Belgium, Denmark, France, Canada, the UK, Sweden and many other countries from the Eurozone and Western world are amongst the most prominent countries to move away from cash, namely due to the large availability of other types of payment. And yet, the EU Commission continues to push towards even less cash and fantasizes on killing it completely off. Why the obstinacy? Is cash giving governmental agencies an itch because it escapes their control?
In the Netherlands, 85% of transactions are cashless: transfers, debit, e-payment, etc. take the cake. It doesn’t result from a ban on cash, but a country where 98% of citizens have debit cards is bound to take it easy on currency. In Sweden, cashless transactions amount to even more. The cashless world champion is Belgium, where only 7% of transactions are carried out in cash. Cashless-support Robert Colville recently published (1) an OpEd in which he wrote: “it’s about not just cash but credit cards themselves disappearing – about paying for whatever we like with the wave of a phone or the blink of a biometrically-verified eye. That future is coming sooner than we think”. As more options opened up to the public to make their payments, the more digitally developed populations slowly adopted them, reducing gradually the use of cash. Much to their government’s delight.
India violently pushed the envelope in the end of 2016, when the Prime Minister announced overnight that almost all banknotes would be null and void within a few weeks. The BBC announced (2): “In an unscheduled televised address on 8 November Prime Minister Narendra Modi gave the nation just four hours notice that 500 ($7.30; £6) and 1,000 rupee notes would no longer be legal tender. People were told they could deposit or change their old notes in banks until 30 December and new 500 and 2,000 rupee notes would be issued.”. This set off an earthquake in a country where a large share of the population has no debit card, cell phone or even access to a nearby bank.
The Indian PM announced the move was intended to fight corruption, crime, terrorism, as well as to modernize the country. However, the reason simpler, yet more complex. The Indian government, like just about any other government in the world, is trying to force its citizens under more of its control. From a governmental point of view, complete control means more taxation earnings, more powerful means to tackle crime, and better population control.
National governments, international governmental bodies and interstate agencies all want to kill cash, so as to close the loop on their control over populations. Because cash is the only true peer-to-peer payment vector, killing cash means a citizen has nowhere to hide from governmental control. This explains why, as the cash-killing pressure grows from governments, alternate currencies such as bitcoins continue to develop: citizens who see governmental hyper-power as a threat to their liberties move to the only place where they can be left alone. Bitcoin News published a 1999 interview (3) of economist Milton Friedman, broaching the question of civil liberties: “The Internet is going to be one of the major forces for reducing the role of government. The one thing that is missing, but will soon be developed, is a reliable e-cash: a method by which on the Internet you can transfer funds from an A to B without A knowing B or B knowing A. The way in which I can take a $20 and hand it over to you and there is no record of where it came from”. Many people today see crypto-currency not as a way to commit crimes, but as a way to fight back on government control.
In all parts of the world, states struggle to acquire more control. Many Asian, South American and African states, sometimes dubbed “failed states” by the West, have very limited or non-existent control over their citizens and territory. Greece has no cadaster, many African countries have no civil registries, and almost half the world has only an approximate idea of the size of their own population. But in the West, a State knows each of its citizens and residents by name, where they live, where they work, what they drive, the names of their children, the size of their house, etc. To that existing data repository, States can add potential data: data which can be easily accessed through online investigation: whom they call (with phone registers), whom they do business with (with banking registers), where they go (cell phone tracking), etc.
But cash eludes their control, because it doesn’t rely on banks or any other intermediary. Killing cash will be the ultimate step of state control. Payment-method specialized website LTP reports (4): “Increasingly, government agencies are also feeling the need to shift to modern payment processing tools and techniques and leave the traditional formats behind. A number of companies are fulfilling the government’s needs through their payment rails”.
Public entities claim to be fighting cash, in order to better protect their citizens, but there is far more to it. If the advantages and disadvantages of cash are weighed from a citizen’s point of view, maintaining the existence of cash is obviously preferable: while other types of payment can be practical according to circumstances, why deprive oneself of an option which we use every day? But that same balance from a state’s or superstate’s perspective is very different. Be it fiscal agencies, or law enforcement, or cyber-surveillance, governmental bodies yearn to reign every citizen in the world -not just their own – into the electronic world, where national borders no longer exist and civil rights to privacy can be easily and discretely hacked into. They will apply to the 0.01 % of people who use cash for criminal and terrorist activities, and for the 99.99% of law-abiding citizens who don’t.
