Australia central bank aims for digital currency pilot next year
The Reserve Bank of Australia (RBA) said that it is working to identify business models and uses for a central bank digital currency (CBDC), or eAUD, and is likely to conduct a pilot in early 2023. It released a white paper outlining an elaborate plan for conducting a pilot project for eAUD.
The project, which began in July, will help “further understanding of some of the technological, legal and regulatory considerations associated with a CBDC,” said the RBA and the Digital Finance Cooperative Research Centre (DFCRRC). Key objectives of the project are to identify and understand innovative business models, use cases, benefits, risks, and operational models for a CBDC in Australia.
In early August, the RBA announced its collaboration with the DFCRC to explore CBDC use cases for Australia and the joint research led to the launch of a project to test a general-purpose pilot CBDC, as outlined in the ‘Australian CBDC Pilot for Digital Finance Innovation’ white paper, which states: “The key objectives of the project are to identify and understand innovative business models, use cases, benefits, risks, and operational models for a CBDC in Australia.”
The report on Australia’s CBDC pilot project is expected for release in mid-2023 based on indicative project timelines as follows:
- Publish white paper to describe project and invite submissions - September 2022
- Engage with industry participants on CDDC design and usage - September-October 2022
- Deadline for receipt of expressions of interest - 31 October 2022
- Enable selected participants to test use cases on the CBDC platform - November 2022
- Announce selected use cases for pilot CBDC - December 2022
- Conduct CBDC pilot and operate selected use cases - January - April 2023
- Shut down pilot CBDC platform - April 2023
- Publish report with findings - Mid-2023
Three weeks ago, Australia’s ministerial department of Treasury canvassed the Australian public for their opinion on taxing cryptocurrencies. Assistant Treasurer Stephen Jones revealed the intention to exclude crypto assets from being taxed as a foreign currency.
Australian investors were provided with a window of 25 days to share their opinion on this decision, which expires this Friday. The legislation, if signed into law, will amend the existing definition of digital currency in the Goods and Services Tax (GST) Act to exclude it as a foreign asset.
As a central bank, the RBA will be responsible for the issuance of eAUD, while the DFCRC will oversee the development and installation of the eAUD platform. Industry participants can join the pilot as use case providers once approved for implementation.
The white paper suggests the use of Ethereum (ETH)-based private, permissioned instance. “Pilot participants will bear their own costs for the conception, design, development, implementation and piloting of use cases, if selected,” stated the RBA.
Ford revamps its supply chain management
Motor manufacturer Ford has unveiled a new plan for growth, which will transform global supply chain management to support “efficient and reliable sourcing of components”.
The US car giant last month warned that next month’s Q3 earnings report would be hit by an additional US$1 billion in higher-than-expected supplier costs and parts shortages and that it was responding by “streamlining operations”, reducing product complexity and restructuring its supply chain management. The changes also included the creation of a new post of chief global supply chain officer.
The latest announcement sees the company accelerating its Ford Plus plan for growth and value creation to support electric vehicle (EV) development at scale and strengthen its product lines. Its new supply chain management capabilities will “support efficient and reliable sourcing of components, internal development of key technologies and capabilities, and world-class cost and quality execution”.
Alongside supply chain management transformation, Ford stated it would bring leadership changes in several key areas. This included a new VP of product development operations and new hires for developing advanced driver assistance systems.
Ford’s chief financial officer (CFO) John Lawler will oversee a “makeover” of global supply chain operations on an interim basis until the newly created post of chief global supply chain officer is filled.
Jim Farley, Ford president and CEO, said: “Developing and scaling the next generation of electric and software-defined vehicles requires a different focus and mix of talent from the accomplished Ford team and many exciting new colleagues joining our company.
“We’re building on this rock-solid foundation with exciting new vehicles and derivatives that customers across the world will love.”
Ford has said suppliers have been hit by inflation and it is paying more for parts and materials. Parts shortages have also resulted in more than 40,000 unfinished vehicles sitting in inventory.
