February 2023 – Nick Corbishley

UK Citizens Should Take Rishi Sunak’s Pledge Not to Launch Digital ID With a Truckload of Salt

“There are no plans to introduce digital ID. Our position on physical ID cards remains unchanged.”

These were the words of UK Prime Minister Rishi Sunak’s spokesman a couple of days ago. Note the rather unusual use of the word “physical” to describe what is, generally speaking, a non-physical document (digital ID). This has sown all sorts of confusion in a country that is instinctively distrustful of identity cards and where the debate around digital identity is finally seeping into the public arena.

The statement came in response to former Prime Minister Tony Blair’s latest attempt to peddle digital identity, this time alongside former Conservative Party leader William Hague. In a joint letter, the two former politicians said “[e]veryone in Britain should be given a digital ID incorporating their passport, driving licence, tax records, qualifications and right to work,” as the cornerstone of a “technology revolution” in governance.

The digital ID system would be “secure, private [and] decentralised,” yet would also somehow bring together each individual’s data from across all government agencies. “Other countries are forging ahead,” said Hague. For the UK to keep or get ahead, it “has to redesign the state around technology.”

“A Natural Evolution”

While prime minister Blair tried — and ultimately failed — to introduce mandatory physical ID cards. He was also one of the first prominent proponents of digital vaccine passports. As early as June 2020, before any vaccine had reached the market, Blair told the Independent that people would need a form of “digital ID” so they could prove their “disease status” as the world gradually moved out of lockdown. This, he said, is part of a “natural” technological evolution that encompasses more than just COVID-19 vaccines and public health (comment in parenthesis my own).

“It’s a natural evolution of the way that we are going to use technology in any event, to transact daily life (an interesting choice of words given the potential threat the introduction of central bank digital currencies could pose to people’s ability to transact), and this COVID crisis gives an additional reason for doing that.”

A year and a half later, despite the vaccines’ by now undeniable shortcomings, Blair’s position remains the same. During a panel discussion at the latest World Economic Forum meeting in Davos, he said:

In the end, you need the data: you need to know who’s been vaccinated and who hasn’t been. Some of the vaccines that will come down the line, there will be multiple shots. So [for vaccines] you’ve got to have — for reasons to do with healthcare more generally but certainly for pandemics — a proper digital infrastructure and most countries don’t have that.

A couple of weeks ago, Blair’s eponymous foundation, the Tony Blair Institute for Global Change (TBIGC) released a report titled “A New National Purpose: Innovation Can Power the Future of Britain.” The report’s seven authors call for “a fundamental re-ordering of our priorities and the way the state itself functions,” which includes the introduction of an all-encompassing digital ID system:

“A well-designed, decentralised digital-ID system would allow citizens to prove not only who they are, but also their right to live and work in the UK, their age and ownership of a driving licence. It could also accommodate credentials issued by other authorities, such as educational or vocational qualifications. This would make it cheaper, easier and more secure to access a range of goods and services, online and in person. A digital ID could help the government to understand users’ needs and preferences better, improving the design of public services.

Blair’s Global (i.e. Largely US) Partners

Tellingly, the word “privacy” appears only once in the document, which calls into question just how seriously the report’s authors and endorsers take the potential risks and pitfalls posed by the technological platforms they are hawking…

Read the full article on Naked Capitalism

Madrid Has Become a New Miami, Attracting Well-Heeled Latin Americans

Spain’s golden visa program has helped to attract thousands of affluent Latin American politicians and business owners to Madrid, but its days may be numbered, at least in its current form.

Former Mexican President Felipe Calderón Hinojosa has a major problem on his hands. On Tuesday (Feb 21), the man he handpicked to serve as public security minister for the entire duration of his presidency (2006-12), Genaro García Luna, was found guilty by a New York court of taking millions of dollars from Mexico’s biggest crime group, the Sinaloa drug cartel. García Luna is one of the highest-ranking Mexican officials ever to be convicted of having ties to drug trafficking.

Other figures close to Calderon, including Facunda Rosas and Luis Cárdenas Palomino, both senior civil servants during his presidency, have also been arrested in recent months.

Now, the spotlight is on Calderón himself, who insists he had no idea his “super cop,” as he was wont to call García Luna, was involved with the same drug traffickers against whom Calderón declared war in 2007, with devastating consequences for the country. But in the trial against García Luna, one of the key witnesses for the prosecution, Edgar Veytia, a former attorney general and now-convicted drug trafficker, accused both García Luna and his boss, Calderon, of providing protection for Mexico’s apex drug trafficker Joaquín “El Chapo” Guzmán, then leader of the Sinaloa Cartel.

Since that revelation, more than 80% of Mexicans believe Calderón should also be investigated, according to a recent poll by Enkoll.

But Calderón is not in Mexico. He’s in Madrid, where, with a little help from his friend, former Spanish PM José María Aznar (the oft-forgotten third man of the Azores Summit), he qualified for a Premium Visa in October. To be eligible for the visa, Calderón was offered a job at Aznar’s think tank, the Atlantic Institute of Governance. He joined an “academic” board filled with CEOs of some of Spain’s biggest corporations (Repsol, Telefonica, Endesa, Iberdrola, Mapfre…) and an assortment of like-minded neoliberal politicians, current and former, from both sides of the Atlantic, including Aznar himself, Ernesto Zedillo, Guillermo Lasso, and Bill Richardson. Oh, and Peruvian Nobel Laureate Mario Vargas Llosa.

