Showing posts with label forex. Show all posts

Monday, September 30, 2024

Malaysian pride soars with the ringgit

It has been a while since Malaysians began to feel some pride. Certainly, the strengthening of the ringgit against the

There is bo doubt that the country's political stability under PM Datuk Seri Anwar Ibrahlim is one of the main reasons for Malaysis's economic success.

KUALA LUMPUR: It has been a while since Malaysians began to feel some pride. Certainly, the strengthening of the ringgit against the dollar has made a big impact on national confidence.

The Malaysian ringgit, which continues its upward trend, has surged to its highest level against the greenback since March 2022.

Not only is it the best-performing currency in the region, but it also became the world's top-performing currency this month as it rode on the US Federal Reserve's large interest rate cut.

The comeback story of Malaysia, underpinned by an economy that has expanded at its fastest rate in the past 19 months, has attracted global attention.

There is no doubt that the country's political stability under Prime Minister Datuk Seri Anwar Ibrahim is one of the main reasons for Malaysia's economic success compared to Thailand and Indonesia, which fell by the wayside politically.

The ringgit climbed to a 30-month high recently of 4.1815 against the US dollar recently. It ended last week, closing on Friday at 4.1230/1280.

Now, the speculations are that the ringgit could go up to RM4 against the dollar as BMI, a unit of the Fitch group, revised its year-end forecast for the ringgit from 4.55 against the US dollar to 4.0, reflecting the local currency's robust performance in the third quarter of 2024.

Looking beyond the six-month period, BMI even predicted the ringgit to strengthen by nine per cent next year, reaching 3.55 against the dollar by the end of 2025.

It sounds very good, but as we all know, the ringgit depends very much on external factors, especially on the US Fed interest rate trajectory and mainland China's growth, which is our biggest trading partner.

Over the medium view, there will always be some profit taking, which would affect our rate, but it is healthy and natural.

At one time last year, there was fear that the ringgit could hit as low as RM5 against the dollar, but now the ringgit has appreciated more than 12 per cent against the dollar.

Last week, the South China Morning Post (SCMP) reported that "for Malaysians, the exchange rate of the ringgit against the US dollar, as well as regional currencies like the Singapore dollar and the Thai baht, serves as an indicator for how well the economy is doing and reflects confidence in the government."

Whatever the criticisms and misgivings that have been levelled against Anwar Ibrahim for his purported delays in reforms and even making compromises with the conservative groups who didn't vote for him in the last general election, he is on the right track for sure.

Malaysia is politically stable, and his Madani Unity government isn't going to give way soon. His opponents must wait for another three years to challenge him despite the many political noises generated, which Malaysians have grown used to.

The SCMP quoted Mohd Afzanizam Abdul Rashid, the chief economist at Bank Muamalat Malaysia, saying, "The stability has facilitated more effective policymaking and implementation, boosting confidence in the ringgit.

"This has created better reviews by the credit rating agencies and global investment banks."

Reuters reported a news article under the heading "Malaysia shines as foreign investors return, peers stumble."

In its Aug 22 article, the news agency said, "Malaysia is fast becoming a haven in Southeast Asia, and foreign investors are returning to a long-overlooked market as a confluence of improving growth, stable government and rising currency sets it apart among peers grappling with political flux."

"Foreigners have steadily poured more money into Malaysian debt and stocks this year. In July, as political troubles brewed in Thailand and Indonesia, they pumped US$1.75 billion into Malaysian debt markets – the highest in a year.

"The stock market, Bursa Malaysia, is gunning for its strongest yearly performance in well over a decade."

At home, while the cost of living remains a big concern among many Malaysians, the inflation rate has decreased to 1.90 per cent in August from 2 per cent in July 2024.

Trading Economics reported that the inflation rate is expected to be 1.50 per cent by the end of this year, according to its global macro models and expectations from analysts.

More importantly, the number of jobs in the first quarter of this year increased by 1.5 per cent to 8.94 million – the highest recorded since 2018, according to the Employment Statistics, First Quarter 2024.

Chief Statistician Datuk Ser Dr Mohd Uzir Mahidin was quoted by Bernama as saying that 8.81 million jobs were recorded in the first quarter of 2023.

HR Asia reported that Malaysia's job market remains robust throughout 2024, with "companies continuing to hire in line with ongoing economic expansion."

