The tremors in the Bitcoin market are all the ears since the market crash. The famed cryptocurrency staggered from the April highs to almost half of its over Trillion-Dollar valuation in mere weeks as the halving event was followed by a ban levied on Bitcoin Mining by the People’s Republic of China. However, the series of unfortunate events draped a rather peculiar facet. The reaction of Mr. Elon Musk regarding Bitcoin. Earlier this month, the Tesla CEO pulled the cord from his unwavering support to the digital currency, citing environmental concerns and the inimical Mining procedures making up the mechanism of Bitcoin. However, the bizarre part of the whole scenario made news when a council was announced out of the blue that drove netizens into a storm of criticism and confusion.
The Mining process is an integral part of the ‘Proof of Work (PoW)’ framework embedded in the Bitcoin Protocol introduced in 2009. The process involves trusted users, also known as ‘Miners’, using copious amounts of electricity to compute complex mathematical problems, known as the ‘Hash Functions’, to authenticate each additional block of transaction data added to the initial ledger/blockchain. Simply put, the more computational power Miners utilize, the more blocks of transactions they could authenticate and, as a reward, the more Bitcoins they could mine. The process, however, by its very nature involves high energy usage to keep fraudulent transactions at bay as to corrupt a digital ledger, the fraudster would have to accumulate enormous computing power. Such a level of computation would require expensive resources that would simply render the fraud futile. Thus, the PoW protocol retains the authenticity of Bitcoin as a shared ledger.
However, Miners in existence continue to use high levels of electricity given the recent expansion and raging popularity of Bitcoin in recent years. This excessive usage sparked a debate between the environmentalists and the Bitcoin aficionados. It is estimated that Bitcoin’s electricity consumption surpasses that of Argentina. Moreover, the Cambridge Bitcoin Electricity Consumption Index (CBECI) reported that Bitcoin’s energy usage, as of 2020, also outnumbered the consumption of the The Netherlands. While the energy usage could be debated in the account of the technological boom that the world faces due to the pandemic, most of the energy used through the Mining process is generated via non-renewable resources like coal and oil which depletes the world resources whilst causing damage to the atmosphere. Recent research reported that China leads the chart of Miners with more than 75% of Bitcoin Mining being traced to the Mainland. That being said, roughly 40% of that exorbitant energy usage is leveraged through electricity mainly generated through coal mining and burning fossil fuels.
The environmental concern irked the SpaceX founder as Tesla suspended their newly introduced payment mechanism; subsiding from accepting Bitcoin as a mode of value for their vehicle purchases. The announcement wreaked havoc in the already ebbing market as billions of dollars were wiped off the market capitalization of the Cryptocurrency market in a matter of days. However, Musk still displayed hope in Bitcoin. He recently tweeted: “Spoke with North American Bitcoin Miners. They committed to publish current and planned renewable usage”. While the comments were possibly aimed to assuage the bearish sentiment lurking in the market, the following tweets befuddled the Bitcoin connoisseurs. Michael Saylor, the CEO of MicroStrategy, reiterated the meeting in a rather nuanced style, tweeting: “Yesterday I was pleased to host a meeting between Elon Musk and the leading Bitcoin Miners in North America. The Miners have agreed to form the Bitcoin Mining Council to promote energy usage transparency and accelerate sustainability initiatives worldwide”. Saylor rejoiced the members of the newfound council including reputed Mining firms like Argo, Hire, Galaxy Digital Holdings, Riot Blockchain, and a handful of others.
Within hours, however, the Bitcoin enthusiasts took the internet by storm, questioning the rudiments and merits of a council on a decentralized platform. Many started drawing comparisons to the Organisation of the Petroleum Exporting Countries (OPEC), insinuating a fledgling monopoly in the Bitcoin market. A small-scale Bitcoin miner expressed his dissent, stating: “Its extremely concerning that this group of Bitcoin Miners wandered into this meeting without any sense of self-awareness”. Adding more about his fears of a growing centricity, he stated: “Do they not recall the last time there was a closed-door meeting that involved industry stakeholders who attempted to speak on behalf of an entire industry? How did they think this would turn out?”. Moreover, the concerns revolving around the fungibility of Bitcoin were exacerbated by the council formation as Miners feared a disparity of value between a Clean Bitcoin (a Bitcoin mined using renewable energy) and a Dirty Bitcoin (a Bitcoin mined using non-renewable energy). The concerns were long present since the environmental shift allows US citizens an advantage of Mining Bitcoin through means of wind energy whilst Miners in countries like China and Russia would continue to resort to coal-driven energy production.
