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Daily briefing - 26 June 2019

It's hardly a surprise that US congresswoman Maxine Waters is calling for a ban on Libra, stating that nothing must be allowed to challenge the dollar. Indeed. But those days of dollar domination are numbered. Richard Nixon's Treasury Secretary John Connally unilaterally took the dollar gold standard in 1971. Later that year, Connally famously told a group of European reporters — in reference to the export of American inflation via the dollar — that "it's our currency but your problem". Yesterday the Basel-based Financial Stability Board (FSB) managed to stutter something similar at Libra, Facebook's new finance offering. The FT reports a senior FSB official saying "If we're to have something like Libra, if it were to become a widespread retail payment mechanism, we would obviously be looking at that very closely." Wow, Facebook will be quaking in its boots. Broadly, however, regulators are welcoming the chance to engage with Libra, especially in Switzerland. (Libra's HQ is a short train ride away from the FSB headquarters in Basel). Thomas Moser, an alternate member of the Swiss National Bank's governing board, told a Crypto Valley Conference that Libra had clearly indicated that they are willing to play according to the rules, and had been contacting regulators. "I think it's an interesting development and I'm pretty relaxed about it," said Moser, as other central bankers around the world entered various stages of existential anxiety, knowing that the Swiss are only "generally pretty relaxed" about things like securely parking vast amounts of global savings in Alpine vaults when they've already thought the whole thing through. As we wrote last year, Switzerland has been busy upgrading its former military bunkers into offline cryptocurrency storage units. "The Bank for International Settlements, an umbrella group for central banks, said on Sunday that greater political coordination was needed to deal with the entry into finance of major tech firms like Facebook," reports Reuters. It will not have escaped the attention of the BIS that it remains the daddy of banks, the most hated institutions in the world (maybe even more than Facebook). What a fight this is shaping up to be, and there's precedent here. When Rupert Murdoch scooped up Star TV in the 1990s, who was able to stop him from beaming satellite signals into countries across Asia? Who is going to stop Facebook's high altitude balloons from beaming the internet across much of Africa? (And by the way, Facebook operates on the internet.)Let's take a look for instance at one of Facebook's major markets: Indonesia. From our recent Credit Cards and Digital Finance reports on Indonesia, we know that ecommerce is absolutely thriving. "The recent entry of Alipay, WeChat into Indonesia has enthused the market with Grab Pay and Go-Jek responding with their own local innovations. With 250 million customers, Indonesia is the largest ASEAN market for the Chinese giants. However, even the mobile wallet and ecommerce giants have found the Indonesian regulators to be a handful." India is no longer the main arena for the US to meet the Chinese challengers. Libra has published its white paper in Bahasa, an Indonesian language. Why? Among other reasons, Indonesia has the fourth-highest number of Facebook users in the world. "Since nearly 10 percent of Indonesian respondents said they also own some cryptocurrency, double American percentage, Facebook couldn't have dreamed up a better market for Libra," suggests Coindesk. "QCP Capital co-founder Joshua Ho, a trader who works closely with Indonesian exchange Tokocrypto, told CoinDesk Facebook's Libra ecosystem could be a 'gamechanger' in Indonesia. 'People are already very aligned with mobile payments,' Ho said. 'It is geographically decentralized. Creating banking access is a huge challenge'." Safaricom courts credit unions in banking push

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Daily briefing - 25 June 2019

Facebook's Libra project is growing from an office in Geneva. And how? We've marked Switzerland's card as a world leader in digital assets including bitcoin. The Crypto Valley of Zug is just up the road. The Swiss have the knowhow to attract financial assets and have taken a proactive regulatory approach, including giving a professional fund management licence to Crypto Finance, which also operates out of Geneva — and from the same space where Libra is now setting up. (It's the site which was formerly home to Coutts, the private bank acquired by RBS. In 2015, RBS sold the business to Geneva-based private bank Union Bancaire Privee.) Indeed, it caught our eye that one of Libra's early partners is the global charity Mercy Corps. Now, would it be possible that Libra has looked at China's Red Envelopes and thought: let's launch Libra by getting money to global humanitarian causes through Mercy Corps. We all know there's plenty of humanitarian and ecological crises lining up. The United Nations building is just up the road too, and the boffins there have been exploring things such as decentralised digital identity, something that's also at the heart of the Libra project. And incidentally, David Marcus, Facebook's point man on Libra, has roots in Geneva. ""Our goal is to manage Libra, the technology and the digital currency very much like a public good, so where better than Switzerland to make this kind of global organization and project," said Libra spokesperson Dante Disparte. Read the background notes to this story on Bloomberg. HSBC will scrap several fees including the minimum balance charge in Asia in order to stay competitive as new digital only banks start to come on stream. "More banks are expected to follow," the South China Morning Post reports "The change, analysts say, is fuelled by competition arising from virtual banks, which are due to come online later this year. Eight licences have been issued by the Hong Kong Monetary Authority since March. They include tech giants like Tencent and Alibaba, the parent company of the South China Morning Post as well as insurance company Ping An and smartphone maker Xiaomi. The virtual banks operate online without a branch network and are not allowed to charge minimum balance fees."There's a lot to be said for partisan journalism, especially once it's obvious. The New York Times has plenty of reasons to write about Amazon, owner of its competitor the Washington Post and new entrant to the digital advertising business. Amazon acquisition Createspace is a brilliant scheme where authors can upload digital books which Amazon then prints on order and sells to customers. Unfortunately this opens the doors to scammers — but Amazon expects publishers to police their own marketplaces. Anyone operating in the publishing world will be familiar with these problems: songs or publications are easily ripped off or made available on channels where royalties flow to channel owners and not the artists. A nice piece of reporting by the Times. UK bank Monzo scooped up another wedge of cash to fuel its expansion in the United States.

