Snippings

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we find that, regardless of income, sophisticated individuals profit from reward credit cards at the expense of naive consumers

From DP17733 Who Pays For Your Rewards? Redistribution in the Credit Card Market | CEPR.

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You might remember this November tidbit from Payments Journal, as reported by CNBC:

While competitors like Bank of America enjoy repayment rates at or near record levels, Goldman’s loss rate on credit card loans hit 2.93% in the second quarter. That is the worst among big U.S. card issuers and “well above subprime lenders,” according to a Sept. 6 note from JPMorgan.

From Goldman Sachs: An Expensive Lesson in Credit Cards:

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If you don’t like their money, start your own

Is the future of money a world of more currencies or fewer? After all, there are four currency unions in the world right now — not only the Euro but also the Central African Economic and Monetary Community, the Eastern Caribbean Currency Union  and the West African Economic and Monetary Union — and perhaps more currency unions just around the corner.

There has been talk about a common currency for Gulf states for decades and who knows if this might be revived in the context of digital currency. Meanwhile, Brazil and Argentina are about to start work on a common currency. That’s pretty interesting because it could be the progenitor of what would in fact be the second biggest currency union in the world. At the same time, Russia and Iran are working together on a similar common currency, a “token of the Persian region”, backed by gold to replace the dollar for payments in international trade.

Countries benefit in various ways from belonging to a currency union—a group of countries that share a single currency. Businesses can trade and invest across borders more easily. Member countries gain access to larger markets without facing currency risk. And in some circumstances, currency unions can help support their members when they are hit by external shocks. Such unions usually go hand in hand with deeper economic integration. But does that automatically mean more international trade? It seems so. Research shows that since the end of WWII, currency unions have on average been associated with 40% more trade between member countries. The gain is not spread evenly though: the ‘thin’ relationships between countries who do not trade much with each other benefit the most from currency unions, with little in the way of a boost for more established trading relationships.

So: More trade and more prosperity. But there are also costs to membership: countries relinquish the independence to formulate monetary policy, which can complicate a country’s adjustment to a shock. At the same time, currency union institutions face their own constraints. Currency unions have a responsibility to serve the interests of all of their members; accordingly, changes to policies with a union-wide impact, like monetary policy, are guided by the needs of the union rather than any one single member.

All of this is background to why I was so interested to read that during his first visit to Argentina as Brazil’s new President, Luis Ignacio Lula da Silva, raised the possibility of his country and Argentina pursuing a joint trading currency called the ‘Sur’ (or ‘South’). The stated purpose would be to promote bilateral trade rather than seeking a monetary union such as exists in the EU, and would involve state-backed loans from Brazilian banks active in Argentina and Argentina in turn collateralising this borrowing with commodities such as grains or natural gas. As in the case of the token of the Persian region, the purpose is not to replace fiat currency in domestic circulation. The executive director of the Russian Association of the crypto industry and blockchain, Alexander Brazhnikov says that their gold-backed token will be used as a means of payment in transactions involving international trade.

(Astrakhan is a free-trade zone where Russia has started accepting Iranian merchandise; therefore, the coin would be usable there, for example.)

The Sur is not the only new currency on the drawing board in South America.  Argentina wants to introduce a preferential exchange rate (the “tech dollar”) for freelancers selling their services overseas so that they are not exposed to the local currency, which does not have a history of stability. They already had a “soy dollar” (Argentina is the world’s third-biggest producer of soybeans, behind Brazil and the United States) which meant that farmers could exchange their dollars earned from soybean sales at a preferential rate (as opposed to at the official exchange rate).

People sometimes talk about the dollar being overthrown as the global reserve currency and replaced by, for example, Chinese digital currency.

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Establishing a reputation as an international currency issuer, like the US, is a slow and arduous process (Eichengreen et al. 2017). Throughout modern history, many would-be contenders, like Japan or the euro area, have failed to displace the dominance of the dollar. In his Nobel Prize lecture, Sargent (2012) stressed the importance and difficulty in building a reputation for the newly created US in the 1780s and the newly created euro area in the 2000s. Whether or not the Renminbi will become an international currency is also uncertain. Our model offers a cautionary tale to optimistic views that China might quickly or straightforwardly emerge as an international currency provider.

From Internationalising like China | CEPR.

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This leads me to speculate once again about the direction of travel. Is it possible that it might be despite currency unions, are we on the way to more, not fewer currencies because there will be different digital currencies designed for different purposes? The technologies of cryptocurrency mean that literally anyone can create money. But who will create money that others want to use?  At one level, supranational currency blocs, but within those blocs there will arise local, indeed hyperlocal, currencies to serve specific communities.

In his book “Sapiens — A Brief History of Humankind”, the historian Yuval Noah Harari writes about  the “cognitive revolution” and human beings gaining the ability to communicate information about relationships and therefore reputation (or, as I might simplistically label the basket of concepts linked together here, “identity”). He talks about the ability of the neolithic clan to remember the mutual obligations that bind people together when they can grasp the idea of a future, and how memory does not scale into the settlements of the agricultural revolution, thus necessitating the invention of money. He writes that “When trust depends on anonymous coins and cowrie shells, it corrodes local traditions, intimate relations and human values.”

