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Central Bank Digital Currencies and Their Role in the Financial System

Central Bank Digital Currencies and Their Role in the Financial System

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4 years ago

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What are CBDCs and the risks they possess, and how might they reshape our economies?

Central bank digital currencies are a digital representation of a country’s fiat currency. They are effectively a government-issued cryptocurrency designed to replace the traditional, physical form of fiat currencies.

The term CBDC is broad because its implementation involves several critical decisions on the part of an issuing central bank. The primary decision is whether a CBDC should be a general-purpose in that it’s available to be used by the general population. If not, then the issuing authority may decide to make it available for “wholesale” transactions, which means the CBDC is only used for settlements between banks. Finally, a CBDC could also only be used among central banks.

In its research paper covering CBDCs in-depth, the Bank for International Settlements, or BIS, defines these categories using a Venn diagram called the “money flower,” shown below. The gray area represents various types of CBDCs, while Bitcoin (BTC) and other cryptocurrencies are deemed to be private digital tokens.

The money flower: A taxonomy of money

What’s the background of CBDCs?

According to the BIS, the idea of CBDCs has been around for many years, predating Bitcoin by over two decades. However, the concept has gained prominence over recent years. This has been mainly due to advances in the fintech arena, including developments in blockchain technology, allowing the issuance of digital tokens that represent a store of value. 

Furthermore, the move toward CBDCs supports the general trend of a more cashless society. In countries such as South Korea, China and Sweden, cash is well on its way to becoming a redundant means of payment.

What are the benefits of CBDCs?

CBDCs offer many comparable benefits to cryptocurrencies, such as Bitcoin. Hours of operation for banks limit the availability of transactions, whereas CBDCs could be available to transact on a 24/7 basis. Banks could decrease their reliance on clearinghouses, which would save costs.

Like cryptocurrencies, CBDCs could be available to anyone who has a smartphone, helping to improve financial inclusion, particularly to people in rural areas without access to physical banking infrastructure such as ATMs. Countries such as Kenya have already seen an improvement in financial inclusion due to the popularity of M-Pesa, a cashless payment app based on SMS.

There are other benefits in using CBDCs beyond the general advantages of digital currencies. Central banks spend money to print money, with the average cost of minting a one-dollar bill racking up around $0.077 per note. Digital currencies are cheap or sometimes even free to produce once the underlying code is there.

Central banks could also implement monetary policy directly using a CBDC. This may mean paying interest on the token itself rather than on bank deposits. 

Finally, governments could find it easier to distribute cash to citizens, using CBDCs. For example, COVID-19 led to a crisis that prompted the United States government to issue Economic Impact Payments in the form of checks and debit cards, which are prone to theft and fraudulent use. With a CBDC, the government could issue relief funds directly.

What are the risks of CBDCs?

Along with various benefits, CBDCs also come with some considerable risks on the part of central banks, governments and individual citizens.

Perhaps the biggest risk is cybersecurity. China’s efforts in testing a CBDC have already been hijacked by scammers, which is alarming because the full version hasn’t been officially launched yet. The risks of a network attack or creating new loopholes for fraud or money laundering are a real concern for any central bank looking to launch a CBDC. 

On the flip side of this risk is privacy. The greater visibility a government has into who is using a CBDC, the more the cybersecurity risks can be reduced. However, if citizens believe that using a CBDC may mean the government could overstep the boundaries of privacy rights, it may not gain adoption.

Finally, while governments could use a CBDC to implement monetary policy, the new possibilities that this opens could also create some degree of risk. For example, using a CBDC to charge negative interest rates in a time of crisis could fundamentally change economic paradigms, making it too costly for citizens to store their wealth in the new digital cash.

Which central banks are close to issuing their own digital currencies?

Although many central banks use some form of digital money as reserves or settlement account balance, no central bank has yet issued any general CBDC. However, several banks are already in various stages of research and development, including the five major currencies of the world — the U.S. dollar, the euro, the Japanese yen, the British pound and the Chinese yuan.

In May, a U.S. thinktank published a white paper outlining the aims of the “digital dollar.” Since then, events have been making significant headway. 

The most recent news from Japan is that the central bank has appointed its leading economist to head up a team researching a yen-based CBDC, while the Bank of England has appointed Accenture for its own CBDC development. Meanwhile, the European Central Bank appears to be leaning toward a retail CBDC, and given the fact it would operate across 19 countries, this makes it the biggest project at the moment. 

