First Impressions

Why Does Bitcoin Need to Be a Currency?
Jon Matte

Quick thoughts on a stormy Tuesday. Doug Ashburn will return next week with more insightful things to say.

BoJ governor Kuroda today took a familiar shot at Bitcoin today, declaring it to not be a currency.

His take on the definition of a currency is a curious one. It has to be something that everybody accepts as a medium of exchange… well, everybody that agrees to use the system, anyway. Try to spend your dollars here in Norway and you’ll find that it doesn’t work so well. Since Bitcoin doesn’t have a country, it’s hard to guess which population should agree to use it.

It has to have a reasonably stable value. Does that mean that the Iranian rial isn’t a currency anymore? And, settlement must be guaranteed. That, at least, makes sense to me and it’s one of the pin-in-the-sofa-cushion problems about Bitcoin that have recently surfaced. With nobody guaranteeing the settlement of transactions, the value of the instrument is called into question far more than for national currencies. If somebody robs a bank, the value of the dollar doesn’t decline.

But the thing I find mysterious is the fixation on Bitcoin needing to be a currency; at least, from the point of view of Bitcoin advocates. It makes sense that legacy currency systems like central banks (and their operators) would look at a global transaction system and say, “We don’t think that’s a currency.” From their perspective, it’s not… ok, that’s fine. It doesn’t match their model.

But whether or not it’s a currency shouldn’t matter in the slightest to proponents and developers who are working to create a new system. Just put together sticks and paper and throw it upwards; stop worrying so much about whether your stringless creation is a “kite” or not. Learn from what’s not working, and find the opportunities for the new technology by watching where it’s in demand. “Nationless currency” debates are hot-air time wasters.

***JB: Interestingly the question of whether bitcoin is a currency seems to depend on what suits the person making the claim. A few days ago a judge in Florida ruled that a man can be charged with money laundering using bitcoins (http://jlne.ws/1fRWcec). The judge rejected the man’s defense that he did nothing wrong because bitcoin is not a currency. Apparently the judge thinks it is.

***SR: I apologize heartily for not mentioning Jon Matte in yesterday’s blurb about “everyone” being at Boca. He was out yesterday, but working hard as ever the rest of this week, and was kind enough to contribute the above commentary on Bitcoin. Although he is not technically in the office, he is giving his all from beautiful downtown Norway, where the ice hotel is just beginning to melt. Yes, Norway has an ice hotel.

Quote of the Day

A currency has to be something everybody accepts as a medium of exchange, and its value has to be stable to some extent, its settlement has to be guaranteed.

Bank of Japan Gov. Haruhiko Kuroda, getting one of three right in, “BOJ Kuroda Gives Thumbs-Down to Bitcoin”

Lead Stories

Senators Release Details of New Bill Eliminating Fannie Mae
Clea Benson and Cheyenne Hopkins – BloombergBusinessweek
Fannie Mae (FNMA:US) and Freddie Mac (FMCC:US) would be eliminated and private interests would be on the hook for the first 10 percent of mortgage losses under a bill leaders of the Senate Banking Committee plan to introduce within days.
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***SR: It looks like this bill has quite a few hurdles to jump before becoming law, but it would mean goodbye to Fannie and Freddie.

Berkowitz: Treasury’s Rationale for Fannie Bailout Fix Is ‘Nonsense’
Nick Timiraos – MoneyBeat – WSJ
Bruce Berkowitz made clear in letters to the boards of Fannie Mae and Freddie Mac two weeks ago that he believes the companies should be run for the benefit of private shareholders and not just the government.
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***JB: Given the lead story this may be a moot point.

China to launch private bank pilot program
Reuters
China will launch pilot programs testing the development of privately owned banks in Tianjin, Shanghai, Zhejiang and Guangdong, the country’s bank regulator Shang Fulin said on Tuesday.
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J.P. Morgan: Record Levels of Margin Debt No Cause for Alarm—Yet
Alexandra Scaggs – MoneyBeat – WSJ
Concern about the record level of borrowing by investors is overblown, J.P. Morgan analysts say. But the firm isn’t ready to give an all-clear sign for the stock market, which has been lifted to new highs in part by such debt.
jlne.ws/NW53Qr

***JB: Nothing to see here. Move along.

Lehman wisdom from beyond the grave
Euromoney magazine
There are some benefits to having an incredibly untidy desk. While conscious that we had not tidied up for a while, even Euromoney was taken aback by what we found under a pile of papers in the office: Lehman Brothers’ Outlook for the ABS market, published in February 2007. Given what happened just months later, the document makes for rather eerie reading.
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***SR: I am going to look for buried treasure under the piles of papers lined up in my dining room.

