Central bank cryptocurrencies

New cryptocurrencies are emerging almost daily, and many interested parties are wondering whether central banks should issue their own versions. But what might central bank cryptocurrencies (CBCCs) look like and would they be useful? This feature provides a taxonomy of money that identifies two types of CBCC - retail and wholesale - and differentiates them from other forms of central bank money such as cash and reserves. It discusses the different characteristics of CBCCs and compares them with existing payment options.1

JEL classification: E41, E42, E51, E58.

In less than a decade, bitcoin has gone from being an obscure curiosity to a household name. Its value has risen - with ups and downs - from a few cents per coin to over $4,000. In the meantime, hundreds of other cryptocurrencies - equalling bitcoin in market value - have emerged (Graph 1, left-hand panel). While it seems unlikely that bitcoin or its sisters will displace sovereign currencies, they have demonstrated the viability of the underlying blockchain or distributed ledger technology (DLT). Venture capitalists and financial institutions are investing heavily in DLT projects that seek to provide new financial services as well as deliver old ones more efficiently. Bloggers, central bankers and academics are predicting transformative or disruptive implications for payments, banks and the financial system at large.2

Lately, central banks have entered the fray, with several announcing that they are exploring or experimenting with DLT, and the prospect of central bank crypto- or digital currencies is attracting considerable attention. But making sense of all this is difficult. There is confusion over what these new currencies are, and discussions often occur without a common understanding of what is actually being proposed. This feature seeks to provide some clarity by answering a deceptively simple question: what are central bank cryptocurrencies (CBCCs)?

To that end, we present a taxonomy of money that is based on four key properties: issuer (central bank or other); form (electronic or physical); accessibility (universal or limited); and transfer mechanism (centralised or decentralised). The taxonomy defines a CBCC as an electronic form of central bank money that can be exchanged in a decentralised manner known as peer-to-peer, meaning that transactions occur directly between the payer and the payee without the need for a central intermediary.3 This distinguishes CBCCs from other existing forms of electronic central bank money, such as reserves, which are exchanged in a centralised fashion across accounts at the central bank. Moreover, the taxonomy distinguishes between two possible forms of CBCC: a widely available, consumer-facing payment instrument targeted at retail transactions; and a restricted-access, digital settlement token for wholesale payment applications.4

But what might the two types of CBCC offer that alternative forms of central bank money cannot? For the consumer-facing kind, we argue that the peer-to-peer element of the new technology has the potential to provide anonymity features that are similar to those of cash but in digital form. If anonymity is not seen as important, then most of the alleged benefits of retail CBCCs can be achieved by giving the public access to accounts at the central bank, something that has been technically feasible for a long time but which central banks have mostly stayed away from.

On the wholesale side, the assessment of CBCCs is quite different. Wholesale payments today do not offer cash-like anonymity. In particular, transactions that occur in wholesale systems are visible to the central operator. Hence, the case for wholesale CBCCs depends on their ability to improve efficiency and reduce settlement costs. Here, the answer depends on a number of technical issues that still need to be resolved. Some central banks have experimented with wholesale CBCCs, but none has announced yet that it is ready to adopt this technology.

The first section presents the taxonomy underlying our definition. The following two sections discuss the features of the two basic CBCC types, retail and wholesale, drawing on historical examples and projects that are currently under way. A concluding section reflects on some of the issues that central banks need to consider in this area going forward.

A new form of central bank money

Our starting point for defining CBCCs is a report on cryptocurrencies published in 2015 by the Committee on Payments and Market Infrastructures (CPMI (2015)).5 This report sought to provide a definition of the new class of currencies represented by bitcoin and altcoins (alternatives to bitcoin) that had emerged using the same technology. The report identifies three key characteristics of cryptocurrencies: they are electronic; are not the liability of anyone; and feature peer-to-peer exchange.6

Cryptocurrencies utilise DLT (Box A) to allow remote peer-to-peer transfer of electronic value in the absence of trust between contracting parties. Usually, electronic representations of money, such as bank deposits, are exchanged via centralised infrastructures, where a trusted intermediary clears and settles transactions. Previously, peer-to-peer exchange was restricted to physical forms of money.

Some - but not all - of these features are also common to other forms of money (Graph 2, left-hand panel). Cash is peer-to-peer, but it is not electronic, and it is a central bank liability. Commercial bank deposits are a liability of the bank that issues them. Nowadays, they are in electronic form and are exchanged in a centralised manner either across the books of a given bank or between different banks via the central bank. Most commodity monies, such as gold coins, may also be transferred in a peer-to-peer fashion but are neither the liability of anyone nor electronic.7

It may seem natural to define CBCCs by adapting the CPMI's definition to say that they are electronic central bank liabilities that can be used in peer-to-peer exchanges. But this ignores an important feature of other forms of central bank money, namely accessibility. Currently, one form of central bank money - cash - is of course accessible to everyone, while central bank settlement accounts are typically available only to a limited set of entities, mainly banks (CPSS (2003, p 3)). In this spirit, Bjerg (2017) includes universally accessible (ie easy to obtain and use) in addition to electronic and central bank-issued in defining the new concept of central bank digital currency (Graph 2, right-hand panel).

Box A

What is distributed ledger technology?

Distributed ledger technology (DLT) refers to the protocols and supporting infrastructure that allow computers in different locations to propose and validate transactions and update records in a synchronised way across a network. The idea of a distributed ledger - a common record of activity that is shared across computers in different locations - is not new. Such ledgers are used by organisations (eg supermarket chains) that have branches or offices across a given country or across countries. However, in a traditional distributed database, a system administrator typically performs the key functions that are necessary to maintain consistency across the multiple copies of the ledger. The simplest way to do this is for the system administrator to maintain a master copy of the ledger which is periodically updated and shared with all network participants.

By contrast, the new systems based on DLT, most notably Bitcoin and Ethereum, are designed to function without a trusted authority. Bitcoin maintains a distributed database in a decentralised way by using a consensus-based validation procedure and cryptographic signatures. In such systems, transactions are conducted in a peer-to-peer fashion and broadcast to the entire set of participants who work to validate them in batches known as "blocks". Since the ledger of activity is organised into separate but connected blocks, this type of DLT is often referred to as "blockchain technology".

The blockchain version of DLT has successfully powered Bitcoin for several years However, the system is not without drawbacks: it is costly to operate (preventing double-spending without the use of a trusted authority requires transaction validators (miners) to employ large amounts of computing power to complete "proof-of-work" computations); there is only probabilistic finality of settlement; and all transactions are public. These features are not suitable for many financial market applications. Current wholesale DLT payment applications have therefore abandoned the standard blockchain technology in favour of protocols that modify the consensus process in order to allow enhanced confidentiality and scalability. Examples of protocols currently being tested by central banks include Corda and Hyperledger Fabric. Corda replaces blockchain with a "notary" architecture. The notary design utilises a trusted authority and allows consensus to be reached on an individual transaction basis, rather than in blocks, with limited information-sharing.

 See also Chapman et al (2017), CPMI (2015) and Benos et al (2017). The amount of energy currently being used by Bitcoin miners is equal to the energy consumption of Lebanon and Cuba (see http://digiconomist.net/bitcoin-energy-consumption). For a detailed description of proof-of-work, see https://en.bitcoin.it/wiki/Proof_of_work.