While the internet bustled with criticism and analysis, the fellow Miners of the newly formed council quickly came out in defense of their stance. Peter Wall, the CEO of Argo Blockchain, stated: “We’re not talking about Bitcoin code or block size or anything related to changing the nature of Bitcoin. We all love Bitcoin the way it is, as a decentralized, permissionless system”. This statement was aimed to placate the concerns lacing around the possibility of threat of a collusion and an end to the ideal ‘Leaderless Model’ of Bitcoin. Wall further added: “Discussions with the group so far have been very clear that 1 BTC = 1 BTC, and that the fungibility and essential properties of Bitcoin shouldn’t be changed”. While the comments did provide some level of comfort and relief to the low-end Miners, the question remains regarding the role and tools of the Bitcoin Mining Council since, without an authoritative position or a penalty to discourage the adverse usage of energy, the Council would be nothing but an entity of no value since despite their collective Bitcoin holdings worth billions of dollars, the mechanism would render the council powerless when it comes to regulating the Mining process in a decentralized medium.
The statements, however, did pump up the stumbling Bitcoin as it climbed from USD 34700.36 on May 24th to USD 38,994.09 on May 25th; a recovery of more than 12%. However, the market still reels with a negative sentiment. With looming ESG concerns and economies closing doors on Bitcoin, the newly formed council faces a series of dilemmas: How could an expanding group of small-scale Miners join hands with the industry veterans? How would the power and decision-making fall into equitable brackets? Especially in an industry that by design is leaderless.
The Monetary Policy of Pakistan: SBP Maintains the Policy Rate
The State Bank of Pakistan (SBP) announced its bi-monthly monetary policy yesterday, 27th July 2021. Pakistan’s Central bank retained the benchmark interest rate at 7% after reviewing the national economy in midst of a fourth wave of the coronavirus surging throughout the country. The policy rate is a huge factor that relents the growth and inflationary pressures in an economy. The rate was majorly retained due to the growing consumer and business confidence as the global economy rebounds from the coronavirus. The State Bank had slashed the interest rate by 625 basis points to 7% back in the March-June 2020 in the wake of the covid pandemic wreaking havoc on the struggling industries of Pakistan. In a poll conducted earlier, about 89% of the participants expected this outcome of the session. It was a leap of confidence from the last poll conducted in May when 73% of the participants expected the State Bank to hold the discount rate at this level.
The State Bank Governor, Dr. Raza Baqir, emphasized that the Monetary Policy Committee (MPC) has resorted to holding the 7% discount rate to allow the economy to recover properly. He added that the central bank would not hike the interest rate until the demand shows noticeable growth and becomes sustainable. He echoed the sage economists by reminding them that the State Bank wants to relay a breather to Pakistan’s economy before pushing the brakes. The MPC further asserted that the Real Discount Rate (adjusted for inflation) currently stands at -3% which has significantly cushioned the economy and encouraged smaller industries to grow despite the throes of the pandemic.
Dr. Raza Baqir further went on to discuss the current account deficit staged last month. He added that the 11-month streak of the current account surplus was cut short largely due to the loan payments made in June. The MPC further explained that multiple factors including an impending expiration of the federal budget, concurrent payments due to lenders, and import of vaccines, weighed heavily down on the national exchequer. He further iterated that the State Bank expects a rise in exports along with a sustained recovery in the remittance flow till the end of 2021 to once again upend the current account into surplus. Dr. Raza Baqir assured that the current level of the current account deficit (standing at 3% of the GDP) is stable. The MPC reminded that majority of the developing countries stand with a current account deficit due to growth prospects and import dependency. The claims were backed as Dr. Raza Baqir voiced his optimism regarding the GDP growth extending from 3.9% to 5% by the end of FY21-22.
