Monthly Archives: August 2019

The Bank of England’s “Future of Finance Report”

Huw van Steenis’ summarizes his report as follows (my emphasis):

A new economy is emerging driven by changes in technology, demographics and the environment. The UK is also undergoing several major transitions that finance has to respond to.

What this means for finance

Finance is likely to undergo intense change over the coming decade. The shift to digitally-enabled services and firms is already profound and appears to be accelerating. The shift from banks to market-based finance is likely to grow further. Ultra low rates, new regulations and the need to invest in updating their businesses mean many UK and global banks are struggling to make their cost of capital. Brexit and political and policy changes around the world will also impact the shape of financial services. Risks are likely to shift.
Regulators and the private sector have to collaborate in new ways as technology breaks down barriers. Finance is hugely important to the UK and the right infrastructure can support new finance.

What we ask the Bank of England to do

Shape tomorrow’s payment system
Enable innovation through modern financial infrastructure
Support the data economy through standards and protocols
Champion global standards for markets
Promote the smooth transition to a low-carbon economy
Support adaption to the needs of a changing demographic
Safeguard the financial system from evolving risks
Enhance protection against cyber-risks
Embrace digital regulation

Mark Carney’s June 2019 speech. See also the 2018 US Treasury report on financial innovation.

FedNow and Fedwire

The Federal Reserve Banks will develop a round-the-clock real-time payment and settlement service, FedNow. The objective is to support faster payments in the United States.

From the FAQs (my emphasis):

… there are some faster payment services offered by banks and fintech companies in the United States, their functionality can be limited. In particular, due to the lack of a universal infrastructure to conduct faster payments, most of these services rely on “closed-loop” approaches, meaning that users signed up to one service cannot exchange payments with users signed up to other services. Other services target ubiquity by relying on users’ bank accounts, but they may face challenges reaching enough banks to allow any two users to exchange payments. Moreover, these services typically use traditional retail payment methods to move funds between accounts. These methods result in a build-up of financial obligations between banks …

… fragmented market for end-user faster payment services, with services that may provide faster payment functionality in some circumstances and for some specific uses, like person-to-person payments, but that do not have sufficient reach to advance the U.S. payment system as a whole. The Federal Reserve’s goal in announcing the planned actions is to provide a much broader scope of access to safe and efficient faster payments throughout the country.

… the European Central Bank, Banco de México, and the Reserve Bank of Australia have looked to support the development of faster payments in their jurisdictions by providing services that enable payment-by-payment, real-time settlement of retail payments at any time …

First, the Federal Reserve Banks (the Reserve Banks) will develop the FedNowSM Service, a new interbank 24x7x365 real-time gross settlement (RTGS) service with integrated clearing functionality, to directly support the provision of end-to-end faster payment services by banks (or their agents). Second, the Federal Reserve will explore the expansion of hours for the Fedwire® Funds Service and the National Settlement Service (NSS), up to 24x7x365, subject to further analysis of relevant operational, risk, and policy considerations, to support liquidity management in private-sector RTGS services for faster payments, as well as provide additional benefits to financial markets beyond faster payments.

… Board has concluded that private-sector real-time gross settlement (RTGS) services for faster payments alone cannot be expected to provide an infrastructure for faster payments with reasonable effectiveness, scope, and equity. In particular, private-sector services are likely to face significant challenges in extending equitable access to the more than 10,000 diverse banks across the country.

the service will settle obligations between banks through adjustments to balances in banks’ master accounts at the Reserve Banks; these funds will be eligible to earn interest and count toward banks’ reserve requirements. Consistent with the goal of supporting faster payments, use of the FedNow Service will require participating banks to make the funds associated with individual payments available to their end-user customers immediately after receiving notification of settlement from the service. The service will support values initially limited to $25,000

… the FedNow Service will be available to banks eligible to hold accounts at the Reserve Banks …

By expanding Fedwire Funds Service and NSS hours, the Federal Reserve would provide further support to private-sector RTGS services for faster payments based on a joint account.