We combine the properties discussed in CPMI (2015) and Bjerg (2017) to establish a new taxonomy of money. Our properties are: issuer (central bank or other); form(electronic or physical); accessibility (universal or limited); and transfer mechanism (centralised or decentralised, ie peer-to-peer). This taxonomy reflects what appears to be emerging in practice and distinguishes between two potential types of CBCC, both of which are electronic: central bank-issued and peer-to-peer. One is accessible to the general public (retail CBCC) and the other is available only to financial institutions (wholesale CBCC). Again, a Venn diagram is useful for illustration.8 The four-ellipse version in Graph 3, which we call the money flower, shows how the two potential types of CBCC fit into the overall monetary landscape.

In principle, there are four different kinds of electronic central bank money: two kinds of CBCCs (the shaded area) and two kinds of central bank deposits. The most familiar forms of central bank deposits are those held by commercial banks - often referred to as settlement accounts or reserves. The other form is, at least in theory, deposits held by the general public. Tobin (1987) refers to this form as deposited currency accounts (DCAs).9 So far, central banks have generally chosen not to provide DCAs.

Universally accessible forms of money that are not issued by the central bank include (privately created) cryptocurrency, commodity money, commercial bank deposits and mobile money.10 Cryptocurrency borders CBCC given that only one of its properties differs. The other three currency forms are more removed because they are, in addition, either physical or "not peer-to-peer". A number of other forms of money are not universally accessible. Local (physical) currencies, ie currencies that can be spent in a particular geographical location at participating organisations, populate the right-hand petal of the flower. The upper left-hand petal contains virtual currencies, which are "electronic money issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community" (ECB (2012)). There is also the possibility of a private sector wholesale version of cryptocurrency. It would be transferred in a peer-to-peer fashion by means of a distributed ledger, but only between certain financial institutions.

Box B uses this taxonomy to classify different examples of money from the past, present and future according to where they would fit in the money flower. The remainder of this feature discusses the two types of CBCC in further detail and highlights some of the many issues central banks will need to consider if they ever chose to adopt them. We start with the retail variant and then turn to the wholesale one.

Box B

The money flower with selected examples

Graph B fills out the money flower with examples of money from the past, present and possibly the future. Starting at the centre, we have Fedcoin, as an example of a retail CBCC. The concept, which was proposed by Koning (2014) and has not been endorsed by the Federal Reserve, is for the central bank to create its own cryptocurrency. The currency could be converted both ways at par with the US dollar and conversion would be managed by the Federal Reserve Banks. Instead of having a predetermined supply rule, as is the case with Bitcoin, the supply of Fedcoin would, much like cash, increase or decrease depending on the desire of consumers to hold it. Fedcoin would become a third component of the monetary base, alongside cash and reserves. Unlike Bitcoin, Fedcoin would not represent a competing, private "outside money" but would instead be an alternative form of sovereign currency (Garratt and Wallace (2016)).

CADcoin is an example of a wholesale CBCC. It is the original name for digital assets representing central bank money used in the Bank of Canada's proof of concept for a DLT-based wholesale payment system. CADcoin has been used in simulations performed by the Bank of Canada in cooperation with Payments Canada, R3 (a fintech firm), and several Canadian banks but has not been put into practice.

In Sweden, the demand for cash has dropped considerably over the past decade (Skingsley (2016)). Already, many stores do not accept cash and some bank branches no longer disburse or collect cash. In response, the Riksbank has embarked on a project to determine the viability of an eKrona for retail payments. No decision has yet been taken in terms of technology (Sveriges Riksbank (2017)). Hence, the eKrona is located on the border between deposited currency accounts and retail CBCCs.

Dinero electrónico is a mobile payment service in Ecuador where the central bank provides the underlying accounts to the public. Citizens can open an account by downloading an app, registering their national identity number and answering security questions. People deposit or withdraw money by going to designated transaction centres. As such, it is a (rare) example of a deposited currency account scheme. As Ecuador uses the US dollar as its official currency, accounts are denominated in that currency.

Bitcoin is an example of a non-central bank digital currency. It was invented by an unknown programmer who used the pseudonym Satoshi Nakamoto and was released as open-source software in 2009 along with a white paper describing the technical aspects of its design (see Box A for further details).

PokéCoin is a currency used for in-game purchases in the Pokémon Go game and an example of a virtual currency.

Utility Settlement Coin (USC) is an attempt by the private sector to provide a wholesale cryptocurrency. It is a concept proposed by a collection of large private banks and a fintech firm for a series of digital tokens representing money from multiple countries that can be exchanged on a distributed ledger platform (UBS (2016)). The value of each country's USC on the distributed ledger would be backed by an equivalent value of domestic currency held in a segregated (reserve) account at the central bank.

The Bank of Amsterdam (the Amsterdamse Wisselbank) was established in 1609 by the City of Amsterdam to facilitate trade. It is often seen as a precursor to central banks. A problem at the time was that currency, ie coins, was being eroded, clipped or otherwise degraded. The bank took deposits of both foreign and local coinage at their real intrinsic value after charging a small coinage and management fee. These deposits were known as bank money. The Wisselbank introduced a book-entry system that enabled customers to settle payments with other account holders. The Dutch central bank was established in 1814 and the Bank of Amsterdam was closed in 1820 (Smith (1776), Quinn and Roberds (2014)).

The 1934 series gold certificate was a $100,000 paper note issued by the US Treasury and used only for official transactions between Federal Reserve Banks. This was the highest US dollar-denominated note ever issued and did not circulate among the general public. It is an example of non-electronic, restricted-use, government-backed, peer-to-peer money.

Examples of privately issued local currencies include the Bristol Pound and BerkShares, located in the right-hand petal. Stores in Bristol, United Kingdom, give a discount to people using Bristol Pounds, whereas BerkShares are purchased at 95 cents on the dollar and are accepted at retail stores in the Berkshires region of Massachusetts at face value.

Precious metal coins are examples of commodity money. They can be used as an input in production or for consumption and also as a medium of exchange. This is in contrast to fiat money, which has no intrinsic use. Although commodity money is largely a thing of the past, it was the predominant medium of exchange for more than two millennia.

E-gold account holders used commercial bank money to purchase a share of the holding company's stock of gold and used mobile phone text messages to transfer quantities of gold to other customers. Payments between e-gold customers were "on-us" transactions that simply involved updating customer accounts. E-gold ultimately failed. But before it shut down in 2009, it had accumulated over 5 million account holders. Many current private mobile payment platforms, such as Venmo(a digital wallet with social media features popular with US college students) and M-pesa™ (a popular mobile money platform in Kenya and other East African countries), employ a similar "on-us" model. Users transfer either bank deposits or cash to the operator, who gives them mobile credits. These credits can be transferred between platform participants using their mobile devices or redeemed from the operator for cash or deposits. The daily number of M-pesa transactions dwarfs those conducted using Bitcoin. However, in terms of value, worldwide Bitcoin transfers have recently overtaken those conducted on the M-pesa platform (Graph 1, right-hand panel).

 Straightforward arguments derived from Friedman (1959) and Klein (1974) suggest that if the Federal Reserve were to maintain one-to-one convertibility with Fedcoin, it would also need to control the supply of Fedcoins. The company ran into trouble with the authorities over anti-money laundering violations and for operating a money transmitter business without the necessary state licence; see http://legalupdate.e-gold.com/2008/07/plea-agreement-as-to-douglas-l-jackson-20080721.html. E-gold account statistics can be found at http://scbbs.net/craigs/stats.html.