Saudi Arabia halves oil production: How long will it last, and will it affect oil prices?
Saudi Arabia announces it will halt 50% of its oil production. This Vestle news article will explore the possible financial impact.
Since recent drone airstrikes crippled Saudi Arabia’s Aramco oil processing facility in mid-September, the country – the world’s No. 1 exporter of oil* – has been forced to close half the plant while reconstruction takes place. While no casualties resulted from the attack, the real harm is finally coming to light, as the impact on Saudi Arabia’s oil industry is becoming clearer. This Vestle news article explores this important topic.
Aramco estimates that the closure will affect almost 5.7 million barrels of crude oil per day, which amounts to roughly 5% of the world’s daily oil production. To help you put that into perspective, consider that Saudi Arabia produced 9.85 million barrels a day in August 2019. And it’s not just oil production that will suffer. Saudi Energy Minister Abdulaziz bin Salman also indicated that the closure has forced a temporary halt in gas production, limiting the supply of ethane and natural gas by 50% as well.
One particular detail that those with an eye on the financial markets might find interesting is that the attacks took place at a time when Saudi Arabia continues to progress toward taking Saudi Aramco public – a first for the kingdom’s global-reach energy sector. How much money are we talking? As the world’s most profitable oil company, it’s estimated to be valued at around $1.5 trillion.**
Will this affect oil prices?
The short answer, according to some people, is probably yes. With Saudi oil output expected to dip below 50%, the outages present “an extreme risk situation for oil,” according to Paul Sankey, managing director for Mizuho Securities. However, measures have already been put into place. Depending on how long it takes for Saudi Arabia to recover the damaged facility, OPEC (the Organization of Petroleum Exporting Countries) is aiming to suspend production cuts to help temper the impact of the ongoing crisis. On the trading side, the International Energy Agency is expected to release strategic oil stocks, and US President Donald Trump has already authorized the release of oil from the US petroleum reserve.***
In the weeks just after the drone strikes, the price of WTI Oil on the Vestle platform showed a 13% increase, followed by a 12% decrease over the following two weeks. Also during that time, Bloomberg reported that the spread between WTI and Brent widened to 37%, which could be an indication that the oil spike might affect global prices more than other oil giants, such as the United States. Furthermore, a representative from Goldman Sachs estimates that the global benchmark for Brent Oil could rise above $75 a barrel if the plant shutdown lasts for more than six weeks.****
Will it get any worse?
Some people fear the Aramco incident represents the potential for a broader regional conflict that could escalate to the point that it affects Gulf oil production as a whole. CFRA Research oil analyst Steward Glickman said, “Oil prices are now likely to bake in a much higher geopolitical risk premium than had been absent in much of 2019.” With the recent bombing in June of oil tankers in the Gulf of Hormuz not so distant, it’s no wonder some analysts like Glickman like are raising their eyebrows. ***
Considering all the different factors that play into this situation—the global, financial and geopolitical—there’s no telling what kind of turns it will take. The only thing to do is keep an eye on the news for the political side of it, and financial sites like Vestle to see what kind of ripples such an event is making in the financial markets.
Oil prices and the financial markets
Volatility such as that recently experienced by both WTI Oil and Brent Oil can present both opportunities and risks for informed traders, such as those who invest in Contracts for Difference or CFDs, which essentially means trading on the price movement of a particular instrument without owning the underlying asset. At Vestle, you’ll find hundreds of tradable CFD instruments, from commodities like oil and natural gas to popular stocks, indices, ETFs and crypto. And thanks to a selection of trading signals, market indicators and our economic calendar, access to important financial info for global situations like this is right at your fingertips.
Vestle (formerly known as ‘iFOREX’) is the trading name of iCFD Limited, licensed and regulated by the Cyprus Securities and Exchange Commission (CySEC) under license # 143/11. The materials contained on this document have been created in cooperation with Vestle and should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.7% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. Full disclaimer: https://www.vestle.com/legal/analysis-disclaimer.html
Fears of a 2019 European Economic Slowdown Loom
Although the spotlight is on the trade war between the United States and China, one aspect that is currently ignored by the media is represented by signs of weakness in the European continent.