Malaysians now look forward to the annual economic report as well as the Budget to be presented in Parliament next month to have a clearer and more detailed idea of what's in store for us.

Datuk Seri Wong Chun Wai, an award-winning veteran journalist with over 40 years experience, is the chairman of Bernama.

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Friday, October 27, 2023

Grand plans for Malaysians working in Singapore

All-time high: The Singapore dollar surged to a new high against the ringgit two days ago. - Thomas Yong/The Star

JOHOR BARU: Many Malaysians working across the Causeway are planning holidays and home renovations as the Singapore dollar surged to a new high against the ringgit.

Jason Wong, 27, said he felt that his decision to cross the border daily to work was the right one as he now has more cash in hand due to the strong currency exchange rate of S$1 to RM3.50.

“One by one, many of my peers and relatives had gone to Singapore for work, which led to my decision to do the same. I started working there in March after finding it difficult to get a stable job in Johor Baru.“I start my commute at around 6am and reach home after 8pm every day. It is tiring but the exchange rate makes it worthwhile. I can give more money to my elderly parents now that I have extra disposable income,” he told The Star.

Wong added that he was also saving to take his parents on a holiday for the first time next year.

The Singapore dollar shot to a new high of 3.5086 against the ringgit on Tuesday morning.

Ardy Zainuddin, 33, who works as a purchasing executive in Singapore, was happy to have extra money to renovate his new home here.

“My wife and I have just got the keys to our new house and with a second baby on the way, anything extra is welcome,” said Ardy, who has been commuting across the border for work for the past five years.

However, he hopes that the Malaysian government would come up with policies to strengthen the ringgit.

“The strong Singapore-Malaysia currency exchange is good for those working across the border, but I am concerned that the weakening ringgit will make things more expensive for other Malaysians.

“My relatives living in Johor and Melaka have been complaining that it is costly to eat out or even cook at home. They are also hesitant to travel overseas because of the weak ringgit,” he added.

Checks by The Star at several popular money changers in the city found that they were well-stocked with the ringgit to cater to the expected higher demand.

A money changer who only wanted to be known as Wan said, “This is the first time I have seen the ringgit dip so low against the Singapore dollar in my 10 years of being in the industry.

When the exchange rate was S$1 to RM3.41 in May, our business rose by about 30% as those working across the border as well as Singaporeans rushed to buy the ringgit in large quantities,” she said.

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Tuesday, March 1, 2022

Shocking! MACC officers posed as TNB meter readers were paid in bribes as string cripples Bitcoin syndicates

Sting operation on bitcoin-mining power theft racket nets 18 suspects

Eighteen people have been arrested in relation to the bitcoin mining syndicate busted by a joint sting operation involving Tenaga Nasional Bhd (TNB) and the Malaysian Anti-Corruption Commission (MACC).

MACC stings bitcoin miners

Open sesame A fireman breaking open a reinforced door at one of the Bitcoin mining centres. The raiding team had to break two more such doors before they could enter the premises.
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Electricity stealing spree comes to an end as Macc finally takes action

