CFS Monetary Measures for October 2019

Today we release CFS monetary and financial measures for October 2019. CFS Divisia M4, which is the broadest and most important measure of money, grew by 6.6% in October 2019 on a year-over-year basis versus 5.9% in September.

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Oct19.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’

Facebook CEO Mark Zuckerberg Defends Libra

In testimony before the House Financial Services Committee, Facebook CEO Mark Zuckerberg defended his company’s proposed virtual currency, “Libra.” The Committee also considered several bills related to technology and the financial services industry.

Mr. Zuckerberg emphasized that Facebook would not launch the Libra payment system until it has the support of U.S. regulators. He warned that, while these issues are being “debate[d],” China and other countries are working to launch similar payment systems. He argued that since Libra would be backed by U.S. dollars, it would “extend” U.S. financial leadership. He also addressed several concerns, assuring the legislators that:

– a recent white paper co-authored by Facebook (see previous coverage) was intended to start a dialogue with financial experts and regulators, rather than serve as the “final word”;

– Facebook does not intend to “circumvent” regulators; and

– the intended purpose of Libra is to provide for the transfer of money through an online payment system, not to be a replacement for sovereign currency.

Mr. Zuckerberg also affirmed Facebook’s commitment to preventing discrimination among Facebook’s advertisers. To “combat[]” discrimination, he stated, Facebook has made specific changes to policies in order to prevent discriminatory advertisement targeting. For example, Facebook banned the use of age, gender or zip codes in housing and credit advertisements.

Committee members at the hearing discussed several bills concerning technology and finance related to issues raised by the testimony. These included:

H.R. Draft “Keep Big Tech Out of Finance Act” would prohibit large platform utilities (i.e., Facebook) from (i) being authorized as, or affiliating with, a U.S. financial institution or (ii) operating a digital asset that is intended to be “widely used” as a method for exchange, pursuant to the Federal Reserve.

H.R. Draft “Stablecoins Are Securities Act of 2019” would make clear that a managed stablecoin is subject to the same securities laws’ requirements as other securities that are meant to protect investors, such as disclosure, antifraud and conflicts of interest.

H.R. Draft “Bill to Prohibit the Listing of Certain Securities” would limit issuers of stablecoins access to capital markets prohibiting certain trading on U.S. national securities exchanges.

H.R. Draft “Designing Accounting Safeguards to Help Broaden Oversight and Regulations on Data” would create more “transparency” on how consumer data is collected by requiring commercial data operators to disclose (i) the type of user data collected, (ii) an examination of how valuable the user data is and (iii) third-party contracts involving the collection of the data.

H.R. Draft “Diverse Asset Managers Act” would require SEC registrants to (i) consider at least one “diverse” asset manager when seeking asset management services and (ii) report to the SEC the extent to which diverse asset managers are used.

LOFCHIE COMMENTARY

Facebook’s attempted entry into the digital currency market accelerated the inevitable: Congress and the financial regulators are more closely scrutinizing the entry of technology firms into the financial markets. What was not inevitable was Congressional overreaction. While it now seems universal practice to refer to Libra as a Stablecoin, it is not: it is an asset-backed coin (try “ABCoin”). Because the managers of Libra would have had the ability to shift the assets supporting Libra, Libra is not stable. Because of the management of the underlying assets backing the product, Libra almost certainly would have been a “security,” at least in the absence of an exemption, and therefore, it is not necessary to amend the securities laws to that end.

A true Stablecoin, whether backed by the dollar or another currency (or even a pool of currencies) may be issued as a custodial receipt that is not a security, and need not be regulated as a security. It would thus be a shame if such Stablecoins, which may very well provide an attractive alternative to other payment methods, were made impossible because of an overbroad reaction to Libra.

Mr. Zuckerberg is absolutely correct that the United States benefits if a global stablecoin backed by the dollar were to emerge. Facebook’s principal mistake, which arguably reflects a certain lack of sophisticated understanding of financial regulation, was to go forward with a managed ABCoin, rather than a true Stablecoin.

Penn: Quant Tools and Macro Workshop

The Penn Institute for Economic Research (PIER) will offer a workshop on Quantitative Tools for Macroeconomic Policy Analysis. Francis X. Diebold, Enrique G. Mendoza, and Frank Schorfheide will provide training on essential state-of-the-art methods.

Guest Speakers include:

– Guillermo Calvo
– Narayana Kocherlakota
– Donald Kohn (three-hour mini-workshop on the practice of Macroprudential Policy)

The workshop will be held May 4 to May 8 at the University of Pennsylvania. Details are available at http://economics.sas.upenn.edu/pier/tools-workshop.

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.