However, China has been undoubtedly leading the pack, having hit several headlines for months with plans for its CBDC launch. The latest is that the government is planning to target the financial dominance of domestic payment firms, Alibaba and Tencent.

The Philippines has also confirmed that it has been looking into issuing its own digital currency, while Thailand is already in the test phase.

How the U.S. government is applying a new view of crypto, and how new bills are laying the groundwork

In late July, the U.S. Office of the Comptroller of the Currency issued a memo giving the green light to all federally charted banks to offer cryptocurrency custodial services. This effectively allows hundreds of OCC-member banks to integrate crypto services. The Federal Deposit Insurance Corporation insurance for crypto holdings is also now within the realms of possibility.

Banks now only need to implement the necessary software, hardware and security policies to be ready to start processing cryptocurrencies, which could also include a CBDC.

A week after the memo, Brian Brooks, the acting comptroller of the currency, vocalized his support for a blockchain-based CBDC as an upgrade to the current U.S. banking system. Most recently, Federal Reserve Governor Lael Brainard confirmed that the Boston Federal Reserve Bank will work with the Massachusetts Institute of Technology on CBDC research.

The COVID-19 relief effort is acting as a catalyst for the introduction of “digital dollars” as referenced in the Automatic Boost to Communities Act introduced by the U.S. Congress. This came after the introduction of a bill in March dubbed the Cryptocurrency Act 2020, which attempts to clarify the responsibility for regulating digital assets by federal agencies.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Marshall Hayner is the CEO and co-founder of Metal (MetalPay, Proton and MetalX). Marshall is an expert in the regulatory aspects of cryptocurrencies and was recently among the founding members of a cryptocurrency bill that was presented to Congress. In addition, Marshall started the first Facebook-integrated Bitcoin wallet called QuickCoin in 2014, but he has worked on numerous digital currency projects including Dogecoin, Stellar, Block.io, ChangeTip and the Bitcoin Fair.

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You can strike gold and silver investment opportunities at Costco

Costco (NDAQ:COST), known for its wide array of products, also offers a distinct opportunity for investors: gold and silver.
The post You can strike gold…

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56 mins ago

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March 18, 2024

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Costco known for its wide array of products ranging from groceries to electronics and sporting goods, also offers a distinct opportunity for investors: precious metals Costco began selling 1-ounce 24-karat gold bars, in the United States in October 2023 and sold more than US$100 million by November Investors are looking for inflation-proof opportunities and as Stockhouse’s recent Thematic Insights report details, the gold supply has remained essentially flat over time, so it is never diluted Costco Wholesale Corp. stock last traded at US$725.63 on the NASDAQ and C$34.01 per share on the NEO Exchange

With gold prices hovering around all-time highs, one of the top warehouse retailers and Canada’s favourite grocer has brought the precious metal to its consumers.

Costco (NDAQ:COST), known for its wide array of products ranging from groceries to electronics and sporting goods, also offers a distinct opportunity for investors: precious metals. While the retail giant might not be the first place that comes to mind when thinking about gold and silver investments, Costco’s offerings in Canada have caught the attention of savvy investors looking to diversify their portfolios.

Let’s delve into what Costco Canada has to offer in terms of gold and silver investments and explore the potential benefits and considerations.

Gold and silver bullion at Costco

Costco began selling 1-ounce 24-karat gold bars, in the United States in October 2023 priced around US$2,000 and sold more than US$100 million by November.

Observing Costco shoppers can provide interesting economic and cultural indicators. Just like the early days of COVID-19 in 2020 when consumers emptied pallets of toilet paper, the supplies of gold and silver at Costco might reveal how confident the public is in Canadian currency and the economy.

Costco Canada stocks a selection of gold and silver bullion available online at Costco.ca, providing investors with the opportunity to add physical precious metals to their investment portfolios. Gold and silver bullion are typically offered in the form of bars or coins, each carrying intrinsic value based on the metal content.