Retail central bank cryptocurrencies

Retail CBCCs do not exist anywhere. However, the concept of a retail CBCC has been widely discussed by bloggers, central bankers and academics. Perhaps the most frequently discussed proposal is Fedcoin (Koning (2014, 2016), Motamedi (2014)).11 As discussed in Box B, the idea is for the Federal Reserve to create a cryptocurrency that is similar to bitcoin. However, unlike with bitcoin, only the Federal Reserve would be able to create Fedcoins and there would be one-for-one convertibility with cash and reserves. Fedcoins would only be created (destroyed) if an equivalent amount of cash or reserves were destroyed (created) at the same time. Like cash, Fedcoin would be decentralised in transaction and centralised in supply. Sveriges Riksbank, with its eKrona project, appears to have gone furthest in thinking about the potential issuance of a retail CBCC (Box C).

A retail CBCC along the lines of Fedcoin would eliminate the high price volatility that is common to cryptocurrencies (Graph 1, centre panel).12 Moreover, as Koning (2014) notes, Fedcoin has the potential to relieve the zero lower bound constraint on monetary policy. As with other electronic forms of central bank money, it is technically possible to pay interest on a DLT-based CBCC. If a retail CBCC were to completely replace cash, it would no longer be possible for depositors to avoid negative interest rates and still hold central bank money.

Any decision to implement a retail CBCC would have to balance potential benefits against potential risks. Bank runs might occur more quickly if the public were able to easily convert commercial bank money into risk-free central bank liabilities (Tolle (2016)). There could also be risks to the business models of commercial banks. Banks might be disintermediated, and hence less able to perform essential economic functions, such as monitoring borrowers, if consumers decided to forgo commercial bank deposits in favour of retail CBCCs. These benefits and costs are, however, not unique to retail CBCCs. They are the same for DCAs. What, then, is the key difference between retail CBCCs and DCAs? The answer lies with the peer-to-peer aspect of CBCCs and, more specifically, with anonymity.

Anonymity

Bitcoin was designed to be a "peer-to-peer version of electronic cash" (Nakamoto (2009, p 1), and this allows transactions to be anonymous. All bitcoin transactions are publicly recorded using the payer's and the payee's public addresses.13 However, very much like e-mail addresses, bitcoin public addresses do not need to reveal the true identity of users.14 This means that a person sending bitcoin to a public address need not reveal his/her true identity to the recipient (counterparty anonymity) or to other members of the Bitcoin community (one form of third-party anonymity).15

Box C

The case of Sweden

Sweden has one of the highest adoption rates of modern information and communication technologies in the world. It also has a highly efficient retail payment system. At the end of 2016, more than 5 million Swedes (over 50% of the population) had installed the Swish mobile phone app, which allows people to transfer commercial bank money with immediate effect (day or night) using their handheld device (Graph C, left-hand panel; see also Bech et al (2017)).

The demand for cash is dropping rapidly in Sweden (Graph C, right-hand panel). Already, many stores no longer accept cash and some bank branches no longer disburse or collect cash. These developments are a cause for concern for the Riksbank (Skingsley (2016)). Will the payment system continue to be safe and efficient without cash? Even if cash is not used every day, it is a backup option in crisis situations. Will those without access to bank services still be able to manage their payments?

The Riksbank currently has a so-called eKrona project under way to determine whether it should supply digital central bank money to the general public. The project is considering different technical solutions, but no decision has been taken as to whether to focus on a DCA or a retail CBCC structure. The project is expected to be finalised in late 2019 (Sveriges Riksbank (2017)).

Kahn et al (2005) and McAndrews (2017) emphasise legitimate reasons for counterparty anonymity in transactions. Payees and payers may want to reduce the risk of identity theft, the possibility that the counterparty might follow them home and rob them, or more innocuous annoyances like directed advertising and solicitations (spamming). Similarly, a lack of third-party anonymity may be regarded as revealing too much information about a person's private activities. In his proposal for Digicash, David Chaum (1983) makes this argument by pointing out that "knowledge by a third party of the payee, amount, and time of payment for every transaction made by an individual can reveal a great deal about the individual's whereabouts, associations and lifestyle".16

Counterparty anonymity seems less controversial than third-party anonymity. Many observers have argued that third-party anonymity in payments should not be allowed because it facilitates criminal activity, such as tax evasion, terrorist financing or money laundering. Rogoff (2016) argues that $100 bills should be removed from circulation for the same reasons.

It is unclear how much consumers actually value anonymity of either sort in order to protect their privacy. Athey et al (2017) look at how much effort people make to protect their privacy in relation to digital currencies. In an experimental setting, they find that subjects, in general, do not devote the small amount of time needed to read through the e-wallet description that is necessary to meet their own stated preferences for privacy. Similar findings emerged from a survey of economics students at the University of California, Santa Barbara, on usage of Venmo (a digital wallet with social media features). Of the 669 respondents, 80% were users. Of these users, 44% allowed their Venmo transactions to be public (visible to everyone on the internet) and another 21% allowed all of their Facebook friends to see their transactions. Finally, while Digicash is regarded as a precursor to bitcoin, there may not have been sufficiently high demand for the third-party anonymity it provided as it was never widely adopted. It filed for bankruptcy in 1998.17

The technology behind CBCCs could allow central banks to provide a digital cash substitute with anonymity properties similar to those of cash. In its role as issuer, the central bank would need to decide whether or not to require customer information (the true identity behind the public address). This would determine the extent to which the retail CBCC would provide third-party anonymity.

While it may look odd for a central bank to issue a cryptocurrency that provides anonymity, this is precisely what it does with physical currency, ie cash. Perhaps a key difference is that, with a retail CBCC, the provision of anonymity becomes a conscious decision. It is worth recalling that the anonymity properties of cash are likely to have emerged out of convenience or historical happenstance rather than intent.

Wholesale central bank cryptocurrencies

While CBCCs for retail payments remain at the conceptual stage, some central banks have completed proofs of concept for DLT-based applications.18 One of the reasons for the interest in DLT is that many central bank-operated wholesale payment systems are at the end of their technological life cycles. The systems are programmed in obsolete languages or use database designs that are no longer fit for purpose and are costly to maintain.

Projects Jasper and Ubin

Project Jasper at the Bank of Canada (Chapman et al (2017)) and Project Ubin at the Monetary Authority of Singapore (MAS (2017)) simulate real-time gross settlement (RTGS) systems on a DLT platform. In an RTGS system, payments are processed individually, immediately and with finality throughout the day (CPSS (1997)).

Unlike the retail payment applications discussed above, wholesale systems have restricted access, ie they are permissioned rather than permission-less. Usually, access is restricted to financial institutions. Moreover, the costly proof-of-work validation (Box A) needed to prevent double-spending in retail schemes is replaced by less energy-consuming alternatives, such as a trusted notary (eg the central bank).