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In the three years that MACC officers posed as TNB meter readers, they were paid a whopping Rm2.4mil in bribes. The Bitcoin mining syndicates were raking in much more – about Rm50mil a month – but this is about to end soon. JAYA: It was a sting operation that began three years ago during which time MACC officers disguised as TNB meter readers were paid Rm2.4mil in bribes.
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Some were even offered Bitcoin – a first for graft busters – to turn a blind eye to the power theft by mining syndicates.
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The masterminds could afford this. They were raking in a whopping Rm50mil a month from their 1,000-odd premises nationwide.
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Yesterday, the anti-corruption officers crippled much of their activities by conducting simultaneous raids in Malacca, Negeri Sembilan, Kedah, Penang, Kuala Lumpur and Selangor. But it wasn’t easy.
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“It took us an hour to break open two doors at each premises,” a source close to the investigation revealed.
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“And then, there were three more vault-like doors to cut through before we could enter one of the premises,” the source said.
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“We had to seek the help of the Fire and Rescue Services.”
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Dozens of suspects were arrested, including the heads of the syndicates. More than 200 Bitcoin mining machines were also seized in yesterday’s raids that involved dozens of Tenaga Nasional officers.
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“Some 350 MACC officers were involved in the probe,” said the source.
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While it is not illegal to mine Bitcoin, power theft is.
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This is done because running such an operation requires dozens of computer servers that would be in operation around the clock.
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“This would require huge amounts of electricity,” said the source.
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“The amount of electricity stolen at each premises could amount to RM40,000 per month,” added the source, saying that the syndicates earned around RM50,000 from every premises.
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“If they had paid their electricity bills, they could still make a profit because most of them own dozens of premises each,” the source explained.
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“But, greed got the better of them.”
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Bitcoin mining uses sophisticated computer software to try to solve complex mathematical problems to unlock a “key” that will enable a new Bitcoin to be produced.
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The Bitcoin market is highly volatile. Its value fluctuated from RM160,000 to RM277,000 in a month.
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A MACC spokesman confirmed yesterday’s raids.
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Yesterday, The Star reported that Bitcoin mining operators were reaping in millions at the expense of the public.
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Local communities, including hospitals, that shared the same power source as the mining premises, were being deprived of supply.
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Some buildings located near the Bitcoin mining premises experienced power outages often, with some burning to the ground.
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It is understood that the graft busters began the sting operation following a sharp increase in losses incurred by the country due to electricity theft.
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“Each premises owns around 80 to 120 Bitcoin machines.
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“They bring in these machines from China via Port Klang. They declare it as computer equipment,” the source said.
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Investigations are being conducted under Sections 16 (b) and 17 (b) of the MACC Act 2009 and if convicted, the guilty face a maximum imprisonment of 20 years and can be fined not less than five times the value of the bribe or RM10,000, whichever is higher.
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On Jan 24, Energy and Natural Resources Minister Datuk Seri Takiyuddin Hassan said the country lost more than Rm2.3bil in bitcoin mining activities – an increase of 400% over the past four years.
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By ALIZA SHAH alizashah@thestar.com.my

Busting bitcoin bribers

On the watch: A TNB officer checking on a bitcoin mining premises.

`MACC zeros in on miners who pay meter readers to look the other way

PETALING JAYA: Bitcoin mining operators running their operations on stolen electricity and bribing electricity meter readers to help them hide their actions will soon have to pay the piper.
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The Malaysian Anti-corruption Commission (MACC) is zooming in on them and their crime which is causing financial losses in the billions of ringgit.
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“Graft-busters have been looking at dozens of such operators and they are expected to make their move anytime now,” revealed sources with knowledge of the investigation.
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It is learnt that these operators, who have branched out to every state in Malaysia, are even willing to pay up to a quarter million ringgit as bribes to meter readers to look the other way and give them a miss.
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While it is not against the law to mine bitcoin, running such operations requires dozens of computer servers working on a 24-hour basis, which requires huge amounts of electricity.
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Many are not paying their dues and are instead stealing electricity by illegally tapping into power sources or tampering with the meter.
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In an interview with The Star, sources said that in addition to cash, these syndicates even offered bitcoin, or cryptocurrency, as bribes.
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The authorities, they added, kickstarted their on-ground investigation a few years ago following the sharp increase of losses incurred by the country due to electricity theft by bitcoin miners.
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It is understood that the investigations are currently being conducted under Sections 16 (b) and 17 (b) of the MACC Act 2009, which stipulates that giving or offering bribes is equal to the offence of accepting bribes.
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If convicted, the person faces maximum imprisonment of 20 years and can be fined not less than five times the value of the bribe or RM10,000, whichever is higher.
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However, enforcers face several challenges in thwarting these illegal activities, especially since these premises are usually as tightly sealed like as a war-time bunker.
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On Jan 24, Energy and Natural Resources Minister Datuk Seri Takiyuddin Hassan said the country had lost more than Rm2.3bil in bitcoin mining activities – an increase of 400% over the past four years.
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The number of cases has also drastically increased year-on-year.
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In 2018, there were 610 cases while there were 1,043 cases in 2019, 2,465 cases in 2020 and 3,091 cases in 2021, totalling 7,209 cases.
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By ALIZA SHAH alizashah@thestar.com.my

Syndicate’s greed ravaging local communities

Fire hazard: The energy intensive mining activities of bitcoin machines that run 24/7, can lead to power outages, damage to electrical appliances and worse – potential fires. — Photo courtesy of TNB

