Nigerian CB Chief Arrested — Cash is King — Stoltenberg: Ukraine Peace – ‘SPIEF’ Conference — Asian ‘SWIFT’ Payment — Russia/China Trade Boom — Hong Kong Escape Hatch for Crypto XCHGs – [06-18-2023]

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THIS WEEK’S EDITORIAL

NIGERIA CENTRAL BANK (CB) CHIEF ARRESTED:  The Governor of the Nigerian central bank, Godwin Emefiele, has reportedly been removed from his post and detained by Nigeria’s secret police, presumably under the orders of the new President, Bola Tinubuand.

Early this year, Emefiele’s central bank removed large amounts of cash from the economy and limited cash withdrawals. The result was economic chaos because most Nigerians use cash on a daily basis. The majority of the population is poor with 33% unemployed. Without adequate amounts of cash in circulation, the annual CPI inflation rate surged to more than 22% while transactional volumes dropped with dramatic effects on the economy. Poverty and desperation were the result.

If a central bank wanted to destroy trust in its management and create economic collapse, then this would be a perfect plan. It begs investigation. The central bank seemed to be obsessed with the idea of a “cashless” economy. And yet most Nigerians use cash every day and more than 50% do not have a bank account. The IMF (International Monetary Fund) is in the background and has been advising the central bank.

CASH MUST ALWAYS BE KING:  BOOM is a strong supporter of the role of physical cash in any economy. Cash is the people’s money, issued (usually) by the Sovereign Treasury (not by the banking system), non-interest bearing, a buffer against credit money dominance, anonymous in usage, perfectly fungible and a natural hedge against CPI inflation. Only a foolish nation abandons its currency, either in a currency union or in the form of physical cash. Any central bank that cannot see this is also foolish in the extreme. And any government that cannot see this is worse than foolish. It is acting in treason against its own people.

Treason is the betrayal of allegiance toward one’s own country, especially by committing hostile acts against it or aiding its enemies in committing such acts. It is the betrayal of the peoples’ trust and confidence. If a nation’s own government or central bank engages in such corrupt behaviour, then they are stabbing their own nation in the heart. If a government denies its people access to cash as currency, then it is plotting against the people. That happened in Canada last year during the Truckers strike when citizens were denied access to the money in their bank accounts.

Cash must always be King. That term is meaningful. It means this. Cash as currency is, in fact, the embodiment of your nation. It embodies the bonds of trust that are forged in the struggle to achieve nationhood. That trust must never be broken by any government or any central bank.

STOLTENBERG PEACE IN UKRAINE:  There is now talk of peace negotiations in the Ukraine war coming from Jens Stoltenberg, the head of NATO. In a meeting with Joe Biden last week, he was reported as saying that the current counter offensive was aimed at “bolstering their position to reach a diplomatic end to the war with Russia”.

In other words, he is now waging more war to achieve an inevitable peace. He is feeding more young Ukrainian men into the meat grinder so that he can negotiate from a more strengthened position in the inevitable peace settlement. In typical Stoltenberg style, he does not appear to be considering the possibility of defeat on the ground in Eastern Ukraine.

He said “It’s still early days, but what we do know is that the more land that Ukrainians are able to liberate, the stronger hand they will have at the negotiating table.”

He is an unelected official as the head of NATO so the question that must be asked is this: who selected him?  And now it looks likely that nobody else can be found to replace him. It appears that no one wants the job. Stoltenberg has been leading NATO since 2014. Before NATO, he was the United Nations Special Envoy on Climate Change from 2013 to 2014. That speaks volumes. He is the man who is mostly responsible for creating the mess that we see today in the Ukraine. And, now, he pretends to be an expert on achieving peace?

THE SPIEF CONFERENCE:  If you live in in one of the so-called advanced economies of the West, the mainstream media will almost certainly not inform you of the recent SPIEF meeting from 14^th – 17^th June in St Petersburg.

The St. Petersburg International Economic Forum (SPIEF) has been running annually for 25 years, since 1997. This year, about 14,000 people attended from over 130 nations and, according to press releases, 3,500 journalists. Since 2005, the SPIEF has been held under the auspices of the President of the Russian Federation. Vladimir Putin gave the Keynote Address which included some important comments on the stability and strength of the Russian economy.

