a Q&A style format to discuss the status of the issues as they appear at this time.
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Q: Do you see any indications that some kind of major change in the monetary system is likely?

A: Not right now. We have been reporting here for some time that we do not see any signs of major change unless some kind of new major financial crisis were to emerge that basically forced the system to make major changes or even be fully reset. That is still what we would report for now. This analysis is based on following news reports and from direct input I get from a number of experts around the world that I view as highly credible.

Q: So what could trigger the kind of major crisis that might prompt major change?

A: There are a number of potential triggers that are always out there that we have covered here extensively. Global debt (private and public) is at all time highs. We still have trillions in derivatives contracts in an interconnected global banking system. Geo political negative surprises are always possible at any time (trade wars, currency wars, etc.) So far the powers that be (mostly central banks) have managed to keep the system functioning in a way that most people don't sense an imminent crisis is coming. Perhaps the most noticed event recently is the ongoing efforts by the US Fed to support overnight lending markets with liquidity and an apparent resumption in their policy to expand their balance sheet. The Fed says there is nothing worrisome to see here, while Fed critics and skeptics are suspicious that the Fed may be trying to hide something going seriously wrong behind the scenes. It is certainly worth following to see what happens. As always, time will tell us the answer.

Q: How does the ongoing political war in the US impact the chances for some kind of financial system or monetary system disruption?

A: That has been an interesting irony so far. Despite three years of intense political fighting virtually daily and constant news stories that well known officials may be indicted for crimes, the markets have almost completely ignored it all. We have told readers here that perhaps the best thing to do is just monitor market reactions. They are more likely to let you know if anything truly disruptive to the present system is really going on. So far the stock market has been strong, the US dollar has been strong, and gold and silver prices have been trading in a range with upward, bias but are not indicating any kind of major crisis is at hand yet. If you see gold move sharply up to or above all time highs around $2000, that would be a possible signal. The same for a move in silver above the $25-$26 level or even back up to all time highs around $50. Until you see things like that, the markets are not indicating they are too concerned with all the political maneuvering we see virtually daily now. It's always possible something truly significant could arise. However, the sources I hear from do not expect the impeachment process to result in a removal of President Trump from office and the markets also seem to view things that way. While rumors have persisted for years now that some former high officials in the Obama Administration could be charged with crimes related to efforts to remove President Trump, nothing has happened yet on that front either. So far, everything seems to be more related to political strategies to try and gain an advantage in the 2020 elections If anything major does emerge from this, it will be obvious to us all. For now, the markets are not the least bit concerned about it. One prediction that seems pretty safe is that we will see the political war continue and even escalate into the elections and that will probably suck all the oxygen out of the room until the 2020 elections are over. If President Trump is re elected, not much is likely to change unless a crisis forces change. If a Democrat is elected, change is more likely and the US will likely move more sharply towards socialism. That is pretty easy to predict.

Q: What will this blog do if nothing much changes any time soon?

A: Just continue as we are now. Try to watch for any major signs of trouble. Post a few articles when we can find something relevant to our mission here. Report any change in the situation if we hear of that from any of the experts that provide input from time time. We try to report things (like input from some experts we hear from) you are not likely to see reported in mainstream news since those stories are already widely reported. We do also monitor several alternative media sites in case something of note appears there. We will pass along anything we see that we think might be useful information.
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Added note: If all the political fighting has you thinking we are a nation with no hope for the future, take a look at this short video and perhaps you will change your mind:

https://twitter.com/dcexaminer/status/1190335635078467584

Added note 11-14-2019: After the first impeachment hearings in the US Congress, we are still seeing no market reaction that would suggest anything disruptive is going on or that markets think the President will be removed from office. So no change from the analysis posted above for now.

New Report on Central Bank Digital Currencies from OMFIF and IBM

I am alerting readers to a new report jointly issued by the OMFIF (Official Monetary and Financial Institutions Forum) on the status of future prospects for a retail version of a Central Bank Digital Currency.

We have covered this topic for some time. This new report is in line with what we have reported here. It suggests that we may see some central banks try out a retail version of a central bank digital currency sometime in the next 3-5 years. The report does note that due to emergence of such things as Project Libra from Facebook, there has been a shift in focus at some central banks from the concept of a "wholesale" digital currency (used just by financial institutions) to a "retail" version (used by the general public).

Below I have pasted in the conclusion section of the report to give readers a summary view of it. You can access the full report by going here and providing email information. (I added bold below for additional emphasis)
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Advent of a retail CBDC expected within five years

"IN THIS report we have set out – with help from the global policy-makers who participated in our survey, to whom we owe a debt of gratitude – current central bank perceptions of the advent of disruptive financial technologies and the possible introduction of central bank-issued digital currencies. Policymakers’ assessments are many and varied, and depend much on their economies’ size and monetary policy objectives. But one thing is certain: regulators will not sit idly by as new systems pose potentially severe threats to existing structures. Policy-makers dare not risk being left behind as the technology continues to advance. 

