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Yellen backs ‘friend-shoring’ to bolster supply chains – Industry roundup: 21 July

Yellen: US and allies should employ ‘friend-shoring’ for supply chains

US Treasury Secretary Janet Yellen has repeated her appeal for the United States and its trusted trading partners to boost supply chain resilience through “friend-shoring,” but said this does not mean the US is retreating from the rest of world.

The term draws on the concepts of “onshoring” and “nearshoring,” which refer to the transferring of supply chains back home or closer to home, as opposed to having them in foreign countries. “Friend-shoring” goes beyond that but limits supply chain networks to allies and friendly countries

Yellen made her call during a speech made at South Korean conglomerate LG’s Science Park in Seoul. The US has been pushing for greater security in its supply chains since the advent of the Covid-19 pandemic. President Joe Biden signed an order in early 2021 to review America's supply chains, with the aim of reducing reliance on foreign suppliers. 

“Supply chain resilience is a key focus of the Biden-Harris administration,” said Yellen. “And the necessity of this work has been illustrated clearly by the events of the past two years, first by Covid-19 and our efforts to fight the pandemic and now by Russia's brutal war of aggression in Ukraine. Together they have redrawn the contours of global supply chains and trade.”

The initiatives have, however, given rise to concerns of a possible global economic decoupling, particularly as the United States and other countries seek to avoid an overreliance on China. Yellen said the measures do not indicate the US is withdrawing from global trade but show that friendly countries are taking a longer-term perspective on vulnerabilities in an effort to make economies more productive.

“We do not want a retreat from the world, causing us to forgo the benefits it brings to the American people and the markets for businesses and exports,” Yellen stressed referring to the US deepening ties with South Korea.

“In doing so we can help to insulate both American and Korean households from the price increases and disruptions caused by geopolitical and economic risks … in that sense, we can continue to strengthen the international system we’ve all benefited from, while also protecting ourselves from the fragilities in global trade networks.”

Uniper’s problems reflect wider woes of Europe's utilities

German gas giant is Uniper SE is nearing a bailout deal that may see the government inject billions of euros and take a direct stake in the energy giant, according to reports.

Confidential talks could see the German government taking a stake of as much as 30%, which would give it effective veto power over major decisions at Uniper, according to sources. Uniper recently applied to extend the €2 billion (US$2 billion) credit line it has drawn from German state-owned lender KfW Group, increasing the urgency for a government rescue.

Uniper has been running out of options, having started drawing gas out of storage to sell to customers to avoid buying more expensive fuel in the spot market. The utility has asked the government for a bailout, including an equity stake and additional debt funding through an increase in a state-bailout as talks with the group’s Finnish owner have proved problematic. Finland’s energy utility Fortum Oyj is - via its indirect holding company Fortum Deutschland SE, Düsseldorf - the main shareholder of Uniper.

The government is under pressure to agree on a rescue package for Uniper by 25 July, otherwise the utility firm could face more severs funding issues due to Russia reducing gas supplies, Uniper is Germany's largest importer of Russian gas and is haemorrhaging cash in having to source supplies from alternative sources after Russia reduced deliveries.

Uniper’s problems are far from unique, with Czech power firm CEZ CP seeking up to €3 billion to weather the crisis.

Other European energy and utilities companies are racking up more debt to cover the cost of soaring oil and gas prices. Their overall debt, which has been climbing since the pandemic, has increased this year to more than €1.7 trillion (US$1.7 trillion) -- more than a 50% jump from before 2020 according to Bloomberg

The region’s power companies raised €45 billion of bonds and €72 billion of loans during the first six months of the year according to data from Bloomberg, which reports that Europe’s green bond market is preparing to finance nuclear energy projects for the first time.

According to Bloomberg, Electricite de France (EDF) has updated its green financing framework to include nuclear after European Union lawmakers voted to give certain nuclear energy projects a sustainable label. Several other companies are talking to investors about it, according to NatWest Markets, one of the top 10 arrangers of environmental bond deals.