Calderon is not the only former Mexican President to have sought, and been granted, Spanish residency in recent years. Enrique Peña Nieto (2012-2018), who is under investigation for money laundering and illicit enrichment and is embroiled in corruption scandals involving Spanish construction giant OHLA, is also in Madrid. So, too, is Carlos Salinas de Gortari (1988-94), who signed NAFTA and privatised and liberalized much of Mexico’s economy.

The New Miami

Madrid is attracting affluent exiles from across Latin America more than ever before, many of them fleeing from left-leaning governments at home. This is one of the big curses of Latin America: wealthy families and businesses, who in most cases possess a huge chunk of their nations’ wealth, are always quick to move overseas, often taking their money with them, whenever a government of even mild left-wing persuasion comes into power.

For decades, Miami has provided an idyllic haven for Latin America’s rich and well-to-do, as well as a perfect bolthole for the region’s plotters of failed coups. But as the New York Times reported last April, Madrid has begun to give the “Magic City” a run for its money:

[W]ealthy Latin Americans have… begun shifting their money out of countries where voters have recently elected left-wing presidents, including Mexico in 2018, Peru last year and most recently Chile, where Gabriel Boric took office in March as the country’s youngest president. Mr. Boric has pledged to make Chilean society more egalitarian.

The response in Spain seems to have been to roll out the red carpet. When [Antonio Ledezma, a former mayor of Caracas,] arrived in Madrid in November 2017, he was welcomed by the prime minister of Spain at the time, Mariano Rajoy, who immediately offered him Spanish citizenship. Mr. Ledezma turned down the offer, but many other Latin Americans, particularly the rich, are applying for or have received Spanish citizenship. Some received a so-called golden visa that Spain has been granting in return for spending at least 500,000 euros, or about $550,000, on a property.

Some wealthy Latinos are even selling their property in Miami in order to buy one in Madrid. As El País reported in November, recent years have seen “wealthy Venezuelan, Mexican, Colombian and Peruvian businessmen converge on the Spanish capital,” now “the second largest destination for Latin American investment in the world, only behind the US.” Within Spain itself, Madrid receives a whopping 70% of all Latin American investment.

There are a host of reasons why Madrid has become such a magnet for wealthy Latin Americans. It offers personal and legal security; attractive fiscal conditions (though those conditions changes notably in December); relative political and economic stability; a high quality of life; direct flights to and from most Latin American capitals, and a rich cultural offering. As one Argentine told the NYT: “In Madrid, I live near eight theaters, so I can see a different performance every week without taking a single taxi — and this kind of opportunity just doesn’t exist in Miami.”

Rajoy’s government launched the golden visa project back in 2013. At that time, the economy was still on its knees following the sovereign debt crisis and bailout of the banking system. The initiative was ostensibly meant to lure entrepreneurs and international investors to the country, by offering residence to non-EU citizens who make a significant investment in Spain, by buying real estate worth at least €500,000, investing in a company or companies (€1 million), or Spanish debt instruments (€2 million).

Other European countries have offered similar arrangements, but none quite as vigorously as Spain. Between 2013 and 2018 alone, it granted more than 25,000 golden visas to investors and their families, according to a survey by Transparency International and Global Witness, bringing in almost €1 billion in investments per year. Spain accounted for roughly one in four of all golden visas dispensed by EU countries during that time. Since then, the number has continued to mushroom…

Read the full article on Naked Capitalism

Nigerian Central Bank’s “Drive to Entrench” a “Cashless Economy” is Creating a World of Pain for Nigerian Citizens

“Nigeria must go cashless. It is a global policy, checking insecurity and fighting corruption”: Central Bank of Nigeria Governor Godwin Emefiele

Like India in 2016, Nigeria is undergoing the shock therapy of demonetisation. Its central bank is withdrawing high-denomination notes from circulation and replacing them (or at least supposed to be) with newly designed ones. As in India, the result has been unmitigated chaos and economic pain for citizens and businesses.

As in India, the government and central bank have provided a laundry list of reasons for taking such a drastic step, most of which seem, on paper, perfectly laudable. They include combating counterfeiting, bringing more cash into the formal economy (by forcing people to deposit their old notes at the bank), curbing money laundering and terrorism financing, increasing tax revenues and, crucially, preventing vote buying in the upcoming general elections (Feb 25).

But there is another objective at play which, I believe, supersedes all others: shrinking the amount of cash circulating in the country, with a view to accelerating Nigeria’s transition toward a cashless economy. Among its list of reasons for pursuing demonetisation, published in October, the Central Bank of Nigeria (CBN) itself said the redesign of the currency will “help deepen our drive to entrench a cashless economy as it will be complemented by increased minting of our eNaira,” Nigeria’s central bank digital currency (CBDC).

To help nudge transactions online, the central bank has limited cash withdrawals by an individual customer to 500,000 naira ($109) a week, up from a 100,000 limit set on Dec. 6, and 5 million naira ($1,090) for a corporate customer, up from 500,000. It imposed a 3% processing fee on withdrawals above the limit by an individual customer and 5% for companies. But for many Nigerians, the challenge is getting hold of usable cash bills at all.

As the resulting chaos blossoms, central banks from around the world will presumably be watching on and taking notes. According to the Atlantic Council’s CBDC tracker, 114 countries, representing over 95 percent of global GDP, are exploring a CBDC.