(Source: Costco.ca) Benefits of investing in gold and silver Portfolio diversification: Gold and silver have historically served as a hedge against inflation and economic uncertainty. By adding precious metals to their portfolios, investors can diversify risk and potentially protect their wealth during times of market volatility. Tangible assets: Unlike stocks or bonds, which exist only as digital entries or paper certificates, gold and silver bullion offer investors tangible assets they can hold in their hands. This physical presence can provide a sense of security and stability, especially during turbulent economic times. Liquidity: Gold and silver are globally recognized as valuable commodities, making them liquid assets. Investors can easily buy and sell gold and silver bullion in various markets around the world, providing flexibility and accessibility. Store of value: Throughout history, gold and silver have maintained their value over the long term. While fiat currencies may depreciate because of factors such as inflation, political instability or economic crises, precious metals have proven to retain their purchasing power over time. Considerations when investing in precious metals Price volatility: Like any investment, the prices of gold and silver can fluctuate based on supply and demand dynamics, geopolitical events, and macroeconomic factors. Investors should be prepared for price volatility and hold a long-term perspective. Storage and security: Owning physical precious metals requires adequate storage and security measures to protect against theft or damage. Investors might opt for secure vault storage services or invest in home safes to safeguard their bullion. Transaction costs: When buying and selling gold and silver bullion, investors might incur transaction costs such as premiums, commissions or storage fees. It’s essential to factor these expenses into investment decisions to accurately assess potential returns. Costco also marks up its precious metals at a few hundred dollars above its market value, but you will likely find it slightly cheaper than what the big Canadian banks offer, if their stock isn’t sold out. Market timing: Timing the market is notoriously difficult, and attempting to predict short-term price movements in gold and silver can be challenging. Instead, focus on the long-term fundamentals and consider dollar-cost averaging as a strategy to mitigate market timing risk. Why buy gold and silver at Costco?

Already up more than 5 per cent since the beginning of the year, the value of gold is expected to continue to climb this year. Earlier this month it hit record highs above $2,181/oz. as speculation rises around the prospects of June interest rate cuts.

… but is it a good investment?

In an interview with CBC Radio’s The Current, Will Huggins, an associate professor of finance and economics at McMaster University’s DeGroote School of Business called this a good marketing strategy by Costco, but believed that buying gold from Costco doesn’t offer any advantage compared with the big Canadian banks.

“It’s not like a herd of cattle or some land or a corporate entity that we can keep bringing new people into,” he said. “It’s just a yellow rock.”

(Source: Costco Wholesale Corp.) Final thoughts on buying gold and silver

Costco Canada’s offering of gold and silver bullion presents an intriguing opportunity for investors seeking to diversify their portfolios with tangible assets.

Investors are looking for inflation-proof opportunities and as Stockhouse’s recent Thematic Insights report details, the gold supply has remained essentially flat over time, so it is never diluted and is essentially immune to inflation.

Whether you’re a seasoned investor looking to bolster your portfolio’s resilience or a newcomer exploring alternative investment avenues, the availability of gold and silver bullion at Costco Canada may offer a convenient and accessible option to incorporate precious metals into your investment strategy.

While investing in precious metals carries certain benefits and considerations, it is important for investors to conduct due diligence, assess their risk tolerance, and consult with financial professionals before making investment decisions. As with any investment, prudent decision-making and a long-term perspective are key to navigating the complexities of the financial markets.

Costco Wholesale Corp. (NDAQ:COST) stock last traded at US$725.63 on the NASDAQ and C$34.01 per share on the NEO Exchange.

Join the discussion: Find out what everybody’s saying about this stock on the Costco Wholesale Corp. Bullboard, and check out the rest of Stockhouse’s stock forums and message boards.

The material provided in this article is for information only and should not be treated as investment advice. For full disclaimer information, please click here.

The post You can strike gold and silver investment opportunities at Costco appeared first on The Market Online Canada.

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Supreme Court Rules Public Officials May Block Their Constituents On Social Media

Supreme Court Rules Public Officials May Block Their Constituents On Social Media

Authored by Matthew Vadum via The Epoch Times (emphasis…

Published

6 hours ago

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March 17, 2024

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Supreme Court Rules Public Officials May Block Their Constituents On Social Media

Authored by Matthew Vadum via The Epoch Times (emphasis ours),

Public officials may block people on social media in certain situations, the Supreme Court ruled unanimously on March 15.

People leave the U.S. Supreme Court in Washington on Feb. 21, 2024. (Kevin Dietsch/Getty Images)

At the same time, the court held that public officials who post about topics pertaining to their work on their personal social media accounts are acting on behalf of the government. But such officials can be found liable for violating the First Amendment only when they have been properly authorized by the government to communicate on its behalf.

The case is important because nowadays public officials routinely reach out to voters through social media on the same pages where they discuss personal matters unrelated to government business.

“When a government official posts about job-related topics on social media, it can be difficult to tell whether the speech is official or private,” Justice Amy Coney Barrett wrote for the nation’s highest court.

The case is separate from but brings to mind a lawsuit that several individuals previously filed against former President Donald Trump after he blocked them from accessing his social media account on Twitter, which was later renamed X. The Supreme Court dismissed that case, Biden v. Knight First Amendment Institute, in April 2021 as moot because President Trump had already left office.

