The Rise of Digital Money (Decentralized(?))

In this segment we will deal with digital money, specifically, cryptocurrency. Before we continue let us define cryptocurrency,

“A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.” (Frankenfield, Cryptocurrency Definition)

 

There are several cryptocurrencies currently so for the purposes of brevity and by what many can relate to we will deal with Bitcoin. Let us define bitcoin,

 

“Bitcoin is a digital currency created in January 2009. It follows the ideas set out in a whitepaper by the mysterious and pseudonymous Satoshi Nakamoto.1 The identity of the person or persons who created the technology is still a mystery. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and, unlike government-issued currencies, it is operated by a decentralized authority.” (Frankenfield, Bitcoin Definition: How Does Bitcoin Work?)

 

Who is Satoshi Nakamoto?

 

“Satoshi Nakamoto is the most enigmatic character in cryptocurrency. To date, it is unclear if the name refers to a single person or a group of people. What is known is that Satoshi Nakamoto published a paper in 2008 that jumpstarted the development of cryptocurrency.” (Hayes)

 

In 2009, a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was published that detailed a peer-to-peer network[1] as a solution to the double-spending problem.[2] Since a physical bill can only exist at one place at a single time a single bill cannot be a victim of the double-spending problem. Digital currencies do not exist physically but digitally, so the double-spending problem poses a threat. Nakamoto ultimately proposed a decentralized approach to transactions that would culminate in the creation of something called blockchains.[3]

 

Bitcoin is considered an electronic coin that is considered “… a chain of digital signatures.” (Nakamoto) “The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.” The Bitcoin document purported to be written by Nakamoto mentions an argument against a central authority and a mint, with every transaction having to go through them, just like a bank. (Nakamoto) It also mentions an electronic payment system that would be based upon a cryptographic proof instead of trust as well as a system for participants to agree on a single history of the order in which they were received. My question would be who is to run this system? Who would be the trusted participants within this system?

 

I, personally, hold that we should diversify where we can and make money in whatever store of value that we can. Cash, stocks, bonds, electronically traded funds (ETFs), commercial paper, precious metals (physical or paper), cryptocurrencies, real estate, etc. Recently many have discussed their biases or genuine concerns of cryptocurrency due to the dark web, money laundering and the drug markets. James Martin observes,

“Cryptomarkets are complex computer-based phenomena. In cyberspace they represent virtual meeting places for a motley assortment of deviants, drug users, entrepreneurs and political activists who come together online to share information and to trade. Whilst logged on to a cryptomarket, the physical location and identity of users are masked by free yet highly sophisticated encryption technology. This enables anonymous communications and commerce, the nature of which is often subversive or illegal, particularly with regard to the use, sale and distribution of illicit drugs.” (Martin 6)

 

While it is true indeed that the dark net/dark web exists, it is interesting how fewer in number discuss the Anti-Money Laundering Regime (AML Regime) and the fact that drugs, corporations, banks, and financial institutions in relation to drugs go back to at least the 1800s as we have covered here in the following mediums:

Jardine Matheson and HSBC:

https://cue-talks.blogspot.com/2021/01/jardine-matheson-and-hsbc.html

Nothing New Under the Sun:

 

https://cue-talks.blogspot.com/2021/01/nothing-new-under-sun_12.html

Disagreement Among the Invisible:

 

https://cue-talks.blogspot.com/2021/01/disagreement-among-invisible.html

 

A Look into Russell and Company:

 

https://cue-talks.blogspot.com/2021/02/a-look-into-russell-company.html

 

When Corporations and Governments Mix:

 

https://cue-talks.blogspot.com/2021/02/when-corporations-and-government-mixes.html

 

When Corporations, Churches, Newspaper Media, and Governments Collaborate:

 

https://cue-talks.blogspot.com/2021/02/when-corporations-church-newspaper.html

 

Another Look at Jardine Matheson & Co.:

https://cue-talks.blogspot.com/2021/02/another-look-at-jardine-matheson-co.html

 

When Corporations Assists Governments in Wars:

https://cue-talks.blogspot.com/2021/04/when-corporations-assist-governments-in.html

 

There are several other sources that I could make available on drug money laundering utilizing the United States Dollar (USD) and other world currencies concerning advanced economies (AEs) or emerging market economies (EMEs). I will leave you with these to show the relationship with the banking industry.

Buzzfeed News:

THE FINCEN FILES

 

Thousands of secret suspicious activity reports offer a never-before-seen picture of corruption and complicity — and how the government lets it flourish.

 

By Jason Leopold, Anthony Cormier, John Templon, Tom Warren, Jeremy Singer-Vine, Scott Pham, Richard Holmes, Azeen Ghorayshi, Michael Sallah, Tanya Kozyreva, and Emma Loop

https://www.buzzfeednews.com/article/jasonleopold/fincen-files-financial-scandal-criminal-networks

 

The International Consortium of Investigative Journalists (ICIJ):
Global banks defy U.S. crackdowns by serving oligarchs, criminals and terrorists

 

The FinCEN Files show trillions in tainted dollars flow freely through major banks, swamping a broken enforcement system.

 

By The International Consortium of Investigative Journalists (ICIJ)

 

September 20, 2020

 

https://www.icij.org/investigations/fincen-files/global-banks-defy-u-s-crackdowns-by-serving-oligarchs-criminals-and-terrorists/

Lastly a visual for you:

https://cue-talks.blogspot.com/2020/12/financial-rules-changes.html

Next we will be diving into Govcoins and Stableboins:

https://intelpub.podbean.com/e/the-rise-of-e-money/

 

References

Cope, James. What's a Peer-to-Peer (P2P) Network? Prod. ComputerWorld. Needham, 8 April 2002. 29 June 2021. <https://www.computerworld.com/article/2588287/networking-peer-to-peer-network.html>.

