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Cryptocurrencies are plummeting – where will it bottom out?

What was lauded in many places as the future of money some twelve months ago now threatens to vanish into irrelevance. We are talking about cryptocurrencies here. While market capitalisation of all existing representations of such currencies amounted to around USD 835bn last January, only just over USD 120bn remains now – a decline of around 85%. Market leader Bitcoin came dangerously close to the USD 3,500 threshold at the start of the week. Going from the historical high of USD 20,000 in December 2017, the cryptocurrency pioneer has thus lost around 80%. The business model behind the respective cryptocurrency does not appear to be playing any major role in the price collapse. Ripple, the currency for the banks’ payment networks and the segment’s number two, eased by 87% compared with the highs reached at the turn of the year. The Bitcoin offshoot “Bitcoin Cash” slumped by as much as…

Cryptocurrencies & regulation: Trust bad, control better

Cryptocurrencies remain a buzzword on everyone’s lips. Whereas idealists see an alternative to the traditional monetary system, critics perceive a classic bubble building. In the view of representatives of governments, central banks and supervisory authorities, Bitcoin et al. are highly speculative, liable to be used for criminal purposes, and pose risks to the entire financial system. Accordingly, it is widely agreed that regulation is needed. At a national level, many regulatory decisions have already been made, extending from warnings to outright bans. And there is also evidence of progress being made on a cross-border basis. Nonetheless, this should not blind us to the fact that there is a huge amount of work to be done here: genuine international coordination is absolutely essential to well-functioning regulation given that “virtual currencies” are not tied to national borders. The European Union has emerged as something of a pioneer in the area of cross-border…

Debt levels in the emerging markets are rising further

The first half of 2018 was characterised by difficult conditions for the emerging markets. Even if it is not always possible to clearly distinguish between cause and effect, one reason for the scepticism was the strengthening of the US dollar relative to many emerging market currencies, which then essentially makes servicing the debt held in US dollars more expensive. The updated data released this week by the Bank for International Settlements (BIS) on US dollar debt held by countries outside the USA (non-banking sectors) provides interesting insights in this regard. According to the data, US dollar debts held by the emerging markets has risen from Q1 2017 to Q1 2018 by USD 292 billion to USD 3.68 trillion, meaning that the upward trend seen in recent years has persisted. Moreover, it is not just in the emerging markets that debt held in US dollars has increased, although the rate there…

The Brexit “White Paper”: a dead end

The long-awaited Brexit “White Paper” came out yesterday afternoon and was promptly torn to shreds in the subsequent debate in the House of Commons. The government has succeeded neither in keeping the Brexit hardliners happy nor in garnering the support of the advocates of a “soft Brexit”. From the viewpoint of the hardliners the deal is too “soft”, from that of the Remainers too “hard”. At the beginning of the week there had been hopes that the resignation of Brexit hardliners Davis and Johnson as well as the new push by the government would finally lead to the long-sought unity within the British government, but today there is no sense of unity left to be seen. The EU has not commented on the government’s proposal to date, but we suspect that it will have many (critical) questions. While the government’s fundamental approach, at least as intimated at Chequers last Friday,…

The ECB is committing a strategic error

Possible key-rate hikes have been postponed until far into the future. From my point of view, the ECB is committing an error by embarking on such a strategy. The ECB ought to seize the current opportunity to at least lift the deposit facility rates out of negative territory. The point is that negative deposit rates have the effect of a special tax on the European banking sector, worsening its position in the global competitive stakes. The simmering trade conflict could well decelerate growth momentum, thus causing a significant deterioration in the environment for possible key-rate hikes in Q4 2019. The ECB would then be confronted with a dilemma. It emerges from the monetary-policy account published earlier today that Europe’s monetary custodians regard their promise to keep policy rates unchanged at least through the summer of 2019 as a good compromise – between providing the markets with sufficiently precise guidance about…

May wins the battle, but not the war

How interesting it would have been last Friday to be a fly on the wall and listen in on the meeting of the British cabinet in the countryside in Chequers. Tempers were no doubt heated, but at the end of the day the Prime Minister succeeded in emerging victorious. She managed to get support for her proposal in the face of stiff opposition from the Brexit hardliners. Her version hinges on a free-trade agreement with the EU in which the Brits accept EU product standards and in return the EU ceases to insist on the necessity of border controls. Only a few days on and May’s plan is already under fire: Brexit advocates in Great Britain feel betrayed and the response in the EU has also been noticeably muted. May will continue, in other words, to have to wage war on two fronts. On the domestic front she first of…

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