Thursday, January 21, 2016

You Call That Financial Repression? I'll Show You Financial Repression: Chinese Central Bank Explores Cryptocurrency

From Bloomberg: 

China Mulls Answer to Bitcoin With Digital Currency Study
China’s central bank said it is studying the prospects of issuing its own digital currency and aiming to roll out a product as soon as possible, contending that alternative payment systems can improve the efficiency of global transactions.

The People’s Bank of China set up a research team in 2014 to study digital currencies and application scenarios, according to a statement posted on the regulator’s website. The PBOC said it has consulted with experts from Citigroup Inc. and Deloitte LLP, though it didn’t specify what technology it would be using to issue its digital currency or how it would work in relation to the yuan.

Digital currencies have gained prominence with the rise of bitcoin, which is mined with high-powered computers and operates with a distributed ledger that contains the payment history of every circulation. China has become one of the biggest markets for bitcoin and miners, as Chinese regulators have largely taken a hands-off approach with bitcoin exchanges and businesses.

“They’ve recognized the opportunities the digital currencies have,” said Zennon Kapron, managing director of Shanghai-based consulting firm Kapronasia. “If they did have something the government could monitor and use, that could fit into their longer-term plans.”

Capital Flows
An estimated $843 billion of capital flowed out of China in the 11 months through November, according to a Bloomberg estimate, and policy makers are having to add funds to the financial system to prevent interest rates rising amid an economic slowdown....MORE
The IMF is on board.
From the International Monetary Fund, yesterday:

New IMF Staff Paper Looks at How to Reap the Benefits and Curtail the Risks of Virtual Currencies
Press Release No. 16/17
January 20, 2016

Virtual currencies (VCs) and especially their underlying technologies are a potentially important advance for the financial sector that could increase efficiency and financial inclusion, but can also serve as vehicles for money laundering, terrorism financing, and tax evasion. Achieving a balanced regulatory framework that guards against risks without suffocating innovation is a challenge that will require extensive international cooperation, says a new staff paper, “Virtual Currencies and Beyond: Initial Considerations,” released today by the International Monetary Fund (IMF) during the World Economic Forum....MORE
Previously in the Financial Repression series:

Research Affiliates (Rob Arnott) "Financial Repression and Real Rates"
Au Contraire: An Unexpected Fan of Financial Repression
Japan: How Do You Convince People to Buy Your 1% Yield in a 2% Inflation World? (repression baby!)
UPDATED--Talk About Financial Repression: It's Now Illegal to Mention Foreign Currency in Ukraine
Allianz on Repression: "Welcome to a RIGGED Future in a World of Financial Repression "
Rothschild Wealth Management: "Investing in an era of financial repression"
Rabobank on Financial Repression and What Bernanke is Up To
 IMF: "The Good, the Bad and the Ugly: 100 Years of Dealing with Public Debt Overhangs" (Policy Responses to Debt/GDP Over 100%)
"Investing When Fundementals Don't Matter"
 Cyprus: "Beyond financial repression"

And from the big daddy of recent research,  Carmen M. Reinhart and M. Belen Sbrancia's "THE LIQUIDATION OF GOVERNMENT DEBT":
...The pillars of “Financial Repression
The term financial repression was introduced in the literature by the works of
Shaw (1973) and Ronald McKinnon (1973). Subsequently, the term became a way of
describing emerging market financial systems prior to the widespread financial
liberalization that began in the 1980 (see Agenor and Montiel, 2008, for an excellent
discussion of the role of inflation and Giovannini and de Melo, 1993 and Easterly, 1989
for country-specific estimates). However, as we document in this paper, financial
repression was also the norm for advanced economies during the post World War II
and in varying degrees up through the 1980s. We describe here some of its main
See also "Financial Repression Phase II: 'Is The IMF Now Recommending Capital Controls...?'"

This focus has led to some obvious signs of mental disturbance:
Financial Cypression: Cypriot Banks to Remain Closed Until Tuesday (at the earliest)
Yes, yes, we know the difference between Cyprus and cypress but if the headline was "Financial Cyprussion..." some folks would think we'd gone all misspelled Teutonic-ebonic and not caught the ref to repression.
Not our long-suffering regular readers but, you know, strangers.... 
"Depositor Repression" May Spread To Switzerland, EURCHF Spikes
I went to bed last night wondering how the Swiss National Bank would defend the ceiling on the franc of 1.20 per euro.
I've got to get a life....