PETALING JAYA: Bitcoin mining operators running on stolen electricity are reaping in millions at the expense of the public.
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Sources said the syndicates behind the operations were depriving the local communities – including critical sectors such as hospitals which shared the same power source – of their supply.
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The energy intensive mining activities of bitcoin machines that run 24/7, can lead to power outages, damage to electrical appliances and worse – potential fires.
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“Each premises is loaded with mining machines and the operators rely on air conditioning to help cool the equipment.
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“So, their electricity bills can go up to RM40,000 per month for each premises but their profit is just slightly above the amount.

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CLICK TO ENLARGECLICK TO ENLARGE

“That is why they have no choice but to operate using illegal sources (of electricity),” the sources told The Star.
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The Star learnt that some buildings located near these bitcoin mining premises had experienced power outages, with some even burning to the ground.
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“These bitcoin mining premises often use fuses that do not adhere to safety standards and load, exceeding the capacity of the cables. So, unfortunately for their ‘neighbours’, when the fire breaks out, they are also affected.
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“There were instances where reports were lodged over power outages at dialysis centres and clinics and upon investigation, authorities found that these were due to bitcoin mining premises illegally tapping into the power,” said the sources.
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It is understood that some of these bitcoin mining operators own hundreds of premises.
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“Bitcoin mining” is a process of using sophisticated computer software to try to solve complex mathematical problems to unlock a “key” to produce a new bitcoin.
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The first bitcoin miner to solve the puzzle is rewarded with a bitcoin.
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Only one miner can add a new block to the blockchain every 10 minutes by solving the puzzle and to maintain a competitive advantage, many operators would scale up or upgrade their equipment to run round the clock.
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A study in the United States suggested that a single bitcoin transaction required 2209.41 kilowatt per hour (kWh), which was equivalent to 75.73 days’ worth of power consumed by an average household in the country.
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The bitcoin market is highly volatile, with its value having fluctuated from more than RM277,000 in October to over RM160,000 this month.

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MACC stings bitcoin miner

Tools of the trade: (From left) energy commission ceo abdul razib dawood, azam and Baharin looking at the seized computer hardware at the Macc headquarters in Putrajaya.

18 nabbed and rm4.5mil frozen after three-year Op Power

The masterminds behind a multimillion ringgit bitcoin mining syndicate are among 18 individuals arrested by the Malaysian Anti-corruption Commission (MACC), following a threeyear sting operation codenamed Op Power.

MACC chief commissioner Tan Sri Azam Baki said the 18 individuals arrested are all Malaysian males aged between 30 and 60.

“We confiscated 1,157 bitcoin (mining) machines worth Rm2.3mil in total.

“A total of Rm4.5mil was frozen from bank accounts linked to 94 individuals and 29 companies.

“The MACC also seized RM281,180 in cash, RM82,000 in ewallet balances and some US$25,893.46 worth of cryptocurrencies.

“Five vehicles, including a BMW, Toyota Vellfire and an Audi, have also been seized,” said Azam at a press conference at the MACC headquarters here.

Azam added that the MACC is looking to arrest another five individuals with links to the case, but this has been put on hold as the suspects have currently tested Covid-19 positive.

The Star on Sunday and Monday reported on a sting operation that began three years ago during which MACC officers posing as TNB meter readers were paid Rm2.4mil in bribes.

Azam said the syndicate operators offered between RM3,000 and RM300,000 to TNB officers to help cover up their operations.

The syndicate was found to have used special devices to manipulate power usage to ensure that their operations used as little electricity as possible.

Azam said that while cryptocurrency mining is not illegal, power theft is a crime.

TNB chief executive officer Datuk Baharin Din, who was also present at the press conference, said the syndicate used sophisticated methods for their illicit operations.

“The quantum of the power volume that this syndicate has stolen is very large, and it was done continuously for 24 hours and 365 days. This went on for over three years.

“The technique the syndicate used to tamper with the power usage is quite sophisticated.

“You come across small households that try to steal power, but these people go way beyond that.

“To do what they did, you have to be very competent.

“So we are very thankful to the MACC for their big help in this operation and because of them, we managed to stop this syndicate,” said Baharin.

