G7 warns on Libra; N.Y. Fed chief tells central banks to be bold

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Still debating
Cryptocurrencies such as Facebook’s Libra “need to be tightly regulated or they could destabilize the global economy,” according to the finance ministers of the G7 group of major western economies and Japan, which published a preliminary report on Thursday.

These currencies “give rise to a number of serious risks related to public policy priorities including, in particular, anti-money laundering and countering the financing of terrorism, as well as consumer and data protection, cyber resilience, fair competition and tax compliance,” the report says. “They could also pose issues related to monetary policy transmission, financial stability and the smooth functioning of and public trust in the global payment system.”

While just about everyone has been bashing Libra since the idea was introduced a few weeks ago, count the Wall Street Journal’s editorial board as supporters. “Facebook’s cryptocurrency ecosystem needs to be fleshed out and potential weaknesses explored. But it could provide low-income Americans with a cheap banking alternative and perhaps put pressure on banks to lower fees.” The question is: “Will regulators and politicians allow it?”

An ounce of prevention ...
Federal Reserve Bank of New York President John Williams called on central banks to “take swift action when faced with adverse economic conditions” and “keep interest rates lower for longer” than they have in the past. “Don’t keep your powder dry — that is, move more quickly to add monetary stimulus than you otherwise might,” he advised. “When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress.”

“Markets immediately began interpreting the speech as a sign that the Fed might lower its benchmark rate by a half-percentage-point, instead of a quarter-point, at the July 30-31 meeting of the Federal Open Market Committee.” But the New York Fed said Williams didn’t intend to suggest that.

“This was an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting,” a New York Fed spokesman said.

Wall Street Journal

Missing ingredient
Morgan Stanley posted respectable second quarter earnings on Thursday, and “once again highlighted its well-rounded business model.” Except for one thing: consumer lending, which benefited all of the bank’s big Wall Street peers.

“This is an area in which Morgan Stanley doesn’t play, apart from lending to wealth-management clients. Morgan Stanley can easily live without a mass-market consumer-lending franchise. At times like now when wages are rising and unemployment is at multidecade lows, reaching out to the masses can pay.”

Bad timing
Three big Nordic banks caught up in recent money laundering scandals — Swedbank, Nordea Bank and Danske Bank — said “efforts to improve anti-money-laundering controls continue to weigh” on their financial results. “Investments in new compliance systems and staff members have taken a bite out of quarterly profits. The uptick in compliance spending comes at a tricky time, as lenders across the continent face an outlook for lower interest rates and uncertainty surrounding the U.K.’s planned exit from the European Union.”

Financial Times

Different beat
“Platform” was the buzz word during Goldman Sachs’ earnings call this week. The “P-word” was uttered 18 times during the call. “Under new chief executive David Solomon, an aficionado of electronic dance music, the entire firm is moving to a computerized beat. Now it is all about hawking consumer loans on the lending platform and rubbing shoulders with Citigroup over who has the better treasury services platform.”

Meanwhile, former Goldman Sachs banker Roger Ng is scheduled to go on trial in Brooklyn May 11, 2020, on money laundering and bribery charges in the 1MDB scandal. However, lawyers for Ng and the Department of Justice told the presiding judge “that talks over a potential plea bargain are continuing, and that a deal could be reached before the case reaches trial.” Ng’s former boss, Tim Leissner, has already pleaded guilty to charges that he participated in the fraud.

Quotable

“The sovereignty of nations might be weakened or jeopardized by these new currencies.” French finance minister Bruno Le Maire, discussing the potential dangers posed by cryptocurrencies such as Facebook’s proposed Libra

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