A campaign to ban hundred-dollar bills is going on in the US. It involves prominent economists, including former Head of the Federal Reserve, Lawrence Summers.
In April, Deutsche Bank held International Cash Conference entitled “War on cash: Is there a future for cash?”.
Visa payment system quite expectedly carried out an advertising campaign under the slogan “Cashfree and Proud”.
Dozens heads of states and private banks have already said that cash is ineffective, is used to finance criminal activity and tax evasion, and, finally, do not allow governments to manipulate macroeconomic indicators.
In December 2016, the Australian Minister of Finance proposed to prohibit the circulation of banknotes of 100 Australian dollars.
It is now forbidden to accept the largest denomination – 100 Bolivars – for payment in Venezuela.
Yet, this is only the beginning of the war, led by financial regulators, bankers and electronic payment system operators around the world. Their real goal is elimination of cash.
“The electronic payment industry in all of its forms is trying to find ways to displace cash, and that will continue,” said George Peabody, Senior Director at Glenbrook Partners, a payments research firm in Menlo Park, USA.
For financial organizations and governments, the idea of giving up cash is practically devoid of shortcomings. Cash as such has certain advantages and disadvantages that stem directly from its nature. Being a completely anonymous payment method, cash remains physical objects, movement of which requires energy and money. Denominations and coins are easy to destroy, mutilate or simply lose. For this reason, the regulation of real money is expensive and complicated. No regulator in the world will tell you the exact amount of money in circulation – only, perhaps, how many banknotes have been issued.
Also, physical money can act as a means of storing valuables or as a treasure, when it comes to investment coins made of precious metals. Physical money can be faked. Finally, do not forget about direct expenses for printing, introduction and removal from circulation, denomination and other unavoidable operations. It is also impossible to make remote payments with physical money.
Unfortunately, all good ideas of economists encounter resistance of people who have no idea how the economy works. For example, Denmark has supported the negative rate, advocated by Harvard University professor Kenneth Rogoff. Four years of the experiment caused private sector investment to fall by 2 percentage points (from 18.1% to 16.1% of GDP), and the savings rate increased by almost five p.p. (from 21.3% to 25%) compared with the time when the rate was above zero. Citizens understood that they were losing money on deposits. At the same time, they were afraid to spend, because they began to lose confidence in the long-term stability of the financial system and safety of their savings. If the state commences strange experiments with other people’s money, it is better to tighten the belt and wait.
Apparently, people have three options in the current circumstances: to leave money in the bank and lose little by little on negative rates; to spend or to invest their savings; to close the account and put cash in the pocket. Not surprisingly, many prefer the third option, and this is a fact confirmed statistically. Thomas Savare, CEO of French security printer Oberthur Fiduciaire, says: “there are a lot of preconceived ideas about that. I can’t predict whether or not banknotes will have disappeared in two hundred years. But while I can’t see future, the volume of printed banknotes is growing faster than GDPs. That might come as a shock considering the rise in electronic payments, but the reality is that cash is still king and growing in developed economies… and even faster in emerging economies.”
Actually, one of the reasons why people are hiding money is a general distrust in the financial system. The prohibition of paper bills obviously does not solve the core problem: people will not become confident in financial institutions just because they will be forced to take all their money to a bank. In addition, in the state of mass surveillance, paper money has a completely property – it is anonymous.
Yet, citizens of the world are losing their freedom, argues investor Jim Rogers, who in the 1970s together with George Soros founded Quantum Fund. He says: “If you want to go and buy a cup of coffee they know how many you drink, where you buy them etc. If they can all put it into electronic formats and they will the world is all going electronic”.
Privacy activists also believe that actions of governments, not citizens, must be more transparent. Professor of the University of Freiburg and member of a group of economic advisers under the government of Germany Lars Feld does not agree with the need to cancel cash either. In an interview with the Frankfurter Allgemeine Zeitung, he called cash “coined freedom” and noted that physical money allows citizens to avoid excessive state control. And off-the-radar labor activity can be contrary to the law, but this is often “the last opportunity to make a living” for certain groups of people, Feld noted.
Oberthur Fiduciaire’s CEO argues: “People should be able to choose how they want to pay and we see across the world that the usage of cash isn’t decreasing even in countries with more and more electronic payment solutions, because they aren’t completely trusted”. “The use of cash remains an essential liberty that everyone should be able to have”, they say at Oberthur Fiduciaire.
Also, few know that if a citizen makes a deposit to a commercial bank account, he loses ownership of his money and in return acquires the obligation to claim the same amount back. Unfortunately, only lawyers understand the fundamental difference between the right of property and the right of obligation.
Precisely this transformation of the first type of right into the second exposes people to a certain risk. The reason is simple: the bank can go bankrupt or get sanctioned.
Here, for example, an ugly story from America – Operation Choke Point. There, the Ministry of Justice (for the noble purposes of protecting the population from predatory lending) asked banks to voluntarily block “suspicious” financial transactions. Apart from the Ponzi schemes, the operation covered sale of weapons, pornography and escort services, as well as law-abiding and harmless telemarketing, lotteries and the sale of fireworks. As The Atlantic explains in its material, banks and card systems like Visa and MasterCard turned out to be the “choke points”, pushing on which the state easily blocked not only criminals, but also completely legitimate business.
The problems, which financial and government institutions hope to solve by eliminating cash, require an integrated approach to democracy, political institutions and civil society. We cannot deny the existence of shortcomings in the system, but we also need to understand that the ban on cash should not restrict freedoms and rights of law-abiding citizens.
How to Trade Shares for Beginners
Although expectations had been modest for 2019, the stock markets around the world had been active in 2019 and the positive returns seen so far have exceeded even the most optimistic expectations. Supported by easy monetary policies around the world, as well as by positive economic expectations for 2020, stocks continue to move, which makes a significant number of people deciding to start investing. Since stock trading is much harder than most of them think, let’s see some of the most important things beginners must consider in order to accelerate their learning curve.
Stick with the most liquid shares
Finding “the next big thing” is one of the illusions that seduces most of the beginners. They spend a significant amount of time looking for those companies that will have huge returns over the next months of years. Not even the most-skilled stock traders are able to do that, so why do you think you will?
Instead of looking for those shares, stick with the companies that already have a leading position in the industry. Google, Facebook, Microsoft, Apple, and Boeing are just some of the names that are popular at the time of writing, and looking at their performance in the long run, so far, they’ve managed to impress.
Study educational materials
Beginners fail to understand that share trading is a skill-based endeavor and study is one of the most important parts of the process. Study as many educational materials as you can and gain as much knowledge as possible because you’ll definitely need it. This guide and other similar ones will introduce you to share trading and help you understand the basic concepts. Remember this axiom: “Around 90% of the traders lose 90% of their capital in their first 90 days of trading”. Education is one of the main factors why beginners stumble into the same mistakes over and over again. You don’t want to be in the same position as most of the people who don’t learn and spend time to sharpen their skills.
Build a portfolio
Closely linked to our first tip, building a portfolio of uncorrelated assets is one of the most important things to consider, if you want to limit the damages of your mistakes. No matter how good you are, in trading, you won’t make money all the time. Diversification will help you minimize the effects of some losing trades. Don’t concentrate all the risk in a single stock and instead pick at least three or four names that might perform positively in the near-term.
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.
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