Although its low carbon emissions has enabled nuclear to achieve green status on paper, it remains controversial and some ethical funds plan to continue boycotting it. EDF said it will distinguish between green bonds that finance nuclear and those that don’t, effectively creating two classes of debt tin response to the schism among investors.

Australia’s central bank signals further rate hikes

Australia’s central bank has signalled the need for further interest rates to tame the country’s rising inflation, despite recent rate hikes, as unemployment drops to its lowest level in nearly 50 years.

The Reserve Bank of Australia (RBA) sees the current benchmark rate of 1.35% as being “well below” the so-called neutral rate that is neither expansionary nor contractionary, according to minutes of its July policy meeting.

“The level of interest rates was still very low for an economy with a tight labour market and facing a period of higher inflation,” the RBA minutes said. “Members viewed it as important that inflation expectations remained well anchored and that the period of higher inflation be temporary.”

The central bank raised the benchmark rate by half a percentage point at its 5 July meeting, the third hike in as many months. RBA Governor Philip Lowe has often suggested the neutral rate lies at about 2.5%.

Lowe also recently suggested that cryptocurrencies issued by private companies could be better than central bank digital currencies (CBDCs), provided the firms are regulated appropriately.

Speaking during a panel discussion at the G20 financial officials meeting in Indonesia, Lowe said: “I tend to think that the private solution is going to be better – if we can get the regulatory arrangements right.”

This is because the private sector is “better than the central bank” at innovating and designing features for cryptocurrencies, Lowe explained. Moreover, creating CBDCs and setting up a digital token system can be significantly expensive for the central bank.

Lowe added: “If these tokens are going to used widely by the community they are going to need to be backed by the state or regulated just as we regulate bank deposits.”

In the same panel as Lowe, Eddie Yue, chief executive officer of the Hong Kong Monetary Authority (HKMA), said that greater scrutiny and regulation of such private tokens could also reduce the risks from decentralised finance (DeFi) protocols.

Yue said that regulating stablecoins can help reduce risks from DeFi. Stablecoins and cryptocurrency exchanges form the gateway to DeFi projects and regulating these gateways is easier than regulating DeFi.

BNP Paribas enters crypto custody space

France’s BNP Paribas (BNP) is entering the cryptocurrency custody space via a partnership with Swiss digital asset safekeeping firm Metaco, according to reports citing individuals familiar with the deal. Crypto custody firm Fireblocks is also involved in the bank's digital asset infrastructure, according to a press release.

While many major banks are edging towards crypto custody, the deal is particularly significant as BNP Paribas Securities Services is positioned as a major global custodian with almost US$13 trillion in assets under custody.

Metaco, which last month agreed a custody tech deal with France’s Société Générale, is becoming the go-to provider for banks and institutions looking to enter the crypto space. Metaco also recently announced a deal with Citigroup and previously with BBVA, Zodia Custody, DBS and UnionBank Philippines.

BNP Paribas Securities Services recently used Fireblocks – which also works on crypto assets with BNY Mellon – in a live experiment on the settlement and custody of a non-listed digital bond in the French market.

The service Metaco will be providing for SocGen and Citi is focused on security tokens, such as tokenised versions of stocks or other financial instruments, with less of an emphasis on pure cryptocurrencies. According to Metaco’s CEO Adrien Treccani, this is a popular trend among French banks as they enter the digital asset space.

OS-Climate begins roll-out of tools to meet Paris climate goals

OS-Climate has launched the first in a series of free tools to drive climate-friendly decision making by companies, financial institutions and governments. BNP Paribas, Allianz, Ortec Finance and Airbus are among those leading development.

Linux Foundation’s OS-Climate is a non-profit organisation providing open source data and software tools to enable the global shift to climate-aligned finance and investing, has today released for public collaboration three analytic tools critical to tackling the climate crisis.