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Daily briefing - 21 June 2019

"The advent of the internet and mobile broadband has empowered billions of people globally to have access to the world's knowledge and information, high-fidelity communications, and a wide range of lower-cost, more convenient services. These services are now accessible using a $40 smartphone from almost anywhere in the world." Who said that? The Libra White Paper, that's who. And Facebook is serious about being part of the internet of money. What's Vodafone's name doing on the list of partners? Is this M-Pesa 2.0? Banks have had a total non-reaction so far to Libra, but maybe they are just totally freaking out at the moment and need to calm down. But that's an appropriate reaction. We have some other questions, such as, where's Warren Buffett now? Some of Buffet's top investees are already in bed with Libra. Even the normally mouthy Jamie Dimon has been largely silent, now that his own JPMCoin has been rolled over by Libra. We advise our readers to take some time to go through the White Paper. The reaction of central bankers tells us a lot about how this will play out. Mark Carney's announcement yesterday seems carefully calibrated to the arrival of Libra. "Mark Carney announced on Thursday the Bank of England intends to throw open its vaults to tech companies for the first time, allowing them to bank at Threadneedle Street and thereby offer payments systems on a level playing field with commercial banks," writes the FT. In fact, the transformation of the UK payments systems has opened up the way for this development. "The idea of allowing all payment providers to store funds overnight in interest-bearing accounts at the central bank would help ensure 'similar activities should be regulated consistently,' the BoE governor stressed. Unlike social media for which standards and regulations are being debated well after it has been adopted by billions of users, the terms of engagement for innovations such as Libra must be adopted in advance of any launch," Mr Carney said. Transferwise last year became the first non-bank to gain access to the Bank of England payments system. No doubt Mr Zuckerberg and his team pointed this out in their meetings with Mr Carney. It's a mark of the distance between the ECB and the Bank of England. It looks as though the Bank of England is going to establish a whole new role for itself post-Brexit. London has never been slow to see which way the financial winds are blowing. The ECB, in fairness, has been warning about the crypto threat for years, with Yves Mersch and others at the ECB calling for real-time payments in the EU as a bulwark against new players with new systems riding roughshod over the existing system. "Virtual tokens pegged to official currencies, known as stablecoins, could undermine banks if they became widely used, the head of Germany's central bank said on Friday," writes Reuters, while failing to point out that JPMorgan's stablecoin JPMCoin raised hardly a murmur from regulators when it was launched recently. Jens Weidmann yesterday told a conference at the Bundesbank that stablecoins "would almost certainly become systemic by nature, not only because of their operational risks, but also in a more fundamental way: they could undermine the deposit-taking of banks and their business models." JPMorgan doesn't give up easily, however, and is rumoured to be building a new bank out of London. "According to sources, the investment bank has begun recruiting for a secretive skunkworks project within London's booming fintech industry. Very few details are known about what exactly J.P. Morgan plans to build, although TechCrunch understands the bank is busy hiring high level developers with full-stack and cloud-based dev skills for the new project, along with other personnel."Michael Lafferty writes: So JP Morgan Chase is planning to set up a UK challenger bank? The all-powerful Americans are coming to Europe — again? It reminds one of all those US consumer banking forays into Europe in the past — like Familien Banken that Chase launched in Germany half a century back, Citi's endless attempts to enter the UK personal banking market, the credit cards launched by MBNA, Banc One, Citi, and so on. All are gone and forgotten. Come to think of it not one US bank has a successful consumer banking business anywhere in Western Europe today. In a strange irony, Citi only operates nowadays in the Polish and Russian consumer banking/financial services markets. This is not just a European story. American banks have no hesitation in selling off often highly valuable consumer assets when they hit trouble at home — as we have seen with Citi In Brazil and Bank of America in Argentina and Chile, as well as the UK where the once great MBNA is now a unit of the gigantic Lloyds Bank.One-off opportunistic moves into foreign markets by US banks like JPMC are of little significance. To be credible, the big Americans need global consumer banking strategies and a map of the world. Citi was well on its way to doing just that in the 1990s under the leadership of the incomparable John Reed. That was until he made the worst decision in his business life — the merger of Citi with Sandy Weill's Travellers. Within a couple of years Reed was gone and Weill was well on his way to the destruction of Citi. The lessons of the past are there for all to learn.

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