A key challenge in any CBCC application is how to transfer central bank money to the distributed ledger.19 Both Jasper and Ubin chose a digital depository receipt (DDR) approach. A DDR is a claim on central bank reserves held in a segregated account against which the central bank issues digital tokens on the distributed ledger. In Jasper, the digital tokens - initially known as CADcoins20 - are created at the beginning of the day and redeemed at the end. In Ubin, banks acquire or redeem digital tokens at any point during the day and can keep them on the distributed ledger overnight. Hence, transfers on the DLT platform of the Singaporean proof of concept are not restricted to the opening hours of MAS.

Project Jasper also implements a liquidity-saving mechanism (LSM) on the DLT platform. While RTGS systems minimise settlement risk, they can be demanding in terms of liquidity. Consequently, many RTGS systems around the world are augmented by mechanisms that periodically seek to offset payments against each other in a queue and settle only the net amounts (Bech and Soramäki (2001)). Distributed ledgers are decentralised, so implementation of a centralised queue requires a clever work-around (Project Jasper (2017)).

The two projects show that central bank money can be transferred on a distributed ledger in real time, in realistic volumes and with an LSM. Nevertheless, none of the current initiatives to update or replace existing wholesale payment systems are considering the adoption of DLT. Both the Bank of England (2017) and Bank of Canada (Ho (2017)) conclude that DLT is not yet mature enough for current adoption. Yet most central banks that are considering modernising their core payment infrastructure stress the need to make new systems inter-operable with future DLT platforms.

Securities settlement

Looking beyond the immediate horizon, many industry participants see significant potential for DLT to increase efficiency and reduce reconciliation costs in securities clearing and settlement.21 One potential benefit of DLT-based structures is immediate clearing and settlement of securities, in contrast to the multiple-day lags that currently exist when exchanging cash for securities (and vice versa).22 Progress in this direction was recently achieved by a joint venture between the Deutsche Bundesbank and Deutsche Börse, which developed a functional prototype of a DLT-based securities settlement platform that achieves delivery-versus-payment settlement of digital coins and securities (Deutsche Bundesbank (2016)).

Conclusion

As it stands, cash is the only means by which the public can hold central bank money. If someone wishes to digitise that holding, he/she has to convert the central bank liability into a commercial bank liability by depositing the cash in a bank. A CBCC would allow consumers to hold central bank liabilities in digital form.23 But this would also be possible if the public were allowed to have central bank accounts, an idea that has been around for a long time.24 We argue that the main benefit that a consumer-facing retail CBCC would offer, over the provision of public access to (centralised) central bank accounts, is that the former would have the potential to provide the anonymity of cash. In particular, peer-to-peer transfers allow anonymity vis-à-vis any third party. If third-party anonymity is not of sufficient importance to the public, then many of the alleged benefits of retail CBCCs can be achieved by giving broad access to accounts at the central bank.

Whether or not a central bank should provide a digital alternative to cash is most pressing in countries, such as Sweden, where cash usage is rapidly declining. But all central banks may eventually have to decide whether issuing retail or wholesale CBCCs makes sense in their own context. In making this decision, central banks will have to consider not only consumer preferences for privacy and possible efficiency gains - in terms of payments, clearing and settlement - but also the risks it may entail for the financial system and the wider economy, as well as any implications for monetary policy (Bordo and Levin (2017)). Some of the risks are currently hard to assess. For instance, at present very little can be said about the cyber-resilience of CBCCs, something not touched upon in this short feature.

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Tolle, M (2016): "Central bank digital currency: the end of monetary policy as we know it?", Bank Underground, blogpost, 25 July.

UBS (2016): "Utility settlement coin concept on blockchain gathers pace", press release, 24 August.

Venn, J (1881): Symbolic logic, MacMillan and Co, London.

Yermack, D (2015): "Is bitcoin a real currency?", in D Lee (ed), The Handbook of Digital Currency, Elsevier, pp 31-44.

1 The views expressed in this article are those of the authors and do not necessarily reflect those of the BIS. We thank Claudio Borio, Stijn Claessens, Benjamin Cohen, Dietrich Domanski, Hana Halaburda, Krista Hughes, Jochen Schanz and Hyun Song Shin for comments as well as Aleksander Berentsen, James Chapman and Paul Wong for insightful discussions. We are grateful to Codruta Boar for excellent research assistance.

2 See Andolfatto (2015, 2016), Broadbent (2016), Raskin and Yermack (2016) and Skingsley (2016).

3 The purest form of peer-to-peer transaction is a cash exchange. On a computer network, the peer-to-peer concept means that transactions can be processed without the need for a central server.

4 It is common to divide payments into retail and wholesale segments. Retail payments are relatively low-value transactions, in the form of eg cheques, credit transfers, direct debits and card payments. By contrast, wholesale payments are large-value and high-priority transactions, such as interbank transfers. The distinction might become less relevant in a world with CBCCs. In that case, our usage would reflect the types of payment primarily targeted by CBCCs.

5 The report's title is Digital currencies, but it notes that such schemes are frequently also referred to as "cryptocurrencies", reflecting the use of cryptography in their issuance and their validation of transactions.

6 Cryptocurrencies have no intrinsic value and are only held in the belief that they might be exchanged for goods or services at a later point in time.

7 In the Middle Ages, payments at times required the services of a money changer to assay and value the coins being used.

8 A four-circle Venn diagram covers only 14 of the 24 = 16 possible combinations. Hence, in the case of four sets, Venn (1881) suggested using ellipses in order to show all cases.

9 In a 1987 speech, Nobel laureate James Tobin argued that, in order to avoid relying too heavily on deposit insurance to protect the payment system, central banks should "make available to the public a medium with the convenience of deposits and the safety of currency, essentially currency on deposit, transferable in any amount by check or other order" (Tobin (1987, p 6); see also Tobin (1985)). That is, people should be able to store value without being subject to the risk of bank failure.

10 Mobile money is an electronic wallet service that allows users to store, send and receive money using their mobile phones. The value stored in the wallets may be liabilities of the service provider or claims on money held in trust at a commercial bank.

11 The Federal Reserve has not endorsed or officially commented on the proposal.

12 See Yermack (2015), Bolt and van Oordt (2016) and Garratt and Wallace (2016) for discussions relating to digital currencies and price volatility.

13 Luther and Olson (2015) argue that bitcoin is a practical application of what is termed "memory" in the monetary economics literature. Kocherlakota (1998) shows that both money and memory are devices capable of facilitating exchange. Memory can, however, implement more allocations than money, so that money can be viewed as a form of memory but not the other way around.

14 See Nakamoto (2009, Section 10).

15 Third-party anonymity means that a person's true identity is not revealed to anyone not directly involved in a transaction. In more general applications, this would include a system operator.

16 Digicash was launched in the 1990s as a means of transferring bank deposits from one customer to another without revealing the payer's identity to his/her bank (ie it provided third-party anonymity). It did this by using cryptographic techniques to create a pool of untraceable Digicash from customer deposits. Digicash is interesting in that it provided third-party anonymity without requiring autonomy from commercial banks. Commercial banks still held and transferred the deposits held by customers using the Digicash scheme.

17 One potential reason for its lack of success is that it did not provide autonomy from a central authority. Nick Szabo's proposal for "bit gold" offers an autonomous version of e-gold that uses proof-of-work chains. Bit gold represents a big step in the evolution of digital cash towards bitcoin (https://unenumerated.blogspot.ch/2005/12/bit-gold.html).

