- Laying the groundwork for a CBDC launch
- Bank of England pushes for a digital pound
- QR codes in India (and the taxman loves it!)
- Ray Blanco: AI and “developing new drugs”
- Qantas (slowly) scrambles the jets… Adam Smith’s long shadow… And more!
The House Financial Services Committee meets tomorrow to lay the groundwork for the launch of a CBDC, a central bank digital currency.
Of course, it’s not being advertised as such. Instead, the topic is whether to enact a two-year ban on “endogenously collateralized stablecoins.”
As you might already know, stablecoins are cryptocurrencies pegged to a reference asset. “Endogenously collateralized” stablecoins are those backed by other crypto assets and not by fiat currency such as the U.S. dollar.
During the two-year ban, “the U.S. Treasury would carry out an extensive study on these types of assets and present a report of its findings to the House committee no later than a year after the bill is passed,” reports the Unchained Crypto site.
To be sure, there’s much confusion surrounding the bill. But the worry is that the bill would ban the most commonly used stablecoins.
One of the bill’s provisions “stipulates that the Federal Reserve would be in charge of approving and regulating non-bank stablecoin issuers,” Unchained Crypto continues — “a category that the Circle and Tether, two of the largest players in the space, fall under.”
No doubt, Tether has a checkered history — one we spotlighted in late 2021. In May of last year, Tether’s peg to the U.S. dollar was in danger of breaking when the Terra stablecoin blew up.
But it’s not about Tether. It’s about the endgame — one that a handful of prescient observers sniffed out even as Tether was under pressure nearly a year ago…
Legislation to enact this two-year stablecoin moratorium was posted on the House Financial Services Committee website Saturday. For the moment it’s called the “To be added Act of 2023” and there’s no bill number, so we don’t know who the co-sponsors are — but we understand it has bipartisan support.
With any luck, the crypto-friendly, CBDC-hostile House Majority Whip Tom Emmer (R-Minnesota) can put a stop to this scheme before it gets much further.
Meanwhile, we’re seeing other signposts on the road to a CBDC and a cashless society…
“Cash Will Become ‘Less Useable’ as High Street Goes Contactless, Says Bank of England,” according to the U.K. Telegraph.
“Cash is likely to decline further and cash itself will become less useable in everyday transactions,” said Bank of England deputy governor Jon Cunliffe at a conference yesterday — “for example if internet commerce grows and if merchants increasingly accept only digital payment.”
For that reason, Cunliffe said it’s essential to press on with plans for a digital pound — a British CBDC.
He did say the Bank of England would not abandon those people who still rely on physical cash. Whether he’s to be taken at his word is another matter…
Meanwhile, another huge developing country has embraced contactless smartphone payments via QR code… and the taxman loves it.
Last month we did our most recent update on India’s move toward a “less-cash society,” to borrow the words of Prime Minister Narendra Modi. Modi has been up front that the ultimate goal is a “cashless society” for his country’s 1.4 billion inhabitants. Key to the system is the ease of mobile QR-code transactions, even for a 10-cent cup of chai.
Now Bloomberg Businessweek tells us street vendors and their customers in Indonesia — population 274 million — are also embracing digital fetters.
After 25 years of taking cash only, a seller of a spiced fruit salad in Jakarta got a QR code in January. “I applied for QR because buyers kept asking for it,” he tells the magazine. Already, he pulls in a third of his daily revenue from QR payments.
Of course, these digital payments are much more easily taxed and tracked. “Regional governments are among the earliest to benefit,” says Businessweek, “as their revenue rises 11% a year with QR helping businesses pay local taxes.”
In addition to the increased tax collections, the specter of surveillance is in view.
“Soon, you may not need a mobile phone to use QR,” the Businessweek article enthuses. “The central bank is testing facial recognition technology for places like schools where students aren’t allowed to carry phones. They can shop in the canteen using money in their bank accounts by showing their faces.” [Emphasis ours.]
“Indonesia’s success will be a useful blueprint. Southeast Asia needs to remain a ‘first mover’ to ‘maintain a high degree of controllability’ over the rapid expansion of digital finance, said incoming Bank Indonesia Deputy Governor Filianingsih Hendarta.”
It’s easy to become frightened or depressed or both when reading about developments like these. But Paradigm’s Jim Rickards — the man who started warning millions of Americans last summer about “Biden Bucks” — says you’re not helpless.
If you’re not already clued in, you really need to learn more about an alternative currency that’s light as a feather, but also made of real gold. Folks like you are already using it in three U.S. states. “Because it’s a physical, hold-in-your-hand gold currency, the government can’t control how you transact or who you transact with.”
Seriously, you should see what this currency looks like — which you can do as soon as you click here.
After yesterday’s modest gains, the major U.S. stock indexes are posting modest losses today.
At last check the Dow is down about a quarter percent at 33,896. The S&P 500 is down less than a fifth of a percent at 4,144; likewise for the Nasdaq at 12,131.
The last of the Big Four commercial banks reported earnings today; Bank of America beat Wall Street’s estimates handily, but as we write BAC shares are down nearly 1%. On the investment banking side, Goldman Sachs missed estimates and is down 1.6%.