Some decision makers at the Fed believed that the Fed lacks authority to regulate banks operating payment systems in order to coerce them to offer access also to smaller banks.

Nordhaus on Climate Change

In his Nobel lecture (reprinted in the June issue of the American Economic Review), William Nordhaus concludes that we should focus on four goals:

First, people around the world need to understand and accept … Those who understand the issue must speak up and debate contrarians who spread false and tendentious reasoning. …

Second, nations must establish policies that raise the price of CO2 and other greenhouse-gas emissions. …

Moreover, we need to ensure that actions are global and not just national or local. … The best hope for effective coordination is a climate club, which is a coalition of nations that commit to strong steps to reduce emissions along with mechanisms to penalize countries who do not participate. …

Finally, … [d]eveloping economical low-carbon technologies will lower the cost of achieving our climate goals. Moreover, if other policies fail, low-carbon technologies are the last refuge—short of the salvage therapy of geoengineering—for achieving our climate goals or limiting the damage.

Views on Libra

Different aspects of the Libra proposal that various authors have emphasized:

  • Jameson Lopp on OneZero: A “database of programmable resources;” Move; “[p]erhaps the network as a whole can switch to proof of stake, but in order for the stablecoin peg/basket to be maintained, some set of entities must keep a bridge open to the traditional financial system. This will be a persistent point of centralized control via the Libra Association”; not a blockchain, the “data structure of the ledger history is a set of signed ledger states”; initially, 1,000 payment transactions per second with a 10-second finality time; technical aspects.
  • Laura Noonan and Nicholas Megaw in the FT: Gaining regulatory approval (in each US state, as well as in many countries) is burdensome even if Carney signals “open mind but not open door”; ING declined to be part of consortium; how can merchants be brought onboard?
  • James Hamilton on Econbrowser: Currency board; currency competition.
  • JP Koning on Moneyness: Competition for national banking systems; new unit of account; global monies (or languages) never worked out.
  • Stephen Williamson on New Monetarism: Narrow bank or mutual fund; why “krypto” or “blockchain?” [T]ere’s never been a successful banking system that didn’t have a strong regulatory hand behind it.
  • Corinne Zellweger-Gutknecht and Dirk Niepelt in NZZ, Jusletter: Role of resellers; regulation in Switzerland.
  • Kari Paul in the Guardian: Astrology.

Jordan Peterson’s “12 Rules for Life”

In 12 Rules for Life, Jordan Peterson argues for the kind of values instilled by a socially conservative parental home: Aim for paradise, but concentrate on today. Meaning is key, not happiness. Assume responsibility. Listen carefully, speak clearly, and tell the truth. And stand straight, even in the face of adversity.

Here they are, Peterson’s 12 rules:

  1. Stand up straight with your shoulders back
  2. Treat yourself like you would someone you are responsible for helping
  3. Make friends with people who want the best for you
  4. Compare yourself with who you were yesterday, not with who someone else is today
  5. Do not let your children do anything that makes you dislike them
  6. Set your house in perfect order before you criticise the world
  7. Pursue what is meaningful (not what is expedient)
  8. Tell the truth – or, at least, don’t lie
  9. Assume that the person you are listening to might know something you don’t
  10. Be precise in your speech
  11. Do not bother children when they are skate-boarding
  12. Pet a cat when you encounter one on the street

Peterson motivates the rules by telling stories and anecdotes from his experience as a clinical psychologist, which he mixes with interpretations of religious (mostly biblical) texts as well as Nietzsche, Freud, Jung, Frankl, or Dostoevsky. Peterson gets politically incorrect when discussing his 11th rule: He strongly rejects postmodernism and nihilism; and he shows little respect for management science: “[T]he science of management is a pseudo-discipline.”