18 Central banks have not limited themselves to wholesale payment applications of DLT. The Hong Kong Monetary Authority (HKMA) has developed proofs of concept for trade finance and mortgage loan applications in collaboration with industry participants (HKMA (2016)). The Bank of France has developed a DLT version of its Single European Payments Area (SEPA) Creditor Identifier database (Bank of France (2016)).

19 The CPMI-IOSCO Principles for Financial Markets Infrastructures hold that settlement should occur in central bank money whenever practical and available.

20 See Garratt (2016).

21 Mainelle and Milne (2016) estimate that synchronised share databases can reduce back office costs by up to 50%. A study led by Santander InnoVentures (2015) estimates that $15-20 billion could be saved annually in the broader banking industry.

22 Through the use of smart contracts, the technology also allows for the settlement time/date of a transaction to be specified by the relevant parties.

23 One simple reason why a consumer might want to do this is to avoid the credit risk associated with commercial bank liabilities.

24 Who should and should not have access to central bank money is a recurring policy issue. See CPSS (2003), CGFS (2015) and Bank of England (2017) for more detailed discussions.

Elon Musk Sycophants Attack Ron Paul As A Shill For Defense Industry

What’s next? A unicorn captured in Tennessee? The world I grew up in has changed. American Universities are handing out Play-Doh to comfort distraught liberals and “Never Trump” students. Protestors defaced a Thomas Jefferson statueat the University of Virginia due to his slave ownership. Race baiters attacked Hobby Lobby for displaying raw cotton in vases. The P.C. Police have continually demonstrated their desire to attack the America many of us love.

Now, the snowflake class is writing articles stating Ron Paul – the former Texas congressman that made a career out of criticizing bloated defense budgets and hawkish foreign policy decisions – is shilling for the defense industry. Their “evidence” is that he received five-year-old campaign contributions from some employees of Boeing and Lockheed Martin, which they falsely credited with coming directly from the companies themselves.

Dr. Paul’s alleged wrongdoing was writing an op-ed mildly critical of Elon Musk, a government subsidy-eating machine and poster boy for left-wing environmental causes.

In the article, Paul, an Air Force veteran, expressed his opposition to Section 1615 of the National Defense Authorization Agreement (NDAA), which many speculate was written with the congressional intent of quietly extinguishing all serious competition to Musk’s SpaceX.

Section 1615 would bar the Air Force from funding any new launch vehicles. Coincidentally, in just a few short years, there will only be one established launch vehicle left in the marketplace -- Musk’s SpaceX.

If the NDAA is passed as is, it will stay that way for a long while.

Talk about a get-rich quick scheme.

This provision has the potential of putting a lot of taxpayer money in Elon Musk’s already fat pockets. As Dr. Paul already noted, “government contracts account for about 70 percent of SpaceX’s contracts. U.S. taxpayers have provided SpaceX more than $5.5 billion in the form of Air Force and NASA contracts.” Should Section 1615 be passed by the Senate today, that percentage will likely increase exponentially.

The P.C. Police are easy prey for the cult of personality that is Elon Musk. They reject even the possibility of Musk, one of their heroes having ulterior motives – whether it’s support of the carbon tax, support for the Paris Accords which he indirectly profits from, or now – you guessed it – possibly pushing 1615 through to passage.

Since 2003, Musk has given over $500,000 to Washington politicians, almost evenly split between Republicans and Democrats. SpaceX has even handed money to lobbying firms to work on pushing through past NDAAs, which contained language that would have seemingly benefitted his company – including expediting the already-planned-on government Russian engine ban, which SpaceX’s only serious competitor relies on.

All this Washington meddling is really sad when considering that the whole beauty of SpaceX’s founding was how it cut into what was once the unchecked market share of an industry giant and proceeded to cut costs by sizeable margins. Now, the founder of that same company may be working to bring the industry back to its glum past -- muscling out not just established veterans. Musk has shown himself to be a merciless competitor, claiming scalps throughout the industry and even not ruling out martians’ interference for his failures.

Musk’s blogging army points to how Section 1615 still allows for the funding of new rocket engines as push back that it will create a de facto SpaceX monopoly, claiming that it will keep his Russian engine-dependent revival afloat. And it might – on paper. But, as Pentagon officials have said time and time again, replacing the engine will lead to significant cost increases, making Musk’s company the only affordable option left for use in the United States.

Even if 1615 didn’t jeopardize the security of established market participants, would that make it an admirable provision? Is that what the followers of Musk, the so-called free market visionary, have resorted to -- keeping the status quo intact, but shutting the door on anyone else that may come next? 

The Musk followers see no wrong in their leader. He is the man that has promised to take them to the stars. He can do no wrong.

The Trump administration agrees with Dr. Paul, saying 1615 would “restrict development of new space launch systems, including those whose development is significantly funded by industry … [limiting] domestic competition, which will increase taxpayer costs by several billions of dollars through FY 2027 and stifle innovation.”

Dr. Paul is the antithesis of a crony. It’s as absurd as believing a craft store is racist for publicly displaying cotton arrangements. It’s time for the Musk sycophants, and the rest of the P.C. police, to take a step off Fantasy Island.  If anyone is a risk to America’s national security, it’s Elon Musk, not Dr. Paul.

http://www.zerohedge.com/news/2017-09-18/elon-musk-sycophants-attack-ron-paul-shill-defense-industry 

EXPOSED: The Reality of Futures Trading and Investing

(GLOBALINTELHUB.COM) — 9/14/2017 — Trading is difficult, if it were easy there would be no losers – in order for there to be winners in markets, there have to be losers.  But trading is not impossible, and Wall St. has developed an industry out of it called “money management” which is effectively conservative trading.

But sometimes there are companies who simply mislead investors in to thinking that trading is easy, and these guys ‘putting golf clubs in their Porsche trunks’ simply discovered the ‘secret’ of life that it’s possible to click click click and get millions.  As hundreds of customers discovered, trading is not that easy.

Today the NFA released the final decision on a case against Kingsview Futures, LLC:

NFA orders Chicago, Ill., introducing broker Kingsview Futures LLC to pay a $50,000 fine

September 14, Chicago—NFA has ordered Chicago, Ill., introducing broker Kingsview Futures LLC to pay a $50,000 fine.

The Decision, issued by an NFA Hearing Panel, is based on a Complaint authorized by NFA’s Business Conduct Committee (BCC) and a settlement offer submitted by Kingsview Futures.

The Hearing Panel found that Kingsview Futures failed to diligently supervise its operations and activities.

The complete text of the Complaint and Decision can be viewed on NFA’s website.

Reading NFA complaints is always interesting.  Here’s the highlights:

 217 Kingsview Futures customers with self-directed accounts traded in 2015.
203 of these customers (or 9 %) incurred total losses that exceeded $1.9 million.
More than 70% of the customers experienced losses exceeding $1,000, and
approximately 10% of them experienced losses exceeding $20,000. One
customer’s losses exceeded $225,000. In contrast, thirteen customers reported
gains in 2015, and only three of them had net profits exceeding $1,000. During
the same period, Kingsview Futures made commissions totaling more than
$208,000 from these customers.

235 Kingsview Futures customers with self-directed accounts traded in 2014.
226 of these customers (or 96%) incurred total losses of more than $1.5 million.

They claim that FX is the ‘risky market’ where 95% of traders lose.  At Oanda, 51% of customer accounts are profitable.

