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All eyes on inflation at Jackson Hole summit – Industry roundup: 25 August

Inflation spectre looms at Jackson Hole summit

Central bankers converging on Jackson Hole, Wyoming for their annual summit will confront the possibility that resurgent inflation will prove more than a short-lived phenomenon but a transition to a more enduring new reality.

The three-day event, which in 2022 marks the symposium’s 45th year, is billed as focusing on the theme “Reassessing Constraints on the Economy and Policy.” It will be the first time that delegates have met in person since 2019 due to the Covid-19 pandemic.

Event sponsor the Federal Reserve Bank of Kansas City says that this year’s theme “will explore the emergence of economic constraints during the pandemic and how supply considerations have returned to centre stage.

“Bottlenecks and shortages have limited economic supply even as historic levels of fiscal and monetary accommodation have led to a surge in demand, resulting in an imbalance that has pushed inflation up globally. Additionally, the extraordinary and often innovative global policy response to the pandemic invites questions on what constraints bind macroeconomic policy, such as concerns over fiscal sustainability and the ultimate size of central bank balance sheets.”

This year’s Jackson Hole speech by Federal Reserve chairman Jerome Powell will be closely studied. At the August 2021 summit Powell pushed back against concerns that swiftly rising prices could become an enduring feature of the economy, forcing the US central bank to raise interest rates and cut short America’s post-pandemic recovery.

However, over the subsequent 12 months the Fed has reassessed policy and tightened via a series of steeper than anticipated interest rate hikes. According to one report: “Several former Fed officials who have worked closely with Mr Powell say he is likely to err on the side of raising rates too much, rather than too little, because tolerating excessive inflation would represent a much greater institutional failure for the central bank.”

A Reuters report also predicts that Powell's message on inflation and interest rates this year “will strike a tone entirely different from the soothing one he used at the same event just one year ago.

“Back then, Powell used a series of charts to illustrate why he expected price pressures to ease and believed a still-underemployed and pandemic-battered nation needed continued support from the US central bank.”

Analysts have offered various predictions on whether the Fed will maintain its recent policy of sharper, more frequent rate hikes over the coming months. "I think he will lay out a case, as he did in his last press conference, for slowing the pace of increases. We had two 75-basis-point moves. Our expectation would be, barring significant data surprises, that the September move is 50," said Jan Hatzius, chief economist at Goldman Sachs. "I don't think he will be specific about the number, but I do think he will be saying there is a risk of over-tightening, and therefore it makes sense to go a little bit more slowly than the outsized increases."

MasterCard prepaid card aims to unlock potential of blockchain

Mastercard has revealed further details about its collaboration in Argentina, where it is launching a crypto prepaid card with plans to roll it out globally.

The joint venture with Binance, the world’s largest cryptocurrency exchange was first revealed three weeks ago and Mastercard CEO Michael Miebach has now confirmed on his personal LinkedIn profile that the initiative will enable purchases in more than 90 million stores.

“We can unlock the full potential of blockchain technology when we make it easier to access and easier to use,” wrote Miebach. “One way we can do that is by bringing crypto to everyday purchases.

“To make that a reality, we’re working with Binance to let people use their crypto to make purchases at 90m+ stores that accept Mastercard. Launching this work in Argentina and plans to expand from there.

“What could the blockchain industry look like in five years. We’re seeing hints of that.”

Mastercard has worked in the sector for some time to enable cryptocurrency holders to use its network for fiat payments, but integration with Binance marks a big step forward.

Reports suggest that it is significant the initiative will start in Argentina, where inflation stands at 71% and the Argentine Peso (ARS) has been in steady decline. In the past 12 months alone, ARS has lost almost a third of its value against the US dollar, and one Bitcoin (BTC) is worth about 2.9 million ARS, or only 37% less than a year ago.

Mastercard’s rival Visa has also made progress in cryptocurrency adoption and announced the launch in Brazil of a BTC-prepaid card with cashback in Bitcoin. Dubbed the Ripio Card, it has been created by Brazilian cryptocurrency broker Ripio in partnership with Visa.

Ripio hopes to release 250,000 cards by the end of the year, offering the product to its one million users in Brazil and says that the digital version of the card is already available.

UK power network plans four days of emergency planning exercises

The United Kingdom’s power transmission network, National Grid, is preparing for potential long-term disruption to Europe’s energy supplies by doubling its annual emergency planning exercises this autumn.