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’

CFS Monetary Measures for August 2019

Today we release CFS monetary and financial measures for August 2019. CFS Divisia M4, which is the broadest and most important measure of money, grew by 5.4% in August 2019 on a year-over-year basis versus 5.0% in July.

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Aug19.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’

CFS Monetary Measures for July 2019

Today we release CFS monetary and financial measures for July 2019. CFS Divisia M4, which is the broadest and most important measure of money, grew by 5.0% in July 2019 on a year-over-year basis versus 4.8% in June.

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Jul19.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’

Levy on Monetary Realities Facing the ECB, Fed and BoJ: More Easing Won’t Stimulate the Economy

CFS is delighted to publish a thoughtful piece by Mickey Levy – Berenberg Capital Markets, Chief Economist for the Americas and Asia and Shadow Open Market Committee member.

In “Monetary Realities Facing the ECB, Fed and BoJ: More Easing Won’t Stimulate the Economy,” Mickey digs into the monetary policy transmission channels to assess growth implications of policy alternatives and considers the risks of excessive reliance on monetary easing.

He illustrates why further eases may not be the elixir for future growth. The paper is available at www.CenterforFinancialStability.org/research/Monetary_Policy_Realities_072919.pdf.

ECB presentation by Philipp Hartmann

The Center for Financial Stability (CFS) recently hosted a roundtable discussion on European Central Bank (ECB) monetary policy with Philipp Hartmann. Philipp is Deputy Director General for research at the ECB and one of the founders of its research department.

Philipp’s presentation – covered the first 20 years of ECB policy, the relatively wide range of monetary instruments, defining new ones, and the strategic underpinning of its policy framework – available at http://www.CenterforFinancialStability.org/research/20190717_ECB_Monetary_Policy_Hartmann.pdf

Monopoly Money: Facebook Executive Responds to Regulatory Concerns over Proposed Cryptocurrency

A Facebook executive responded to regulatory concerns over the company’s proposed blockchain-based cryptocurrency, “Libra.”

In testimony before the U.S. Senate Committee on Banking, Housing and Urban Affairs, Facebook subsidiary Calibra executive David Marcus emphasized that Facebook will not release Libra until it has addressed regulatory concerns and received the necessary approvals.

Mr. Marcus clarified that, among other things:

– Libra is like cash and will serve as a payment tool, “not as an investment”;

– Libra Reserve will be subject to its respective government’s monetary policies;

– Libra Association does not intend to compete with sovereign currencies or engage in the “monetary policy arena”;

– Facebook will hold a leadership role until the Libra network launches, after which Facebook will have the same voting power as all other members;

– Libra Association will be supervised by the Swiss Financial Markets Supervisory Authority and intends to register as a money services business with the Financial Crimes Enforcement Network;

– Libra will adhere to anti-money laundering and Bank Secrecy Act requirements; and

– Libra Association “cannot . . . and will not” monetize data from the blockchain.

Mr. Marcus outlined the structure and management of Calibra, established “to provide financial services using the Libra Blockchain.” Mr. Marcus distinguished Libra and Calibra, saying that the entities are separate and that they will not exchange individual customer data. Additionally, Mr. Marcus noted that, with exceptions, Calibra will not share customers’ accounts and financial information with Facebook, and that the information will not be used for ad targeting. Facebook said that Calibra will increase user activity on Facebook, thereby generating greater advertising revenue.

COMMENTARY / STEPHEN LOFCHIE

The principal point of the statement was to assert that Libra will be operated in full compliance with all relevant national laws. As to one of the key questions concerning whether Libra coins might be a “security,” Mr. Marcus stated that it would not be because “Libra is a payment tool, not an investment. People will not buy it to hold like they would a stock or bond, expecting it to pay income or increase its value. Libra is like cash.”

Notwithstanding Mr. Marcus’ assertion, Libra raises a number of very difficult (or at least unresolved) legal questions. Unlike “stablecoins” that are completely linked to the value of a single currency (they are just representations of bank deposits), it is intended that Libra will be backed by a reserve of a number of different currencies. The relative proportions of various currencies to be held in the reserve is uncertain. The fact that Libra is not simply a virtual dollar means that, at least under current law, each purchase and sale of a Libra could be a taxable event for U.S. taxpayers. There are also securities law issues raised by, for example, the fact that the determination of the assets to back a Libra will involve discretion as to the purchase and sale of securities.

From a business standpoint, Mr. Marcus suggests that the real market for Libra may be outside of the United States or of any developed economy. Rather, the market for Libra could be principally in countries where the local currency is volatile or where there is significant uncertainty as to the soundness of the banking system. That actually makes a good deal of sense. Consumers in the United States may not have much use in their daily lives for a currency tied to a global basket of other currencies and securities that fluctuates each day, even if not that much, against the dollar. On the other hand, consumers in Venezuela might find such a currency very appealing.