Biodun.BBC: France24 Financial

Sunday, September 1, 2019

ANALYSIS: Could cryptocurrency dethrone the dollar?

Issued on: 01/09/2019 - 12:56 GMT/ZULU

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London

by Judith Stein and Biodun Iginla, France24 Financial Analysts

Bank of England governor Mark Carney has suggested that a virtual currency, modelled on Facebook's Libra, could one day replace the dollar as king of the foreign exchange market.

The BoE chief aired vague proposals for a so-called "Synthetic Hegemonic Currency" at the recent Jackson Hole Symposium of central bankers.

Here is a brief assessment of why the greenback is losing its lustre and the outlook for Carney's proposed new digital currency, which would be supported by major central banks around the world.

- Why dollar dominance? -

The dollar has been the world's reference currency since the Bretton Woods agreement in 1944, when various key units were fixed to the value of the greenback. It has retained its global supremacy ever since, thanks to the economic and political clout of the United States.

"The dominant currency is always that of the world's biggest political power," noted Philippe Waechter, head of research at Ostrum Asset Management.

The dollar accounted for almost 62 percent of global foreign exchange reserves in the first quarter of 2019, according to the International Monetary Fund.

The European single currency was second with 20.2 percent, while China's yuan comprised only two percent despite the country's rise to the rank of the world's second biggest economy behind the US.

- Why is greenback losing appeal? -

Although the dollar has lost its sparkle owing to globalisation and the changing world economic order, gyrations in the US unit still impact economies elsewhere.

"US developments have significant spillovers onto both the trade performance and the financial conditions of countries even with relatively limited direct exposure to the US economy," Carney said at the recent bankers' meet in Wyoming.

When the greenback appreciates, so do repayments for many emerging nations because their debts tend to be denominated in dollars.

The BoE chief, who steps down in January, added: "In the longer term, we need to change the game."

- Central bank role? -

The public sector, in the form of central banks, could instead provide the best support for a new virtual currency, according to Carney.

"It is an open question whether such a new (cryptocurrency) would be best provided by the public sector, perhaps through a network of central bank digital currencies," he said.

Yet central bankers and world leaders alike remain anxious over the current crop of virtual currencies because they are unregulated.

US President Donald Trump himself has lashed out at Bitcoin and Libra for being "based on thin air" and having no standing or dependability -- unlike the dollar.

Commentators believe Washington is unlikely to allow the greenback to lose its cherished status as the world's premier reserve currency.

"The United States will simply not allow it to happen without a fight. Nobody in its position would," said Rabobank analysts.

- What about Libra? -

The BoE governor meanwhile made explicit references to Libra -- a future cryptocurrency unveiled by social media giant Facebook in June.

Carney avoided all mention of Bitcoin, which is the world's most popular digital unit but has been plagued by volatility.

Libra, which aims to launch in the first half of 2020, will be backed by a basket of currency assets to avoid the wild swings of bitcoin and other cryptocurrencies.

Yet Libra has also attracted the ire of central bankers owing to its origin in the private sector.

"Central banks are a little annoyed by this (Facebook) bid to privatise currency," said Agnes Benassy-Quere, a researcher at the Paris School of Economics.

Whereas Bitcoin is decentralised, Libra will be co-managed by 100 partner firms including Facebook itself.

Friday, May 31, 2019

ANALYSIS: Asia markets fall after Trump announces Mexico tariffs

Date created : 31/05/2019 - 10:41 GMT/ZULU

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Hong Kong

by Xian Wan and Biodun Iginla, France24 Financial Analysts

Asian stocks edged down Friday, despite modest gains on Wall Street overnight, as US President Donald Trump's sudden announcement of tariffs on all Mexican imports saw Tokyo shares drop.

Trump's Twitter announcement of a five percent tariff on all goods from Mexico starting June 10 sent shares in automakers with plants in the North American country falling sharply.

Trump said the duties would gradually increase until "illegal migrants" stop coming into the United States through Mexico.

Mexico's under-secretary for North American affairs called the move "disastrous" and vowed to retaliate.

The announcement saw shares in Japanese automakers plunge in early trade, with Honda dropping 3.75 percent to 2,665 yen, Mazda plummeting 6.25 percent to 1,071.5 yen, Nissan down 3.66 percent to 747.4 yen, and Toyota slipping 2.54 percent to 6,404 yen.

Tokyo's main index fell 0.8 percent, while Hong Kong edged down 0.2 percent. Singapore slipped 0.5 percent and Sydney was down 0.1 percent. Shanghai managed a 0.1 percent gain.

Coming amidst a protracted trade war between the United States and China, the latest tariffs announcement will do little to soothe investors' anxieties.

In recent days China and the US have ramped up their rhetoric, with Beijing accusing Washington of "naked economic terrorism" and Trump dismissing the Asian superpower as "a very weakened nation".

The two sides have not set a date for negotiations to resume in the row that has seen Washington and Beijing slap tit-for-tat tariffs on imports, while Trump's decision to blacklist Chinese telecom giant Huawei earlier this month has added a new dimension to the fractious relationship.

"Markets are getting nervous that we may not see anything constructive on the trade front until the June 28-29th G20 summit, where President Trump and his Chinese counterpart will meet on the sidelines", said OANDA senior market analyst Edward Moya.

"The longer the trade war lasts, the greater the global growth deterioration," he said.

Oil prices fell after a smaller-than-expected drop in US crude supplies, with new data showing US oil production at an all-time high.

"US production appears to be ramping up too quickly to allow inventories to come down much," Moya said.

"Gasoline inventories also posted a strong rise for a second consecutive week, despite the beginning of the summer driving season."

- Key figures around 0300 GMT -

Tokyo - Nikkei 225: DOWN 0.8 percent at 20,780.76 (break)

Hong Kong - Hang Seng: DOWN 0.2 percent at 27,053.87

Shanghai - Composite: DOWN 0.1 percent at 2,903.88

Pound/dollar: DOWN at $1.2611 from $1.2613 at 2100 GMT

Euro/dollar: UP at $1.1134 from $1.1130

Dollar/yen: DOWN at 109.22 yen from 109.61 yen

Oil - Brent Crude: DOWN 59 cents at $66.28 per barrel