Tuesday, July 18, 2023

“Keep the company of those who seek the truth – run from those who have found it.” –  Vaclav Havel  ||

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WHAT I’M WATCHING

The USD-BTC relationship continues to slide. BTC’s dip yesterday despite continued DXY weakness suggests that there is still not yet enough buying demand to offset selling pressure. More on this below.

China-Taiwan. Developments between China and Taiwan are worth keeping a close eye on, as stock markets seem to be largely discounting a soft landing, despite the possible flare-up of geopolitical tension. Things are developing on this front, with closer ties to the mainland overlapping with increased signs of military readiness on both sides.

Last week, China sent dozens of warplanes past the median line of the Taiwan Strait and into the key regions of the island’s air defence identification zone. Taiwan, meanwhile, is looking to boost its air defence capabilities with a key US purchase. On the diplomacy front, Foxconn’s founder Terry Gou has called for Taiwan and mainland China to resume direct talks (Foxconn is the world’s largest technology manufacturer and service provider, and is headquartered in Taiwan but earns most of its revenue from mainland China, so his view carries some weight). China Daily reported this morning that academic exchanges continue, with a delegation of mainland university teachers and students visiting Taiwan’s Chengchi University yesterday. And Taiwan’s foreign minister publicly stated last week that war with China was “not unavoidable”. An easing of tension here could make global markets, especially those in Asia, breathe a bit easier.

Nigeria CBDC. The central bank of Nigeria is not giving up on its retail CBDC, in spite of continued lack of public enthusiasm. The eNaira will now support NFC contactless payments, and will allow for some degree of programmability. This would enable the monetary authorities to design more targeted subsidies, and could incorporate features designed to boost use, such as spending deadlines or accrued benefits. Who knows, it might work?

Another stab at global crypto rules. The Financial Stability Board (FSB) – set up by the G20 in the wake of the Great Financial Crisis of 2008-9 – has issued an update to its crypto policy recommendations of last October, this time focusing on custody and the structure of crypto platforms. I haven’t gone through the full document yet, but so far its proposals do not sound unreasonable. They include:

• Insisting on separating the custody of customer assets from platform operations

• Platforms should disclose the entirety of their operations and how different activities interact

• Jurisdictions should share information on crypto activity within their boundaries, to curb jurisdictional arbitrage

The issue as usual remains: who decides the rules? The FSB lacks formal authority, and does not speak for the entire world. Its membership comprises 71 institutions from 25 countries, as well as 13 international organizations and standard-setting bodies. Still, it carries weight within the G20, and its updated report is likely to form part of upcoming G20 summits, with India, which occupies the organization’s presidency this year, determined to make crypto coordination one of its key achievements.

MARKETS