The ‘disaster drill’ – dubbed ‘Exercise Celsius’ in 2021 and which in previous years has been a two-day exercise – will take place on 13th to 14th September and again on 4th to 5th October. Potential scenarios, including the rationing of electricity, will be wargamed over the four days as part of ‘Exercise Degree’.

“The aim of this exercise is to demonstrate that the gas industry is prepared and able to meet its obligations in the event of a Network Gas Supply Emergency (NGSE),” stated a briefing document from the National Grid. The company added that arrangements for this year’s exercise were made back in January, before Russia’s invasion of Ukraine.

“Exercise Degree is the latest in a long series of annual exercises which go back to 1996 when the Network Emergency Co-ordinator role was created,” confirmed a National Grid spokesperson. “The exercises enable National Grid Gas, government, and industry participants to test the effectiveness of industry-wide emergency arrangements in order to prevent, and (if unavoidable) respond to a gas supply emergency.

An industry source said that this year’s doubling of planning days should not cause undue concern to the British public, but it has been extended due to the new issues now facing the UK - such as the war affecting global supplies. “Hopefully this exercise will mean we cover all of these new scenarios, and we will be more prepared going into the winter,” they said. Gas supplies, they added, are expected to remain stable throughout the winter with household blackouts “very unlikely”.

The government has also sought to reassure insists households and businesses and said that blackouts this winter are unlikely thanks to supplies from Australia. The Attalos gas tanker, which earlier this week arrived at the Isle of Grain terminal in Kent, is believed to be the first cargo of liquified natural gas (LNG) sent from Australia to Europe in six years.

Some of the shipment is likely to be used in the UK straight away, but much of it will probably flow to Europe through the pipelines that connect the UK to the rest of Europe. There it might be channelled into European gas storage sites and some of it could return to the UK during the winter.

However, National Grid is aiming to minimise the likelihood by incentivising large industrial firms to voluntarily reduce their use of gas every winter until 2025 or beyond.

The European Union’s (EU) energy ministers have already backed a voluntary 15% reduction in gas usage over the winter but with Russia expected to further reduce flows, there is also the prospect that EU states will declare energy emergencies to trigger immediate cuts.

Nigerian Central Bank bullish on CBDC uptake

Although uptake of the eNaira digital currency by Nigerians has been slow since its launch in October 2021, the Central Bank of Nigeria’s (CBN) governor says that his institution is targeting a tenfold increase in the number of users over the next 12 months. Godwin Emefiele predicts that the use of cash will “dissipate to zero” while the “use of digital currency will increase to become part of our lives.”

A report suggests that in the 10 months since launching, the app for the Nigerian central bank digital currency (CBDC) has now been downloaded 840,000 times. In a country of 206 million, less than one million Nigerians have embraced the digital currency that the CBN touts as a better alternative to volatile cryptocurrencies.

However, despite the lack of enthusiasm for the eNaira a recent survey suggested that as many as 33.4 million Nigerian adults are holders of cryptocurrencies and nationally there is a high level of interest in crypto.

Emefiele hopes to attract similar enthusiasm for the eNaira and says that Nigeria has no choice but the embrace emerging economies. The central bank’s ultimate objective is to ensure the CBDC is available to all Nigerians and provides more possibilities to bring the unbanked into the digital economy.

As part of the initiative, the CBN announced that from 22 August the eNaira will become available to unbanked adults and prospective users can access the CBDC by dialling 997 on their mobile phones.

Cash flow at centre of Huawei’s survival plan

Huawei Technologies' founder in China has urged staff to put profitability and cash flow before sales to ensure the company's survival over the next three years amid the growing threat of recession. The company plans to sell off non-core divisions and could withdraw from some countries entirely, although it remains committed to the information and communications technology (ICT) sector

According to a report in the Chinese publication Yucai, Ren Zhengfei posted a memo on Huawei's internal networks warning staff that the economic climate poses a serious threat and said that Huawei needs to change its way of thinking and business practices to survive until 2025.

Ren expects the world economy to experience up to a decade of weak demand although 2023 through to 2025 is likely to prove the most challenging period. He expressed doubt about Huawei's ability to “break through” the 2023-24 downturn.

“With survival the main principle, marginal businesses will be shrunken and closed, and the chill will be felt by everyone,” Ren wrote. The company would curtail or sell noncore businesses, indicating that further job cuts could follow the 2,000 positions cut from the payroll in 2021, the first cutback since 2008. “No more stories, we have to talk about the realities, We have to survive first, and we’ll have a future if we can survive,” he added.