He said that “In January-May, non-oil and gas revenues grew by 9.1%, which is noticeably higher than expected.” and “Today, our public finances are generally balanced, with a small current federal budget deficit.”  “I will say that if foreign manufacturers want to return again, come to our market, and we hear such conversations more and more often, we are not closing the doors to anyone.”

On the use of currencies in international trade and capital settlements, he made this statement, “Today, about 90% of settlements with the countries of the Eurasian Economic Union are in roubles, more than 80% of settlements with China are in roubles and yuan. We are actively developing trade in national currencies with other states, too.”

Of course, the Eurasian Economic Union (EEU) is an economic union of several post-Soviet states so that is no surprise. But the fact that Russia and China are now settling 80% of their transactional settlements with their own currencies is noteworthy.

On the US Dollar, he had this to say “We have never had, and do not have, the goal of de-dollarisation of the Russian economy. And we have never had, and do not have, the goal of influencing the de-dollarisation of the world economy.”

In other words, he was explaining his policy of multi-polarity of currencies in trade and capital settlements with no one currency dominant.

ASIAN SWIFT PAYMENT ALTERNATIVE:  The Asian Clearing Union (ACU) is made up of nine central banks – those of India, Bangladesh, the Maldives, Bhutan, Iran, Nepal, Pakistan, Myanmar and Sri Lanka. Apparently, two other nations have reportedly applied for membership – Belarus and Mauritius. The main objective of the clearing union is to facilitate payments between member countries. This is an alternative to the SWIFT system, based in Belgium and dominated by the United States.

The ACU was established at the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The Decision to establish the ACU was taken a very long time ago in 1970 at the Fourth Ministerial Conference on Asian Economic Co-operation held at Kabul. The Agreement establishing the ACU was then finalised in 1974 at a meeting of ESCAP in Bangkok. Five central banks (India, Iran, Nepal, Pakistan, and Sri Lanka) signed the Agreement. Bangladesh and Myanmar were the sixth and seventh signatories to this Agreement. Bhutan and Maldives signed the Agreement in 1999 and 2009 respectively and the number of the ACU participants reached nine.

There was an ACU meeting in Tehran last week where the Central Bank of Iran governor Mohammad Reza Farzin claimed that dropping the US dollar would help to protect member states’ foreign exchange reserves while still enabling effective settlement of bilateral trade deals. This statement was in response to the recent confiscation of foreign assets by the United States as part of its sanctions regime against Russia. Farzin also revealed that less than 10% of Iran’s international trade was being conducted using the US dollar, down from 30% two years ago.

Last year, Moscow was hit by further sanctions initiated by the US, including the blocking of many Russian banks from SWIFT and the confiscation of some Russian assets in foreign jurisdictions. Russia started developing its own national payment system in 2014. The new Russian payment system is called SPFS — System for Transfer of Financial Messages – and was established as an alternative to SWIFT.

Russia’s SPFS ensures the transfer of financial messages between banks both inside and outside of Russia. According to the Russian Central Bank, the system now has 469 banking participants, including 115 foreign entities from 14 nations. Since 2019 many agreements have been reached to link the SPFS to other countries’ payment systems, notably in China, India and Iran.

At the meeting in Tehran last week, the Central Bank of Iran deputy governor Mohsen Karimi was reported as saying that the new ACU payment system was capable of completely replacing SWIFT.

China has also developed its own payment system for payment settlements. It is called CIPS – the Cross-Border Interbank Payment System. However, CIPS currently settles transactions only inside China. CIPS can settle Yuan transactions between Chinese mainland institutions inside China and between mainland and Hong Kong institutions. However, it must currently connect to SWIFT (the Society for Worldwide Interbank Financial Telecommunication) to communicate with international financial institutions.

SWIFT is huge. It has 11,000 participating institutions in 200 countries. CIPS, established in 2015 to clear and settle onshore and offshore Chinese Yuan transactions, has only 1,200 participating institutions in 103 countries. However, there is also a difference in functionality. SWIFT is a global secure messaging system that allows financial institutions to communicate with one another, but it does not move funds. CIPS does move funds but only denominated in Chinese Yuan.

So – we have CIPS in China, the SPFS in Russia and the ACU in some Asian nations – all steadily working towards ultimately avoiding SWIFT and the possible confiscation of assets by the USA.  Such confiscation of assets could possibly be interpreted as piracy and has been a major shock to many nations around the globe. This has accelerated the now well established trend towards multi-polarity of currency in global payment settlements.