Central banks in forward guidance rethink
John Plender – FT.com
Economists at the Bank for International Settlements, the so-called central bankers’ bank, saw more clearly than most before 2008 the imminent global financial crisis. So we should pay close attention now that Andrew Filardo and Boris Hofman of that institution have lobbed a well-aimed grenade into the arcane monetary debate relating to forward guidance on the level of interest rates.
jlne.ws/NW53Qv

BoJ holds steady despite export worries
Ben McLannahan in Tokyo – FT.com
The Bank of Japan has refrained from adding another shot of stimulus in the weeks before a consumption tax rise, saying that the country’s “moderate” recovery looked set to continue, even amid continued weakness in exports.
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BOJ Kuroda Gives Thumbs-Down to Bitcoin
Takashi Nakamichi – MoneyBeat – WSJ
Three months after launching a study of bitcoin, Japan’s central bank on Tuesday reached a conclusion: The virtual currency at the center of global controversy shouldn’t be treated as a currency.
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TIMELINE-The FX fixing scandal
Reuters
Bank of England governor Mark Carney faces a grilling from UK lawmakers on Tuesday about what Bank officials knew about allegations that currency traders colluded to manipulate key exchange rates.
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Central Banks

Evans says flatly: Fed will keep trimming bond purchases
Reuters
The Federal Reserve will continue to trim its monthly asset purchases at a $10 billion pace, an influential Fed official said on Monday as he also detailed how the U.S. central bank might rewrite its plan for keeping interest rates low.
jlne.ws/NW56vA

Lautenschlaeger says ECB still has room to act: WSJ
Reuters
The European Central Bank has not run out of options yet and will take action if necessary, ECB Executive Board member Sabine Lautenschlaeger told the Wall Street Journal.
jlne.ws/NW56vF

Sharply Criticized by Government, Head of the Central Bank of Cyprus Resigns
LIZ ALDERMAN – NYTimes.com
The central bank chief of financially plagued Cyprus resigned Monday, following political tensions with the Cypriot government and an investigation into his role in the 10 billion euro international bailout for the island last year.
jlne.ws/NW4kP6

Bundesbank Criticizes Fed’s New Bank Rules
WSJ.com
An official of the Deutsche Bundesbank has criticized new Federal Reserve rules that are designed to strengthen the capital position of European banks operating in the U.S., but which some European bankers claim are unfair.
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Central Bank Regulations: What You Need to Know Now
Sinan Baskan – Wall Street & Technology
Recent regulatory changes should improve transparency and liquidity. But there remain a lot of uncertainties.
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Currencies

China Weakens Yuan by Largest Degree Since 2012
WSJ.com
China’s central bank weakened the daily reference rate for its currency by the largest percentage in more than a year and a half, continuing a push to drive the yuan lower.
jlne.ws/NW56LX

Bolstering the safety net
Business Standard
After repeated episodes of currency turbulence during the past three years, some stability appears to have returned as far as the rupee is concerned. It is more than 30 per cent below its peak in mid-2011, a drop that most would agree was both necessary and welcome. High inflation and low productivity compared to other emerging market economies had caused the real effective exchange rate (REER) to appreciate sharply, which significantly eroded the competitiveness of Indian producers.
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Morgan Stanley Chief Calls Bitcoin ‘Surreal’
WILLIAM ALDEN – NYTimes.com
To its devotees, Bitcoin represents the future of transactions. But the financial establishment is still scratching its head over the virtual currency.
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***JM: Had he said, “I can’t figure out where it fits in our business model,” that’d be less worrisome than a financial CEO saying he couldn’t even understand the concept.

Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’
Erik Holm – MoneyBeat – WSJ
Nouriel Roubini is skeptical about bitcoin. While en route to Kuwait from London on Sunday, Mr. Roubini apparently had bitcoin on his brain, and he wasn’t shy about sharing his thoughts to his 289,000 followers on Twitter.
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***JM: Along with making one look less wise, and one’s butt look bigger, hyperbole also helps obscure the useful analysis of things…

CLS facing obstacles adding RMB to its platform
Joel Clark – Risk.net
Market experts predict that a risk-free settlement mechanism could double trading of offshore RMB, but forex settlement utility CLS is facing obstacles in adding the Chinese currency to its platform
jlne.ws/NW56Ma

Indexes & Index Products

Hedge funds look to put strategies into ETFs to lure more investors
Reuters
More client-hungry hedge fund managers are looking to put their investment strategies to work in exchange-traded funds, a move that could exponentially expand their pool of investors but requires them to slash investment management fees.
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Deutsche Börse: First ETF With An International Security Structure Launched On Xetra – New iShares ETF Tracks EURO STOXX 50 Ex-Financials Index
jlne.ws/NW4ohM

Gold

AIS Capital Management Files Class-Action Suit Against Gold-Fix Banks
WSJ.com
A U.S. investment-management firm has filed a lawsuit against the five banks that set the London benchmark gold price, alleging that the banks conspired to manipulate the price of gold for their own gain.
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MXT Global Adds USD/CNY And New Precious Metals To Its Product Offering
jlne.ws/NW572v

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