The CEO said that his pessimism reflected a combination of post-Covid economic challenges, the Ukraine war and ongoing US sanctions imposed on the company. The Trump administration added Huawei to an export blacklist in 2019, preventing it from using critical US-made technology, which restricted its ability to design chips and purchase parts from external suppliers. Huawei has denied US allegations that the company poses a security risk due to its ties with the Chinese government.

High commodity prices “will maintain pressure on rupee”

Continuing high commodity prices could widen India's current account deficit, keeping the rupee (INR) under pressure until more sustainable capital flows can fill the gap, according to a note issued by Bank of America (BofA) Securities.

“India has continued to post wide trade deficits due to higher prices of oil and other commodities, which have eroded INR's basic balance buffer,” commented the research house while higher prices for oil and other commodities “are materially impacting" the fundamental outlook for the currency amid increased risks of populist measures.

Multiple measures from the Indian government and the Reserve Bank of India (RBI) to reduce demand for the US dollar and improve supply to the tune of over US$40 billion across spot and forwards, are likely to briefly stabilise the INR, it said. However, sustained support from RBI would be needed to maintain a gradual pace of rupee depreciation.

“The support could be in the form of further intervention or tightening of monetary conditions for longer term external rebalancing.”

The risk-reward balance on INR remains skewed for further depreciation, BofA said, recommending hedging long rupee exposure despite the high costs.

Egypt’s Commercial International Bank launches Instant Payment Network

 The Commercial International Bank – Egypt (CIB) has launched the Instant Payment Network (IPN) through its digital channels, including internet and mobile banking, as well as the Egyptian Banks Company’s InstaPay application, in line with the Central Bank of Egypt’s (CBE) guidance on supporting digital transformation and facilitating digital payments.

In June 2022, the total value of payments through the app reached nearly Egyptian pounds (LE) 2.6 billion (£114 million) and the number of transactions increased by 500%. The number of subscribers to the service also increased by 286%.

CIB says that the IPN is considered a new payment network with the ability to instantly send and receive funds between member banks all day long using an enhanced experience and transfer funds between different account types, Meeza cards and mobile wallets.

“The IPN is a unique model that will strongly support the CIB’s efforts to accelerate digital transformation and change consumers’ behaviour to be more responsive to changes, which is a primary objective,” said Mohamed Farag, the CIB’s Deputy Chief Operations Officer. “The IPN seeks not only to provide a payment network but also offer a new experience that meets customer needs and opens the door to creativity and innovation, aiming to maximize customer benefits,” he added.

The CIB has also launched the latest generation of automated teller machines (ATMs), featuring a touch screen displaying icon-shaped menus that enable users to view and navigate every icon on the screen.

Australia’s central bank warns on climate change threats

The Reserve Bank of Australia (RBA) has warned companies in both the financial and non-financial sectors to act now to manage the financial threats from global warming, warning that directors and trustees likely to face litigation risks if they don’t take “appropriate actions”.

The central bank’s head of domestic markets, Jonathan Kearns, described the climate crisis as a “significant issue” for the economy and society and failing to take urgent action would mean the impact was “more severe”.

For financial markets the challenges range from immediate and chronic risks caused by the intensification of extreme weather events to the legal liabilities for corporate senior executives.

Kearns added that demand for Australia’s fossil fuel exports was also likely to reduce, a so-called “transition risk” the RBA is now reviewing for its potential future economic impact. The RBA was concerned asset prices would probably become more volatile, affecting their value as security for loans. That, in turn, would require banks to reassess their books.

The RBA and other members of the Council of Financial Regulators – Australian Prudential Regulation Authority (APRA), Australian Securities and Investments Commission (ASIC) and Treasury – began working on updated disclosure rules in 2017.

Acknowledging that uncertainties remain about the scale and location of climate perils, Kearns said business, directors or trustees were increasingly exposed to liability risk “if they do not sufficiently respond to climate change”.

“This risk exists not only when they choose not to take appropriate actions but also if they are not informed to take appropriate actions,” he said.

No plans for levy on UPI payments, says India’s Finance Ministry

Plans floated by the Reserve Bank of India (RBI) for levying charges on payment systems, including the Unified Payments Interface (UPI) developed by the National Payments Corporation of India (NPCI), National Electronic Funds Transfer (NEFT) and the Immediate Payments Service (IMPS), have been swiftly rebuffed by the Finance Ministry.

In a statement issued within days of the RBI discussion paper’s publication, the Ministry described UPI services as a “digital public good with immense convenience for the public and productivity gains for the economy” and confirmed that the government has no plans to begin levying charges on them.

“The concerns of the digital payment service providers for cost recovery have to be met through other means,” the statement added.

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