Monday, June 26, 2023

The drama, the confusion, and what even IS money, anyway...

“Intellectuals cannot tolerate the chance event, the unintelligible: they have a nostalgia for the absolute, for a universally comprehensive scheme.” – Raymond Aron

Hi all! Well, that was an eventful weekend… Today’s email has a lot of words and gets somewhat philosophical. But, hey, markets are quiet.

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WHAT I’M WATCHING

Central banks control money. Last week, we heard from several central bank officials on how CBDCs should work, and on how inadequate crypto markets are to solve anything other than the need to gamble. This sheds unexpected light on the evolving definition of money. More on this below.

What the weekend’s drama means for markets. Bottom line, I don’t know, since we don’t yet know what actually happened, let alone what it means. More on this below.

Monetary discord. Central bankers have a lot on their shoulders right now. Around the globe, they are struggling with monetary policies off the rails, inflation not behaving as they would like, confusing economic signals and disagreement amongst themselves that has significant currency implications. This is particularly acute in Europe, where national inflation rates range from Greece’s 2.8% year-on-year to Hungary’s painful 21.5%. How on earth do you devise a monetary policy to cover such a wide range of desired outcomes, especially when it is slowing in some countries but accelerating in others?

We may get an inkling of just how paralyzed some central bankers feel in the face of global tensions, political shifts and democratic trends over the next couple of days as the annual ECB Central Bank Forum kicks off in Sintra, Portugal. While a lot of the schedule sounds somewhat academic, the final panel on Wednesday brings together Jerome Powell (US), Christine Lagarde (EU), Andrew Bailey (UK) and Kazuo Ueda (Japan, one of his first appearances at an international event like this).

CBDC trials with a crypto platform? Brazil’s central bank invited the country’s largest local crypto exchange, Mercado Bitcoin, to participate in the pilot of the Brazilian CBDC, along with Mastercard, Microsoft and other key financial market participants and technology companies. It’s not so much the participation that’s intriguing, it’s the acknowledgement that the central bank sees crypto exchanges as forming part of the financial landscape going forward, and seeks to integrate it in the design and testing of CBDC use cases.

MARKETS

Is there more to this?