In any event, it’s always sad to see customers pay for something like ‘training and education’ lured by videos with private planes and fancy cars, and then to lose money.  Trading futures is really difficult.  Training and education isn’t always sufficient to make you a trader.  In fact, traders who go through ‘real’ training often don’t succeed.

As we’ve said often, FX provides a lot of opportunity for algorithmic systems – trading FX yourself, futures included – is nearly impossible.

Stick to a system or manager with a track record.  That doesn’t guarantee success of course, but it at least puts you in the spectrum of statistically possible success.

To learn more about the nuances of FX trading and investing checkout Splitting Pennies.

EXPOSED: Fake Manufactured Weather causes Real Damage and shakes up markets

(GLOBALINTELHUB.COM) — 9/9/2017 As Hurricane Irma approaches US borders, investors should note the forces of the ‘invisible hand’ in nature and not only in markets.  As we explain in our groundbreaking work Splitting Pennies, the financial markets are not ‘as seen on TV’ and in fact, are the subject of constant manipulation, and this storm is no exception.

Weather Modification technology is simple and has been around for a long time, starting with the use of dry ice, evolving to use of ‘supersonic booms’ and finally aerosols.  The Pentagon has technologies that are far, far, far more advanced than weather modification.   See an extensive list of weather modification patents here.

The amount of evidence is overwhelming (of course they do not broadcast this on TV, but they have a profit motive, we’ll get to that) and some groups such as geoengineeringwatch.org have toiled to create a resource, summarized by this video here:

Hurricane Harvey brought an abrupt and catastrophic end to the 12 year long major hurricane landfall drought in the US. Were climate engineering programs a factor in the Harvey disaster scenario? Available data has already made clear the answer is yes. How much decimation will the manipulation of Hurricane Irma inflict? The US government has been actively engaged in hurricane modification programs for a minimum of 70 years, historical documents prove this fact conclusively. Yet, the power structure controlled circles of academia (and corporate media) continue to fuel total denial of the climate engineering hurricane modification reality, this should not be a surprise. How much decimation have global geoengineering / weather warfare programs already caused? What are the primary objectives and agendas? How much worse will it get? The short video below provides verifiable data to confirm that climate engineering is a reality, and exposes some of the primary objectives.

Exposing and halting the ongoing climate engineering / weather warfare / biological warfare assault is the great imperative of our time. The best chance we have of accomplishing this monumental task is by raising an army of the awakened, by reaching a critical mass. 

Is it really so hard to believe, that the military has the power to control hurricanes?  Anyone who is either in the military or who ‘does business’ with the military knows this and that compared to some of the other fun toys the military has controlling the weather is easy.  Much of the known info about weather modification comes from HAARP but HAARP has closed what they have now is far more powerful:

Environmental modification techniques have been applied by the US military for more than half a century. US mathematician John von Neumann, in liaison with the US Department of Defense, started his research on weather modification in the late 1940s at the height of the Cold War and foresaw ‘forms of climatic warfare as yet unimagined’. During the Vietnam war, cloud-seeding techniques were used, starting in 1967 under Project Popeye, the objective of which was to prolong the monsoon season and block enemy supply routes along the Ho Chi Minh Trail.

The US military has developed advanced capabilities that enable it selectively to alter weather patterns. The technology, which is being perfected under the High-frequency Active Auroral Research Program (HAARP), is an appendage of the Strategic Defense Initiative – ‘Star Wars’. From a military standpoint, HAARP is a weapon of mass destruction, operating from the outer atmosphere and capable of destabilising agricultural and ecological systems around the world.

The technology clearly exists, but as it is ‘classified’ having any smoking gun evidence without a Snowden whistleblower is impossible; it’s a paradox, as evidence by CIA’s FOIA request if they are investigating us:

This really is an intelligence agency, their logic is impeccable.  They cannot confirm or deny if information does or does not exist.  So let’s go with what we know.

NOAA is the official US Government agency that monitors the weather, and provides official information at nhc.noaa.gov – anyone from Florida knows this URL and has gone through the agonizing wait for the next update which can mean a big change of plans.

Like most of the US Government, it’s actually not ‘NOAA’ that provides us this valuable data it’s Raytheon, black ops corporate master – the largest defense contractor in the world, with 60,000 + employees and a market cap of 50 Billion.  See their product info here, and their interesting note in bold: 

Owned and operated by NOAA, JPSS is an “end-to-end” system that includes sensors; spacecraft; command, control and communications; data routing; ground based processing and dissemination of weather data to users around the globe, such as NOAA’s National Weather Service and the National Hurricane Center. The data provided by Suomi NPP and the JPSS satellites contribute to NASA’s study of earth climate trends.

JPSS polar orbiters carry a complement of advanced imaging and sounding sensors, which increase NOAA and DoD capabilities to monitor the entire planet and produce weather and climate predictions at a much higher fidelity and frequency. These advanced capabilities enable NOAA to better fulfill its mission to protect lives and property by increasing the timeliness and accuracy of public warnings and forecasts of weather and climate events.

JPSS CGS DELIVERS CRUCIAL DATA FOR NATIONAL WEATHER FORECASTS

Raytheon brings more than four decades of high-availability, reliable, precision-based, command-and-control systems experience to Suomi NPP and future JPSS missions. Suomi NPP is the bridge between existing polar-orbiting satellites and the launch of JPSS-1, scheduled for 2017. Providing critical data for Earth observation, Suomi NPP data is used to generate environmental data products, such as measurements of clouds, vegetation, ocean color and land and sea surface temperatures — all significant inputs to improve weather forecasting capabilities.

VALUE TO THE PUBLIC

While Suomi NPP and JPSS will not prevent severe weather events such as hurricanes, tornadoes or blizzards from occurring, Raytheon’s advanced technologies enable meteorologists and forecasters to make more timely and accurate weather predictions that support NOAA’s “Weather Ready Nation” campaign and help save lives, protect property and decrease the devastating economic impacts caused by severe weather.

No mention of weather modification, but Raytheon has hundreds of products that include ‘precision weapons’ and ‘Multi-Spectral Targeting Systems’ – (this is DOD speak for Ion Cannon, i.e. Tesla’s “Death Ray” ): 

Raytheon’s proven radars and sensors work together to help experts see further, track longer and prepare smarter.

Our Air and Missile Defense Radar stacks together like building blocks to increase detection ranges and accuracy on naval destroyers. Our VIIRS sensor — famously known for its ”Blue Marble” photo of Earth — orbits the planet to provide meteorologists with unparalleled environmental data. And our Multi-Spectral Targeting System combines lasers with infrared sensors to enable pinpoint military operations.

Raytheon (RTN) is a public company trading on the NYSE.:

Raytheon Company is a technology company, which specializes in defense and other government markets. The Company develops integrated products, services and solutions in various markets, including sensing; effects; command, control, communications, computers, cyber and intelligence; mission support, and cybersecurity. The Company operates through five segments: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS), and Forcepoint. The IDS segment develops and produces sensors and mission systems. The IIS segment provides a range of technical and professional services to intelligence, defense, federal and commercial customers. The MS segment is a developer, integrator and producer of missile and combat systems. The SAS segment is engaged in the design, development and manufacture of integrated sensor and communication systems for missions. The Forcepoint segment develops cybersecurity products.