At the time of the ruling, the then-Twitter had banned President Trump. When Elon Musk took over the company he reversed that policy.

The new decision in Lindke v. Freed was written by Justice Amy Coney Barrett.

Respondent James Freed, the city manager of Port Huron, Michigan, used a public Facebook account to communicate with his constituents. Petitioner Kevin Lindke, a resident of Port Huron, criticized the municipality’s response to the COVID-19 pandemic, including accusations of hypocrisy by local officials.

Mr. Freed blocked Mr. Lindke and others and removed their comments, according to Mr. Lindke’s petition.

The U.S. Court of Appeals for the 6th Circuit ruled for Mr. Freed, finding that he was acting only in a personal capacity and that his activities did not constitute governmental action.

Mr. Freed’s attorney, Victoria Ferres, said during oral arguments before the Supreme Court on Oct. 31, 2023, that her client didn’t give up his rights when using social media.

“This country’s 21 million government employees should have the right to talk publicly about their jobs on personal social media accounts like their private-sector counterparts.”

The position advocated by the other side would unfairly punish government officials, and “will result in uncertainty and self-censorship for this country’s government employees despite this Court repeatedly finding that government employees do not lose their rights merely by virtue of public employment,” she said.

In Lindke v. Freed, the Supreme Court found that a public official who prevents a person from comments on the official’s social media pages engages in governmental action under Section 1983 only if the official had “actual authority” to speak on the government’s behalf on a specific matter and if the official claimed to exercise that authority when speaking in the relevant social media posts.

Section 1983 refers to Title 42, U.S. Code, Section 1983, which allows people to sue government actors for deprivation of civil rights.

Justice Barrett wrote that according to the so-called state action doctrine, the test for “actual authority” must be “rooted in written law or longstanding custom to speak for the State.”

“That authority must extend to speech of the sort that caused the alleged rights deprivation. If the plaintiff cannot make this threshold showing of authority, he cannot establish state action.”

“For social-media activity to constitute state action, an official must not only have state authority—he must also purport to use it,” the justice continued.

“State officials have a choice about the capacity in which they choose to speak.”

Citing previous precedent, Justice Barrett wrote that generally a public employee claiming to speak on behalf of the government acts with state authority when he speaks “in his official capacity or” when he uses his speech to carry out “his responsibilities pursuant to state law.”

“If the public employee does not use his speech in furtherance of his official responsibilities, he is speaking in his own voice.”

The Supreme Court remanded the case to the 6th Circuit with instructions to vacate its judgment and ordered it to conduct “further proceedings consistent with this opinion.”

Also on March 15, the Supreme Court ruled on O’Connor-Ratcliff v. Garnier, a related case. The court’s sparse, unanimous opinion was unsigned.

Petitioners Michelle O’Connor-Ratcliff and T.J. Zane were two elected members of the Poway Unified School District Board of Trustees in California who used their personal Facebook and Twitter accounts to communicate with the public.

Respondents Christopher Garnier and Kimberly Garnier, parents of local students, “spammed Petitioners’ posts and tweets with repetitive comments and replies” so the school board members blocked the respondents from the accounts, according to the petition filed by Ms. O’Connor-Ratcliff and Mr. Zane.

But the Garniers said they were acting in good faith.

“The Garniers left comments exposing financial mismanagement by the former superintendent as well as incidents of racism,” the couple said in a brief.

The U.S. Court of Appeals for the 9th Circuit found in favor of the Garniers, holding that elected officials using social media accounts were participating in a public forum.

The Supreme Court ruled in a three-page opinion that because the 9th Circuit deviated from the standard the high court articulated in Lindke v. Freed, the 9th Circuit’s decision must be vacated.

The case was remanded to the 9th Circuit “for further proceedings consistent with our opinion” in the Lindke case, the Supreme Court stated.

Tyler Durden Sun, 03/17/2024 - 22:10

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Home buyers must now navigate higher mortgage rates and prices

Rates under 4% came and went during the Covid pandemic, but home prices soared. Here’s what buyers and sellers face as the housing season ramps up.

Published

7 hours ago

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March 17, 2024

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Springtime is spreading across the country. You can see it as daffodil, camellia, tulip and other blossoms start to emerge. 

You can also see it in the increasing number of for sale signs popping up in front of homes, along with the painting, gardening and general sprucing up as buyers get ready to sell. 

Which leads to two questions: 

  • How is the real estate market this spring? 
  • Where are mortgage rates? 