By JOSEPH KAOS Jr joekaosjr@thestar.com.my

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Tuesday, July 20, 2021

The seismic shift in global finance

The dollar accounted for 88% in paired foreign exchange currency trading in 2019 and 59% of official foreign exchange holdings

Why the global financial landscape is undergoing a seismic shift

Regulators are struggling to keep up with fintech’s rapid growth and the impact of big data, even as intense geopolitical rivalries mean accidents could easily escalate into crises

AUGUST 15, 2021 marks the 50th anniversary of United States President Richard Nixon delinking the US dollar from gold. Instead of a crisis, the ensuing half century marked the pre-eminence of the US financial system to global dominance.

In 2017, US Treasury Secretary Mnuchin commissioned four major studies on the US financial system that reviewed its efficiency, resilience, innovation and regulation. These surveys highlighted the US dominance in all four areas of banking, capital markets, asset management and financial technology.

To quote the reports proclaimed : “The US banking system is the strongest in the world”... “The US capital markets are the largest, deepest, and most vibrant in the world..(that) include the US$29 trillion (RM119 trillion) equity market, the US$14 trillion (RM57.5 trillion) market for US Treasury securities, the US$8.5 trillion (RM35 trillion) corporate bond market, and US$200 trillion (notional amount or RM820 trillion) derivatives market.”

According to the reports,“Nine of the top 10 largest global asset managers are headquartered in the United States.” In the area of financial technology, “US firms accounted for nearly half of the US$117bil (RM480bil) in cumulative global investments from 2010 to 2017.”

Under-pinning the US financial system’s success is of course the US dollar’s dominant currency pricing role. The dollar accounted for 88% in paired foreign exchange currency trading in 2019 and 59% of official foreign exchange holdings in 2020. It is widely used in trade invoicing in manufacturing but less so in services trade. As a major International Monetary Fund study has shown, this pricing role impacts on emerging market economy (EME) exchange rate policies, as their devaluation would have only limited positive impact on their exports, but amplifies their import contraction.

Furthermore, because EME debt is largely denominated in dollars, any dollar appreciation would have an overall contractionary impact on EME liquidity and growth. This is why US interest rate increases are feared not just by the US Treasury, but also almost all EME economies.

Several factors combined to create the recent seismic shift in the global financial landscape.

First, financial technology has eroded the dominant share of the banking system. The Financial Stability Board (FSB) 2020 report on non-bank financial institutions (NBFI) revealed that as of end-2019, they accounted for 49.5% of global financial assets of $404 trillion, compared with 38.5% for the banks. Indeed, total NBFI lending now exceed bank lending, partly because of tighter bank regulations and higher bank capital and liquidity costs.

` Second, financial technology has enabled new arrivals in the financial sector comprising not new fintech startups, but also Big Tech platforms that are using Big Data, Artificial Intelligence, apps and their dominance of cloud computing to provide more convenient, speedy and customer-oriented finance for individuals and businesses. This month, a major BIS study on the implications of fintech and digitisation on financial market structure showed how Big Tech has muscled into traditional banking services, especially in payment services, lending and even asset management.

Taking the growth of NBFIs and Big Tech together, the traditional bank regulators and supervisors find that they regulate less and less of the financial system, but central banks are responsible for overall financial stability. Regulating the complex financial eco-system is like trying to tie down a huge elephant by a bunch of specialists each trapped in their own silos. And politically, no one wants to give a super-regulator power to rule them all.

Third, the financial landscape entered new minefields because of intense geopolitical rivalry. If global supply chains are going to be decoupled by different standards, and we arrive at a Splinternet of different technology standards, how should finance respond? As the US applies pressure on Chinese companies and individuals through new sanctions and legislation, financial institutions and companies struggle to deal with shifting goal posts and game changes.

A woman and a child walk past the People’s Bank of China building in Beijing on March 4. China’s central bank, like others around the world, is grappling with how to regulate the fintech industry. Photo: Bloomberg

The Ant Finance and Didi events are more a reflection of regulatory concerns whether large domestic Big Data platforms should be subject to foreign legislation with national security implications. Will India, for example, continue to allow foreign Big Tech to own all their client data?

