c2c #22: Banks and blockchain, Trade Wars are Class Wars
I’m the author of Cowries to Crypto about the history of money, and the c2c newsletter is my personal take on innovation in finance and capital. In here you will find:
1. Work from the Week: highlights from my day job covering fintech
2. Talk of the Town: internet hot takes on tech and finance
3. c2c: thoughts on innovation and related topics
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1. Work from the Week: stories from DigFin, May 29 to June 4: J.P. Morgan, BNP Paribas, SinoPac
Two global bank behemoths. Two different strategies toward digital finance, notably blockchain. J.P. Morgan out front with its own settlement coin and loud views on tokenization. BNP Paribas warning that banks must follow the regulators, not the other way around.
J.P. Morgan Onyx wants to “liberate the bank account”: Exclusive interview with Naveen Mallela, the bank’s Singapore-based head of all things digital currency.
BNP Paribas’ head of FI services: keep it regulated: Exclusive interview with Bruno Campenon, responsible for servicing banks, brokers and corporates.
SinoPac finds success in Taiwan with integrated app: Don’t overlook this story because it’s a classic example of how the challenges that legacy institutions face isn’t the technology, but the business culture and internal interests.
2. Talk of the Town
Fintech in Asia
A few highlights of cool stuff happening around the region. India!
Thailand!
Back to India!
Indonesia! (GoTo's IPO was a hit, then the share price tanked, then it got early admission to the major Jakarta stock market index so it's trading up again...)
Australia!
India yet again!
Meanwhile, in Europe...
Winter is here
Crypto, VC, and Big Tech are all suffering as the Fed is finally tightening real interest rates. Party's over! We haven't seen the worst but the contours are clear, and many of the figures leading the bullish cheers over the past several years are now facing a different kind of music. I don't have a tweet about Chamanth this week, so we'll just have to keep the king of SPACs in our thoughts. But Cathie Wood of ARKK has been a high-profile believer in Big Tech stocks no matter how high the valuations – while promoting an "active ETF" structure that has been terrible for many of her investors.
Unfortunately the poor performance in public stock markets is making it increasingly difficult for private tech companies to raise new capital. There are always exceptions, usually for good companies. Too many tech models though are based on unrealistic assumptions that leave them unable to ever turn a profit.
Recommended by LinkedIn
This isn't just a Silicon Valley thing.
Fintech is feeling the burn: crypto, buy-now pay-later, zero-commission brokering...
Lex Sokolin's thread points out some of the damage in fintech and suggestions about what startups need to do to survive (hint: two years-plus of cash in the bank is a good start).
Terra's collapse last month sent the crypto world into a tailspin. The worst is probably yet to come. And it's not just about valuations. There are too many fundamental problems and bad tech designs in many of these projects.
3. Weekly c2c: Trade Wars are Class Wars
This week saw another story about non-Western countries seeking currency solutions that wean them from dependence on the U.S. dollar, thereby shielding them America’s weaponization of financial markets. The U.S. and European response to Russia’s invasion of Ukraine has galvanized others to try to avoid Moscow’s fate. Iran, behind this latest effort, is no stranger to punitive U.S. sanctions. Others like India want to ensure they aren’t beholden to Washington.
These events point to real angst about dependency on the dollar, and could, if we squint, set out future infrastructure that could one day come into use. But they are otherwise pointless because dollar primacy has nothing to do with these currency arrangements or political desires.
That is true for the technology aspect of currencies as well. The Chinese eRMB may bring outsiders some useful tools if they settle trade payments with it. But by itself it has no tangible bearing on the demand for dollars and U.S. dollar financial assets. It just means that, should the macro conditions that do determine this change, the eRMB could be positioned to take advantage of that.
For such a change to take place, however, depends on China reconfiguring its economy to put disposable income in the hands of its consumers. On the domestic balance sheet this means a relative decline of spending power by government, including provincial and city authorities, and the mighty state-owned enterprises. It would also require China to make its capital account freely convertible, with foreigners confident that they can always take their money out when they want.
I didn’t come up with this insight by myself. I’ve been following the blogs and tweets of Tsinghua professor Michael Pettis for years. The insight is his. I didn’t understand a lot of it. In 2020 he and co-author Matthew Klein published a book, Trade Wars are Class Wars, that spells out the whys and hows. It is essential reading for anyone trying to make sense of the world economy.
I’m not going to connect all the dots here. (That’s why there’s a book.) But I want to share a few of the book’s arguments that shape the authors’ arguments. These building blocks are valuable ways to look at the world, and help explain things that sometimes confuse me.
That last point is going to be tested by the Russian invasion of Ukraine. For all of the financial sanctions imposed on Russia, its energy and agricultural resources are keeping it afloat. Its invasion is partly about securing the mining and wheat resources of eastern Ukraine. The world’s poorer countries, such as Sri Lanka, now face food and energy shortages due to the blockade of Ukrainian ports.
But you get the idea. Klein and Pettis make arguments that bend conventional wisdom on its head, and from there they make a strong case about why the dollar is the world’s dominant reserve currency – and why the ultimate burden of that “privilege” are American workers.
Anyone interested in understanding the future of money would do well to read this book and understand the bigger picture that impacts currencies and capital flows.
See you next week
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About Jame
Jame DiBiasio is a book author, financial journalist, media entrepreneur, and a speaker/moderator. In 2015 he launched DigFin, an online media covering digital finance that is now driving the digital arm of Hong Kong-based financial group AMTD. Jame is also a member of the board of the Hong Kong Fintech Association.
He is author of “Block Kong” (co-authored with Charles D’Haussy) profiling 21 blockchain entrepreneurs in Hong Kong; and “Cowries to Crypto: The History of Money, Currency and Wealth”. He is currently working on a book about the venture capital industry.
Jame has also written books about Asian history, including “Who Killed the King of Bagan?” and “The Story of Angkor”. He writes thrillers too. You can find all of Jame’s published books on Amazon.
Advisor to corporate boards and C-suites at the point they realise they need a more solid grasp of the complexities of the #1 cause of climate change (yes, it's business energy use). Decarbonisation veteran (30 years).
2yThanks for bringing 'Trade Wars are Class Wars' to my attention, Jame. I've ordered a copy. Authors who can "make arguments that bend conventional wisdom on its head" are to be treasured. (As opposed to those who pander to the 5% echo chamber at either end of any topic's spectrum .)