As so often, what the author has to say could be said much more concisely. The book is far too long to precisely communicate the core ideas. What are they? Dean Bokhari suggests the following three key quotes from the book:

“We must each adopt as much responsibility as possible for individual life, society and the world. We must each tell the truth and repair what is in disrepair and break down and recreate what is old and outdated. It is in this manner that we can and must reduce the suffering that poisons the world. It’s asking a lot. It’s asking for everything.”

“Clear rules and proper discipline help the child, and the family, and society establish, maintain, and expand the order that is all that protects us from chaos and the terrors of the underworld. Where everything is uncertain, anxiety provoking, hopeless and depressing. There are no greater gifts that a parent can bestow.”

“The successful among us delay gratification. The successful among us bargain with the future.”

He also offers a “tweetable summary:”

Always tell the truth. Admit and learn from the past, make order of its chaos, and work towards not repeating the same mistakes. Pay close attention.

Other reviewers stress that Peterson wants his rules to help us strike the right balance between order and chaos (see also Philippa Perry’s “How To Stay Sane”). For example, Wyatt Graham condenses Peterson’s thinking as follows:

… life (or Being) involves suffering. … So, “We must have something to set against the suffering that is intrinsic to Being. We must have the meaning inherent in a profound system of value or the horror of existence rapidly becomes paramount” (xxxi).

We need to embrace Being, to not give in to suffering, and to find meaning. We need to live in the border between chaos and order and find our meaning there. …

For Peterson, to find meaning is to take on the responsibility of Being. We find it when we realize “that the soul of the individual eternally hungers for the heroism of genuine Being, and that the willingness to take on that responsibility is identical to the decision to live a meaningful life” (xxxv). He continues, “If we live properly, we will collectively flourish” (xxxv).

Yet others offer longer summaries, for example u/AresProductions on reddit, James Razko, or Neil Soni. Nat Eliason collects quotes from the book. Here is my summary of the summaries:

  1. Dare. Show strength in the face of adversity.
  2. Avoid self contempt. Be self-conscious and have a vision.
  3. Assume that you chose the easy path, and then take a different one. Improving is much harder than the opposite. “If you have a friend whose friendship you wouldn’t recommend to your sister, or your father, or your son, why would you have such a friend for yourself?”
  4. Focus on taking one step at a time. And take it.
  5. Teach your kids to behave properly (not least, to make them socially desirable). Discipline is not revenge.
  6. Conduct yourself as if Being is more valuable than Non-Being (or risk becoming a serial killer). Set your own house in order before trying to improve the world. Blame yourself—not for life’s tragedies, but for surrendering to them.
  7. Search for meaning, not for happiness. Sacrifice, i.e., invest.
  8. Be authentic. Avoid life-lies. Tell the truth to yourself and others. Big Wrongs are based on countless small lies. Only truth is compatible with meaning.
  9. Listen.
  10. Lack of precision breeds chaos. Precise speech brings things out of the realm of the unspeakable. Precision separates the unique terrible thing that happened from the others that might have happened—but did not.
  11. Respect culture, and human nature. Pity today’s boys.
  12. Our vulnerability is what makes us human. So celebrate the small joys of life.

In The Guardian, Tim Lott summarized Peterson’s worldview as follows:

“Life is tragic. You are tiny and flawed and ignorant and weak and everything else is huge, complex and overwhelming. Once, we had Christianity as a bulwark against that terrifying reality. But God died. Since then the defence has either been ideology – most notably Marxism or fascism – or nihilism. These lead, and have led in the 20th century, to catastrophe.

“‘Happiness’ is a pointless goal. Don’t compare yourself with other people, compare yourself with who you were yesterday. No one gets away with anything, ever, so take responsibility for your own life. You conjure your own world, not only metaphorically but also literally and neurologically. These lessons are what the great stories and myths have been telling us since civilisation began.”

In another discussion in The Guardian, John Crace made it even clearer that he didn’t like the book at all.

Goodreads contains many reader reviews. Wikipedia page.