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The sanctions craze and our dangerously unstable systems
“In the case of Putin we are in this very dangerous place. We have reacted so aggressively and moved so far, so fast that he is personally humiliated under anything other than absolute victory in Ukraine. That makes it impossible for him to back down. It’s a very dangerous negotiating position to have put yourself into.”In the latest New Money Review podcast, Mike Green, chief strategist at Simplify Asset Management, discusses geopolitics, game theory, market structure and risk.Green believes our policymakers have created dangerously unstable financial, political and social systems by preventing diversity—whether that’s opinions on coronavirus, the Ukraine war or the way equity markets are structured.“No-one wins in these unstable systems,” Green says in the podcast. “Human society depends on relative stability to flourish but we’re creating conditions of extraordinary instability. And those marginally past the point of subsistence are the most likely to be damaged.”Green is a former hedge fund manager, having worked for Peter Thiel’s family office and in a start-up seeded by Soros Fund Management.His work on the changing structure of equity markets has been presented to the Federal Reserve, the BIS, the IMF and numerous other industry groups and associations.Listen to the podcast, ‘the future of money in 30 minutes’, to hear Green discuss:How the rise of index investing has changed marketsThe risks of momentum-driven tradingCoyotes and rabbits—how we’ve destroyed market heterogeneityGrowing absolute scarcity in the world’s raw materialsCold War revisited—the new global competition for client statesThe rise of China—are we at the end of the dollar regime?Are any asset markets cheap?The sanctions craze and the lost art of diplomacyWhy cornering Putin is dangerousWhy the marketing of cryptocurrencies has been criminalWhy decentralised finance is promising but needs proper governance
India’s digital currency leap
Over the last decade India has undertaken arguably the most ambitious digitisation programme of any country in the world.Its so-called ‘India stack’—a public digital infrastructure that allows governments, businesses, start-ups and developers to interact—is the largest open software platform of its kind. Nearly all of India’s 1.4bn citizens are now included in a biometric digital identity system, which is linked to a real-time payments network and a credential management platform.India’s payments system has been called the most advanced in the world, and recent events have shown how far-sighted its planners were. Since the coronavirus pandemic, more and more of us have turned to digital forms of payment, discarding cash in the process.To make sure they stay relevant in the digital money era, governments around the world are now racing to introduce state digital currencies (also called central bank digital currencies or CBDC).Some say China is well ahead in this global competition—it’s been trialling the new digital yu’an at the winter Olympics.The US is playing catch up but in a serious way—the Federal Reserve has released two important papers about CBDC in the last month.But India is also now firming up its digital currency plans. The country’s finance minister said earlier this month that India will introduce a new CBDC later this year or in 2023.To discuss the digital rupee and its likely impact, I’m joined on the latest New Money Review podcast by Tanvi Ratna, a technologist and policymaker who’s based in Bangalore.Tanvi, who is founder of a think-tank called Policy 4.0, has worked with both the US and Indian governments on technology policy and is closely involved with India’s digital currency debate.In the podcast, we discuss:The origins of India’s digitisation pushAadhaar—India’s state digital identity systemThe India stack as a public infrastructureIndia as a rising fintech hubDigital currency and monetary policyThe design of the digital rupeeIndia’s plans to tax cryptocurrencyThe geopolitics of CBDC—the US, China and IndiaCurrency convertibility and international usageHow India may lead in the global debate over digital privacy
Dark Money
In the last decade we’ve seen four massive leaks of data from offshore financial centres: the Panama, Paradise and Pandora papers and the FinCEN files.No-one knows who leaked this information. But the data made one thing crystal-clear: the world’s rich and powerful, including its wealthiest criminals, love using shell companies to hide their assets.And it’s not just a few small, sunny Caribbean or Pacific islands that make these financial flows possible.It’s also corporate vehicles in places like the UK, where you can set up a limited company for as little as £12.In the recent Danske Bank scandal, €200bn of suspicious transactions from the former USSR flowed through the Estonian branch of the Danish bank between 2007 and 2015.In nearly all these flows, British limited companies and partnerships, owned by unknown entities, were critical in helping launder the money. In the latest New Money Review podcast, one of the world’s leading experts talks about the mechanics of money laundering.Graham Barrow has worked with many banks to help combat illicit money flows. He is also co-host of a brilliant podcast called the Dark Money Files, which I spent a lot of time listening to last year.The UK, where I live, keeps saying it will crack down on the abuse of shell companies.More cynical voices argue that London is so dependent on dark money it has no real incentive to do so.So far, the cynics seem right. The UK government has failed to act on its promises to tighten up the rules on identifying the owners of companies.But maybe all is not lost. Listen to Graham for thirty minutes and make up your own mind.In the podcast discussion, we cover:What is dark money?Who benefits and who suffers from dark money flows?The impact of recent data leaksProfessional money launderers—the enablers of dark money flowsThe transnational nature of money laundering schemesWhy limited companies and partnerships are the money launderer’s tool of choiceThe dark money soup—UK legal entities controlled by offshore companiesThe need for UK Companies House reforms and a UK property ownership registerWhy only an idiot would launder money through cryptocurrencyWhy the information revolution will help combat dark money flowsExplaining money laundering to the average citizenThe money laundering connections surrounding the 2020 Beirut blast
