Bitcoin revolution could be the next internet, says Bank of England

The Bank of England has unveiled analysis of cryptocurrencies like Bitcoin that suggests electronic money could cause a tectonic shift in the payments industry

The Bank of England suggested that it could create its own digital currency Photo: Reuters

By Peter Spence, Economics Correspondent

3:47PM GMT 25 Feb 2015

290 Comments

The arrival of electronic currencies could revolutionise the way Britons pay for goods and services, in much the same way as the internet shook up how we access information, the Bank of England has said.

Cashless forms of payment like the cryptocurrency Bitcoin “potentially combined with mobile technology, may reshape the mechanisms for making secure payments”, the central bank said.

While traditional currencies, including the pound, are backed by central banks, new alternatives have allowed individuals to exchange directly without any such third party.

The Bank could itself create digital currencies, making the new system available as it does with banknotes today. Research would be necessary to develop the technology “without compromising a central bank’s ability to control its currency and secure the system against systemic attack”, the Bank said.

The idea of countries launching their own electronic currencies has gained pace in recent weeks, as Yanis Varoufakis became Greece’s newest finance minister. TheGreek-born economist has previously suggested that “the technology of Bitcoin, if suitably adapted, can be employed profitably in the eurozone as a weapon against deflation”.

Nonetheless, the costs could be outweighed by a wave of payments innovation, if the Bank were to issue its own digital currency. The Bank said: “Creating such a system would entail creating a protocol for value transfer over the internet, akin to what [Tim] Berners-Lee did for information.”

Ken Tindell, an independent technologist, said that if the Bank launched a parallel digital pound alongside banknotes, this could reduce the cost of remitting currency abroad. This “is a very costly affair with the existing players” he said.

The Bank said that it could investigate whether moving to digital currencies could threaten traditional banking models, as consumers moved towards holding electronic money themselves, rather than depositing it with high street lenders.

Mr Tindell said: “If the Bank were to create its own successful payments system then it would inevitably disrupt … existing inter-bank payments, but it would also affect companies like Western Union.”

The Bank’s comments were included with the launch of its One Bank Research Agenda, a new framework for conducting research. The Bank is looking at issues beyond its traditional scope, to see how monetary policy interacts with developments such as lengthening life spans and climate change.

Unveiling the new programme in London, Mark Carney, the Bank’s Governor, said: “Economies are complex, dynamic, and constantly evolving systems.”

“Policymakers need research to help understand these phenomena and to craft our responses,” he added.

The research agenda has been launched in the aftermath of the 2012 Stockton Review, which recommended that the Bank embrace a “more assertive and experienced staff”, that might be “capable of breaking the momentum of the house view”.

New technology has already “enabled the emergence of new business models, such as peer-to-peer lending and crowdfunding, which create alternative sources of finance for both individuals and businesses”, the Bank continued.

Dollar rises as US core inflation climbs

PUBLISHED ON FEB 27, 2015 7:40 AM

The US dollar firmed against other major currencies Thursday as US inflation data pointed to rising pressures that could ease the way for the Federal Reserve to up interest rates. -- PHOTO: AFP

NEW YORK (AFP) - The US dollar firmed against other major currencies Thursday as US inflation data pointed to rising pressures that could ease the way for the Federal Reserve to up interest rates.

While falling crude-oil prices continued to dampen overall US inflation, data from the Labor Department revealed building pressures in a number of areas, including shelter and personal care.

"Some analysts are going to use these data to warn about 'deflation' and say the Federal Reserve should hold off on raising rates. But the details of the report show we are not in the grips of deflation and the Fed should stay on track to start raising rates in June," said FT Advisors economists in a research note.

Fed Chair Janet Yellen, in twice-yearly testimony to Congress this week, made it clear that the Fed was in no hurry to raise interest rates from near-zero, where they have been pegged for more than six years, as she prepared the ground for a hike this year.

Has Saudis' bold gambit to let oil prices plunge worked?