Interestingly, a small uptick on Irma.  For the uninformed, a hurricane is a military operation however you look at it, in the aftermath when there’s no power, only the military (and in partnership with FEMA) has the logistic resources to swoop in and restore order.  During Hurricane Andrew strange rumors persisted about the quarantine and control of information that the Army imposed around the devastated areas.  This is a great resource with photographic evidence, and they suggested that even it may have contributed to George Bush losing the election later that year.  The government seemed helpless to do anything to battered Miami.  And it was after Andrew that Hurricane manipulation efforts went into overdrive.

So why now, after so long with no major hit to Florida?  Are they gunning for Trump?  Or Trump ordered it, to distract the population from what’s really going on and as a means of control?  (Remember that the one strong power Trump has is leader of the Military, the US President has almost no political power).  We’ll never know.. but let’s look at the big picture.

After World War 2 the US “Military Industrial Complex” or “Iron Triangle” (Government, Defense Contractors, Wall St.) hasn’t really had an enemy.  Hitler and Japan were real enemies, although funded and allowed to grow by US companies, the fact remains that if Hitler wasn’t stopped we’d all be speaking German and eating poor tasting frankfurters and drinking beer.  WW2 was the peak of show of industrial power and how factories could make bombs that would destroy infrastructure.  The “Marshall Plan” and other post WW2 economic plans led the intellectual Elite (who were hired by the now rich military contractors) to create several doctrines that would keep them in business with or without an enemy (with all the happiness of the 50’s they probably thought – what if there is no more Hitler?  How will we make money?  War is good for business… ) hence we have the Report from Iron Mountain MUST READ BOOK  – to explain plainly, companies like RAND corporation have created enemies most notably “Russia” and most recently “Terrorists” but their plan is so deep, they are not to rely on a single artificial enemy, so they resort to the most basic Earth element, the weather.  What does this mean?  A group of scientists hired by these corporations post WW2 (you can call them pseudo economists) created studies and reports showing that investing $1 in the Military equalled $2 in economic output.  This is the most ridiculous and twisted thinking, based on this logic if we firebomb Los Angeles we’ll be the richest economy in the world.  But remember, twisted or not – this is their doctrine.  A great example of this in practice was during the Ford days when the CIA was tasked with the job of collecting intelligence on Russia – did they pose a security threat to the United States?  The CIA found no evidence of any capability sufficient of posing even a limited threat, nor any motive or evidence of irrational intent to attack the US or any other country (and Russia has a history of never invading any country- only defending themselves).  This report was released and Donald Rumsfeld famously retorted that “Just because the CIA didn’t find any weapons doesn’t mean that they don’t exist” – Rumsfeld went on to make a fortune consulting for defense contractors.  During this period one General really believed the Russians were hiding a missile base on the dark side of the moon.  The US Military is big business, and business is good.  But threats change and the battlefield changes.  Contractors, planners, developers, and many others will make a fortune rebuilding South Florida.  And it’s a lot closer than Iraq.  And heck, is it really so bad?  Raytheon (RTN) employs 60,000 people and the US Government itself is the largest employer in the world.  People need to put food on their families (-George W Bush).

There’s a number of reasons humans would want to control the weather:

• To make it rain
• For military purposes
• Pollution control
• Terraforming (For example what they are doing in UAE)

So what are the ‘known’ applications of weather modification?  Cloud Seeding, and Terraforming in UAE:

Cloud seeding is the opposite of cloud busting. For one thing, it’s a real thing. The process has been replicated numerous times both in the lab and in the field and is backed up by years of peer-reviewed scientific research. For another, it impregnates clouds to instigate the precipitation process rather than magically gathering them using dark energies.  Cloud seeding is currently used all over the world—including throughout the United States, China (where it is used to clear smog in Beijing), India, and Russia—to enhance precipitation, both rain and snow, while inhibiting hail and fog. And it actually works.

The UAE’s Ionizers: Tearing the Sky a New One

The United Arab Emirates is a land rich in wealth but poor in precipitation. That’s why president Sheikh Khalifa bin Zayed Al Nahyan has had the nation’s top scientific minds secretly toiling for years to create a new means of weather manipulation that would work more effectively in the region’s extreme temperatures. The result: The biggest Ionic Breeze on Earth.

Ionic Breeze devices are giant ionizers mounted atop tall steel poles and were built by the Swiss company, Metro Systems International. The devices generate massive ionic fields, positively charged ions ground back to the Earth while the negatively charged ions rise into the atmosphere. As they rise, the negative ions (electrons) collect particles of dust on the way up. These flecks act as seeds for ice crystal formation, much as silver iodide does except without the need for clouds. As long as the atmospheric humidity is at least 30 percent, the system supposedly works even in clear skies.

In the summer of 2010, 100 such emitters were spread over five sites in the Al Ain region. During July and August alone, when the area typically receives zero rainfall, it reportedly rained on 52 separate occasions, often with gusting winds and sometimes hail. The Max Planck Institute for Meteorology monitored the project and backed the study’s findings. This could be huge for the Middle East, where water is often in short supply and desalinization plants are nine-figure investments (and another eight-figures a year to run). The ionizers reportedly only cost $10.5 million to build and $8.9 million a year to operate.

$10 Million to make it rain, literally.  So what does a multi-billion dollar black budget get us in USA?  Think about the positive economic impact of Hurricanes for a moment, such as the obvious Billions in rebuilding and reconstruction projects.  But there’s also a political benefit and military benefit, the military can test their logistics and new non-lethal crowd control weapons, as well as the general population control (those evacuating south Florida are not likely to participate in right wing anti-government protests, for example).  Confuse, obfuscate, and conquer has been the mantra of the world’s leading Elite for centuries “Divide and Conquer” – and there’s no better Fog of War than a Hurricane most intelligently because 90% of the population will not believe that it’s controlled.  It’s pure genius.

There’s not any proof that this is manufactured or controlled, but like many things with the government – if they have spent millions developing weather modification technology including Hurricane manipulation technology (both to create Hurricanes and divert Hurricanes or weaken them) – what are they doing with it if not using it?  Clearly, there have been strange phenomenon at play in the region over the past 20 years that are not explainable as ‘Global Warming’ – which would mean more frequent stronger storms, not a 20 year + lull.

Traders from FL enjoyed the free money Lowes and Nov FCOJ pop that always comes with a slight delay after the announcement that a storm is headed for central FL where the majority of Orange Juice is grown.  But this is really a perception trade, as OJ is grown in many places around the world and the increase in Lowes purchases are not really relevant.  Also note that unlike other disasters, there are usually few human casualties in Hurricanes.  Remember even during Katrina, it was only the people who refused to evacuate that were trapped on rooftops, and even they were mostly saved.  It’s not as if the Military is ‘killing’ people – although that IS what they do during WAR (including US Citizens, not only the enemy).

What is the conclusion of this information, simply that:

• The weather is controlled, USG owns the tech for years, this is likely organized by Raytheon (RTN) although there’s no public information to prove this (it’s classified)
• There can be political motivations for storms, for hitting or not hitting populated rich areas like Miami or Tampa.  There is a clear economic and military benefit to such operations as PsyOps and as logistic tests of population control, i.e. FEMA camps and other new systems to be tested

Finally, there’s an elephant in the room – the bubble of bubbles.. South FL real estate.  There’s literally groups of investors waiting for the big crash to come, but no one is buying – there isn’t panic selling yet, but there is a glut of Miami real estate.  Investors are so called ‘hot money’ from foreigners who have never been to Miami but think it’s a good solid investment because real estate ‘always goes up’ – but the city of Miami is spending $500 Million to build levees and dams Dutch style around low lying areas.