The principal conclusion is that we are likely to witness the introduction of a central bank – that is fiat – retail digital currency within the next five years, either as a complement to or as a substitute for notes and coins. It is improbable that the first such issuance will come from a G20 central bank; it is considerably more likely to be launched in a smaller and less complex economy in response to a specific policy objective and use case. 

This may relate to improving the overall effectiveness and resilience of a national payments system by reducing the prevalence of cash. Alternatively, it could be associated with extending financial inclusion; reducing the size of the dark economy; countering financial crime; or for a specific purpose, such as transforming the cross-border transmission of migrant worker remittances. 

In most instances, the development is most likely to be nationally driven, but increasing co-operation and collaboration between monetary authorities are likely to become the norm. There will be no ‘one size fits all’ solution, and we expect to see the emergence of several different models, use cases and approaches, some perhaps even in direct intellectual competition with one another.

Although the primary drivers of these initiatives will be central banks and associated national authorities, we anticipate extensive private-public sector partnerships wherein the private sector provides or indeed runs technology, infrastructure and operations on an outsourced or more deeply collaborative basis. We believe there will be a growing number of studies, use cases and pilot programmes as both sectors explore, design and test the art of the possible and desirable. We note, however, that these initiatives will be driven by policy and not technology. 

It remains unclear whether blockchain technology or its analogues are the best route forward for digital currency implementation, and central banks by and large are technology agnostic. Ideally, they will settle on their precise policy objectives and then find the most appropriate technological solution, rather than be wedded to a specific technology beforehand.

We do not envisage privately-issued digital currencies gaining significant traction or acceptance in a universal context, although there may be closed private networks in which they operate. The determination of national governments to protect the monopoly enjoyed by fiat currency, and the commitment of regulators to financial stability, will in our view raise insuperable hurdles to the establishment of a private digital currency as a significant means of exchange, however gilt-edged its asset backing. Pure, unbacked cryptocurrencies such as bitcoin will remain the minority pursuit of speculators and denizens of the dark web.

Our hope is that this report will serve policy-makers, industry specialists, economic commentators, scholars and the general reader as a useful companion to the impending and all-but certain changes to retail payments systems. We at OMFIF and IBM welcome comments, affirming or otherwise, and look forward to charting the future of central bank digital currencies in further studies and through our continuing dialogue with policy-makers the world over."
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My added comments: Please note that this summary conclusion is very much in line with what we have been reporting here for some time. Change is more likely to evolve gradually over time without some kind of new major crisis to prompt sudden change.

We have made all the following points noted above here on this blog for some time:

- There is no current new "universal global digital currency" ready to deploy at the global level at this time waiting in the background behind the scenes at the IMF or anywhere else

- Blockchain is mostly just a buzz word so far and by no means has been adopted by central banks or the IMF as a preferred future technology

- Central Banks (and national governments) will do whatever they have to do in order to protect the monopoly status of their fiat currencies. Some may partner with private enterprises, but it will on terms dictated by the Central Banks.

- While the concept of "global cooperation" is always mentioned, the reality is that these potential initiatives by central banks are going to start off at the national level and will more likely compete with each other instead of introducing some new universal global central bank digital currency. Here is how the summary above puts it:

"In most instances, the development is most likely to be nationally driven, but increasing co-operation and collaboration between monetary authorities are likely to become the norm. There will be no ‘one size fits all’ solution, and we expect to see the emergence of several different models, use cases and approaches, some perhaps even in direct intellectual competition with one another."

All of this is in agreement with the input we have received here from experts on this topic that we have mentioned many times. This report once again confirms the accuracy of the input provided us and what we have been reporting here on this blog. This what we just reported in October from KlickEx CEO Robert Bell:

"As far as real systemic change... There's nothing on the cards for the monetary system. The digital services spoken of (in the Bloomberg article) will not change anything fundamental, and the IMF and BIS are even further behind where most central banks are. 

The central banks will implement real time slowly, and banks will reduce cross border prices slowly. 

Swift and their GPI project is already doing this work, but banks are taking a long time to reduce prices, that's all. 

Open Banking, is speeding things up a bit, but not much."    ---- Robert Bell (KlickEx)

As you can see, this process is more likely to unfold over many years rather than something we would see imminently and no universal digital currency or the technology to implement such a thing has been chosen thus far.
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Added note: China's President wants to China to take a leading role in the future of blockchain technology. This will be yet another competing effort rather than some kind of universal global effort. It is clear from the context of the speech that China wants to be in control of the technology used rather than any institution outside of China. We might call this a "China First" initiative on their part.