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The geopolitical and financial significance of Bitcoin

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Bitcoin and the other “cryptocurrencies”, namely Ethereum and Litcoin- although there are 33 additional currencies arriving on the Internet – are a brand new phenomenon on the currency market.

Currently we are all in the so-called “fiat money” regime, namely any money declared by a government to be legal tender, which is a currency not backed by gold reserves – a currency which is always and anyway accepted by everyone.

Hence it is also fiat money, like the first “lire” of the Kingdom of Italy.

This means it is a State-issued currency that is not convertible by law to any equivalent value in gold or other hard currencies.

Fiat money is stable as it is controlled, almost on a daily basis, with the money demand from the economic system.

When there is an excess of money supply, we talk about inflation.

This is, indeed, the true meaning of the alltoowell-known concept of “inflation”, not the mere “price increase” which, at most, can be an indicator of excessive growth in money supply, not one of its causes.

Accepting the Dollar, the French or Swiss Franc, the Euro, the Ruble or any other currency (albeit, in fact, the situation would be somehow different for the Russian currency) is always mandatory by law.

Hence also seigniorage is mandatory, namely the act of legal magic with which each issuing bank decides that a small piece of paper is worth 100 nominal euro – although costing  only 3 cents to the issuing bank for producing it.

The difference between the face value of money and the cost to produce it (plus fixed costs such as equipment, staff salaries and taxes) is, in fact, seigniorage.

The latter, however, should not be demonized, as done by some theorists who – by using a silly contemporary language dogma – are called “radicals”.

Reasonably, the possible alternative is the intrinsic value money, like the medieval coins – molten gold marked as shown on the coin front or back. Nevertheless the King often “reduced the value” of coins or melted gold and silver with non-monetary metals, such as copper (although the United States was to use it in the future) or even bronze.

Today we would say it was a form of “seigniorage” “with criminal relevance and implications”.

The primal scene – just to quote a concept by Sigmund Freud -stemmed from the 1971 “Smithsonian Agreement”.

It was the American agreement Nixon had wanted as from August 15, 1971, signed in the Smithsonian Museum of Washington. It was signed by what we would currently call the G7 and reestablished an international system of fixed exchange rates without the backing of gold. It certified the end of FED’s obligation to pay for gold up to the fixed rate of 35 US dollars per ounce.

It was the end of the gold-backed currency – the “fiat money” no longer pegged to intrinsic money – occurring after the Allies verifying that the American currency was severely overvalued.

The costs borne for the Vietnam War, the end of the Johnsonian cycle of Great Society and the crisis of US products on European markets, were all factors which led De Gaulle, at first, to ask – without further ado – the payment of the US debt in gold or in hard currencies. Later many other allies who were reluctant to put in place non-tariff barriers against US products followed suit.

To put it more brutally, Nixon shifted the burden of the US super-inflation onto his allies of the Bretton Woods Agreement, which Europeans were forced to pay since they had to buy highly overvalued dollars for their international trade.

As the US Treasury Secretary, John Connally, said at the time to his European colleagues: “The dollar is our currency but your problem”.

In other words, cryptocurrencies are the result of this long historical process.

The currency based on Nothing, the postmodern point of arrival point of the disembodied monetary instrument.

A currency that is believed to be good because everyone thinks so – a financial transposition of Andersen’s tale “The Emperor’s New Clothes”.

As you may remember, it is the tale about two weavers who promise an Emperor a new suit of clothes that they say is invisible to those who are unfit for their position, hopelessly stupid or incompetent – while in reality, they make no clothes at all, making everyone believe the clothes are invisible to them. When the Emperor parades before his subjects in his new “clothes”, no one, including his Ministers, dares to say they do not see any suit of clothes on him for fear that they will  be seen as stupid. Finally, a child in the crowd, too young to understand the desirability of keeping up the pretense, blurts out that the Emperor “is not wearing anything at all” and the cry is taken up by others.

The same will happen to the contemporary monetary equilibrium, but it will certainly not be a child who will get  bankers and the public at large to open their eyes.

Hence today banks create money, which is mandatory to consider valid, with a fiat -namely ex nihilo – from the Void of Value. Or from their debt or even from the State debt.

Just issue securities having another name.

Hence, what is currently money? It is what the Auctoritas decides to be so.

Or, to be precise, the money supply currently issued by the central banks or other banking institutions, which is not based on savers’ deposits or on debt repayment forecasts,  but it is only the sign of a debt, the “promise of a settlement”which, however, is spent immediately.