Regarding currency depreciation, Dr. Baqir added that the downfall is largely associated with the strengthening greenback in the global market coupled with high volatility in the oil market which disgruntled almost every oil-importing country, including Pakistan. He further remarked, however, that as the global economy is vying stability, the situation would brighten up in the forthcoming months. Mr. Baqir emphasized that the current account deficit stands at the lowest level in the last decade while the remittances have grown by 25% relative to yesteryear. Combined with proceeds from the recently floated Eurobonds and financial assistance from international lenders including the IMF and the World Bank, both the currency and the deficit would eventually recover as the global market corrects in the following months.
Lastly, the Governor State Bank addressed the rampant inflation in the economy. He stated that despite a hyperinflation scenario that clocked 8.9% inflation last month, the discount rates are deliberately kept below. Mr. Baqir added that the inflation rate was largely within the limits of 7-9% inflation gauged by the State Bank earlier this year. However, he further added that the State Bank is making efforts to curb the unrelenting inflation. He remarked that as the peak summer demand is closing with July, the one-way pressure on the rupee would subsequently plummet and would allow relief in prices.
The MPC has retained the discount rate at 7% for the fifth consecutive time. The policy shows that despite a rebound in growth and prosperity, the threat of the delta variant still looms. Karachi, Pakistan’s busiest metropolis and commercial hub, has recently witnessed a considerable surge in infections. The positivity ratio clocked 26% in Karachi as the national figure inched towards 7% positivity. The worrisome situation warrants the decision of the State Bank of Pakistan. Dr. Raza Baqir concluded the session by assuring that despite raging inflation, the State Bank would not resort to a rate hike until the economy fully returns to the pre-pandemic levels of employment and production. He further assuaged the concerns by signifying the future hike in the policy rate would be gradual in nature, contrast to the 2019 hike that shuffled the markets beyond expectation.
Reforms Key to Romania’s Resilient Recovery
Over the past decade, Romania has achieved a remarkable track record of high economic growth, sustained poverty reduction, and rising household incomes. An EU member since 2007, the country’s economic growth was one of the highest in the EU during the period 2010-2020.
Like the rest of the world, however, Romania has been profoundly impacted by the COVID-19 pandemic. In 2020, the economy contracted by 3.9 percent and the unemployment rate reached 5.5 percent in July before dropping slightly to 5.3 percent in December. Trade and services decreased by 4.7 percent, while sectors such as tourism and hospitality were severely affected. Hard won gains in poverty reduction were temporarily reversed and social and economic inequality increased.
The Romanian government acted swiftly in response to the crisis, providing a fiscal stimulus of 4.4 percent of GDP in 2020 to help keep the economy moving. Economic activity was also supported by a resilient private sector. Today, Romania’s economy is showing good signs of recovery and is projected to grow at around 7 percent in 2021, making it one of the few EU economies expected to reach pre-pandemic growth levels this year. This is very promising.
Yet the road ahead remains highly uncertain, and Romania faces several important challenges.
The pandemic has exposed the vulnerability of Romania’s institutions to adverse shocks, exacerbated existing fiscal pressures, and widened gaps in healthcare, education, employment, and social protection.
Poverty increased significantly among the population in 2020, especially among vulnerable communities such as the Roma, and remains elevated in 2021 due to the triple-hit of the ongoing pandemic, poor agricultural yields, and declining remittance incomes.
Frontline workers, low-skilled and temporary workers, the self-employed, women, youth, and small businesses have all been disproportionately impacted by the crisis, including through lost salaries, jobs, and opportunities.
The pandemic has also highlighted deep-rooted inequalities. Jobs in the informal sector and critical income via remittances from abroad have been severely limited for communities that depend on them most, especially the Roma, the country’s most vulnerable group.
How can Romania address these challenges and ensure a green, resilient, and inclusive recovery for all?
Reforms in several key areas can pave the way forward.
First, tax policy and administration require further progress. If Romania is to spend more on pensions, education, or health, it must boost revenue collection. Currently, Romania collects less than 27 percent of GDP in budget revenue, which is the second lowest share in the EU. Measures to increase revenues and efficiency could include improving tax revenue collection, including through digitalization of tax administration and removal of tax exemptions, for example.
