25 years of Bank of England independence shows we need a new approach

This week marks 25 years since arguably the biggest change to UK economic policy that no one voted for – the handing over of control of monetary policy and inflation to the Bank of England, a newly ‘independent’ central bank.

Established in 1694 and nationalised in 1945, the Bank of England has always had a close relationship with the government, from its early history helping the government finance its wars, to its post-war role guiding investment towards the government’s industrial priorities. But the role of the Bank of England has often flown under the radar of mainstream political debate. It therefore probably came as a surprise to most people when one of New Labour’s first acts of government in 1997 was to grant operational independence to the Bank of England – something that was absent from the manifesto they had just been elected on.

What this meant in practice was that the Bank of England was tasked with targeting inflation at 2% and given independence over monetary policy (setting the price of money through interest rates) to decide how to do this. The idea was that this would take the ‘printing presses’ away from elected politicians, who New Labour feared the public (and financial markets) didn’t trust not to turn on for short-term popularity. While this may sound like a well meaning idea, it has turned out to be unfit for purpose.

This separation of economic policy between fiscal authorities like the Treasury and independent central banks like the Bank of England has ended up exacerbating the crises of the

— source positivemoney.org | Simon Youel | May 6, 2022

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what Central Banks could do to stem inflation without crushing the poor

Inflation is a disease that disproportionately afflicts the poor. Even before Vladimir Putin unleashed his brutal war on Ukraine, whose byproducts include soaring energy and food prices, inflation was already over 7.5% in the US and above 5% in Europe and the UK. Calls for its taming are, therefore, fully justified – and the interest rate rise in the US, with the same expected in the UK, comes as no surprise. That said, we know from history that the cure for inflation tends to devastate the poor even more. The new wrinkle we face today is that the supposed solutions threaten not only to deal another cruel blow to the disadvantaged but, ominously, to snuff out the desperately needed green transition.
Two influential camps dominate public discourse on inflation and what to do about it. One camp demands that the inflationary flames be smothered immediately by the monetary policy version of shock and awe: raise interest rates sharply to choke expenditure. They warn that delaying a little monetary violence now will only necessitate “Volcker shock” levels of brutality later – a reference to Paul Volcker, the Federal Reserve chair who quelled the hyperinflation of the 1970s with sky-high interest rates that scarred the American working class to this day. The second camp protests that this is unnecessary, counter-proposing a steady as she goes stance for as long as wage inflation is kept on a leash.
The two camps agree that rising wages are the real threat, their disagreement focusing only on whether it is prudent to act before or after they start picking up. They agree also that, to fight inflation, the supply of money and credit must be dealt with in a two-step sequence: central banks must first stop creating new money and only then raise interest

— source yanisvaroufakis.eu | Yanis Varoufakis | 16/04/2022

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The Day George Soros Broke the Bank of England To Make $1.1B

Less known by the general public than Warren Buffett or Peter Lynch, George Soros is nevertheless a legend in the investment world. George Soros’ most brilliant move was probably the one that saw him literally broke the Bank of England on September 16th, 1992.

To do this, the American investor took advantage of the European Monetary System (EMS) to carry out a speculative attack that I propose to rediscover in detail in what follows.

Back to the end of the 1980s and the beginning of the 1990s in England.
England joins the European Exchange Rate Mechanism as the country enters a recession

After a period of sustained growth, associated with a moderate rate of inflation and a gradual decline in unemployment between 1983 and 1988, the situation began to reverse from 1989–1990. Inflation rose from 3.3% in January 1988 to a high of 10.9% in September 1990.

— source historyofyesterday.com | Sylvain Saurel | Aug 10, 2021

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Deciphering the Review of the IMF’s Institutional View on Capital Flows

On March 30, 2022, the International Monetary Fund published the Review of the Institutional View on the Liberalization and Management of Capital Flows. The review updates the IMF’s Institutional View (IV), adopted in November 2012, followed by guidance notes on capital flows added in April 2013 and December 2015. The IMF’s Institutional View is an important policy document because it provides an analytical framework for the Fund’s policy advice on liberalizing and managing capital flows.

Since its adoption, IMF staff members have applied the IV extensively throughout the Fund’s broad membership, providing policy advice on capital flow-related issues during Article IV consultations and lending programs with member countries. In addition, the Institutional View has been applied for technical assistance, capacity building, and multilateral surveillance.

A brief historical overview is necessary to comprehend the shifts in the IMF’s policies on liberalizing and regulating cross-border capital flows. Since its inception in 1944, the Fund has come a long way on the issue of capital controls. The IMF’s Articles of Agreement permitted countries to maintain capital controls, which most countries did during the Bretton Woods period that lasted from 1944 to 1971. Although the IMF’s Article VI (Section 3) recognizes the right of members to “exercise such controls as are necessary to

— source madhyam.org.in | Kavaljit Singh | Apr 5, 2022

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Most homeowners happy for house prices not to rise

A majority (54%) of British homeowners would be happy if their own home did not rise in value in the next ten years if it meant houses were more affordable for those who don’t own property, according to YouGov polling commissioned for a new report on Britain’s housing crisis, published today by research and campaign group Positive Money.