Major banks see Hong Kong revenues tumble
Leaders of the biggest US banks, who last week pledged to forgo business in China if Taiwan is attacked, may have to take some more immediate if less dramatic action in their Hong Kong investment banking operations., reports suggest.
The CEOs of JPMorgan Chase, Bank of America and Citigroup made the commitments at a 21 September hearing of the financial services committee in the US House of Representatives. They spoke in response to a question from Blaine Luetkemeyer, a Republican congressman from Missouri, whether they would be willing to withdraw their investments from China in the event of a military attack on Taiwan.
“We will follow the guidance of the government, which has been working with China for decades. If they change their position, we will change it immediately, just like we did in Russia,” said B. rian Moynihan, CEO of BofA.
His comments were echoed by Jane Fraser and Jamie Dimon, the chief executives of Citi and JPMorgan, respectively. “We would absolutely salute and follow what the US government said, that’s all of you, what you want us to do,” Dimon told the committee.
Reports have noted that the Hong Kong investment banking operations of each bank appear vulnerable
Investment bank fees earned from mergers and acquisitions (M&A) advisory and capital markets underwriting in Hong Kong have fallen by 69% this year across as offshore initial public offerings (IPOs) and debt sales by Chinese companies have dried up.
US banks, which lead the way on listings and M&A, have been hardest hit. Morgan Stanley and JPMorgan have seen their fees dropping by 84%, according to figures from Dealogic in the year to date ending 22 September, compared with same period in 2021.
Goldman Sachs, which is ranked second by fees on behind China International Capital Corp, has seen revenues fall by 82%. Bank of America’s revenues in Hong Kong have fallen by a similar amount. There were no figures for Citi as the bank does not rank in the top 10 for fees in Hong Kong this year, according to Dealogic.
European banks have fared slightly better, although they are coming from a lower base because they generate lower revenues than US rivals. Credit Suisse was bottom of the pack among the top 10 biggest fee earners, with a 71% drop in IB revenues. HSBC and UBS saw fees fall by 64% and 59% respectively, which is less than the overall fall in fees and suggests they gained market share in a difficult market.
Of this group, so far only Goldman Sachs and Credit Suisse have trimmed headcount in Hong Kong, but one headhunter said: “When you look at how far revenues have fallen, it looks inevitable that they will cut these businesses before year-end.”
There is an alternative narrative to job cuts. Bank bosses are reluctant to push ahead with layoffs because they don’t want to be caught out if the cycle turns. Meanwhile, one division head at a North American firm told eFinancialCareers that when it comes to thinking about headcount, they are discounting comparisons with 2021. “2021 was an outlier and the peak of the cycle globally. So when we think about costs, we’re looking at 2019 as a better comparison.”
However, even through this lens the picture looks bleak in Hong Kong, where fees were US$2.1bn after the first nine months of 2019, compared with US$884m in the year to September 22 this year, and US$2.85bn in the first nine months of 2021.
BlackRock: Global insurers innovating their investment policies
Global insurers are adapting their investment approaches to rapidly changing market conditions this year, focusing on resilient portfolio construction, liquidity management and integrated technology, according to investment giant BlackRock.
The firm’s 11th annual Global Insurance Report surveys 370 insurance investors across 26 markets, representing nearly US$28 trillion in assets under management.
Charles Hatami, Global Head of BlackRock’s Financial Institutions Group, said: “The current investment landscape is a result of major upheaval over the past two years, and uncertainty is only expected to increase. The insurance clients with whom we partner understand that innovation at scale and a nimble approach will be critical to navigate the complexity ahead.”
The latest survey found that 79% of insurers plan to review their long-term strategic asset allocation (SAA) and nearly half (48%) will review risk appetite thresholds this year. Six in 10 insurers reported inflation as their top market concern, with asset price volatility (59%) and liquidity (58%) close behind. To further diversify their portfolios, 87% of insurers plan to increase allocations to private investments over the next two years; representing a 3% average increase versus their current allocation. Insurers also plan to increase allocations to liquid assets, suggesting “a barbell approach”, with 37% of respondents intending to allocate to cash and 31% to fixed income.