“Nigeria Must Go Cashless”

Last week, the CBN Governor Godwin Emefiele said the central bank’s cashless policy was both necessary and part of a global policy, though it is not clear what he meant by the world “global” (as in, relating to the whole world VS. relating to or encompassing the whole of something):

“Nigeria must go cashless. It is a global policy, checking insecurity and fighting corruption.”

The CBN’s “drive to entrench” a cashless economy, or at least a less-cash economy, dates back over a decade, and has so far been a dismal failure. Cash in circulation more than doubled between 2015 and 2022. As an op-ed in Premium Times notes, “there are no data to support the central bank’s claim that Nigeria is a cashless economy,” or even close to becoming one. “An economy in which 83% of your cash in circulation is not sitting in bank vaults cannot be cashless.”

That didn’t stop the CBN from becoming the world’s first central bank of a largish economy to begin issuing a central bank digital currency, or CBDC. In October 2021, it launched the eNaira, with the technical support of the International Monetary Fund. But the CBDC was a gargantuan flop. One year after its launch, just 0.5% of Nigerians had downloaded the eNaira app. Of those, only 8% are actually using the app, according to the IMF’s 2022 staff report. Despite the government’s and central bank’s marketing efforts, most people have preferred to continue using cash.

So what did the central bank do? It doubled down.

In October, it unveiled plans to replace all high-denomination cash bills in the economy. The CBN initially said the old notes would cease to be regarded as legal tender as of Jan 31, 2023. But as that date approached, the deadline was extended to February 10, with a grace period of seven days for old notes to be deposited in banks.

Then, on February 8, as the scale of the potential fallout was becoming clear, the Supreme Court issued an injunction ordering the Nigerian government to delay the cash swap and allow the continued use of old N200, N500 and N1,000 notes. But both President Muhammadu Buhari and the CBN have refused to comply. In a national broadcast last Thursday, Buhari admitted that the new currency policy is causing “difficulties”, but he only approved the continued use of the old N200 notes as legal tender.

Disappearing Half the Cash in Circulation

Nigeria’s central bank has so far done a stellar job of hoovering up the old high-denomination notes, with roughly 80% of the cash previously held in private now deposited with financial institutions, according to Emefiele. But it is not printing nearly enough cash to replenish the money supply. In other words, people are handing in their old money and getting no new money back…

Read the full article on Naked Capitalism

Is Switzerland About to Become First Country to Outlaw a Cashless Society?

As in neighboring Germany and Austria, cash is still king in Switzerland albeit a much diminished one. But the Swiss will soon have the chance to vote on whether to preserve notes and coins indefinitely.

This is a rare positive news story that, perhaps unsurprisingly, has received next to no attention beyond Swiss borders. As far as I can tell, none of the legacy media in the US, UK, France, Germany or Spain have even bothered to cover the story. Indeed, it only registered on my radar a couple of days ago, over a week after the story initially broke, because an acquaintance of mine with family in Switzerland told me about it.

So, here’s the basic thrust of the story: At the beginning of last week, a Swiss pressure group with libertarian leanings called the Swiss Freedom Movement (FBS) announced it had collected enough signatures (111,000) to trigger a national vote on preserving cash for posterity. If passed, the initiative would require the federal government to ensure that coins and banknotes are always available in sufficient quantities. What’s more, any attempt to replace the Swiss Franc with another currency — quite possibly a reference to a central bank digital currency — would also have to be put to popular vote.

From Reuters:

Swiss citizens will get the chance to try to ensure their economy never becomes cashless, a pressure group said, after collecting enough signatures on Monday to trigger a popular vote on the issue.

The Free Switzerland Movement (FBS) says cash is playing a shrinking role in many economies, as electronic payments become the default for transactions in increasingly digitised societies, making it easier for the state to monitor its citizens’ actions.

It wants a clause added to Switzerland’s currency law, which governs how the central bank and government manage the money supply, stipulating that a “sufficient quantity” of banknotes or coins must always remain in circulation…

Under Switzerland’s system of direct democracy, the proposal would become law if approved by voters, though government and parliament would decide how that law was implemented.

FBS says cash is playing a diminishing role in many economies, including Switzerland, as digital payment methods come to the fore, making it easier for the State and central bank to track citizens’ behavior.

“It is clear that… getting rid of cash not only touches on issues of transparency, simplicity or security… but also carries a huge danger of totalitarian surveillance,” FBS president Richard Koller said on the group’s website.

Cash Still King in Switzerland, Albeit a Much Diminished One

As in neighboring Germany and Austria, cash is still king in Switzerland, though its role has shrunk significantly in recent years. According to the findings of the Swiss National Bank’s last survey of people’s spending habits, conducted in the autumn of 2020, 97% of Swiss citizens still keep cash in their wallets or at home to cover day-to-day expenses, which is significantly higher than most countries.

Forty percent of transactions were still being made using cash, which is also higher than many of Switzerland’s more cashless European neighbors, such as the UK (around 15%), Sweden (less than 10%) and Norway (3-4%, the lowest level of cash usage in the world). But that was down from around 70% three years earlier. What’s more, in terms of transaction value, the debit card recently overtook cash as the payment method with the highest share for non-recurring payments.

“The survey results show that, in terms of the number of payments made, cash continues to be the payment instrument most frequently used by the Swiss population,” Fritz Zurbrugge, then-vice-president of the Swiss National Bank’s governing board, said. “Compared with 2017, however, when the first payment methods survey was carried out, its usage share has dropped significantly. The coronavirus pandemic has given additional impetus to this shift from cash to non-cash payment methods”.