Trade cannot exist without trust, and it is hard to trust strangers (but easy to trust their money, hence Harari’s comment). As society scales beyond the ability of individuals the local (including the money) is given up to the global. But what if the internet, social media and mobile hones means that we are returning to Harari’s “local traditions, intimate relations and human values” as the basis for trade because we can recreate the clan’s diffuse memory of obligations but at population scale.

If this is true, then it is not implausible to imagine that new forms of money will arise that map more closely to the values of the communities they serve. Those communities will not be limited to people, of course. Much if not most trade will be between machines, between my car and your garage door, between my flying car and your Amazon drone. We might see communities of robots developing their own money to reflect their own values. Will we be allowed to use it? I don’t see anyone in Star Trek using money, but something must be going on in the background to allow my starship to use your scarce crystals for power. I don’t claim to have all, or indeed any, of the answers but I hope that my framing of the questions will help you to think more clearly about an inevitable future of more identities and more monies.

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Traditional finance has remained insulated from crypto contagion thus far, though FHLB lending to crypto-exposed banks threatens to amplify that risk. Home-loan bank advances are superior to all other debt, meaning that in the event of a member bank’s bankruptcy, an FHLB bank would be first in the collection pecking order, even ahead of the Federal Deposit Insurance Corp.

From Crypto Banks Borrow Billions From Home-Loan Banks to Plug Shortfalls – WSJ:

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Argentina wants to introduce a preferential exchange rate for freelance workers selling their services abroad: the “tech dollar” would ensure that they were not exposed to the rapidly devaluing peso.

From How technology is redrawing the boundaries of the firm | The Economist.

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That’s according to “The Instant Payments Transformation Guide,” a 2023 PYMNTS report done in collaboration with ACI Worldwide, which shows that 32.5% retailers are planning to add RTP capabilities to their checkout experience in the near future.

From US Retailers See Real-Time Payments as Crucial | PYMNTS.com.

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China hopes to be the exception. This month, the country adopted expansive rules requiring that manipulated material have the subject’s consent and bear digital signatures or watermarks, and that deepfake service providers offer ways to “refute rumors.”

But China faces the same hurdles that have stymied other efforts to govern deepfakes: The worst abusers of the technology tend to be the hardest to catch, operating anonymously, adapting quickly and sharing their synthetic creations through borderless online platforms. China’s move has also highlighted another reason that few countries have adopted rules: Many people worry that the government could use the rules to curtail free speech.

From As Deepfakes Flourish, Countries Struggle With Response – The New York Times:

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Do banks need several days to settle transactions across borders? Can the cost of remittances be lowered? As the US rolls out FedNow, its instant payments network, and considers a CBDC, what’s next in the world of payments innovation? Join the Atlantic Council’s GeoEconomics Center on Thursday, January 19th, from 10:00 am-11:00 am ET to discuss the next generation of international payments.

2023 is shaping up to be a critical year for innovation in the payment infrastructure, as more than 100 countries around the world are exploring CBDCs, many of which are wholesale cross-border projects. Additionally, traditional payment players are evolving their own platforms to adapt to the rise of blockchain technology.

Josh Lipsky, Senior Director of the GeoEconomics Center will give opening remarks. Ananya Kumar, Associate Director for digital currencies at the GeoEconomics Center, will be joined by Nick Kerigan, Head of Innovation Execution at SWIFT, Federico Grinberg, Economist in Payments, Currencies, and Infrastructures Division, Monetary and Capital Markets Department at the International Monetary Fund, Jesse McWaters, Senior Vice President and Global Head of Regulatory Advocacy at Mastercard and Nasreen Quibria, Senior Director and Head of Cross-Border Policy Engagement at Visa.

From The next generation of international payments: Faster, cheaper, safer? – Atlantic Council.

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Instead, FIS is also under pressure to consider selling parts of its business, maybe even its entire merchant business. “I am seeing some increasing investor demand for the merchant business to be spun out of FIS,” Kumar said. The Bank of America analysts echoed those sentiments.

From Investors press FIS, Fiserv for divestitures | Payments Dive.

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I know this because I was privileged to have Dr. Jion Guong Shen from JD Digits, a subsidiary of JD (China’s largest e-commerce business) on my panel about AI ethics and governance at the Innovate Finance Global Summit (IFGS) last year. I mention this panel because JD Digits, amongst other things, runs face recognition services for farmyard animals including cows and pigs. It turns out that pig face recognition, in particular, is a big business.

There are 700m pigs in China, and the productivity gains that farmers can obtain from ensuring that each pig is fed optimally, that sick pigs are kept away from the herd (and so on) are very significant. Pig farmers in Guangxi province trialling the technology found that it reduced costs and improved welfare outcomes for the pigs themselves. Apparently the face recognition system also goes some way to reigning in the wannabe Napoleons, as Dr. Shen explained that there are some “bully pigs” who try to obtain a disproportionate share of barnyard resources. The system can spot them chowing down when they shouldn’t be and flag for intervention.

From Digital Identity Isn’t Only For People.

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Now, the world’s biggest pest control group is planning to annihilate the pesky rodents by using facial recognition to track their habits.

Rentokil said its surveillance service, which live streams video of the vermin to its “central command centre” for real-time analysis using artificial intelligence, can help decide where and how to hunt the fast-breeding undesirables.

From Rentokil takes on the world’s rat problem with facial recognition | Financial Times.

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