Lyenda Delp, Head of BlackRock's Financial Institutions Group for the Americas, said: “Insurers maintain a sustained appetite for risk assets, but as we move on from a long period of steady growth and inflation to the new regime of heightened macro and market volatility, their goals are more dynamic than a search for yield or general diversification. On a whole portfolio basis, insurers are now re-evaluating the role that every asset class must play to build in resilience.”
More than two-thirds of the survey respondents reported they are either likely or very likely to implement broad environmental, social and governance (ESG) targets in their portfolios in the next 24 months. In addition, 85% reported they are either likely or very likely to commit to specific climate objectives for their portfolio, while 62% of insurers surveyed see decision making related to sustainability as a major trend shaping their industry in the coming years. The right technologies and tools will be critical for insurers to ensure consistency across sustainability analytics, with applications including regulatory disclosure and reporting, through to evaluating investment allocations.
Digital transformation and technology were named by 65% of insurers as the most important trend in the insurance industry over the next 12-24 months, compared to 44% in 2021, while 98% reported using artificial intelligence (AI), machine learning (ML), predictive analytics, blockchain, or a combination of these technologies, with predictive analytics being utilised both for the management of insurance business (65%) and investment operations (72%). When it comes to future tech spend, most of those surveyed plan to prioritise investments for asset and liability management (68%), along with regulatory compliance (54%) and market data (53%).
The insurers surveyed are also driving adoption of new investment approaches such as bond exchange traded funds (ETFs). Insurers report they plan to increase the use of fixed income ETFs in their portfolios, primarily to potentially improve liquidity (54%) and yield (48%). BlackRock reports that eight of the 10 largest US insurers now report using bond ETFs, with five having adopted them after the volatile markets of March 2020. And so far this year, BlackRock has identified 17 insurers throughout Europe, the Middle East, and Africa who are using ETFs for the first time. Given fixed income ETFs are often seen as efficient vehicles to generate yield and income in a low-cost and scalable way, BlackRock recently forecast that global bond ETF assets under management could reach US$5 trillion by 2030 – and insurance investors are a major driver of this new approach.
China's PBOC imposes 20% risk reserve requirement on forward FX sales
China’s central bank announced that it will increase the risk reserve requirement ratio for financial institutions when conducting foreign exchange (FX) forward trading, following increasing depreciation pressures on the yuan (CNY).
The People’s Bank of China (PBOC) will increase the risk reserve requirement for forward FX sales to 20%, from the current zero. The move, which the central bank said is aimed at stabilising expectations within the foreign exchange market, will be introduced from Wednesday 28 September.
In recent days, the CNY has depreciated to a level closest to the weak end of its allowed trading band since a shock currency devaluation in 2015. Pressure on the exchange rate has worsened lately due to the dollar’s surge and as the local economy suffers from Covid curbs and slowing property sector.
The currency currently trades at CNY 7.17 to the US dollar and any depreciation past 7.1854 per dollar would send it to the weakest level since early 2008. The PBOC’s attempt to support the currency comes on top stronger-than-expected yuan fixings since August, which limits the currency’s moves by 2% on either side. It also reduced in banks’ foreign-currency reserve requirements earlier this month to boost the yuan.
“By imposing the risk reserve requirement, the PBOC aims to slow the pace of depreciation, but it will unlikely turn the tide,” said Peiqian Liu, an economist at NatWest Markets. “The currency weakness is in line with most major currencies and the broad dollar strength.”
The additional risk reserve requirements would make it expensive for traders to buy foreign exchange through forwards or options, a move that may curb bearish yuan bets. The central bank, which previously lifted the risk reserves for foreign exchange forward trading from zero to 20% in 2015, lowered it two years later before raising it again in 2018.
New UK digital bank Bond plans Q1 2023 launch
Bond, a digital bank for businesses offering high yield business accounts, savings accounts and embedded treasury services, is reported to be gearing up for a Q1 2023 launch in the UK.