Fourth, the regulatory trend towards “open financial data” in which banks would open up their client databases to allow new players to access customer accounts and data will provide new products and services. But this means also severe concerns on client privacy and data security. No country has yet figured out how to manage competition fairly in the fintech world when five firms (Amazon, Microsoft, Google, IBM, Oracle) dominate 70% of cloud-related infrastructure services.

Fifth, blockchain technology, cyber-currencies and central bank digital currencies are now increasingly coming on-stream, making possible payments and transactions that rely less on official currencies and also outside the purview of regulation. In short, the official regulators are responsible for system stability, but may not have access to what is really going on in blockchain space. That is an accident waiting to happen.

https://youtu.be/oukokqq1s_o

In addition to more than 600,000 COVID-19 deaths, growth in the US is based on a strong stimulus package of excessive money-printing. China's growth is more solid: Editor-in-Chief Hu Xijin

All these suggest that the global financial system has grown faster, more complex and entangled than any single nation to manage on its own. If the largest financial systems are caught in increasingly acrimonious geopolitical rivalry, what are the risks of financial accidents that can easily escalate to financial crises? In the 2008 global financial crisis, the G20 stood together to execute a whole range of responses. This time round, there is no unity as the US continues to apply financial sanctions against her enemies and rivals, amounting to 4,283 cases as of January 2021, of which 246 and eight respectively were against Chinese and Hong Kong entities.

The bubble in fintech valuation that has fueled rising stock markets and investments in technology is fundamentally driven by central bank loose monetary policy. Central bank assets have grown faster on an average of 8.4% per annum between 2013-2018, than banks (3.8%) or NBFIs (5.9%) to reach 7.5% of global financial assets. Does this mean that financial markets can assume that central banks will continue to underwrite their prosperity?

As inflation rears its head, central banks will have to reverse their loose monetary stance, thus putting the global financial system under stress. The global financial system has structural and regulatory cracks, but they can only be fixed by having some political understanding amongst the big players. Without this, expect a messy outcome.

Andrew Sheng comments on global affairs from an Asian perspective. The views expressed here are his own.

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Break free of US dollar hegemony: What’s next?

The dollar is central to the global monetary system – used worldwide as a unit of account, store of value and medium of exchange. Most commodity and forex contracts are denominated in it. It represents more than one-half of all cross-border interbank claims (a proxy for international payments). That’s five times US share of world goods imports, and three times its share of exports. About two-thirds of world reserves is held in US dollars.

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The yuan’s stability is partly by design, and by good luck; backed by foreign exchange reserves held steady at US$3.1 trillion since mid-2016.

TODAY, the world’s financial rhythm remains American. The US dollar assumed the role of the world’s dominant reserve, payment and settlement currency after WWII. The country’s position as the sole financial superpower gives it extraordinary influence over the destinies of nations.

For 70 years, the United States has used this power rather routinely, as a matter of reality. Of late, however, it has been engaged in “financial warfare” in the service of its foreign policy. This has prompted nations to “break free” of US dollar hegemony, including preventing “US sanctioned nations” free access to US dollar-based financial system with devastating impact.

The dollar is central to the global monetary system – used worldwide as a unit of account, store of value and medium of exchange. Most commodity and forex contracts are denominated in it. It represents more than one-half of all cross-border interbank claims (a proxy for international payments). That’s five times US share of world goods imports, and three times its share of exports. About two-thirds of world reserves is held in US dollars.

It is the preferred currency of central banks and capital markets (accounting for 65% of global securities issuance). The irony is people rushed to buy dollars during the subprime crash, even though Wall Street caused it. They did so again in March this year despite US bungled response to Covid19. The global finance plumbing is US dolarbased – most international transactions are ultimately cleared in US dollars through SWIFT (banks’ main cross-border messaging system) and CHIPS (Us-centric clearing house network) through New York by US “correspondent banks.” Denied access to this infrastructure, the institution is isolated and financially crippled. The United States began flexing its financial muscles (including imposing hefty penalties) after the terrorist attacks of September 2001.

Trump has since “weaponised” it to a new level – to-date, it has over 30 active financial and trade-sanctions programs. Early this year, it used this dominance to cut-off support to the Iran and Iraq regimes, adversely affecting their use of oil revenues.

