Mark will be in congress to explain the Libra project, while politicians will be eagerly seeking time on camera to create clips for their upcoming election reels. It promises to be ugly. There’s already a draft bill designed specifically to prevent Facebook from getting into any banking-related businesses, just because, you know, no one can trust Mark Zuckerberg. Forget that the Libra Association is NOT Facebook!
If you’re reading this, you know that NGDPLT stands for Nominal GDP Level Targeting, and that I believe it should be the foundation of Fed policy and the way to automate monetary policy. That goes for the UK as well (Europe has other structural problems they need to address before fixing their monetary policy). If you need to catch up, read my short description of NGDPLT monetary policy and a keynote address.
Now, David Beckworth of the Mercatus Center has published an important report that I hope you will read from start to finish:
I’m a huge fan of David Marcus and the Libra project. I hope it isn’t killed by regulators seeking to make themselves look “tough” on Facebook, which would be a loss for all of us. David recently posted a short piece on Why Libra Now, which I think you should read:
Another comprehensive list of stablecoin projects. I think the crypto-collateralized and the “Seignorage shares” projects have very little chance to survive. Tokenizing fiat is the place to be. The problem is regulators. Here’s the list:
This comes from Consensys, it’s a list of all stablecoin projects. I don’t think the “seignorage shares” approach has any chance to work, and I don’t think most of the theory here is correct, but it’s good to have a big list of stable-coin projects:
I love venture capital thought leadership. In this excellent piece, Aleks Larsen of Blockchain Capital breaks down the business models of various stable coins. It’s a year old, before the Libra announcement. Technical but very good:
We can see that the shift in thinking toward WHOLESALE digital money has already taken place. Retail will come later. For now, the FedNow and other government blockchains will be the focus. Patrick Harker, president of the Philadelphia Fed, explains …
I read Tyler Cowen’s Bloomberg blog post giving his thoughts about central-bank digital money for consumers. Tyler is smarter than I am and certainly one of the world’s leading economists, yet I couldn’t help but shake my head as I read, thinking “No, I don’t think that’s right.” In particular, I thought consumers could handle keeping their money with the Fed, especially if the Fed didn’t pay interest, and then the banks (and, I hope, nonbanks) would compete for loans in the market. That seems sensible to me. My other point is that I think there will be huge demand for CBDC, which will streamline the banking system enormously and remove the fees charged by all the middlemen (something Mark Carney is very excited about). I was about to write up my thoughts when Scott Sumner saved me the trouble. Please read Scott’s post:
Note his final words:
No good deed goes unpunished, I guess. The pressure mounts on the Libra Association to back down from good ideas and trying to help people in emerging economies. Who wants fewer intermediaries, anyway? Why don’t we keep the same dysfunctional system all the way through the 21st century and not make any progress at all? I’ll be addressing these issues in my upcoming talk in London at the CC Forum.
Meanwhile, the politics and game-playing continues.
Libra has announced their portfolio plans for the “basket of currencies” targeted for their reserves, at least to start. It’s dollars (50%), euros (18%), yen (14%), British pounds (11%), and Singapore dollars (7%). Sorry Avenir Suisse - no Swiss francs.
Using detailed barcode-level scanner data in the US retail sector from 2004 to 2015, higher-income households are found to systematically experience a larger increase in product variety and a lower inflation rate for continuing products.
Without mentioning Libra by name (and only in German): “In principle, there is a regulatory regime for stablecoins in the European Union. At the European and international level, the Federal Government will work to ensure that stablecoins do not become an alternative to state currencies.” Read the …
Wells Fargo put out a press release saying they are developing a settlement chain to compete with the Morgan Stanley bank-to-bank settlement solution. I didn’t expect it. Whether it works out or not, it looks like banks really are starting to take blockchain-based solutions seriously.
“Stablecoins are largely untested, especially on the scale required to run a global payment system,” said the European Central Bank executive board member Benoit Coeur. That may be true, but David Siegel says the European Central Bank has been tested and has been found guilty of creating a pan-European recession in 2008 and 2009. The ECB actually raised interest rates in the face of plummeting aggregate demand, leading to job losses for tens of millions of people. How’s that track record? Not only that, but Libra promises to build its house on top of that foundation! Get your house in order, ECB, BoE, and US Fed, and maybe we can build some solutions that actually help people rather than hurt them. - David Siegel
France’s minister of Economy says crypto-to-crypto transactions won’t be taxable. You’ll only be taxed when cashing in and out. Like stocks. Portugal has already done this. I’ve been advocating it for years. Now, what happens if you go into and out of Libra???
The Great Financial Crisis was the defining macro event of a generation (Millennials). It remains poorly understood. If we don’t understand the past, we can’t re-invent the future. See my piece on
The Chinese central bank has a new digital currency chief who says its upcoming digital yuan has features not offered by Facebook Libra. “Its functional attributes are exactly the same as paper money, but it is just a digital form,” Mu said. Perhaps most notably, he set out some of the digital currency’s technical aspects, and compared it with Facebook’s Libra.
The Swiss regulator FINMA, completely unaware that the Financial Action Task Force regulations are 99.9 percent ineffective, has issued a set of guidelines for how projects like Libra must comply with their banking laws when dealing with Swiss Citizens.