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Weekly Digest: Bhutan’s Foray Into Crypto, EU Inflation

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30 Sep 2021

30/09/21: Bhutan is having a crypto revolution, Lagarde warns against overreacting to temporary inflation spike, U.S. senator called Powell a “dangerous man.” And more.

Investment news

The silver price fell over 4% on Wednesday, and gold dropped to a six-week low, hit by a stronger U.S. dollar, a stalemate in the U.S. Congress over debt default as well as growing expectations that the Fed could start dialing back its stimulus measures.

However, analysts estimate that, as they develop, these situations could end up proving bullish for both silver and gold.

What is the Fed’s strategy? In short, medium and long-term path for the Fed policy remains unclear, strategists say.

“We continue to think the Fed will announce plans to taper in November with the actual reduction in bond purchases taking place in December,” Lawrence Gillum, fixed income strategist for LPL Financial, said as quoted by CNBC.

But the future make-up of the Fed committee and whether Jerome Powell is reappointed or not will likely have a significant impact on the central bank’s future of monetary policy.

Powell’s term ends early next year, and it’s up to President Joe Biden to make the choice. Powell is backed by several moderate Democrats and many Republicans, but there are two particularly loud voices — that of Treasury secretary Janet Yellen, and Massachusetts Senator Elizabeth Warren. (Bloomberg, Politico)

While Yellen backs the reappointment of Powell, Warren called him a “dangerous man” because of the financial regulations that have been loosened during his term.

“Your record gives me grave concern. Over and over, you have acted to make our banking system less safe, and that makes you a dangerous man to head up the Fed. And it’s why I will oppose your renomination,” Warren told Powell while he was testifying before the Senate Banking Committee.

Ahead of another interest payment deadline, indebted Chinese property giant Evergrande announced it will be selling off a $1.5 billion stake in Shengjing Bank to a state-owned asset management company. (CNBC, Reuters)

Evergrande, which is buckling under the weight of more than $300 billion debt, has been struggling to raise funds and is therefore making ongoing efforts to sell off stakes in other assets. The property company already missed one key $83.5 million coupon payment last week.

Will the Chinese government bail out Evergrande?

In short, it’s unlikely that the government will intervene directly to resolve the crisis, according to six people, including four in government and regulatory bodies.

But Beijing is allegedly prodding government-owned firms and state-backed property developers to buy some of Evergrande’s assets, hoping that this could help avert any social unrest that could occur if Evergrande was to suffer a messy collapse.

ECB President Christine Lagarde stuck to the bank’s official view that inflation will ease back below 2% next year but also seemed to acknowledge growing concerns that higher price growth might be here to stay, at least for some time. (Reuters)

“While inflation could prove weaker than foreseen if economic activity were to be affected by a renewed tightening of restrictions, there are some factors that could lead to stronger price pressures than are currently expected," Lagarde told lawmakers at the European Parliament.

"But we are seeing limited signs of this risk so far, which means that our baseline scenario continues to foresee inflation remaining below our target over the medium term," she added.

Goldman Sachs has cut its forecasts for China’s economic growth in 2021 as the world’s second-largest economy faces “yet another growth shock” due to constraints on energy consumption. (CNBC)

Goldman now expects China’s GDP to grow 7.8% in 2021 — that’s lower than its previous forecast for an 8.2% year-on-year growth.

The power crunch comes on top of other economic risks that China is now facing, including a slowdown in property sales and construction activity amid the Evergrande debt crisis.

Last September, President Xi Jinping announced that China is aiming to become carbon neutral by 2060, kicking off national and local plans to reduce production of coal and other carbon-heavy processes.

From butter to blockchain: Bhutan teamed up with San Francisco-based Ripple to create a paperless version of its national currency, ngultrum. The pilot includes an open-source ledger that is claimed to be carbon-neutral. (Bloomberg)

Unlike El Salvador, which chose to use Bitcoin as money alongside U.S. dollars, Bhutan wants to retain its national money, but in the form of electronic cash that can be spent or saved without requiring a commercial bank in the middle.

The goal is to achieve 85% financial inclusion by 2023. This is bearing in mind that Bhutan has a population of less than one million, with only 67% of adult Bhutanese currently having bank accounts.

Up until 1950s, people in Bhutan were paying for stuff with all sorts of things — butter, cheese, meat and wool, so the concept of paper money is pretty new in the small landlocked country.

Will going digital make Bhutan’s mostly Buddhist society even happier? Time will tell.

Opinion

Popping China’s housing bubble: the crisis in China’s real estate sector has much wider consequences than the inevitable restructuring of Evergrande, writes economic historian Niall Ferguson. (Bloomberg)

“Other developers are under pressure … Housing sales are down. So are land sales by local governments. Exposed banks are under pressure, as are the steel producers and iron-ore exporters who for so long grew rich on Chinese construction. And, as falling apartment prices reduce household wealth … we can expect a significant impact on consumption,” he said.

The August data already showed a decline in year-on-year retail sales growth from 8.5% in July to 2.5%, partly reflecting the effects of anti-Covid restrictions. The slowdown is likely to persist through September and October, according to Ferguson.

What else is happening

Germany's left-leaning Social Democratic Party has won the most seats in the country's federal election, according to preliminary results, but it will be some time before the composition of the new government is known. (Spiegel)

The SPD won 25.7% of the vote, followed by the CDU/CSU bloc which got 24.1%, and the Green Party with 14.8% of votes, after a count of all 299 of Germany's electoral districts.

🤖 Amazon.com Inc. on Tuesday revealed a home robot called Astro, a screen on wheels that works with the company’s Alexa voice software. The robot, which can autonomously patrol the home and respond to voice commands, will cost $1,000. (Bloomberg)

“Customers don’t just want Alexa on wheels. We’ve embodied it with a unique persona that’s all its own,” said Dave Limp, Amazon’s devices and services chief.

Astro is capable of traveling about a meter per second and includes a periscope to expand its field of view.

And finally…

🌊 Last month, two lucky men snorkeling off Spain’s Mediterranean coast found a stash of Roman coins that turned out to be one of the largest of its kind ever discovered in Europe. (Smithsonian Magazine)

The gold coins date back to between the fourth and fifth centuries C.E. “It’s incredible. It’s every child’s dream to find a treasure”.

See you next week!

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