As readers are well aware, the pandemic rapidly intensified preexisting forces, mainly due to unfounded fears that cash could exacerbate the spread of COVID. Those fears were stoked and magnified by mainstream media and seized upon by certain retailers (such as the British supermarket Tesco) to justify encouraging all customers to avoid making cash payments. Even today, with most public health measures (at least of the non-pharmaceutical variety) consigned to the back burner, retailers in some countries continue to reject cash…

Read the full article on Naked Capitalism

Shining a Light on Canada’s Much-Ignored Role in Peru’s Internal Conflict

“Canada’s influence on mining is felt in Latin America more than in any other region of the world.” And its second most important market is Peru.

In 2017, BBC World released a report (in Spanish) on the often unsavoury business practices of Canadian mining companies in Latin America. Titled “The Conflicts and Controversies of Canadian Mining in Latin America (Which Clash With the Country’s Progressive Image)”, the article included the following passage (translated by yours truly):

Canada’s influence on mining is felt in Latin America more than in any other region of the world.

More than half of the country’s mining investment abroad is in [the] region, with 80 large projects.

It is perhaps inevitable that, given the number of mining projects, Canada is a lightning rod for criticism directed at mining in general.

But expectations were different when Canadian miners landed in the 1990s.

“Canadian mining came riding a discourse of clean mining and development aid,” Cesar Padilla, spokesman for the Observatory of Mining Conflicts in Latin America (OCMAL), an NGO critical of multinational mining companies, told BBC Mundo. “And ultimately they didn’t keep most of the promises and commitments they made”.

“Some Canadian mining companies have been characterized by large and long conflicts with communities, which bears little relation with the projected image of responsible modern mining…”

Which brings us to the present. And Peru, the world’s second-largest producer of silver, copper and zinc as well as Latin America’s largest producer of gold, lead, boron, indium and selenium. The country has seen its share of large and long conflicts, and is now in the grip of another. And in that conflict Canada is playing an important, albeit largely ignored, role.

Protecting Canadian Investments, At Any Cost

With CAD $9.9 billion in assets, Canadian companies are Peru’s biggest investors in mineral exploration. That’s equivalent to 4.5% of Peru’s GDP. And Canada’s government is determined to not just protect that investment but to expand it.

After meeting Peru’s new mining minister, Óscar Vera Gargurevich, Canada’s Ambassador to Peru (and Bolivia) Louis Marcotte tweeted: With Minister Oscar Vera Gargurevich, we are talking about modern mining investments that benefit the communities and Peru as a whole. Ready to support the Canadian delegation at PDAC [Prospectors and Developers Association of Canada] 2023, the most important mining exploration convention in the world, March 5-8 in Canada.”

Like the US, Canada was quick to recognize Boluarte’s regime. Since mid-December Canada’s Ambassador to Peru (and coincidentally, Bolivia) Louis Marcotte has met not only with Boluarte but also Peru’s foreign minister, vulnerable populations minister and mining minister. As Canadian author and activist Yves Engler notes, it is rare for a Canadian ambassador to have so much contact with top officials of any government:

The diplomatic activity highlights Ottawa’s commitment to consolidating the shaky coup government, which has been rejected by many regional governments and has seen multiple ministers resign. The diplomatic encounters are also an indirect endorsement of Boluarte’s repression. Security forces have shot hundreds and detained many more.

In the case of the US, its ambassador to Peru, Lisa Kenna, a nine-year veteran at the Central Intelligence Agency (CIA) and a former adviser to former US Secretary of State Mike Pompeo, met with Peru’s Defense Minister Gustavo Bobbio Rosas on December 6, just a day day before Castillo’s ouster. The timing of the meeting has stoked suspicions of US involvement in the coup, including from Mexico’s President Andrés Manuel Lopéz Obrador.

This plot has, of course, played out many times before, most recently in Bolivia, where both the US and the Washington-based Organization of American States (OAS) played a major role in ousting Evo Morales. For its part, the Trudeau government made no statement about the state repression unleashed by Jeanine Añez’s coup government despite the mounting evidence of human rights violations. Instead, he agreed to work with Áñez.

As Urooba Jamal documents for the Spanish investigative journalism website, Ctxt, the ties between Canadian miners and the Canadian government are extremely cosy:

There is an important link between Canadian mining and Canadian foreign policy. According to lobbying records obtained by the Justice and Corporate Accountability Project (JCAP) – an association of two Canadian law schools that advocates for communities affected by resource extraction (particularly indigenous communities) – representatives of the mining industry conduct powerful and insistent lobbying campaigns directed at the Canadian government…

Furthermore, Canada dominates this sector: most of the world’s mining companies are based in Canada, while 41% of the large mining companies in Latin America are Canadian, according to JCAP. These companies have also been embroiled in controversy in recent years. A landmark JCAP report published in 2016 found that 28 of these companies were implicated in forty-four deaths, 403 injuries, and 709 criminalization cases in thirteen Latin American countries over a fifteen-year period.

Culture of Impunity

Other countries on the American continent, including Mexico, Colombia, Bolivia and Argentina, have taken a wildly different stance regarding Boluarte’s regime, refusing to recognize its legitimacy while calling for new elections and the release of Castillo. At the recent summit of the Community of Latin American and Caribbean States (CELAC) a succession of national leaders denounced Boluarte’s ruthless repression of Peruvian protesters and called for her resignation…

Read the full article on Naked Capitalism

This Was Another Big Week for Central Bank Digital Currencies (CBDCs)

Another G-7 economy took a big step toward adopting a central bank digital currency (CBDC). At the same time, the first largish economy to have launched a CBDC, Nigeria, descends further into financial chaos.

