A blog focused on educating global physical energy commodities participants on evolving financial, regulatory and marketing developments in the Asian commodities markets including use of cryptocurrencies in physical commodities trading. This blog seeks to educate market participants only and does not constitute financial advice.
In July 2022, the European Central Bank published a blog on the "key objectives of the digital euro". The blog co-authored by none other than Christine Lagarde, President of the ECB argued that a digital payment ecosystem such as the digital Euro without a strong monetary anchor would create confusion leading to financial instability as "it is crucial that we all still have easy access to central bank money, which is the foundation of our currency".
In January 2022, the Federal Reserve came out with a highly anticipated paper on a digital dollar, taking a step in a process that could lead to Congressional action. This was followed in March 2022 by an Executive Order from the Biden administration placing the “highest urgency” on exploring a US CBDC and asks for an interagency report on all aspects of the future of money in the next 180 days. The Executive Order also advances US participation in cross-border experimentation of wholesale CBDCs.
The ECB is analyzing how financial intermediaries could provide front-end services that build on a digital euro. The analysis expected to completed by October 2023 followed by the development of integrated services as well as carry out testing and possible live experimentation of a digital euro in a phase that could take around three years. Extrapolating this timeline guidance from the ECB, it would be safe to assume that a digital Euro will not be available before 2028 at the very earliest. The ECB is likely to drive large scale adoption of the digital euro once adopted and likely to increase the proposed amount of digital euros in circulation to 1.5 trillion euros to control the negative effects on financial stability.
The Fed also sees commercial banks and nonbank financial companies acting as intermediaries. Banks would issue and manage the digital wallets that people would use for payments and deposits. The US is the furthest behind when it comes to developing CBDCs among the G7 economies, according to the Atlantic Council.
Central bank digital currencies like the digital dollar and the digital euro are expected to be used for payment settlement. CBDCs pose tough competition to cryptocurrencies used for cross-border payment settlements such as Ripple (XRP) and to a limited extent Bitcoin (BTC). The underlying technology for both the digital dollar and the digital euro is based on concepts in cryptography and distributed or decentralized solutions such as DLT.
The Economic times reported today that the Indian stock market market has risen higher for the week by 770 points. As I have blogged before there really is no basis for this continued irrational exuberance. The finger of blame for this steadily inflating bubble can be pointed to portfolio investments flowing in though Mauritius which is simply money laundered overseas by tax dodging citizens through hawala channels and returned back as legitimate portfolio investments through Mauritius.
The other channel for laundering this money is right in India in real estate in the major cities of Mumbai & New Delhi where the bubbly property market has reached stratospheric levels long time ago. When these multiple bubbles burst...and burst they will...look for shelter outside India...
The open architecture of distribution of funds or products has long been a staple in the US where investors have had a choice of funds to choose from among multiple best in asset class asset managers at their broker/dealer. This trend has recently catapulted with the increased proliferation of online trading platforms such as Scottrade, Charles Schwab and too many others to name. This does bring up the rather awkward question for asset managers, indeed one of survival: Given the plethora of fund choices for the investor, how do you distribute your fund products to fewer and fewer clients?
The answer lies in a new global revolution of cross border open architecture that is now driving the funds industry. In Germany for example, open architecture has taken off in a big way ever since Rainer Neske of the venerable Deutsche Bank appointed eight strategic foreign asset managers in 2003 who could sell their funds through every Deutsche Bank branch in Germany. Other European countries, notably France, Italy and Spain have arguably been laggards in implementing open architecture, but new regulation introduced since November 2007 across the European Union now makes it easier than ever to form strategic distribution partnerships with distributors across Europe with a relatively easy “single country registration” process. Goldman Sachs Asset Management whose distribution strength comes from sub-advising assets for other houses, not retail sales, has exploited this regulation (and earlier regulation) to vastly increase the depth of their product range to target European retail banks. Similar architectures of distribution are now also being introduced in many emerging markets as desperate as Kazakhstan and India.
Since investors now have a choice of upwards of 30,000 funds to choose from, churning out new fund products will not help attract new clients. Fund houses now need to focus their synergies in targeting distribution more effectively. Successful asset managers will form strong distribution partnerships with distributors serving clientele seeking solutions tailored to their needs. That old NYSE rule 405 (Diligence as to accounts) has never been more appropriate in this new age of cross border open architecture.