This use of the dollar to extend its policy reach is “an abuse of power,” i.e. bullying; Russia refers to its use, a “political weapon.” Even allies (EU, Japan, UK) are concerned Trump is undermining US role in maintaining orderliness in global commerce and finance. There is already widespread talk to “dethrone” the US dollar, through the dedollarisation of assets; more use of domestic currencies in its trade workarounds and swaps; and new banking payments mechanisms and digital currencies.

Also, nations have expanded settlement of bilateral trade in their own currencies, or gold; even barter. Russia has gone the furthest, including dedollarising parts of its financial system; reducing US dollar share of its foreign reserves (40% to 24%); cutting its bank’s holdings of US dollar Treasuries to under Us$10bil from Us$100bil; bringing down its exports denominated in US dollar to 62%; and shifting US dollar trade with China and India to non-us dollar settlements; and denominating over 40% of its crude oil tenders in euros.

Like Russia, China has begun to set-up “building blocks” to become more autonomous, including a yuan-denominated crude oil futures contract (“petroyuan”) on the Shanghai exchange. US allies are flirting with it, too. But, EU first has to reform the inner workings of the euro and complete work on banking union, fiscal integration, etc., before it is ready to create a global electronic invoicing euro currency.

Reserves option

US dollar’s role as a reserve currency point to three distinct benefits: (i) lower transactions cost; (ii) macroeconomic policy flexibility, including foreign financing of its deficits; and (iii) leverage to benefit allies. Of course, it carries costs: (a) tends to hurt exports by being strong and stable; (b) overhang of debt overseas opens domestic economy as hostage to sudden capital movements; and (c) needs to bail-out the system.

That’s why the UK, Japan and Germany shied away. However, because the world has changed, EU has since started to push for a stronger international role for the euro. But becoming a serious reserve currency requires: (a) large, deep and liquid capital markets; (b) a secure bonds infrastructure, especially in government bonds; (c) wide use in world trade; and (d) a big economy that’s integrated into global markets.

Without fiscal union, EU lacks a supranational, liquid euro bond; its capital markets are not robust enough – a real banking union would help. Euro’s share of global reserves is down to 20%. Russia also tried – cuts US dollar share of its reserves to 24%. Issues most debt in roubles and euro; only 60% of its exports is settled in US dollars, and 40% of its oil sales contracts is denominated in euros. It has still a long way to go.

China had longed wish to internationalise. But, its capital controls remain a serious problem: it limits how much outsiders can access its currency. In 2017, Bond Connect was launched – allowing foreigners to invest in offshore bonds through Hong Kong, and scrapped investment quotas.

China has since made good progress: (i) offshore yuan deposits are rapidly rising; (ii) issues of yuan “dim-sum” bonds are getting popular; (iii) boom in forex transactions suggests growing usage, especially in hubs like Hong Kong, London, New York and Paris; (iv) more offshore investment products are denominated in yuan; and (v) Hong Kong today lists ETFS, gold futures and property investment trusts in addition to Chinese equity. China’s advances are global: it has a vast global trade and investment network; Chinese FDI is mainly in yuan; it settles 15% of its foreign trade in yuan. Today, more globally yuan payments are processed by banks.

One-fifth of European trade with China is settled in yuan, as is 55% of payments among them. Since 2018, yuan-denominated oil futures were launched in Shanghai, as are margin deposits on iron ore futures in Dalian. China’s commodity exchange is emerging. Most of all, central banks are warming up to the yuan – since inclusion in IMF’S SDR (a basket of five elite currencies), its share of global reserves has risen to 2.1%;

China has already signed currency swap arrangements with over 60 nations. Today, the “yuan bloc” accounts for 30% of global GDP – second only to US dollar (at 40%). China opened up its US$13 trillion bond market (world’s second largest), which accounts for 51% of all bonds issued by EMES.

Foreigners now hold 3% of this market and 9% of its government bonds. Its main attraction: good yields and diversification benefits. Further, the yuan has been among the most stable currencies in the world since mid-2016. Its real effective exchange rate – against the basket of currencies of its trading partners, adjusted for inflation – has risen by just 0.2% over the past four years. The yuan’s stability is partly by design, and by good luck; backed by foreign exchange reserves held steady at US$3.1 trillion since mid-2016.