Second, public expenditure priorities require adjustment. With the third lowest public spending per GDP among EU countries, Romania already has limited space to cut expenditures, but could focus on making them more efficient, while addressing pressures stemming from its large public sector wage bill. Public employment and wages, for instance, would benefit from a review of wage structures and linking pay with performance.
Third, ensuring sustainability of the country’s pension fund is a high priority. The deficit of the pension fund is currently around 2 percent of GDP, which is subsidized from the state budget. The fund would therefore benefit from closer examination of the pension indexation formula, the number of years of contribution, and the role of special pensions.
Fourth is reform and restructuring of State-Owned Enterprises, which play a significant role in Romania’s economy. SOEs account for about 4.5 percent of employment and are dominant in vital sectors such as transport and energy. Immediate steps could include improving corporate governance of SOEs and careful analysis of the selection and reward of SOE executives and non-executive bodies, which must be done objectively to ensure that management acts in the best interest of companies.
Finally, enhancing social protection must be central to the government’s efforts to boost effectiveness of the public sector and deliver better services for citizens. Better targeted social assistance will be more effective in reaching and supporting vulnerable households and individuals. Strategic investments in infrastructure, people’s skills development, and public services can also help close the large gaps that exist across regions.
None of this will be possible without sustained commitment and dedicated resources. Fortunately, Romania will be able to access significant EU funds through its National Recovery and Resilience Plan, which will enable greater investment in large and important sectors such as transportation, infrastructure to support greater deployment of renewable energy, education, and healthcare.
Achieving a resilient post-pandemic recovery will also mean advancing in critical areas like green transition and digital transformation – major new opportunities to generate substantial returns on investment for Romania’s economy.
I recently returned from my first official trip to Romania where I met with country and government leaders, civil society representatives, academia, and members of the local community. We discussed a wide range of topics including reforms, fiscal consolidation, social inclusion, renewably energy, and disaster risk management. I was highly impressed by their determination to see Romania emerge even stronger from the pandemic. I believe it is possible. To this end, I reiterated the World Bank’s continued support to all Romanians for a safe, bright, and prosperous future.
First appeared in Romanian language in Digi24.ro, via World Bank
US Economic Turmoil: The Paradox of Recovery and Inflation
The US economy has been a rollercoaster since the pandemic cinched the world last year. As lockdowns turned into routine and the buzz of a bustling life came to a sudden halt, a problem manifested itself to the US regime. The problem of sustaining economic activity while simultaneously fighting the virus. It was the intent of ‘The American Rescue Plan’ to provide aid to the US citizens, expand healthcare, and help buoy the population as the recession was all but imminent. Now as the global economy starts to rebound in apparent post-pandemic reality, the US regime faces a dilemma. Either tighten the screws on the overheating economy and risk putting an early break on recovery or let the economy expand and face a prospect of unrelenting inflation for years to follow.
The Consumer Price Index, the core measure of inflation, has been off the radar over the past few months. The CPI remained largely over the 4% mark in the second quarter, clocking a colossal figure of 5.4% last month. While the inflation is deemed transitionary, heated by supply bottlenecks coinciding with swelling demand, the pandemic-related causes only explain a partial reality of the blooming clout of prices. Bloomberg data shows that transitory factors pushing the prices haywire account for hotel fares, airline costs, and rentals. Industries facing an offshoot surge in prices include the automobile industry and the Real estate market. However, the main factors driving the prices are shortages of core raw materials like computer chips and timber (essential to the efficient supply functions of the respective industries). Despite accounting for the temporal effect of certain factors, however, the inflation seems hardly controlled; perverse to the position opined by Fed Chair Jerome Powell.