Gold is back above $2,000 and silver over $25 again. Crude is up modestly at $81.30 a barrel, copper steady at $4.09 a pound.
The big economic number of the day is housing starts — down 0.8% in March, but that’s better than expected. But permits, a better indicator of future activity, fell 8.8% — worse than expected.
A recent inquiry to Paradigm’s tech/biotech maven Ray Blanco, worth sharing with a wider audience…
“Ray, between things like biotechnology, semiconductors, artificial intelligence and more, is there any overlap? I would imagine that these technologies can benefit each other.”
Ray’s reply: “There is a ton of overlap between these technologies, especially with semiconductors and AI.”
Of most interest to Ray right now is “how AI and machine intelligence have been transforming the way we discover and develop new drugs.
“By using computational biology and artificial intelligence, companies are helping biopharmaceutical companies pick winning drug candidates and accelerate the drug development process.
“Despite everything we’ve learned about human biology, chemistry and how to build new drugs, the discovery and development process is still fraught with extreme risk and high rates of failure.
Maybe only one in one thousand drug candidates succeeds in making its way from discovery to commercialization.”
Even those that make it to clinical trials “have abysmal success rates,” Ray says. “Even drugs that make it to Phase 3 have failure rates in the range of 70%. Accounting for the high cost of failures, the price tag of getting a new drug to market can approach $2 billion in a process that can take a decade or more.
“That’s where computational biology and artificial intelligence can help pick winners and streamline the regulatory process.”
It’s a development Ray’s watching closely, so stay tuned…
How do you return the world’s biggest passenger jet to service after lockdown took it out of service three years ago? Very, very carefully.
When most global air travel shut down in early 2020, the Australian airline Qantas mothballed its fleet of Airbus A380s — consigning them to storage at a boneyard in California’s Mojave Desert.
“Aircraft of this size require lots of space and arid conditions,” explains TheSydney Morning Herald, “making the world’s deserts the opportune (and arguably the only) place to keep them.”
This month, the last of Qantas’ A380s made the journey home to Australia — but only after much preparation.
“Reviving an A380 requires 4,500 hours of manpower, where its 22 wheels, 16 brakes and internal furnishings are replaced. Tasks including replacing all oxygen cylinders, fire extinguishers and inflatable slides have derailed the process for some airlines by months, due to the ongoing global supply shortage of crucial parts.”
Qantas engineers typically took a two-month assignment in the Mojave. “Some lucky engineers were tasked with whacking the wheels of each plane to rid them of rattlesnakes or other unsuspecting foes.”
Fun times. As it happens, Qantas still doesn’t expect demand for air travel to return to pre-pandemic levels until at least next year.
To the mailbag, in which readers wish to make the case for protectionism…
“Adam Smith proposed lessening or eliminating tariffs to improve the financial well-being that that policy would give the respective nations and their peoples,” a reader writes.
“I doubt that he anticipated a giant like China manipulating its currency and reducing and eliminating U.S. industrial capacities.
“There is more at stake here than financial prosperity — it is the survival of our industrial base, and the ability to fight adversaries like China with that base. A country with no manufacturing base is a sitting duck.”
The 5: China manipulates its currency? What’s the United States been doing for the last 52 years since Richard Nixon cut the dollar’s last tie to gold?
And make no mistake, an unsound currency is what enabled the entire U.S.-China dynamic starting in the late 1990s: We sent them little green pieces of paper (or the electronic equivalent) backed by nothing… and in exchange we got all manner of valuable finished goods. Maybe not always the best quality, but still — a pretty sweet deal!
America’s industrial base started hollowing out in the 1970s; the term “Rust Belt” came into being long before China’s economy opened up to the West in any meaningful way.
But of course, the American policymakers who brought about this state of affairs are more than happy for you to blame foreign devils…
“When you cite libertarian principles and authors, like Adam Smith, as a basis for your beliefs, you are taking an easy and intellectually lazy position,” says another — whose email we’ve had to truncate to stay within our 5 Mins. today.
“It permits you to avoid the real world, the actors within it and the moral requirements for any economic or political system to work. It’s easy because a fully libertarian system will never exist…
“Get in the game and stop being an intellectual namby-pamby. It’s annoying, disingenuous and cowardly. Anyone can hide behind a philosophy that will never become reality and be tested in the real world.”
The 5: It’s not a matter of every country in the world adopting a “fully libertarian system.”
In the “real world,” protectionist measures inevitably backfire — thus the lost jobs from the Bush steel tariffs and the higher prices resulting from the Trump/Biden tariffs on steel and aluminum.
“It’s just an ironclad, stubborn and inflexible economic fact that you can’t artificially introduce massive and wasteful inefficiencies into an economy with protectionist policies and somehow make the economy better off,” wrote the economist Mark Perry in 2017. (Yes, here we go citing a “libertarian author” again.)
“Protectionists just can’t overcome the ‘protectionist math’ that guarantees significant adverse economic outcomes from tariffs that include a net loss of domestic jobs, a net loss of domestic income , a lower standard of living and reduced prosperity.”
Best regards,
Dave Gonigam
The 5 Min. Forecast