And hence it is confirmed in its Value. The Value lies in theshift from a currency to another or from a currency to real goods or assets.

Obviously banks still earn interest on the money supply, regardless of its source.

Bitcoin, however, is not a currency like any other, guaranteed by internal law and interbank agreements.

The cryptocurrency is based on a mechanism like the one of online sales, namely the peer-to-peer one, which is gradually accepted by all those who now operate with Bitcoins.

Hence, while the final Bitcoin supply is defined – as always happens – our Internet currency is completely volatile.

Therefore it cannot certainly be a unit of account.

Hence Bitcoin varies- programmatically – as demand changes. In fact, last year its value increased by 47 times.

The reason is simple: it is a monetary supply that adapts to demand, but is also able to stop so as to create sufficiently long Bitcoin income and returns to attract average investors.

In January 2018,the cryptocurrency is worth approximately 900 dollars – a value that will probably increase when, in all likelihood, the Internet currency will be accepted by large commercial and distribution chains.

If it is a currency that influences markets by adapting to buyers’ requests (or artificially reducing supply in an instant), the only ones that can reap benefits are the Great States, the International Crime Organizations or the new networks of global Banks.

Never let them tell you that the small investor of Grand Rapids or Varese can determine the first “peer-to-peer” that, by repetition, triggers the chain off.

It is another fairy tale like the one of the movie Mary Poppins pointing to the magical growth of the penny deposited in a London bank, growing out of all proportion and turning into huge amounts of money.

The fairy tale is the expected automatic growth of funds denominated in Bitcoins, from 10 euro up to millions of millions, like the stars.

In fact, nothing is closer to the world of Andersen or the Brothers Grimm than some bad finance.

We can wonder whether the cryptocurrency is nothing more than a “Ponzi e-Scheme”.

You may recall the Ponzi Scheme or pyramid scheme, in which the high interest rates granted to capital providers -attracted precisely by the rates that are promised – are paid with new investors’ fresh capital.

In fact, what is striking is that the production of Bitcoins is sometimes artificially low because there are many people  who want to buy them.

An issuing bank à la carte.

In fact, the many people who are waiting for buying Bitcoins hope that their value will increase, but only after they have managed to buy them.

A self-fulfilling prophecy.

A mechanism which is exactly the same as the Ponzi Scheme.

As the best US financial advisers say, do not follow the crowd.

Hence the Bitcoin is a “bubble”. A bubble probably bound to last, but still a bubble.

A bubble born in 2016. The primary year, while everybody makes reference to 2009, when the production of notes was no longer enough and the debt to be repaid was huge, while the West was entering its darkest crisis since the 1929one.

The trigger,i.e. the banking panic and the unaware laissez-faire approach of the US Presidency, were the same in both cases.

Two crises – the old and the new -broken out precisely in the United States, the burden of which was later shifted onto  the rest of the West.

With a view to overcoming the first crisis, the huge costs borne for the Second World War were needed.The Rooseveltian stimulus had been to little avail.

The second crisis, much closer to us, which was triggered by the subprime crisis, has needed liquidity injections even greater than those needed during the 1929Great Depression – injections which have not ceased yet.

In the latter case, the exit from the crisis is ensured by the creation from nothing of the largest mass of money in human history, also through the Internet.

In fact, the Internet currencies have allowed to create exchange value, purely financial values ​​that have strongly contributed to multiplying global liquidity in collaboration with standard currencies, which have been distributed indiscriminately to just any market – with helicopter money – by the US Governors and then by the ECB Governor, although certainly in much smaller proportions than his US counterparts.

On the other hand, when there is a liquidity crisis- a crisis caused by an excess of debt – every issuing bank prints money or rather creates money from debt securities. There is no other solution.

Contemporary Value arises from the mastery of a Name and from the artificial dissociation between this Name and a New Name.

Furthermore,in any case, the presence of cryptocurrencies only on the Internet and with a system along the lines of the peer-to-peer mechanism of normal online sales has allowed hackers’ systematic theft of 14% of all cryptocurrencies existing on the worldmarket.

A theft worth 1.2 billion US dollars, with revenues equal to at least 200 million US dollars.

In less than ten years, however, the technology generatingBitcoins will be vulnerable to cyber-attacks launched by quantum computers, which will become more widespread  than they are today.