This week, two big things happened in the CBDC arena. One of the world’s oldest central banks, the Bank of England, and the British government jointly confirmed that a digital pound would probably be necessary at some point in the none-too-distant future. While they were saying that, lengthy queues were forming at ATMs across Nigeria, the first largish economy to launch a central bank digital currency (CBDC), as most Nigerians struggle to access physical money following the government’s disastrous demonetisation campaign.

“A New and Trusted Way to Pay”?

Let’s begin with the UK, whose latest Chancellor of the Exchequer Jeremy Hunt this week described CBDCs as potentially “a new and trusted (state-backed) way to pay” that is likely to emerge some time this decade. John Cunliffe, Deputy Governor for Financial Stability of the Bank of England (not to be confused with the creator of the children’s books and animated TV series, Postman Pat) said:

Our assessment is that on current trends it is likely that a retail, general purpose digital central bank currency — a digital pound — will be needed in the UK.

With cash usage in rapid decline in the UK, a digital pound would perform the “anchor function” which cash currently carries, allowing the holder access to Bank of England money, Cunliffe said. It would also counter the risks posed by so-called “stable coins”, which are relatively new forms of cryptocurrency that are pegged to the value of a fiat currency (e.g, the dollar or the euro), while also ensuring that certain tech firms are not able to monopolize areas of the online market with their own coins.

These are all classic justifications for launching a CBDC. But not everyone in the UK’s political establishment agrees that they constitute sufficient cause. For example, the former governor of the Bank of England, Mervyn King said in January, 2022: “By far the most important question is what is the problem to which a CBDC is the solution?” King said a number had been proposed but “none of them were terribly convincing”.

Also, the House of Lords’ Economic Affairs Committee recently concluded that it is “yet to hear a convincing case” for why the UK needs a retail CBDC. On the contrary, while a CBDC “may provide some advantages”, it could present “significant challenges” for financial stability and the protection of privacy.

But the Bank of England and the UK Treasury respectfully beg to differ.

“A digital pound would be a very substantial financial infrastructure project that would take several years to complete,” Cunliffe said in a speech to UK Finance, a trade association representing over 300 firms in the UK’s banking and financial services sector. “It would, as many in this audience know, have major implications for the way we transact with each other and, more broadly, for the financial sector and the economy in general.”

An Extra Layer of Operations

One major implication is the impact it could have on the current banking system. As the UK-based economist Richard Werner and author of the critically acclaimed book, Princes of the Yen, has noted, if central banks were to offer retail CBDCs directly to individuals and businesses, meaning they would all be able to hold the equivalent of a current account at the central bank (as long as they have a smart phone and don’t engage in the wrong sorts of behavior), it would more or less mean the end of banking as we know it:

“All you would need is a shock or a crisis. All the money would move from the bank deposits to the central bank and the banking system shuts down.”

This would lead to the creation of what Werner calls “mono-banking,” in which just one lender, the central bank, is able to operate.

To avoid this outcome, the BoE is considering imposing a limit on the holdings of the new digital pound of £10,000 to £20,000 ($12,017 to $24,033) once it comes into existence. The digital pound would also not bear interest.

The last thing the world’s central banks want to do is wipe out large private banks, whose interests they tend to serve above all else. In fact, central banks are working hand-in-glove with many TBTF lenders to set up the CBDC infrastructure. Instead, what the BoE and many other central banks are talking about doing is creating an extra layer of operations within the financial system. And while the BoE (with help from the private sector) will create the currency, private banks will be the main public interface for that new layer, as Cunliffe himself posited in a panel discussion last June:

We will produce the asset and the rails but the interface with the public would actually be done by private-sector payment providers. It could be banks that will have the customer accounts payable to integrate money into their digital applications…

There are other models. One model is we allow the private sector to do the tokenization, to provide their own money that we back one-for-one with central bank money.

So, CBDCs will probably not be used to supplant the entire private banking system, as some feared. But what they could — and probably will — end up doing is put out of business small, local banks and credit unions, which will not be able to cope with the added layers of regulatory costs, burdens and complexities. In the US, the National Association of Federally-Insured Credit Unions (NAFCU) warned last year that the issuance of a digital dollar could erode financial stability, arguing that the costs and risks associated with introducing a CBDC are likely to outweigh the touted benefits.

Other Implications of a CBDC

So, what other ramifications could a CBDC have for households and businesses? At the risk of repeating myself, here is a brief recap of some of the most important ones (please feel free to add more), taken from my previous post, Unbeknown to Most, A Financial Revolution Is Coming That Threatens to Change Everything (And Not for the Better).

CBDCs will grant central banks far more power over our payment behavior. As Agustin Carstens, general manager of the Bank of International Settlements, the central bank of central banks, famously admitted at a 2020 summit of the IMF:

We don’t know who’s using a $100 bill today and we don’t know who’s using a 1,000 peso bill today. The key difference with the CBDC is the central bank will have absolute control [over] the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that.

Given the key role central bank policy has played in exacerbating wealth and income disparities in recent decades, the idea of central banks grabbing even more power should give serious pause. Indeed, one of the major risks highlighted by the House of Lords’ Economic Committee’s report on CBDCs is that it would grant central banks “greater power without sufficient scrutiny”.