Founded earlier this year and headquartered in London, Bond claims on its website that it will offer 2.52% yield on its business accounts with no monthly fees.
The new bank will also provide expense management tools, business insights and physical and virtual Visa debit cards for corporate teams. It claims its embedded treasury feature will “optimise the movement of money to turn idle cash into revenue”.
“Bond Treasury optimises the movement of money throughout your financial stack by enabling you to determine defined cash management rules for your business to automate and optimise cash management internally and externally,” the firm says.
Businesses can also invest in funds, government securities or environmental, social and governance (ESG) funds, based on their financial strategy. Funds will be managed by UBS, BlackRock and Goldman Sachs.
Along with £0 fees, it also claims it will have no minimum balance requirements and will provide “unlimited” cashback.
Standard Bank considers expansion into North Africa
Standard Bank is considering expanding beyond Sub-Saharan Africa for the first time by venturing into the North African nations of Morocco and Egypt in an effort to better serve multinational and South Africa-based corporate clients with operations in the largely Arabic-speaking region.
Africa’s largest lender by assets believes Morocco and Egypt are the two most attractive “Mediterranean-facing” economies on the continent due to their substantial populations and sophisticated banking sectors, said Standard’s CEO.
Meanwhile, one of the bank’s regional CEOs suggested that a proposed natural gas pipeline running from Tanzania to Uganda may have a positive environmental impact in a region where the majority of households still cook using charcoal or wood.
“One of the biggest issues in Uganda is that 70% of cooking is still done by charcoal and firewood, so they’re cutting trees down,” said Patrick Mweheire, Standard’s regional chief executive officer for East Africa.an interview in an interview.
The line, if built, would run parallel to the US$4 billion East African Crude Oil Pipeline (EACOP) currently under construction. The EACOP, being developed by a group including TotalEnergies SE, will transport crude from Uganda’s oil fields to Tanzania’s coastline.
The oil pipeline is opposed by environmentalists and the gas line may face similar resistance. But Mweheire said the projects would have “huge benefits” for both nations. The gas pipeline, in particular, would help curb deforestation, he said.
Uganda intends to proceed with the EACOP, which will transport oil 900 miles from the shores of Lake Albert on the border between Uganda and the Democratic Republic of the Congo to Tanzania’s Tanga port on the Indian Ocean.
The European Union has urged the governments to stop work on the pipeline on the grounds that it threatens fragile wildlife habitats.
Nomentia partners with SEB for bank connectivity as P27 nears
Finnish software company Nomentia Oy announced that it is partnering with Sweden’s Skandinaviska Enskilda Banken (SEB) to provide integrations and bank connectivity to SEB's clients to prepare them for the upcoming changes enforced by P27, the Nordic Payments Platform. P27 will increase the efficiency of payment processing to improve domestic and cross-border payments in the Nordics.
Espoo-based Nomentia said that the partnership gives SEB clients the possibility to use Nomentia to establish direct bank connectivity with the bank and send payments in the correct file format from their enterprise resource planning systems (ERPs) and financial systems. By partnering with Nomentia, SEB will ensure that its clients can adapt to the changing environment before P27 comes into effect.
“We have decades of experience in creating and managing bank connections for our clients with banks across the globe enabling corporates to automatically send and fetch bank materials such as payments, account statements, and references,” said Karl-Henrik Sundberg, Head of Partners & Customer Success at Nomentia. ”P27 means that companies must communicate with their banks directly and we will help them to transform their payment files into the correct ISO 20022 XML format so that they do not need to do an ERP upgrade. “
“Between 2008-2010, we helped hundreds of customers with SEPA transition in Europe and now, we are facing a comparable situation with P27,” added Jukka Sallinen, CEO at Nomentia. “Partnering with SEB is another major milestone for us as we can be part of the change to help reform how payments are processed in the Nordics. SEB clients can select Nomentia to create a connection between their systems and SEB and communicate with the bank directly.”
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