The attacks on virtual currencies have already cost governments and private companies owning them asmany as 113 billion dollars of turnover.

Nevertheless, who is currently inflating the Bitcoin value, which has more than doubled compared to January 2017 –  a value that is now around 125%?

The main reason for this is China. Beijing is now the first market  for the exchange of cryptocurrencies in the world.

As early as 2015 China alone traded 80% of Bitcoins.

Today, the top 4 among the 32 major exchange platforms of these new currencies mainly trade yuan.

One of these platforms has opened a mining station for  “creating” Bitcoins – an operation which is highly energy-intensive and consuming – on the slopes of Tibet, where there is abundant low-cost energy.

Every time the yuan depreciates, the Bitcoin appreciates, because there are so many Chinese who pocket their capital to avoid government’s control and hence buy Bitcoins.

The yuan is depreciating and the capital flight from China is ongoing. The tool is often the conversion of the yuan masses into Bitcoins.

We may wonder whether the e-currency is used as a tool of  “indirect war” against China.

Moreover, the current growth on the US and on some other European Stock Exchanges has occurred with credit money, borrowed at zero interest rate, which has been provided to  major investors by central banks.

Another possible reason justifying the Bitcoin growth.

Virtual money may havealso been created to avoid the investors’ traditional rush to gold – the “tribal residue”, as Keynes called it – and hence not to increase the dollar value, currently maneuvered downward?

On January 15, one of the most active US-listed banks on the Bitcoin market ceased to convert cryptocurrencies into “traditional” currencies, but especially into dollars.

The beginning of the fall in the Bitcoin value, but the preservation of market liquidity, so as to prevent it from converging towards gold, in particular, or European hard currencies or, even worse, towards the Chinese or Russian financial markets.

Hence the Bitcoin is a pseudo-currency that serves to control the volatility and trends of global financial markets, as well as to keep it artificially high and avoid some currencies becoming “full” or sovereign like the Swiss Franc.

In fact, in 2018 a referendum will be held throughout the   Helvetic Confederation on the so-called “full” or sovereign currency, i.e. on a Swiss Franc created by the national central bank and not by international banks.

“True Francs on our accounts”. Only the Swiss National Bank can create e-money, where necessary.

These are the goals of those who have proposed the referendum.

Let us hope for the best. Those who almost invented modern finance – the Swiss merchants of the Middle Ages, the link between Italian ports and large Central European markets -now realize the dangers of creating value from nothing, the Faustian (and darkly malicious) mechanism currently governing the magical and alchemical transformation of banks’ and States’ debt into credit for individuals.

Let us hope that the financial world will come to its senses, just in time.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Friend-shoring: India’s rising attractiveness for an emerging partnership

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There are numerous forces currently affecting investment flows in the global climate for foreign investment. Investor concern has been caused by the many geopolitical issues, which had repercussions even as countries were recovering from the pandemic. Businesses are being forced to re-evaluate the global business environment and potential fault lines as a result of these disruptions. India has constantly improved the business environment (EoDB). It may now advance by utilising the advantages to strengthen its place in the global economy and fulfil the ambitions of its sizable, primarily young population. The country’s business and investment climate has significantly improved as a result of the fast and steady pace at which reforms have been implemented.

Apart from the fact that India is one of the largest economies in the world with the quickest rate of growth, the government’s emphasis on infrastructure and manufacturing, strong consumption patterns, digitization, and a burgeoning services sector all contribute to this optimism. The persistent efforts of the Indian government to lower regulatory hurdles are also fuelling MNCs’ favourable opinion of India. However, India’s expanding domestic consumer base and digital economy are the greater draws. After the US and China, the estimated actual growth in consumption is the third-highest. Given that all of these markets are sizable but relatively saturated and growing at a slower rate, India presents a particularly good opportunity for MNCs seeking growth opportunities in the ensuing ten years.This has acquired more traction in the US context as it has become clear that the nation cannot overcome all production issues on its own and that cooperation with friendly or ally nations is essential for all-around development. The term “friend-shoring,” a hybrid of the terms “onshoring” and “near shoring,” refers to forming business alliances with people who have similar principles and interests.