Central banks will be able to “program” our spending. In June 2021, the Daily Telegraph reported (behind paywall) that the Bank of England had asked Government ministers to decide whether a central bank digital currency should be “programmable”. As the article noted, “digital cash could be programmed to ensure it is only spent on essentials, or goods which an employer or Government deems to be sensible.”

Tax evasion, money laundering, terrorist financing and other unapproved transaction would also become more difficult. Fines could be levied in real time. As NS Lyons, a Washington DC-based political analyst and blogger, notes in his article, Just Say No to CBDCs, “a CBDC would allow government to operate at much higher resolution. Targeted microfinance grants, added straight to the accounts of those people and businesses considered especially deserving, would be a relatively simple proposition.

By the same token, Lyons warns, CBDCs could be used to significantly curtail public choice. In a cashless CBDC-dominated world, less socially or politically desirable people or organizations could even be denied access to the financial system — something we already saw happen with the Freedom Convoy in Canada…

Read the full article on Naked Capitalism

Brazilian President Lula da Silva Locks Horns with Brazil’s Richest Man, Jorge Paulo Lemann

In a rare turn up for the books, the head of state of Latin America’s largest economy just accused the country’s richest billionaire of engaging in blatant accounting fraud.

In an interview with Rede TV! last Thursday (Feb 2), Brazil’s recently reelected President Luiz Inácio Lula da Silva, popularly known as Lula, laid into Brazil’s richest man, Jorge Paulo Lemann, accusing him of engaging in fraud. Together with his partners at the Brazilian-US investment firm 3G Capital, Lemann is one of the largest shareholders of nationwide retailer Americanas, which recently declared bankruptcy following the “discovery” of 20 billion real (US$ 3.87 billion) of accounting “inconsistencies”.

Lemann is a Brazilian investment banker, businessman and modern-day “philanthropist” with dual Brazilian and Swiss citizenship. His wealth is largely tied up in the investment fund he co-founded, 3G Capital, whose holdings include household brands such as Burger King, Kraft Heinz and Anheuser-Busch Inbe, the world’s biggest beer company. 3G Capital is also close partners with Warren Buffet’s Berkshire Hathaway. But the sudden collapse of Americanas is doing serious damage to Lemann and his partners’ reputation, says Lula:

“He was sold as the epitome of the successful businessman on planet Earth. He was the guy who funded young people to study at Harvard with a view to entering future governments. He was a guy who spoke out against corruption every day. And then he commits a fraud that could cost R$40 billion (USD7.76 billion).”

Brazil’s Worst Ever Corporate Scandal?

Lula was rounding down; Americanas’ total debt is actually R$43 billion (USD 8.35 billion). The company is currently undergoing judicial review after filing for chapter 15 bankruptcy in the US in late January. With shareholders and creditors staring at huge losses, thousands of suppliers holding billions of dollars of unpaid bills and tens of thousands of workers possibly facing the axe, the blame game is now in full swing for what some are calling Brazil’s worst ever corporate scandal.

Lula compared Lemann to Eike Batista, the mining magnate who was formerly Brazil’s richest man before suffering a vertiginous fall from grace a decade ago. Between March 2012 and January 2014, Batista’s wealth plunged by over 100%, from a peak net worth of $32 billion to a negative net worth. In 2018, he was sentenced to 30 years’ imprisonment for bribing former Rio de Janeiro governor Sergio Cabral with the goal of obtaining state government contracts.

Lula also lambasted the “financial markets” for their rank hypocrisy:

[W]hat I get upset about is the following. Any word you say on [social spending], any word, the market gets nervous, the market gets very angry. And now one of their own plunders BRL 40 billion from a company that seemed to be the healthiest on the planet and the market says nothing, it remains silent.

Lula isn’t the only major player in Brazil that is blaming Americanas’ collapse on Lemann and two of his partners at 3G Capital (which has no involvement with Americanas), Marcel Telles and Carlos Alberto Sicupira, who are respectively Brazil’s third and fourth richest billionaires. In fact, this is one of those rare occasions where the super rich have begun turning on each other in the most public of ways.

Banks Against Billionaires

André Esteves is Brazil’s seventh richest person. He is also a major shareholder of Brazilian lender BTG Pactual, one of Americanas’ biggest creditors. And BTG recently called the Americanas case “the largest corporate fraud in the country’s history”. As the FT put it, Americanas’ “mysterious” financial hole “has pitted banks against billionaires.”

In an attempt to overturn part of Americanas’ protection from creditors, BTG’s lawyers described the case as “the sad embodiment of a country”:

The three richest men (with assets valued at 180 billion real), anointed as some sort of demigods of ‘good’ global capitalism, are caught with their hands in the till of what, since 1982, has been one of their leading companies.

Other major creditors include Deutsche Bank, with total exposure of around $1 billion; Bradesco, Brazil’s second largest bank by assets ($925 million); Banco Santander SA’s Brazil unit ($715 million); Itau Unibanco Holding SA ($560 million), Banco Safra SA ($480 million) and Banco do Brasil SA ($270 million). Both Deutsche Bank and Safra have questioned the veracity of the data provided by Americanas.

But one thing that is beyond doubt is that fraud was committed, says Daniel Gerner, a lawyer representing 20 minority shareholders in Americanas. “The fraud was malicious. It was a procedure orchestrated and accepted by all involved and which generated fantastic profits for the distribution of bonuses for years.”

There are still a lot of unknowns about the cause of Americanas’ collapse. What is known is that the $3.9 billion of accounting inconsistencies were a direct result of “supplier financing operations” that were not adequately reflected in its accounting.