Germany slows down
After posting a -0.3% GDP contraction in the third quarter of 2018, the economic indicators released from Germany in 2019 cannot support a positive economic picture. The manufacturing sectors continue to show signs of weakening, with the Markit PMI Composite now at 51.6, down from 52.3.
Industrial Production had been contraction by 1.9% in November, and both imports and exports had been down by 1.6% and 0.4%, respectively. DAX trading had also suggested there is growing concerns among investors and the main German stock index peaked out in July 2018, being now down by 15%.
Germany relies mostly on exports, being the third exporter in the world, only surpassed by the United States and China. That is why the weakness we see in Germany is actually a symptom of what’s happening in other European countries as well.
Italy and France not too encouraging
The new populist government in Italy, formed by La Lega and The Five Star Movement faced a serious challenge to get the EU’s approval for the 2019 budget, as the already high debt-to-GDP ratio (currently at 131.8%) raises concerns on whether the country will be able to meet its debt obligations in the future.
There are also serious concerns about the banking sector, which despite mergers and acquisitions, and huge capital available from the ECB, were unable to solve their problems which emerged after the 2008 financial crisis. The future of Italy is very uncertain, and analysts predict that the new government will not be able to meet their economic promises, given that we are at the end of a business cycle.
Speaking of France, the problems are social at the present time. President Macron was unable to stop the “Yellow Vests” protests, despite promises to increase the minimum wage and the overall standard of living for the very poor. France’s debt-to-GDP ratio currently stands at 97%, but given the latest promises, there are concerns whether the country will manage to keep the budget deficit below 3% in 2019, as the European treaties demand.
Although there’s a single currency in Europe, in terms of fiscal policy things were very fragmented, which is why the economic recovery had been very slow and the reason why investors predict Europe will face the greatest challenges to solve its economic, political, and social problems.
Sterling Whipsaws as Brexit Negotiations Fall Flag
Sterling whipsawed on Thursday, first tumbling and then rallying, and experiencing robust volatility. The GBP/JPY also experienced a wild ride as the yen increased in value on safe-haven flows. Sterling has been trading under pressure following news that the European Union has no plans for further Brexit discussions. May is now stuck between a rock and a hard place and may have to exit from the EC without an agreement.
The EU Has No Plans to Continue Brexit Talks
The European Union announced through a spokesperson saying that they had no plan on further Brexit discussions with the UK. The British had hoped for additional assurances on the contested Irish backstop. Prime Minister May has been making the rounds with EU leaders ahead of this month’s vote in parliament, but her diplomacy appears to have failed to change any minds.
The Financial Times reports that a EU source said no dialogue has occurred over the past 10-days and that PM May spoke to the EC head Donald Tusk on January 2. The EU is sticking to their word and appears to reflect the view that EU officials have gone as far as they can as it relates to the Irish backstop. They also revealed that if a backstop was triggered that EU negotiators would use “best endeavors” to negotiate a replacement agreement.
Strong US Private Payrolls Help Buoy US Yields
Sterling was also shaken by a rebound in the dollar which was buoyed by an uptick in US yields. US yields tumbled on Wednesday as traders removed all the potential tightening of interest rates in 2019. In fact, the yield curve shows that 1-year yields are less than current yields. This came despite a stronger than expected private payroll report, released by ADP on January 3.
ADP reported that Private payrolls rose by 271,000 in December, beating expectations that jobs would increase by 178,000. You can follow the private payroll report on Vestle news. The strong jobs numbers should help lift wages which is an argument for why the Fed should remain vigilant. The increase in private payrolls was the largest climb in nearly 2-years and increased the 2018-month average of private payroll gains to 203,000.
The report showed the increase in jobs was mainly drive by professional and business services which increased by a solid 66,000 while education and health services contributed 61,000 and leisure and hospitality added 39,000. In all, service-related industries were responsible for 224,000 of the new hires, while goods producers rose by 47,000. This include an increase in construction which grew by 37,000 and manufacturing added 12,000. Natural resources and mining lost 2,000 positions.
Sterling rebounded after making a fresh low of 1.24 which is a 20-month low on sterling versus the greenback. The exchange rate is likely to remain volatile until there is a solution to the UK exit from the EU. The trend is also downward sloping, and with momentum negative, the path of least resistance is for a lower exchange rate for sterling.
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