The Fed already insinuated earlier that the economy recovered sooner than originally expected, making it worthwhile to ponder over pulling the plug on the doveish leverage that allowed the economy to persevere through the pandemic. The main cause was the rampant inflation – way off the 2% targetted inflation level. However, the alluded remarks were deftly handled to avoid a panic in an already fragile road to recovery. The economic figures shed some light on the true nature of the US economy which baffled the Fed. The consumer expectations, as per Bloomberg’s data, show that prices are to inflate further by 4.8% over the course of the following 12 months. Moreover, the data shows that the investor sentiment gauged from the bond market rally is also up to 2.5% expected inflation over the corresponding period. Furthermore, a survey from the National Federation of Independent Business (NFIB) suggested that net 47 companies have raised their average prices since May by seven percentage points; the largest surge in four decades. It is all too much to overwhelm any reader that the data shows the economy is reeling with inflation – and the Fed is not clear whether it is transitionary or would outlast the pandemic itself.
Economists, however, have shown faith in the tools and nerves of the Federal Reserve. Even the IMF commended the Fed’s response and tactical strategies implemented to trestle the battered economy. However, much averse to the celebration of a win over the pandemic, the fight is still not through the trough. As the Delta variant continues to amass cases in the United States, the championed vaccinations are being questioned. While it is explicable that the surge is almost distinctly in the unvaccinated or low-vaccinated states, the threat is all that is enough to drive fear and speculation throughout the country. The effects are showing as, despite a lucrative economic rebound, over 9 million positions lay vacant for employment. The prices are billowing yet the growth is stagnating as supply is still lukewarm and people are still wary of returning to work. The job market casts a recession-like scenario while the demand is strong which in turn is driving the wages into the competitive territory. This wage-price spiral would fuel inflation, presumably for years as embedded expectations of employees would be hard to nudge lower. Remember prices and wages are always sticky downwards!
Now the paradox stands. As Congress is allegedly embarking on signing a $4 trillion economic plan, presented by president Joe Bidden, the matters are to turn all the more complex and difficult to follow. While the infrastructure bill would not be a hard press on short-term inflation, the iteration of tax credits and social spending programs would most likely fuel the inflation further. It is true that if the virus resurges, there won’t be any other option to keep the economy afloat. However, a bustling inflationary environment would eventually push the Fed to put the brakes on by either raising the interest rates or by gradually ceasing its Asset Purchase Program. Both the tools, however, would risk a premature contraction which could pull the United States into an economic spiral quite similar to that of the deflating Japanese economy. It is, therefore, a tough stance to take whether a whiff of stagflation today is merely provisional or are these some insidious early signs to be heeded in a deliberate fashion and rectified immediately.
Pakistani PM’s Interview with PBS News Hours on Afghanistan Issues
In an interview with PBS News Hour, host Judy Woodruff asked PM Imran Khan multiple questions about Pakistan’s point of...
Hardened US and Iranian positions question efficacy of parties’ negotiating tactics
The United States and Iran seem to be hardening their positions in advance of a resumption of negotiations to revive...
Criticism Highlights Russia’s Media Weakness in Africa
In her weekly media briefing July 23, Foreign Ministry Spokeswoman Maria Zakharova criticized United States support for educational programs, media...
Is your security compromised due to “Spy software” know how
Spy software is often referred to as spyware is a set of programs that gives access to user/ administrators to...
The other side of the Olympics
The world Olympic movement has always been based on the principles of equal and impartial attitude towards athletes – representatives...
Tunisia between Islamism and the ‘Delta variant’
On Sunday 25 July, on a day dedicated to celebrating the country’s independence, in a move that surprised observers and...
International Criminal Court and thousands of ignored complaints
The civil war in Donbass has been going on for more than seven years now. It broke out in 2014,...
Intelligence3 days ago
China and Russia’s infiltration of the American Jewish and Israeli lobbies
East Asia3 days ago
Will US-China Tensions Trigger the Fourth Taiwan Strait Crisis?
Central Asia2 days ago
Russia’s ‘Great Game’ in Central Asia Amid the US Withdrawal from Afghanistan
Economy3 days ago
The Monetary Policy of Pakistan: SBP Maintains the Policy Rate
South Asia3 days ago
The Indo-US bonhomie: A challenge to China in the IOR
Middle East3 days ago
Politics by Other Means: A Case Study of the 1991 Gulf War
Travel & Leisure2 days ago
Four Seasons Hotel Mexico City Reveals Five of the City’s Hidden Gems
East Asia2 days ago
The Taliban seek cooperation with China?