Here’s how it probably went down…

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Companies in UK are Hitting the Wall at Fastest Rate Since Global Financial Crisis

As the price of everything, including debt, continues to soar, life is getting harder and harder for the UK’s heavily indebted businesses.

Business insolvencies in the UK surged by 57% in 2022, to 22,109, according to the latest data from the Insolvency Service, a UK government agency that deals with bankruptcies and companies in liquidation. It is the highest number of insolvencies registered annually since 2009, at the height of the Global Financial Crisis.

Twenty Twenty-Two “was the year the insolvency dam burst,” said Christina Fitzgerald, the president of R3, the insolvency and restructuring trade body. Insolvencies peaked in the fourth quarter of the year, underscoring the compounding pressures on companies grappling with surging costs and rapidly slowing economic activity.

“Supply-chain pressures, rising inflation and high energy prices have created a ‘trilemma’ of headwinds which many management teams will be experiencing simultaneously for the first time,” Samantha Keen, UK turnround and restructuring strategy partner at EY-Parthenon and president of the Insolvency Practitioners Association (IPA), told the Financial Times. “This stress is now deepening and spreading to all sectors of the economy as falling confidence affects investment decisions, contract renewals and access to credit.”

Other headwinds include soaring interest rates, falling consumer demand, nationwide strikes, lingering Brexit-induced supply chain issues, and both chronic and acutely bad government.

Closest to the Edge

None of this, of course, should come as a surprise. Of all the large economies in Europe, the UK’s is arguably closest to the cliff edge. As newspaper headlines trumpeted this week, the UK economy this year will probably fare worse than Russia’s sanction-hit economy, according to the IMF’s latest forecasts. But then the same could be said of many other European economies, including Germany and Italy.

Stagflation is gradually settling in across the continent. With energy prices still high (though not as high as feared some months ago), the specter of deindustrialization continues to loom over the EU’s industrial powerhouses, Germany and Italy. And the frantic efforts of central banks to bring inflation back under some semblance of control risks triggering not just an economic crash but also a financial one, as Nouriel Roubini warned in October:

It is much harder to achieve a soft landing under conditions of stagflationary negative supply shocks than it is when the economy is overheating because of excessive demand. Since World War II, there has never been a case where the Fed achieved a soft landing with inflation above 5% (it is currently above 8%) and unemployment below 5% (it is currently 3.7%). And if a hard landing is the baseline for the United States, it is even more likely in Europe, owing to the Russian energy shock, China’s slowdown, and the ECB falling even further behind the curve relative to the Fed.

As economic conditions deteriorate, life gets harder and harder for Europe’s heavily indebted households and businesses. As I cautioned in late August, Europe’s entirely self-inflicted energy crisis risks tipping legions of small businesses over the edge. In the UK, as just about everywhere else, many small in-person businesses only managed to weather the lockdowns of 2020-21 by taking on huge amounts of debt:

[In the UK] the only way the debt gets cancelled is if the business in question goes into insolvency. According to research published by the Bank of England in November 2021, 33% of small businesses [had] a level of debt more than 10 times their cash in the bank, versus 14% before the pandemic. Many of those businesses had never borrowed before and some would probably not have met pre-pandemic lending criteria.

In total, £73.8 billion has been lent under the UK’s coronavirus emergency lending programs — the equivalent of 3.5% of GDP. Almost two thirds of that money — £47 billion — went to 1.26 million small businesses — in a country of roughly 5 million businesses. Through the Bounce Back Loan program SMEs were able to borrow up to 25% of their revenues to a maximum of £50,000. The loans, interest-free for 12 months, are administrated by private-sector banks, but are 100% backed by the government.

Companies now have to pay off that debt, against the backdrop of one of the most hostile business environments of living memory. As an op-ed in The Times (of London) pointed out on Wednesday, Britain is reeling from a particularly nasty combination of supply-chain shocks:

The energy crisis has hit the country particularly hard given the extent of its reliance on gas in its energy mix. The workforce is shrinking as a result of rising inactivity due to post-pandemic ill health and early retirement as well as post-Brexit shortages of low-skilled workers in some sectors. Trade has recovered from lockdowns more slowly than comparable countries, held back by post-Brexit border controls. Investment has flatlined since 2016 with dire consequences for productivity growth.

The result, notes the article, is that the UK is now grappling with higher and stickier inflation than most other major economies. In December, consumer price inflation (CPI) was 10.5%, just slightly below the record high of 11.1% registered in October. In January, food price inflation hit a fresh record high of 16.7%.

The Bank of England’s response was to hike interest rates for the 10th time in a row, perhaps in the deluded hope that a hard landing can still be avoided…

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Is the Unstoppable Force of Mexico’s GMO Ban About to Meet the Unmovable Object of US Big Ag Lobbies?

Mexico is not only dangerously dependent on US growers for its most important staple crop; it is growing more and more dependent by the year. Mexico’s government wants to reverse this dynamic, but the US has other ideas.

Mexico’s government recently unveiled plans to impose a temporary 50% export tax on white corn, a staple food in the country, which will remain in effect until at least June 30. Mexico is fully self-sufficient in white corn but depends on the US for much of its supply of yellow corn. The government said the move was necessary to guarantee supply and price stability of the staple, but it almost certainly also forms part of the government’s broader campaign to reduce Mexico’s dependence on US imports of GMO food, in particular corn.