The launch marks the next step of its mission to provide open source data and software tools to enable the global shift to climate-aligned finance and investing.

The three tools, Physical Risk & Resilience, Portfolio Alignment and Transition Analysis, were developed cooperatively by OS-Climate members, led by BNP Paribas, Allianz and Airbus respectively. Financial institutions, corporations, NGOs, regulators and academics can access the code behind OS-Climate’s tools to support climate-aligned financial decisions.

OS-Climate said in its release: “The door will open to further collaboration in building out the tools and Data Commons – a library of data and metadata suitable for use with OS-Climate’s toolset – needed to enable the +US$5 trillion annual climate-aligned investment required to meet the goals of the Paris climate agreement.”

BankiFi expands into North America

UK-based BankiFi, the open banking API and embedded banking platform, has announced its expansion into North America with the launch of BankiFi Americas.

“Small and medium-sized businesses (SMBs) in the US are facing the same problems we’ve seen in the UK and Australia, including late payments and time delays due to financial administration," said Mark Hartley, BankiFi's founder and CEO. Within our technology, we aim to transform services available to SMBs within community banking, across the US.”

BankiFi aims to support the digitisation and payment modernisation requirements of SMEs, while placing financial institutions at the heart of the relationship. “Currently, community financial institutions in the US are facing existential threat from FinTech platforms, national banks and accounting package vendors that are offering a competitive suite of payment solutions to SMEs,” states its release.

“With BankiFi’s open cash management platform and architecture, financial institutions can embed a flexible solution that can be tailored to address the unique segments of their small business portfolio.

“The platform addresses critical SME requirements through digital workflows that collect payments faster, automate data integration with accounting platforms and provide comprehensive insights to optimise working capital."

BNY Mellon, Goldman Sachs join forces on agency securities lending

BNY Mellon and Goldman Sachs International announced their successful completion of the industry's first agency securities lending transactions using the HQLAX Distributed Ledger Technology (DLT) platform.

As part of the combined series of 35-day term transactions with a total size in the hundreds of millions of US dollars, HQLAX created International Securities Identity Number (ISIN)-level securities trackers called Digital Collateral Records (DCRs) from loaned securities it received from BNY Mellon, giving Goldman Sachs a digital copy of those trades.

The ISIN-level DCRs are the first of their kind, representing specific ISIN quantities held in custody. Those records will enable holders and agents to transfer ownership of any security on the HQLAX distributed ledger, without the need for conventional settlement mechanisms.

It also paves the way for eligible clients to reuse ISIN-level DCRs in onward collateral obligations at one or more Triparty Agents.

“We are delighted to be partnering with HQLAX on this milestone. The potential to enhance collateral and inventory mobility is very exciting and something that has been a key industry focus for a number of years,” said Bill Kelly, Head of Securities Finance at BNY Mellon.

Meow raises US$22 million in funding

Meow, described as “the compliant crypto yield offering for corporate treasuries,” announced that it has closed on US$22 million in Series A financing.

It added that the round was led by,Tiger Global with participation from QED Investors, cryptocurrency exchange FTX, and others, and will be used to support the company’s rapid growth with new hires and enhanced product features.

Meow provides institutional and corporate investors with a compliant-first approach to participating in emerging cryptocurrency investment opportunities. Since launching in early 2022 following seed financing from cryptocurrency industry leaders and investors, including Coinbase Ventures, Gemini Frontier Fund and Lux Capital, Meow’s offering has quickly been embraced by corporate treasury departments. In less than six months, Meow grew corporate assets under management to nearly US$100 million due to rapid adoption of the cash-in-cash-out, short-term high-yield investing opportunities by a range of companies.

“Nobody believed us when we said corporations would want to participate in crypto markets,” said Brandon Arvanaghi, Co-Founder and CEO of Meow. “Access to crypto yield is just the beginning. We’re coming for it all. We’re committed to making Meow the one-stop shop for corporate finance.”

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