RUSSIA-CHINA TRADE BOOM:  Customs data released on Wednesday last week showed that trade between Russia and China has continued to accelerate this year after hitting a historic high in 2022, with both exports and imports surging strongly since the beginning of the year. Bilateral trade increased by 40% in January-May compared with a year ago, to almost $94 Billion. During the period, Chinese exports to Russia jumped 75.6% against last year to $42.9 Billion while imports from Russia surged 20.4% to $50.9 Billion.

In the month of May, the trade turnover between the two countries reached $20.6 Billion. That is an extraordinary number, suggesting that trade will easily exceed $200 Billion in value by the end of the year. In 2022, trade between Russia and China grew by 29.3% to a record of $190.3 Billion.

The war in Ukraine has clearly boosted economic cooperation between China and Russia. This is a decisive and historic Geopolitical outcome which cannot be reversed. However, NATO continues to prosecute the war with more weapons and more encouragement. This must stop and sooner would be better rather than later. How many thousands of young Ukrainian and Russian men must be sacrificed before common sense prevails?

Vladimir Zelensky, the President of Ukraine, addressed the Swiss Parliament last week, again begging for more weapons. However, the largest political party was not present, boycotting the speech. The speech was ignored by the People’s Party, which holds 53 seats in the 200-seat lower house, the National Council.

This may herald the turning point in the Ukrainian situation especially if the much heralded Ukrainian counteroffensive fails to have any significant impact on Russian defences. Military failure will turn into political failure and then Zelensky’s hold on power in Ukraine will become tenuous.

In 2003, twenty years ago, Western nations including the US, the UK, Australia and Poland invaded Iraq on false pretences. That all ended in tears. Now, they are the dogs of war again, encouraging Zelensky to continue against a formidable enemy while young men die on the front lines. This is unwise as it drives the world towards another divide, similar to the dynamics of the Cold War.

HONG KONG ESCAPE HATCH FOR CRYPTO EXCHANGES:  BOOM’s recent editorials concerning the declaration of war by the United States on the world of Crypto suggested that a crisis was brewing for the sector with the possibility of Binance leaving the US.  Last week, however, a member of Hong Kong’s Legislative Council, Johnny Ng, issued this rather startling statement on Twitter.

“I hereby offer an invitation to welcome all global virtual asset trading operators including Coinbase to come to Hong Kong for application of official trading platforms and further development plans. Please feel free to approach me and I am happy to provide any assistance.”

In other words, he was inviting Coinbase and other Crypto exchanges to establish operations in Hong Kong. There were some reports that he even hinted at potential stock market listing opportunities. His proposal was made within days of lawsuits being filed by the US Securities and Exchange Commission (SEC) in the US against the major cryptocurrency exchanges – Binance and Coinbase. Recently, Binance announced a cessation of operations in Canada and France, after they announced an investigation into Binance’s possible involvement in “money laundering” activities. Nigeria is the latest among several nations to ban Binance, the world’s largest cryptocurrency exchange by volume, saying its operations in the country were illegal.

This move by Hong Kong has dramatically changed the outlook for Crypto, at least in the short term. On Friday, the price of Bitcoin and the market capitalisation of the entire market suddenly found some buyers. However, the long term may be more clouded. If the major Crypto exchanges are forced to find a home in Hong Kong, then global investors will have to be content with Chinese government oversight and that may be yet another negative for the sector. BOOM expects a resumption of the downtrend in Crypto prices that began in mid-April to resume next week when potential sellers realise that Chinese oversight is an unwelcome development.

QB Explained: https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/  AND BOOM’s Perfect Economy: https://boomfinanceandeconomics.wordpress.com/2020/01/18/boom-as-at-19th-january-2020/

In economics, things work until they don’t.  Until next week.  Make your own conclusions, do your own research.  BOOM does not offer investment advice.

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BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY: LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans). https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how global banking systems really work.

AND Watch for 4 minutes, this Bank of England explanation: Money is essential to the workings of a modern economy, but its nature has varied substantially over time. This video describes what money is today.

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.

On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter — “In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).” Reference: https://www.bundesbank.de/en/tasks/topics/how-money-is-created-667392

The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018…“the vast bulk of broad money consists of bank deposits” “Money can be created…when financial intermediaries make loans“ – “In the first instance, the process of money creation requires a willing borrower.” “It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”

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