The report, ‘Banking on property’, debunks the dominant narrative that inflated house prices are primarily the result of a failure to build enough homes. Rather, the authors argue that the rapid house price growth of recent decades has been driven by the transformation of homes into financial assets, through a loosening of financial regulation and monetary policy, as well as wider policy changes such as tax incentives, right to buy and the deregulation of the private rental market.

Positive Money’s YouGov polling indicates that the majority of the British public – including a majority of homeowners – are in favour of bold reform. As well as most homeowners being happy for house prices not to increase:

Two-thirds of Britons (66%) support the Bank of England being given a target to keep house price inflation low and stable in the same way it does consumer price inflation

— source positivemoney.org | Chloe Musto | 31 Mar 2022

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What Happens If a Cryptocurrency Exchange Files for Bankruptcy?

Exchanges play a key role in the cryptocurrency ecosystem, but no one seems to have given any consideration to so far is what happens when a cryptocurrency exchange that provides custodial services for its customers ends up in bankruptcy. We’ve never had such a crypto-exchange bankruptcy in the US—Mt. Gox, for example, filed in Japan—but it’s certainly a possibility. These exchanges are not banks, so they are eligible for Chapter 11 if they have any US assets or incorporation, and they face substantial risks from hacking and their own proprietary trading in extreme volatile assets.

So what happens to a customer if an exchange files for bankruptcy? I think it ends very badly for the customers, as explained below the break. I do not think customers understand the legal nature of the custodial relationships, and exchanges have no incentive to make the legal treatment clear to customers. In fact, the exchanges are lulling the consumers with language claiming that the consumer “owns” the coins, when in fact the legal treatment is quite likely to be different in bankruptcy. In bankruptcy, it is likely to be treated as a debtor-creditor relationship, not a custodial (bailment) relationship. That means that customers are taking on real credit risk with the exchanges, which is a

— source creditslips.org | Adam Levitin | Feb 2, 2022

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Cryptocurrency Is a Giant Ponzi Scheme

Cryptocurrency is a scam.

All of it, full stop — not just the latest pump-and-dump “shitcoin” schemes, in which fraudsters hype a little-known cryptocurrency before dumping it in unison, or “rug pulls,” in which a new cryptocurrency’s developers abandon the project and run off with investor funds. All cryptocurrency and the industry as a whole are built atop market manipulation without which they could not exist at scale.

This should surprise no one who understands how cryptocurrency works. Blockchains are, at their core, simply append-only spreadsheets maintained across decentralized “peer-to-peer” networks, not unlike those used for torrenting pirated files. Just as torrents allow users to share files directly, cryptocurrency blockchains allow users to maintain a shared ledger of financial transactions without the need of a central server or managing authority. Users are thus able to make direct online transactions with one another as if they were trading cash.

This, we are told, is revolutionary. But making unmediated online transactions securely in a trustless environment in this way is not without costs. Cryptocurrency blockchains

— source jacobinmag.com | Sohale Andrus Mortazavi | 01.21.2022

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The Bitcoin Challenge: How to Tame a Digital Predator

Bitcoin’s market capitalisation reached new peaks in November 2021. This column suggests it is hard to find arguments supporting the cryptocurrency’s current valuation. Even if the financial stability risks of a Bitcoin collapse could be contained, the burst of the bubble would imply painful losses for many retail investors and society at large. The authors conclude that public authorities should refrain from taking measures supporting additional investment flows into Bitcoin and should treat it as rigorously as the conventional financial industry to combat illicit payments, money laundering, and terrorist financing.

The durability, stability, and scalability of the Bitcoin network1 is impressive. And the potential of blockchain outside the areas of digital assets and finance has still not been fully explored. Still, several authors are raising doubts on Bitcoin’s underlying technology and concept (e.g. Avoca 2021, Acemoglu 2021, Bindseil, et al. 2022). The ‘proof-of-work ‘concept is a constituting feature of the Bitcoin system. It has a scalable difficulty level and aims to incentivise miners to keep the system running. The more computing capacity and the faster the validation process takes place, the safer the whole system will be. Still, the ability of the technology to keep up in a quantum computing environment is being questioned, and the governance of necessary in-depth changes has been made deliberately difficult. Moreover, the proof-of-work concept, which is a necessary condition for the security of the system, wastes power and is an environmental polluter without compare: Bitcoin may consume as much energy as all data centres globally (Digiconomist 2021).

— source nakedcapitalism.com | Ulrich Bindseil | Jan 10, 2022

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