PUBLISHED ON FEB 27, 2015 8:27 AM

The Organisation of Petroleum Exporting Countries (OPEC) headquarters in Vienna, Austria. The Saudi-led OPEC decision to maintain output levels and protect market share is having the desired effect - pushing prices down so far that they threaten to curb output in the US and other non-OPEC countries. -- PHOTO: BLOOMBERG

LONDON (Bloomberg) - Three months after Saudi Arabia made clear it was going to let oil prices keep tumbling, the strategy is showing signs of working.

U.S. drillers are idling rigs at a record pace, gutting investment plans and laying off thousands of workers.

Those steps highlight how the Saudi-led OPEC decision on Nov. 27 to maintain output levels and protect its market share is having the desired effect - pushing prices down so far that they threaten to curb output in the U.S. and other non-OPEC countries.

Saudi Arabia, the most powerful member of the Organization of Petroleum Exporting Countries, will maintain that tack when the group next meets in June, according to some of the world's biggest banks.

China investors top US list of 2013 national security reviews

Chinese investors faced more scrutiny from a US national security watchdog than those from any other country in 2013, the Obama administration said on Thursday in a report. 

PHOTO: REUTERS

27 Feb7:27 AM

[WASHINGTON] Chinese investors faced more scrutiny from a US national security watchdog than those from any other country in 2013, the Obama administration said on Thursday in a report.

The report could add to tensions between Washington and Beijing as they negotiate a bilateral investment treaty.

China's companies feel they are singled out by Washington, which counters it doesn't discriminate against any country and the increase in reviews of Chinese investors reflects higher investment flows from them.

Data from the Committee on Foreign Investment in the United States (CFIUS) showed the secretive body in 2013 reviewed 21 investments proposed by Chinese firms or individuals.

That represented about a fifth of the 97 transactions that were reviewed because a foreign company was seeking an ownership interest in an industry that might be sensitive to US national security.

In 2013, China topped the list of covered transactions for the second straight year. Japan was next with 18 transactions, followed by Canada with 12.

Some of China's most high-profile US investments have hit snags with CFIUS in recent years. China's Anbang Insurance Group Co recently received a go-ahead to buy New York's famed Waldorf Astoria Hotel from Hilton Worldwide Holdings.

A China-US investment treaty could boost the still relatively paltry levels of direct investment between the two countries, and Washington expects Beijing will raise concerns over CFIUS scrutiny around their treaty talks.

Most reviews arise from voluntary notices filed by companies, though CFIUS has the power to start its own investigations and companies often feel compelled to initiate the process.

In China, CFIUS review is the "most talked about issue"regarding an investment treaty with America, said Fang Jin, the deputy secretary general of the China Development Research Centre, a leading Chinese government institute.

"Chinese companies represent a disproportionately high percentage of cases covered by CFIUS," Mr Fang said at an conference in Washington earlier this month.

That appeared to be the case in 2013, although US data might exaggerate this. Commerce Department figures show China accounted for just under 1 per cent of US bound FDI in 2013.

However, private estimates that include investments made through third countries like Singapore suggest China's share of new FDI might be several times higher.

A senior Treasury official, which is the lead department among the government agencies that are part of CFIUS, said the total number of transactions covered by CFIUS in 2014 was probably above 140.

REUTERS

      

America's Bankrupt Banks (Inside the Meltdown) (Video)

America's Bankrupt Banks (Inside the Meltdown)

2009

On Thursday, Sept. 18, 2008, the astonished leadership of the U.S. Congress was told in a private session by the chairman of the Federal Reserve that the American economy was in grave danger of a complete meltdown within a matter of days. There was literally a pause in that room where the oxygen left, says Sen. Christopher Dodd (D-Conn.)

As the housing bubble burst and trillions of dollars' worth of toxic mortgages began to go bad in 2007, fear spread through the massive firms that form the heart of Wall Street. By the spring of 2008, burdened by billions of dollars of bad mortgages, the investment bank Bear Stearns was the subject of rumors that it would soon fail.