New initiatives

US geopolitical rivals’ desire to escape the dollar dominance is real. In designing its new e-yuan, China wants a head start on the dollar; it is reported to be considering creating a common cryptocurrency with other BRICS nations (Brazil, Russia, India and South Africa). Similarly, on its part, EU is determined to encourage its members to eliminate “undue reference” to US dollars in payments and trade invoicing.

EU’S main initiative has involved Iran. It tried to create a way for its banks and firms to trade with it through Instex (a clearing house created for this purpose by Britain, France and Germany, with European Commission’s support) by-passing US dollars or SWIFT.

The stuttering performance of Instex reflects the sheer scope of the dollar reach: US claims jurisdiction if a transaction has any American “nexus,” even though not denominated in dollars. Despite this, more EU states are determined to join Instex. It’s EU’S intention to expand its financial reach – through a network of global electronic central bank digital monies that serves as a global invoicing currency, excluding US dollars. Also, its capital market needs greater depth and liquidity, key factors in choosing a currency for commerce. As Trump continues to use sanctions aggressively, efforts to circumvent them will accelerate. The reality is that US does not have a monopoly on financial ingenuity.

What then are we to do

There’s no question the world urgently needs a multinational currency reserve regime. The dollar is being weaponised to bully. This won’t do. Nations, including US allies, are looking for and working on an effective but viable and sustainable option. This will take time. The search is still very much work-in-progress. Euro and e-yuan look promising. But they have a way to go. Like it or not, any e-currency has to be central bank-backed to be credible, and where the public can readily access it.

Still, central banks face hurdles in offering dedicated digital currencies and related accounts to the public. Understandably, many central banks have been hesitant in creating digital currencies. As I see it, they remain worried on how to monitor transactions to prevent fraud and hacking, and whether digital currencies should be linked to interest rates. It’s a responsibility, I think, central banks really don’t want to take-up.

By Lin See Yan, Kuala Lumpur, June 22, 2020

Former banker, Harvard educated economist and British chartered scientist, Prof Lin of Sunway University is the author of “Trying Troubled Times Amid Trauma &Tumult, 2017–2019” (Pearson, 2019). Feedback is most welcome.

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Tuesday, July 4, 2017

Dollar bulls face perilous start to second half of 2017

Losing streak: The greenback finished the first half of 2017 on a four-month losing streak – the longest such stretch since 2011. – AFP

After the worst start to a year for the greenback since 2006, the end of the first half couldn’t come quick enough for the dwindling ranks of dollar bulls. Yet if history is any guide, it could soon get even worse.

A week that’s certain to get off to a slow start with U.S. markets closed Tuesday will culminate with Friday’s jobs report. The release hasn’t been kind to those wagering on greenback strength. The Bloomberg Dollar Spot Index has slumped in the aftermath of nine of the past ten, despite above consensus reports as recently as February, March and May.

“The dollar has not been responding to positive data surprises, but continues to weaken substantially on negative news,” said Michael Cahill, a strategist at Goldman Sachs. “As long as that persists, the risks are skewed to the downside going into every data release.”

The greenback finished the first half on a four month losing streak -- the longest such stretch since 2011 -- wiping out its post-election gain. The currency’s 6.6 percent decline in the six months through June were the worst half for the dollar since the back end of 2010. Unraveling optimism around the Trump administration’s ability to boost fiscal growth has outweighed Fed policy or positive data, according to Alvise Marino, a strategist at Credit Suisse.

“What’s happening on the monetary policy front is not as important,” said Marino. “It’s more about the dollar remaining weighed down by the unwinding of financial expectations.”

The sudden hawkish tilt by global central banks hasn’t helped. The dollar weakened more than 2 percent against the euro, pound and Canadian loonie last week as officials signaled a bias toward tightening monetary policy.

Yet there are reasons for optimism, according to JPMorgan Chase analysts led by John Normand, who recommended staying long the greenback in a June 23 note. A cheap valuation relative to global interest rates, the market underpricing the likelihood of another Fed hike this year, and a still positive growth outlook make for a favorable backdrop to motivate dollar longs in an “overstretched” unwind, the analysts wrote.

Hedge funds and other speculators disagree. They turned bearish on the dollar for the first time since May 2016 last week. Wagers the greenback will decline outnumber bets it’ll strengthen by 30,037 contracts, Commodity Futures Trading Commission data released Friday show.

Source: Bloomberg

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