“The supply and production of white corn in our country are important factors in determining its price and, therefore, of the various consumer products made from it,” the decree published in Mexico’s official gazette said.

A Towering Wall of Resistance

Needless to say, the move did not go down well with the US government, which is threatening to sue Mexico’s government over its plans to phase out all imports of GMO crops, including corn, by the end of January 2024. Those plans were first set out in a presidential decree issued by Andrés Manuel López Obrador (aka AMLO) on Dec 31, 2020. The decree also pledges to prohibit use of the “probably” carcinogenic weedkiller glyphosate — the herbicide that commonly accompanies many GMO crops. The cultivation of GMO crops is already banned in Mexico.

In the words of the Non GMO Project, a Washington State-based non-profit, AMLO’s decree is “ambitious, controversial and well-worth defending.” But it faces a towering wall of resistance, particularly from Big Ag lobbies in the United States.

The CEO of the US National Corn Growers Association, John Doggett, warned in November that AMLO’s decree would be “devastating” both for the Mexican people, who will have to contend with much higher corn prices, and U.S. corn farmers, who will suddenly lose access to their largest overseas market. He also noted that GMO corn isn’t the only crop being targeted by Mexican officials: “Biotech soybeans, cotton and canola import approvals have also been rejected by Mexico’s regulatory agency over the past year.”

More than 92% of the corn grown in the States is GMO. Roughly a quarter of all the corn exported by the US goes to Mexico, where it is predominantly used for animal feed. As such, Mexico’s ban will undoubtedly hurt some US farmers.

To cushion the impact, the AMLO government in December proposed postponing the deadline for the ban until January 2025 as well as exempting yellow feed corn from the ban until an independent investigation (i.e. not financed by GMO producers) can be conducted into its effects on human health.

But Mexico’s offer to show flexibility in both the scope and timing of its restrictions on GM corn was not enough to appease the US government. A couple of weeks ago, US Secretary of Agriculture Tom Vilsack said the Biden administration is unwilling to make any commitments regarding Mexico’s tweaked proposal. That was after threatening to initiate a U.S.-Mexico-Canada Agreement dispute resolution in December.

“The message is quite simple; we believe in a science-based system,” Vilsack said. “We understand and appreciate some of the challenges President López Obrador has outlined but at the end of the day, the agreement we reached with Mexico and Canada is in support of a science-based system.”

It may have escaped Vilsack’s notice but at this stage in proceedings government appeals to “trust” or “follow” corporate-controlled science do not have quite the same effect they once did. What’s more, there is little in the way of consensus on the issue. In recent years, a number of studies have warned that contamination of Mexico’s native corn varieties by GMO strands would have disastrous consequences for the food supply not only in Mexico but around the world as a whole.

“Impacts on the genetic diversity of Mexican maize could have direct repercussions on the diversity of maize and ecosystems in all of North America and the rest of the world,” concluded a 2015 paper by the Commission of Environmental Cooperation,the environmental side accord to the North American Free Trade Agreement (NAFTA). “Mexico is one of the centers of origin for maize. To lose a variety of maize in Mexico is to lose it throughout the planet.”

An Immovable Object

As if to draw a line under the matter, Vilsack said the position of his government is immovable. The AMLO government’s response was to place a 50% tax on all exports of white corn.

In a statement last week, the Office of the U.S. Trade Representative Chief Agricultural Negotiator Doug McKalip and U.S. Department of Agriculture Under Secretary for Trade and Foreign Agricultural Affairs Alexis Taylor upped the ante. Mexico’s repurposed approach, they said, “still threatens to disrupt billions of dollars in bilateral agricultural trade, cause serious economic harm to U.S. farmers and Mexican livestock producers, and stifle important innovations needed to help producers respond to pressing climate and food security challenges”:

Then came the warning shot:

In our meetings today, we reemphasized the concerns previously expressed by Secretary Vilsack and Ambassador Tai. We appreciate our Mexican counterparts’ time and dedication in trying to hammer out a solution. We made it clear today that if this issue is not resolved, we will consider all options, including taking formal steps to enforce our rights under the U.S.-Mexico-Canada Agreement.

For the moment, it is hard to see either side backing down. AMLO has every reason to want to carry through with his ban on GMO corn and other biotech crops. This is not just about protecting people’s health or crop diversity; it is about restoring Mexico’s ability to feed its own people.

Once the birthplace of maize, Mexico is now the world’s second largest importer of corn. This is thanks largely to NAFTA, which eliminated the Mexican government’s protection mechanisms for Mexican farmers while preserving U.S. corn subsidies for US farmers. The results were devastating for Mexico, notes Non GMO Project:

During NAFTA’s first decade, cheap U.S. corn flooded the Mexican market, causing the price of domestically-grown corn to plummet. The economic devastation to Mexico’s agricultural sector cannot be overstated, and contributed to a 75% increase in illegal immigration into the States.

During the same time period, genetically modified corn entered the market. As GMO corn was adopted by more U.S. farmers, it gained a foothold in shipments headed for Mexico, ultimately leading to contamination of valuable native varieties.

In 2022, Mexico overtook China as the number-one destination for US exports of corn. According to figures from the US Department of Agriculture (USDA), in the fiscal year from October 2021 to September 2022, Mexico’s grain imports from the US surged 25% to reach $5.12 billion, the highest figure since there records began, in 1970.

In other words, Mexico is not only dangerously dependent on its northern neighbor for its most important staple crop; it is growing more and more dependent each and every year…

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