Rumors are such that they can just plain put you out of business, Bear Stearns' former CEO Alan Ace Greenberg tells FRONTLINE.

The company's stock had dropped from $171 to $57 a share, and it was hours from declaring bankruptcy. Federal Reserve Chairman Ben Bernanke acted. It was clear that this had to be contained. There was no doubt in his mind, says Bernanke's colleague, economist Mark Gertler.

Bernanke, a former economics professor from Princeton, specialized in studying the Great Depression. He more than anybody else appreciated what would happen if it got out of control, Gertler explains.

To stabilize the markets, Bernanke engineered a shotgun marriage between Bear Sterns and the commercial bank JPMorgan, with a promise that the federal government would use $30 billion to cover Bear Stearns' questionable assets tied to toxic mortgages. It was an unprecedented effort to stop the contagion of fear that seemed to be threatening the rest of Wall Street.

While publicly supportive of the deal, Treasury Secretary Henry Paulson, a former Wall Street executive with Goldman Sachs, was uncomfortable with government interference in the markets. That summer, he issued a warning to his former colleagues not to expect future government bailouts, saying he was concerned about a legal concept known as moral hazard.

Watch the full documentary now

Tougher Internet rules hit US cable, telecom companies

Share on facebookShare on twitterShare on linkedinShare on google_plusone_shareShare on emailMore Sharing Services3

Alina Selyukh, Reuters
2:01 PM, E.T. | February 26, 2015
U.S.

Tags: Internet, Telecommunications

 

Follow this

U.S. regulators on Thursday imposed the toughest rules yet on Internet service providers, aiming to ensure fair treatment of all web traffic through their networks.
The Federal Communications Commission voted along party lines, with Democrats in favor, to approve new "net neutrality" rules that seek to restrict broadband providers' power to control download speeds on the web, for instance by potentially giving preference to companies that can afford to pay more.
The vote starts a countdown to expected lawsuits from cable and telecoms providers which argue that the tougher regulatory regime will stifle investments, hurting consumers. Republicans see Thursday's move as a government power grab.
The new regulations come after a year of jostling between cable and telecom companies and net neutrality advocates, which included web startups. It culminated in the FCC receiving a record 4 million comments and a call from President Barack Obama to adopt the strongest rules possible.
The agency sought new net neutrality rules after a federal court rejected their previous version in January 2014.
The ruling confirmed the agency's authority over broadband but said it had improperly regulated Internet providers as if they were similar to a public utility. That contradicted their official classification as "information services" providers, which are meant to be more lightly regulated.
The agency's new policy reclassifies broadband, both fixed and mobile, as more heavily regulated "telecommunications services," more like a traditional telephone service.
The shift gives the FCC more authority to police various types of deals between providers such as Comcast Corp (CMCSA.O -0.79%) and content companies such as Netflix Inc (NFLX.O 0.98%) to ensure they are just and reasonable for consumers and competitors.
Internet providers will be banned from blocking or slowing any traffic and from striking deals with content companies, known as paid prioritization, for smoother delivery of traffic to consumers.
The FCC also expands its authority over so-called interconnection deals, in which content companies pay broadband providers to connect with their networks. The FCC would review complaints on a case-by-case basis.
FCC Chairman Tom Wheeler's original proposal pursued a legal path suggested by the court. It stopped short of reclassifying broadband and so had to allow paid prioritization, prompting a public outcry and later Obama's message.
With the latest draft, Wheeler sought to address some Internet providers' concerns, proposing no price regulations, tariffs or requirements to give competitors access to networks.

