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Home » Daily Briefing » Daily briefing - 21 June 2019

Daily briefing - 21 June 2019

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The Libra white paper

"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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