Aliber’s “Reflections on Bretton Woods”

Robert Z. Aliber offers his “Reflections on Bretton Woods.” Bob is professor emeritus of International Economics and Finance at the University of Chicago, co-author of Manias, Panics, and Crashes: A History of Financial Crises, and a good friend of CFS.

Bob covers much ground. Topics include:

  • The White Mountains, Cog Railroad, and Mount Washington Hotel.
  • Bretton Woods Conferences.
  • How the Founders of Bretton Woods might view the last 75 years.
  • Trade and Tariffs.
  • The IMF.

The full report is available at http://www.CenterforFinancialStability.org/research/Reflections_on_Bretton_Woods_101719.pdf.

IRS to Ask Taxpayers about Virtual Currency Transactions

The IRS proposed an amended draft of the 2019 Form 1040 that includes a question about taxpayer virtual currency transactions.

As previously covered, the IRS provided updated guidance in the form of a revenue ruling and an FAQ on the tax treatment of virtual currency transactions. The FAQ addressed (i) when a cryptocurrency on a distributed ledger undergoes a protocol change that permanently divides the legacy from the existing distributed ledger (i.e., a “hard fork”) and (ii) when units of a cryptocurrency are delivered to the distributed ledger addresses of multiple taxpayers (i.e., an “airdrop”), typically following a hard fork.

The IRS proposed adding the following question to the 2019 Form 1040: “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

Comments on the revised draft must be submitted to the IRS within 30 days after October 11, 2019.

CFS Monetary Measures for September 2019

Today we release CFS monetary and financial measures for September 2019. CFS Divisia M4, which is the broadest and most important measure of money, grew by 5.9% in September 2019 on a year-over-year basis versus 5.4% in August.

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Sep19.pdf

For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’

FRB Vice Chair Randal Quarles Reviews FSB Activity

Federal Reserve Board Vice Chair Randal K. Quarles reviewed Financial Stability Board (“FSB”) activity and raised issues that continue to affect the global financial system. In a speech at the European Banking Federation’s European Banking Summit, Mr. Quarles highlighted the following:

OTC Derivatives. The FSB focused on the following issues as to OTC derivatives: (i) central clearing of standardized OTC derivatives, (ii) trading standardized OTC derivatives on an exchange or through an electronic trading platform, (iii) “reporting to trade repositories” and (iv) capital and margin requirements.

Prudential Bank Standards. Mr. Quarles addressed the work done by the Basel Committee to improve prudential standards for internationally active banking organizations (a/k/a “Basel III”). Mr. Quarles said that each of the 24 FSB jurisdictions have implemented the fundamentals of Basel III to incorporate risk-based capital and liquidity measures.

Key Attributes for Effective Resolution. As a solution to the “too-big-to-fail” dilemma, the FSB published “Key Attributes for Effective Resolution.” Mr. Quarles explained that the guidance offered procedures for national resolution regimes to follow if an important financial institution is failing.

Nonbank Financial Intermediation (“NBFI”). To better understand NBFI, the FSB conducted a “global monitoring exercise” and concluded that the overall size of NBFI to the global economy was $184 trillion. The FSB report also contained categories of NBFI activity and identified potential vulnerabilities.

Mr. Quarles also emphasized two issues the FSB is monitoring concerning the future of the global financial system.

– Financial Innovation. Mr. Quarles said that in response to an “explosion of financial innovation” in recent years, the FSB published a report on the potential implications and benefits of FinTech for the global financial system. Mr. Quarles highlighted multiple regulatory issues, such as (i) operational risks from third-party service providers, (ii) cyber risks and (iii) macrofinancial risks that may arise from FinTech activity.

– Market Fragmentation. While noting that market fragmentation will never “disappear,” Mr. Quarles explained that since the financial crisis, there have been growing concerns that globalization in the markets is slowing down. Mr. Quarles said that the FSB is working to assess the possible implications of market fragmentation, such as (i) the potential for regulatory “arbitrage” and (ii) an increased regulatory burden on firms.