Canadians falling out of love with RRSPs

Marie Alcober, BNN.ca staff

10:22 AM, E.T. | February 23, 2015
Personal Finance

Tags: Marie Alcober, Personal Finance, Registered Retirement Savings Plan (RRSP), Your Money Month

More than half of Canadians will not be contributing to their retirement through a Registered Retirement Savings Plan (RRSP) this year, according to a recent CIBC poll.
As the March 2nd deadline for 2014 contributions nears, CIBC says 54 percent of respondents will not put money aside in a RRSP, 32 percent expect to add to their accounts and 16 percent have already made their entire RRSP contribution for the 2014 tax year.
Of those who are still able to make a contribution before the deadline, only 42 percent of Canadians have enough money to do so.
OTHER KEY FINDINGS

• 16 percent say they still plan to contribute or make an additional contribution towards their 2014 RRSPs
• 14 percent say they are not sure yet whether they will contribute or not

"It's very challenging to save up a year's worth of your RRSP contribution in the few weeks before the deadline," Christina Kramer, Executive Vice President, Retail and Business Banking, CIBC wrote in a statement.
"At this time of year, some families are still focused on paying off their holiday purchases or planning spring getaways, which makes pulling an RRSP contribution together at the last minute even more challenging."
Earlier this month, a study found that Canada’s household debt load is outpacing that of many developed countries. Household debt-to-income ratio rose further, to a record 162.6 percent in the third quarter, according to The McKinsey Global Institute.
John Zechner, chairman and CIO of J. Zechner Associates, says putting money into an RRSP should be a “no brainer” because investors receive an immediate refund and can reap the benefits of being in a lower tax bracket after retirement.
But he also says the retirement savings vehicle may not be the same as it used to be.
“Given that interest rates are so low, most people have investments that are generating capital gains and dividends, which makes the RRSP not as tax-advantaged as it used to be,” Zechner says.
Last month, The Bank of Canada unexpectedly cut its main interest rate by a quarter percentage to 0.75 percent.

The American Dream - An Animated Film (Video)

The American Dream

2010
 

The American Dream is a 30 minute animated film that shows you how you've been scammed by the most basic elements of the government system.

From the author: All of us Americans strive for the American Dream, and this film shows you why your dream is getting farther and farther away. Do you know how your money is created? Or how banking works? Why did housing prices skyrocket and then plunge? Do you really know what the Federal Reserve System is and how it affects you every single day?

The American Dream takes an entertaining but hard hitting look at how the problems we have today are nothing new, and why leaders throughout our history have warned us and fought against the current type of financial system we have in America today.

You will be challenged to investigate some very entrenched and powerful institutions in this nation, and hopefully encouraged to help get our nation back on track.

Watch the full documentary now

China's slowdown bottoming out, according to Australian gauges

China's economy looks headed for a soft landing. At least that's what BHP Billiton Ltd. and Australia's central bank chief Glenn Stevens are signaling 3,500 miles away. 

PHOTO: BLOOMBERG

26 Feb6:25 AM

[SYDNEY] China's economy looks headed for a soft landing. At least that's what BHP Billiton Ltd. and Australia's central bank chief Glenn Stevens are signaling 3,500 miles away.

Being the most China-dependent developed economy Australia is highly attuned to the ebbs and flows in the world's biggest trading nation. While China's growth has slowed, the best estimate of Aussie exporters and policy makers is that housing demand from the migration of rural Chinese to cities will help avert an abrupt further slump in expansion.

BHP, the world's biggest miner, forecasts a moderate recovery in Chinese demand for steel in 2015. The Reserve Bank of Australia chief says that growth in the second-largest economy is impressive. And one measure favored by some investors, iron-ore shipments from the remote northwest Port Hedland - the largest exit point for such exports - have stabilised near a record level.

"Australia's data show that China's economy is set to remain strong in 2015," said James Laurenceson, professor of economics and deputy director of the Australia-China Relations Institute in Sydney. "I look at all the numbers - resources, agriculture and services - and see solid indicators across the board." One measure from China itself Wednesday offered evidence of a trough in what's been a downturn in industrial expansion. The preliminary purchasing manager's index for February from HSBC Holdings Plc and Markit Economics showed a rebound. The Aussie dollar - which tumbled 15 per cent in the past six months as China's slowdown deepened - gained after the release.