What buyers and sellers face

The housing market is bedeviled with supply shortages, high prices and slow sales.

Mortgage rates are still high and may limit what a buyer can offer and a seller can expect.  

Related: Analyst warns that a TikTok ban could lead to major trouble for Apple, Big Tech

And there's a factor not expected that may affect the sales process. Fixed commission rates on home sales are going away in July.

Reports this week and in a week will make the situation clearer for buyers and sellers. 

The reports are:

  • Housing starts from the U.S. Commerce Department due Tuesday. The consensus estimate is for a seasonally adjusted rate of about 1.4 million homes. These would include apartments, both rentals and condominiums. 
  • Existing home sales, due Thursday from the National Association of Realtors. The consensus estimate is for a seasonally adjusted sales rate of about 4 million homes. In 2023, some 4.1 million homes were sold, the worst sales rate since 1995. 
  • New-home sales and prices, due Monday from the Commerce Department. Analysts are expecting a sales rate of 661,000 homes (including condos), up 1.5% from a year ago.

Here is what buyers and sellers need to know about the situation. 

Mortgage rates will stay above 5% 

That's what most analysts believe. Right now, the rate on a 30-year mortgage is between 6.7% and 7%. 

Rates peaked at 8% in October after the Federal Reserve signaled it was done raising interest rates.

The Freddie Mac Primary Mortgage Market Survey of March 14 was at 6.74%. 

Freddie Mac buys mortgages from lenders and sells securities to investors. The effect is to replenish lenders' cash levels to make more loans. 

A hotter-than-expected Producer Price Index released that day has pushed quotes to 7% or higher, according to data from Mortgage News Daily, which tracks mortgage markets.

Home buyers must navigate higher mortgage rates and prices this spring.

TheStreet

On a median-priced home (price: $380,000) and a 20% down payment, that means a principal and interest rate payment of $2,022. The payment  does not include taxes and insurance.

Last fall when the 30-year rate hit 8%, the payment would have been $2,230. 

In 2021, the average rate was 2.96%, which translated into a payment of $1,275. 

Short of a depression, that's a rate that won't happen in most of our lifetimes. 

Most economists believe current rates will fall to around 6.3% by the end of the year, maybe lower, depending on how many times the Federal Reserve cuts rates this year. 

If 6%, the payment on our median-priced home is $1,823.

But under 5%, absent a nasty recession, fuhgettaboutit.

Supply will be tight, keeping prices up

Two factors are affecting the supply of homes for sale in just about every market.

First: Homeowners who had been able to land a mortgage at 2.96% are very reluctant to sell because they would then have to find a home they could afford with, probably, a higher-cost mortgage.

More economic news:

Second, the combination of high prices and high mortgage rates are freezing out thousands of potential buyers, especially those looking for homes in lower price ranges.

Indeed, The Wall Street Journal noted that online brokerage Redfin said only about 20% of homes for sale in February were affordable for the typical household.

And here mortgage rates can play one last nasty trick. If rates fall, that means a buyer can afford to pay more. Sellers and their real-estate agents know this too, and may ask for a higher price. 

Covid's last laugh: An inflation surge

Mortgage rates jumped to 8% or higher because since 2022 the Federal Reserve has been fighting to knock inflation down to 2% a year. Raising interest rates was the ammunition to battle rising prices.

In June 2022, the consumer price index was 9.1% higher than a year earlier. 

The causes of the worst inflation since the 1970s were: 

  • Covid-19 pandemic, which caused the global economy to shut down in 2020. When Covid ebbed and people got back to living their lives, getting global supply chains back to normal operation proved difficult. 
  • Oil prices jumped to record levels because of the recovery from the pandemic recovery and Russia's invasion of Ukraine.

What the changes in commissions means

The long-standing practice of paying real-estate agents will be retired this summer, after the National Association of Realtors settled a long and bitter legal fight.

No longer will the seller necessarily pay 6% of the sale price to split between buyer and seller agents.

Both sellers and buyers will have to negotiate separately the services agents have charged for 100 years or more. These include pre-screening properties, writing sales contracts, and the like. The change will continue a trend of adding costs and complications to the process of buying or selling a home.

Already, interest rates are a complication. In addition, homeowners insurance has become very pricey, especially in communities vulnerable to hurricanes, tornadoes, and forest fires. Florida homeowners have seen premiums jump more than 102% in the last three years. A policy now costs three times more than the national average.

Related: Veteran fund manager picks favorite stocks for 2024

 

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