The crypto bubble is one of many
In the latest New Money Review podcast, technologist Martin Walker tells Paul Amery how the cryptocurrency bubble has wasted huge amounts of capital and is only one of several interconnected manias. By contrast with the dot.com bubble of 1999/2000, says Walker, little of use may be left behind from the current irrational exuberance.Here are some excerpts from the podcast:‘Decentralisation’ in blockchain is meaningless“The word ‘decentralisation’ in the fintech and blockchain world is a very confusing term. It’s turned into an excuse to avoid accountability for running businesses and financial infrastructure.”What is bitcoin?“Bitcoin is a rather bizarre payments infrastructure that uses a private currency. It has nothing to do with any of the problems that we saw in the 2008 financial crisis.”Regulators struggle“It’s frustrating on many levels that regulation always seems to be a long way behind the curve. Someone used the expression: ‘The regulators tidy up the bodies, rather than stopping people getting killed’.”“But you can’t just put things at the door of regulators. They are always on the back foot when innovation occurs. And they can only do what’s determined by the law. There’s a responsibility on politicians and governments to look at what’s going on. When you have things bubbling away and potentially causing problems the regulators need to have the appropriate powers.”“There’s a degree of reluctance by many regulators to be seen as anti-innovation. That’s one of the things I really find disturbing about the current age. The number one duty of the regulator should be to protect the public and the financial sector.”The crypto lobby is powerful“The crypto lobby has become so rich and so powerful that you’ve got senators, congressmen, MPs and even whole countries brought in.”New rules will follow the crash“To get things under proper control you need some degree of international cooperation. But I don’t see that happening until you’ve had a really major crash, where a lot of ordinary people have lost their money.”Conflicts of interest in cryptocurrency“There are so many conflicts of interest [in cryptocurrency]. In the traditional financial markets, an exchange can’t margin finance its own customers. A traditional exchange does not take trading positions against its customers. You have to have a level of operational resilience. But in the crypto markets, if prices go the wrong way, all the exchanges mysteriously switch off.”Tether is propped up by crypto insiders“The biggest weak point in the cryptocurrency ecosystem is stablecoins, notably Tether. It’s essentially a major bank and payments company that has no real financial regulation. I find it quite bizarre that if you compare Tether to its predecessors, like Liberty Reserve and E-Gold, in the past there were criminal prosecutions of those running these unregulated quasi-banks.”“There’s a relatively [small] number of players in big crypto who really control this industry: the big exchanges, Tether, the mining pools and large investors. There’s no reason for a tether token to be worth a dollar. But it’s in the interests of a small group of very rich people to maintain this illusion.”Many bubbles will burst together“What’s different between now and the dot.com boom is that now we have a bubble of bubbles. There’s the fintech bubble, the crypto bubble, a meme stock bubble, there’s a real estate bubble, an electric vehicle bubble. And there are degrees of interconnection between them. It’s just mind-blowing to consider how this might play out.”“Who would think that you’d have the electric vehicle bubble connected with the crypto bubble? And we do, thanks to Elon Musk.”“There’s been a massive misallocation of capital. That money has just been wasted.”
The growing problem of cryptocurrency addiction
In the latest New Money Review podcast, psychotherapist Tony Marini talks about the growing problem of addiction to cryptocurrency.Marini, a specialist in gambling addiction, works at the Castle Craig hospital in Scotland.In the podcast, he says he’s seen a sharp rise in cryptocurrency-related self-destructive behaviour since the outbreak of the coronavirus pandemic—a period during which many of us have been stuck at home in front of a computer screen.Marini explains how addiction to gambling often goes hand in hand with other addictions, such as to drugs or alcohol.He says that only increased awareness of the risks resulting from gambling can help combat the problem. In the podcast, Marini calls for better society-wide education on the risks of trading highly volatile crypto assets.During the recording, Marini and New Money Review editor Paul Amery discuss:How gamblers are often hooked by an initial big winConfusing skill with chanceChasing losses, obsession and self-destructive behaviourDependency, the desperation phase and cross-addictionGambling and suicide riskAccepting there’s a problemBuilding healthier relationships and behavioursRisk-taking and human natureTony Marini on addiction, gambling and cryptocurrency“Addiction could be an escape from reality, grief or trauma. But once you cross the line into addiction you cannot go back—whether that’s alcohol, drugs or gambling.”“Over the last eighteen months a lot more people have been working from home with two screens: one for their crypto and gambling, the other for work. And many are crossing over into other addictions, such as drugs and alcohol. You’re alone a lot and you think you’re going to perk up with an escape from reality. There’s a tenfold increase in people investing in cryptocurrency.” “People are getting all this information on the internet from others who are saying, ‘I’m the expert, I can make you lots of money’. It’s absolutely ludicrous—this is gambling, pure and simple.”“Those addicted to gambling are three times more likely to commit suicide than those suffering from any other addiction. I’ve seen so many people lose their lives to this. It’s just heart-breaking. There really should be a lot more done about this.”“Education is the way forward. In schools, colleges and universities young people are told a lot about the risks in drugs and alcohol, but not about gambling, and especially not about cryptocurrency and where it can take them.”“When we are buying or trading in cryptocurrency, we are gambling straight away. This is not regulated. There are lots and lots of people out there who want to take your money.”
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