"The real thing that is impacting us at the moment is the slowdown in residential construction" in China, John Edwards, a member of the Australian central bank's board, said in a Feb 17 interview. "There are some signs that that is beginning to turn around. It will have to turn around, otherwise China won't be able to achieve its aims in respect of urbanization in the next decade or two." Chinese policy makers have taken steps to shore up the property market, lowering interest rates last year and cutting lenders' required reserve ratios this month. An embrace of greater liquidity helped spur a third straight gain in China's broadest measure of new credit in January.

Officials also are preparing measures to counter a housing market slump and will roll them out if the economy needs support, people with knowledge of the matter say.

Chinese residential construction is a boon for Australian resource producers. Rio Tinto Group, the world's second-largest mining company, estimates China's 1.3 billion people were 54 percent urbanised at the end of last year, and predicts that proportion will reach 70 per cent by 2030, supporting steel output and demand for iron ore.

Crude steel production in China increased to about 830 million metric tons in 2014 and is on course to reach 1 billion tons a year by 2030, Rio said in its earnings statement Feb 12.

While China's economic growth slowed in 2014 to 7.4 per cent from 7.7 per cent a year earlier, Australian policy makers say efforts by the Chinese to boost consumption at the expense of construction and to stamp out corruption bode well for the long term.

"One would hope that they will come out of this recalibration of their economy being stronger and in a better place to be an engine of growth," John Fraser, who recently took office as Australia's secretary to the Treasury and is a former chief executive officer of UBS Global Asset Management, told a parliamentary panel Feb 25.

The Treasury in December forecast growth in China of 6.75 per cent in 2015 and 6.5 per cent in 2016.

Australia's links to China tightened in the past decade as exports to what's now its largest trading partner almost quadrupled in five years. It exports 5.8 per cent of its gross domestic product to China, more than the combined 4.7 per cent France sends to Germany and Italy, according to data from the World Bank and the International Monetary Fund compiled by Bloomberg.

For the RBA's Stevens, growth in China of about 7 per cent, down from 10 per cent years ago, is still good.

"They are by now, I think, the largest trading economy in the world," he said in testimony to a parliamentary committee Feb 13. "An economy of that size growing at 7 per cent is still quite an impressive performance if they can do that." China's leadership is forecast to adopt a growth target of about 7 per cent at a gathering of the nation's leadership in Beijing next month, down from about 7.5 per cent last year.

"It is important not to get too bearish on commodity exporters," said Stephen Jen, co-founder of SLJ Macro Partners LLP in London. While he said it's possible that China's expansion slows to below 6 per cent in the next five years, it will continue to spur growth Down Under. "In absolute terms, China's incremental growth even at a slower pace could be material for countries like Australia."

BLOOMBERG

      

HSBC bosses reject calls to quit

HSBC Chairman Douglas Flint and Chief Executive Stuart Gulliver told a panel of UK lawmakers they shared collective responsibility for failings at HSBC's Swiss bank that allowed clients to dodge taxes. 

PHOTO: REUTERS

26 Feb7:09 AM

[LONDON] HSBC bosses rejected calls from British lawmakers for them to quit over the bank's Swiss tax scandal, but said they were having to clean up after a "terrible list" of control and compliance failings.

HSBC Chairman Douglas Flint and Chief Executive Stuart Gulliver told a panel of UK lawmakers they shared collective responsibility for failings at HSBC's Swiss bank that allowed clients to dodge taxes. "It clearly was unacceptable, we very much regret this and it has damaged HSBC's reputation," Mr Gulliver told the Treasury Committee with regard to practices in its Swiss bank in the mid-2000s. "I am responsible for clearing it up. I have made substantial changes," he said.

Europe's biggest bank has admitted failings in compliance and controls in its Swiss private bank after media reports said it helped wealthy customers conceal millions of dollars of assets in a period up to 2007.

It adds to a long list of banking scandals that have emerged since the financial crisis, including several at HSBC. The bank was fined US$1.9 billion two years ago by US authorities for lax controls that allowed criminals to launder money and was also hit with a US$611 million penalty by regulators in November for alleged manipulation of currency markets. "It's a terrible list," Mr Flint said when a UK member of parliament read out the recent fines and investigations.