After this event no matter how small the damage, it will do much bigger damage to the perception of FL real estate.  Many investors will now think twice about FL as the golden ticket to USA investing success.  FL residents damaged by the storm, many of them will take their checks and move to higher, more defensible ground.  Suddenly, with one storm, the argument of Preppers in the Cumberland Plateau all makes sense.  Real Estate in the mountains just doubled in value.

All the development in South FL is based on one axiom – no Hurricanes.  The same could be said about Los Angeles and Earthquakes.  But there are thousands of places in USA with reasonable property values that have no natural disasters, but they aren’t good ‘locations’ in ‘trendy’ places.  Of course if you work online or from home then it doesn’t matter where you live, so it would be logical to choose such a place vs. the over inflated FL which is a disaster zone.  Although New York City is also on the ocean, NYC is mostly built on bedrock and has elevations as high as 33 feet, comparing with Miami’s 6 feet, that’s a big difference.  FL is a big swamp mostly that was turned upside down by developers.  Unlike cities that formed by natural geo-politics and economics, Miami and most of FL is an artificial construct like Las Vegas.  The point is that it was poor investment decisions leading to a mass of capital flooding the development of FL but this will stop likely or slow down to a trickle after this storm.  A giant wall could be erected around the state but at what cost?  All of these hidden costs and risks are now exposed as realities, and we will see how the re-insurers handle failing insurers already suffering from Harvey.

The positive effect on the markets is that these storms will likely pop the first and possibly the biggest real estate bubble which is the most frothy, south FL.  That’s because unlike other markets, FL doesn’t have such a robust ‘natural’ industry, as for example seen in Chicago or San Francisco.  In fact real estate is an industry in itself in FL and something like 60% of home ownership is by vacationers.  Money will flow elsewhere, into other projects, and investors will think different.

The reason is simple – it’s one thing to ‘tell’ someone that the market is going to crash, or Miami is sinking into the sea, but having a devastating event happen, going through the process whatever your involvement in FL (As Jimmy Buffett says, everyone has a cousin in Miami).. this event will change your thinking about FL investing and doing business.  Miami was a happy sleepy beach town before this boom, alligators and old folks and flamingoes.

Markets are manipulated, storms are too.  So what?  We live in a fake world with fake people who stare into a Fake book.  If you’ve read through this article you should congratulate yourself and take pride in knowing you are part of the real one percent, the one percent that understands how the world really works; the real global elite – the emergent intelligentcia.

If you want a deeper understanding how this can impact your investing, checkout Splitting Pennies and learn how basically everything is manipulated for profit, as a business.  If in Shakespeare’s time ‘the world is a stage’ – now the world is a ‘platform’ to launch new products.  Welcome to the real New World Order.

REFERENCE ARTICLES

http://gizmodo.com/the-rainmakers-how-human-beings-control-the-weather-707081383

http://www.raytheon.com/news/feature/awips-feature.html

https://www.congress.gov/congressional-report/109th-congress/senate-report/202/1

Why it’s nearly impossible to trade Currencies with success

(Elite E Services) — 9/1/2017 — As we have explained in our book Splitting Pennies – trading FX is nearly impossible; or at least, it may be possible for some time, but in the long run, it’s a near certainty that without the use of professional algorithmic trading systems you will blow up your account.  That’s because of the dynamics of how FX works vs. other markets.  In traditional markets, there is a bias towards positive movement; all CEOs of public companies want their stock to go higher.  Bull traders, 401k investors, pension funds – basically everyone wants the stock market to go up.  The short sellers aren’t ‘pessimists’ so much as ‘realists’ that over-inflated P/E ratios are a sign for a crash from unrealistic levels.  This is NOT the case in FX.  Currency markets have opposing forces like ‘gravity’ and ‘anti-gravity’ – every country wants both a strong currency and a weak currency.  This may seem illogical, welcome to the world of Currency!  The reason is simple – exporters want a cheap currency and importers want a strong currency.  Politicians usually favor a weak currency because it’s good domestically and big business favors a strong currency (at least in the USA) because USA is a net importer.  Let’s have a look at today’s USD action most noticed in EUR/USD:

On the surface this looks like a great trading opportunity – but is it?  EUR went up on poor US Payroll data; and then fell on dovish jawboning from the ECB.  Planned conspiracy to manipulate FX or just random brownian movement?  Believe what fits into your mind that helps you sleep at night, either way – would you have been able to buy EUR at 1.1924, sell near the high at 1.1980 and then reverse, covering near 1.19 handle?  All within 10 minutes?  Maybe someone did it, even if by accident, but the point is that any trading plan or investment strategy shouldn’t rely on the ability of such skills because even if as a trader you were able to achieve this great feat – would it be able to repeat it, day in and day out – for years?  Probably not.

Enter more paradox such as “Triffin Dilemma”:

The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. This dilemma was first identified in a 1929 book, Gold and Central Banks, by Polish economist Feliks Młynarski,[1] who identified a fundamental instability in a gold-based international monetary system, that the reserve currency countries would tend to accumulate foreign reserves, but as the volume of these grew relative to the country’s gold reserves, international investors would begin to fear suspension of convertibility; later in the 1960s, it was rediscovered in the context of the Bretton Woods system by Belgian–American economist Robert Triffin, who pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, thus leading to a trade deficit. Due to Młynarski’s precedence in articulating the problem, Barry Eichengreen has suggested renaming the problem to “the Młynarski dilemma“.[1]

This is not only true for a reserve currency – any currency has a conflict between short term and long term interests.  For example, if a currency is weaker it can help exporters in the short term to boost sales, but hurt the same exporters in the medium term when they need to go out into the world and buy raw materials for higher prices.  This push and pull is what defines modern Forex on a systemic level.  While average investors certainly don’t need to know this unless you’re planning on getting a job with a central bank, it can help any investor understand how and why Currency markets fluctuate the way they do.  It should also be noted that these forces maintain ‘bounds’ naturally, establishing a sort of ‘high’ and ‘low’ limit for any FX pair.  For example the EUR/USD now trading around 1.19, it can go in next days to 1.20 or 1.21 but not 1.90, for example.  Even in rare cases such as the “Brexit” the GBP/USD went down by less than 10% – which is a lot, for a major Currency.  So let it be known to all that these risks in FX are investable (with the help of algorithms) and hedgeable.  Looking from a risk management perspective, it is a lot more manageable than securities, commodities, or bonds – which have the finality of the ‘ulimate’ risk (default) – as Currency is ‘money’ the Euro can’t ‘default’.

A final note to all you Bitcoiners – Bitcoin is a Currency it’s only a matter of time before it’s integrated into the Forex system, because BTC/USD is an FX pair.  Good time to brush up on your FX and understand the broader market (not just the microcosm of Cryptocurrencies).

So now for the good news, the Currency Market provide a number of opportunities for algorithmic trading systems that continually profit, making FX a new budding asset class.

Today’s move is a blip on the radar, a non-event for hedgers – and a potential huge trading opportunity for algos.  Game on!

For a pocket guide to make you a Currency Genius checkout Splitting Pennies.