In a world driven extensively by globalisation, it is inevitable to not just make ally’s or create partnerships that are not only strategic and synergistic, but also facilitate a purpose driven iterative connection between two nations. A strategy used by the US to persuade companies to relocate their sourcing and manufacturing operations to friendly shores—often back to the same shores in the case of the US—is known as friend-shoring or ally-shoring. And the goal is to protect their supply networks against countries with less compatible policies, like China. But is it the best course of action? Global supply chains have changed production by enabling businesses to produce things wherever it is most affordable, thanks to decreased tariffs, lower transportation, and communication costs. This typically means that low-end production shifts to emerging markets and developing countries, while high-value-added inputs (such as research and development, design, advertising, and finance) are provided from established economies.

A commitment to cooperate with nations that “have a strong adherence to a set of norms and values about how to function in the global economy and about how to govern the global economic system” was described as “friend-shoring” in Secretary Yellen’s statements of April 13, 2022. But is it the best course of action? Any type of protectionism will worsen the already shaky global supply chain after the years-long Covid-19 shutdown has had an impact on the world economy. Despite its political unrest, China has been devoting its resources to manufacturing since the 1990s, and many businesses have already established manufacturing operations there since their suppliers are all nearby.

Even though Vietnam, India, and Thailand are also known for their low-cost manufacturing, moving the manufacturing sites could be expensive and risky for businesses because they would need to reorganise their entire supply chain for all materials required. In addition, other Asian countries might not have the full infrastructure needed to support manufacturing in some sectors. The world of today is at its best because of international cooperation. Each country’s disadvantage is made up for by having it use its greatest asset to boost global economic growth. Although there are many differences and even disagreements between nations and we are still far from full globalisation, offshoring does not seem like a good answer for a better future for the global supply.

USA is believed to pursue the “friend-shoring” strategy of deepening economic integration with dependable trading partners like India to diversify away from nations that pose geopolitical and security risks to supply chains. This is in response to an “extremely challenging” global economic outlook and geopolitical instability. She claimed that some economies’ debt loads were becoming unmanageable due to the Russia-Ukraine war-related spike in food and energy costs, and that steps to reduce these debt loads would need to be explored. Countries that already have well-established production and business service networks are those that are seen as friendly partners in the US context. India is attempting to draw MNCs that are moving their subsidiary supply chain networks and activities in this wave of supply chain restructuring and diversification of their specialised ecosystems.

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Pakistan’s elite and the current economic crisis

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Former Pakistan Finance Minister Miftah Ismail in a media interview made some very interesting points. While Ismail lashed out at his successor and current Finance Minister Ishaq Dar saying that the latter’s Anti International Monetary Fund (IMF) approach was one of the key reasons behind the current economic crisis in Pakistan. He also underscored some other points.

 First, he said that if countries like Bangladesh and India have left Pakistan behind, there are some serious deficiencies in Pakistan’s governance model.

Second, Ismail stated that different forms of government – democracy, parliamentary democracy, dictatorship – have been tried out, but the country is invariably ruled by a small elite, and this is amongst the key reasons for the numerous challenges the country is facing today.

In recent years, has been increasing criticism of Pakistan’s foreign policy and its excessive economic dependence upon other countries for its economic survival.  While earlier strategic commentators and analysts questioned the skewed nature of Pakistan’s ties with the US, in recent years several strategic commentators have begun to question the excessive dependence upon Islamabad and the terms and conditions of China Pakistan Economic Corridor (CPEC), and the lack of transparency of the project.

If one were to look at the current economic crisis which has engulfed Pakistan, there have been a series of opinion pieces critical of domestic policies, the country’s dependence upon external sources for aid not just the US, but also Gulf Countries and China and how the IMF rescue program would impact certain sections of the population more than others.

Maleeha Lodhi, a former Pakistani diplomat, and a prominent writer and commentator, in a hard hitting article titled Elite Politicsfor Dawn (December 5, 2022)argues:

‘The availability of external resources as a result of Pakistan’s foreign policy alignments during the Cold War and beyond created a habit of dependence on ‘outside help’. This habit urged successive governments — representing rural and urban elites — to avoid economic reform, mobilise adequate revenue or tax its network of influential supporters’. 

Touqir Hussain in an article An underwhelming foreign policy written for The News (November 23, 2022) highlights how Pakistan’s dependency upon China could harm the bilateral relationship. Says Hussain:

‘Because of the dependency syndrome, even the China connection has become ever more important for Pakistan, and not for all the right reasons. It is fomenting a popular view that with China at its back Pakistan does not need to care about other relationships, inciting anti-Americanism which has become in the public mind a badge of ‘independent’ foreign policy’.