He said the bank was more than halfway through a transformation to make it simpler and create more central control. "I sincerely hope there are no more skeletons," Mr Flint added.

Mr Flint said the allegations of wrongdoing had had a devastating impact on the bank's reputation that would take time to rebuild.

This has also caused a political storm in Britain ahead of an election in May. The opposition Labour Party has criticised Prime Minister David Cameron for appointing former HSBC Chairman Stephen Green as a trade minister after he left the bank.

Mr Green was responsible along with the rest of the management team for the control environment at the time, but Flint said the people most responsible for the Swiss bank failings were local management.

Mr Gulliver's own tax affairs have been thrust into the centre of the scandal after Britain's Guardian newspaper said he had sheltered millions of pounds in HSBC's Swiss private bank via a Panamanian company. "Do you have the moral authority to carry on this change process at HSBC?" one of the lawmakers asked him during an often hostile grilling lasting almost two hours.

Mr Gulliver denied any wrongdoing and said being domiciled in Hong Kong did not represent aggressive tax avoidance. He said he had paid all his UK taxes and opened his Swiss account via a Panama company so colleagues could not see his finances.

Mr Gulliver has said the failings in Switzerland were in the past and that the business there had since been transformed.

He was appointed CEO of HSBC in 2011 and has sold or closed 77 businesses and axed more than 50,000 jobs at the bank as part of a restructuring of the group.

HSBC's Swiss bank is under investigation by a number of countries, including France and Belgium, and tax authorities in Argentina, Switzerland and India are also investigating the allegations of tax evasion.

Britain's financial watchdog is looking at standards at the Swiss bank, but no UK authority has announced any criminal probe.

HMRC, Britain's tax authority, has faced criticism for not being tough enough on tax avoiders or the bank itself. One UK individual has been prosecuted and HMRC has reclaimed 135 million pounds (S$283.4 million) from names on the HSBC list, including 15 million pounds in penalties.

Lin Homer, chief executive of HMRC, said the data provided on the HSBC Swiss bank clients was of poor quality and authorities had pursued everybody they believes owed tax from the Swiss data received. "We broadly think we have got it all,"she told the panel of lawmakers.

HMRC said in a statement the Swiss data can be shared with other government agencies and it will meet next week with the Serious Fraud Office, the Financial Conduct Authority, the Crown Prosecution Service, City of London Police, the National Crime Agency and EuroJust.

REUTERS

      

Morgan Stanley reaches US$2.6 billion mortgage deal with US

26 Feb7:31 AM

[NEW YORK] Morgan Stanley agreed to pay US$2.6 billion to settle probes into its creation and sale of residential mortgage-backed securities, as the US Department of Justice holds another large Wall Street firm to account for the 2008 financial crisis.

The firm increased legal reserves related to mortgage matters by about US$2.8 billion, cutting 2014 income from continuing operations by US$2.7 billion, or US$1.35 a share, Morgan Stanley said Wednesday in an annual regulatory filing. It's the fourth time in the past five quarters that the New York-based bank reduced earnings in the weeks after announcing them.

JPMorgan Chase & Co, Bank of America Corp. and Citigroup Inc - the three biggest US banks - previously settled with federal and state authorities over the probes, agreeing to pay a total of more than US$35 billion in cash and consumer relief. Goldman Sachs Group Inc. disclosed this week that it received a letter from the US Attorney's Office in Sacramento, saying a civil lawsuit may be brought against the firm.

Patrick Rodenbush, a Justice Department spokesman, declined to immediately comment about the settlement.

The agreement follows other regulatory actions against Morgan Stanley over similar allegations. The firm last year agreed to pay US$1.25 billion after the Federal Housing Finance Agency accused it of selling faulty mortgage-backed securities to Fannie Mae and Freddie Mac.

In July, Morgan Stanley reached a US$275 million settlement with the Securities and Exchange Commission over claims it understated the number of delinquent loans backing subprime mortgage securities.

BLOOMBERG