S Akbar Zaidi in an article IMF as Saviour for the Dawn (January 26, 2023) makes an interesting point about how the unequal impact of the IMF program and how the elite would not just be able to deal with it but also benefit in the long run. Says Zaidi:

‘A fistful of dollars coming in, prices being upwardly adjusted, an exchange rate which is supposedly ‘market-driven’, will offer false hope to our elite while it grumbles about the tough measures of the IMF’. 

There has also been a suggestion to rethink Pakistan’s approach towards India and focus more on geo-economics. Shahzad Chaudhry, a prominent strategic commentator, in an opinion piece published in Express Tribune praised India’s foreign policy for managing to balance ties between the US and Russia, in the aftermath of the Ukraine crisis. While praising India for having been able to strike a balance he dubbed this as diplomatic coup. Chaudhry also said that Pakistan should rethink its foreign policy vis-à-vis India and focus on ‘geo-economics’.

Pakistan PM, Shehbaz Sharif in an interview to Al Arabiya TV (a Dubai based channel) had himself stated that Pakistan could not afford another war with India and had also alluded to his willingness to resume talks (The Pakistan PMO however said that Pakistan would only resume talks with India if the latter reversed the decision to revoke Article 370 in Jammu and Kashmir).

In conclusion, while Pakistan clearly has its task cut out if it is able to realize the pitfalls of excessive dependence upon external countries will it be able to put its economy firmly back on track. It is also important for Pakistan to strengthen economic ties with neighbours in South Asia rather than looking at the outside world. For this it will require Pakistani leaders to think out of the box.

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Guangdong special economic zones at China

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Guangdong Province in southern China is distinguished by the economic development. The sign been approached by “Made In Guangdong” is becoming so famous globally, besides the Guangdong industries and its unique culture.

  Guangdong represents one of the most important provinces of China for a number of political, economic, social and natural reasons. Indications of the success of the openness experiment pursued by China since the late seventies of the last century are evident in it.

Guangdong special economic zones have made great achievements. As the province with the largest economic output in China, south China’s Guangdong Province has achieved tremendous economic development in the past 40 years, thanks to the establishment of special economic zones.

 According to my information, the Guangdong region has established the “Zhuhai Doumen” intelligent manufacturing economic development zone recently, after the Guangdong Provincial Government officially approved the establishment of the “Zhuhai Doumen intelligent manufacturing economic development zone”, which will implement the existing provincial-level economic development zone policy.  It is the third regional economic development zone in “Zhuhai” after “Foshan Industrial Park and Liangang Industrial Zone”.

 Guangdong Province is an economic powerhouse in southern China, and the province will promote high-quality development this year by fostering new engines of growth and strengthening cooperation and communication in the regions of (Guangdong-Hong Kong-Macao Greater Bay) to deepen reform and opening up.

 Guangdong Province, a major part of China’s foreign trade and industrial hub, accounts for about one-tenth of China’s GDP and is the largest of all Chinese provinces.

 Guangdong Province pays close attention to the progress of China’s modernization and the overall picture of reform and opening-up and major national strategic planning. It firmly attaches importance to the reform and opening-up policy by strengthening cooperation between the province and the “Hong Kong and Macao” regions, aligning the development of Guangdong with the “Northern Metropolis” plan of Hong Kong and the economic diversification strategy of Macao, implementing the “Greater Bay Area Connection” project in a more in-depth way, and working with “Hong Kong and Macao” together to build a world-class bay area, injecting vigor and strong impetus into its modernization efforts”.

 It Is remarkable that most of the cities of Guangdong Province are crowded with visitors from all over the world, especially Arabs and Africans, who come to them for the purpose of trade and search for investment. The province is considered one of the regions characterized by the diversity of its industries, quality and attractive prices, as well as commercial activities in various fields.

 It Is also distinguished by the beauty and sophistication of its buildings, which embody the aesthetics of modern Chinese architecture, as well as the spread of green spaces and vibrant squares throughout the day. It is also distinguished in terms of weather, with its atmosphere that resembles the tropical atmosphere with heavy rain, and the various cities of Guangdong Province are also characterized by easy access to it from different parts of the world throughout the day, as well as ease of movement between its various cities, thanks to the presence of an infrastructure that makes most of the cities of the province at the forefront of attractive cities for investment globally.

  Due to the existence of the commercial ports, Guangdong has a long experience in terms of commercial exchanges regionally and globally.

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