Frankenfield, Jake. Bitcoin Definition: How Does Bitcoin Work? Prod. Investopedia. New York, 1 June 2021. Website. 29 June 2021. <https://www.investopedia.com/terms/b/bitcoin.asp>.

—. Cryptocurrency Definition. Prod. Investopedia. New York, 25 May 2021. Website. 29 June 2021. <https://www.investopedia.com/terms/c/cryptocurrency.asp>.

—. Double-Spending Definition. Ed. Julius Mansa. Prod. Investopedia. New York, 30 June 2020. Website. 29 June 2021. <https://www.investopedia.com/terms/d/doublespending.asp>.

Hayes, Adam. Satoshi Nakamoto Definition. Ed. Erika Rasure. Prod. Investopedia. New York, 8 March 2021. Website. 29 June 2021. <https://www.investopedia.com/terms/s/satoshi-nakamoto.asp>.

Martin, James. Drugs on the Dark Net How Cryptomarkets are Transforming the Global Trade in Illicit Drugs. UK: PALGRAVE MACMILLAN, 2014. Book.

Nakamoto, Satoshi. Bitcoin: a Peer-to-Peer Electronic Cash System. 2009. Document. 29 June 2021. <https://bitcoin.org/bitcoin.pdf>.

 

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[1] In its simplest form, a peer-to-peer (P2P) network is created when two or more PCs are connected and share resources without going through a separate server computer. A P2P network can be an ad hoc connection—a couple of computers connected via a Universal Serial Bus to transfer files. A P2P network also can be a permanent infrastructure that links a half-dozen computers in a small office over copper wires. Or a P2P network can be a network on a much grander scale in which special protocols and applications set up direct relationships among users over the Internet. (Cope)

 

[2] Double-spending is the risk that a digital currency can be spent twice. It is a potential problem unique to digital currencies because digital information can be reproduced relatively easily by savvy individuals who understand the blockchain network and the computing power necessary to manipulate it. (Frankenfield, Double-Spending Definition)

 

[3] In a blockchain, timestamps for a transaction are added to the end of previous timestamps based on proof-of-work, creating a historical record that cannot be changed. (Hayes)

The Rich Get Richer and the Poor Get Poorer

 Let us deal a moment with one of the greatest capitalist cities of our modern times, perhaps the first. Amsterdam and to an extent Antwerp. Of Amsterdam, specifically, we observe,

“Making the most of her advantages of position, Amsterdam had built up a thriving trade before the middle of the sixteenth century, and was renowned for the number and size of her ships. This early prosperity, founded on the fisheries and the Baltic trade in which Netherlanders had eclipsed their Hanseatic rivals, broadened to include a carrying and entrepot trade between northern Europe, principally in grain, timber, pitch, tar, metals, hemp, flax, and fish, and western France, principally in wine and salt.” (Barbour, 1963, pp. 14-15)

 

From the 1500s, capitalism has been a reality. Through trade, commerce, banking, industry, and markets capitalism has emerged and thrived through the last few centuries. Many despise the idea of capitalism due to there being winners and losers. The truth is that in all periods pre and post capitalism there were always and still are winners and losers. There is no reason why we should allow ourselves to believe that it will ever be any different moving forward. Within the realm of competition, we measure winners and losers within capitalism based upon rich and poor. Of course, there is an in between. But the polarization of rich and poor are necessary for demonstrating how capitalism works to a degree.

 

Antwerp preceded the preeminence of Amsterdam’s capitalistic gains. So, some things may have passed on to Amsterdam which should not be a surprise. Amsterdam would eventually get into the banking industry and even financial markets as they became more metropolitan and cosmopolitan. Later capital began to flow more liquid which was shown during the shocks of the English and French wars,

“Because much of the capital active in Amsterdam was foreign-owned by Amsterdammers of foreign birth, and much Dutch-owned capital was not fixed in land, houses, or industrial plant, but in assets easily liquidated or transferred, it was peculiarly sensitive and mobile. The shocks of the English and French wars demonstrated this mobility.” (Barbour, 1963, p. 58)

 

The French invasion in 1672 caused the wealthy to send their wealth elsewhere. There were interests rates that went from 10 to 17 percent. Bonds from Holland lost 30 percent of value and even shares in the East India company lost half of their market value. The bank of Amsterdam was able to make it through the crisis due to its large store of gold and silver. During the struggle against Louis XIV the poor were heavily taxed while the rich were growing richer. Seems similar to today when one peers into the Panama Papers and other works. Many are upset with the rich and how they are able to hide their money to evade paying taxes as the ‘middle-class’ and others pay. One would be shocked to find out that it is in fact not illegal. While the next explanations will not deal specifically with wars, one method is to purchase a shell company and go through a series of steps to utilize that shell company to shield money from being taxed. Before we go any further let us define some very important terms.

 

Nominee

"A nominee is a person or firm whose name is titled on securities or other property to facilitate certain transactions or transfers while leaving the original customer as the actual or legal owner. In this way, a nominee can serve as a custodian.

 

A nominee account is a type of account in which a stockbroker holds shares belonging to clients, making buying and selling those shares easier and for safekeeping. In such an arrangement, shares are said to be held in street name." (Hayes, 2020)

Nominee Director

Obermayer and Obermaier observes,

“The real owners (or, if they are more cautious, their lawyers) are generally given a power of attorney by the nominee directors to access the bank account or the safe.

… to stay shut away from the prying eyes of inquisitive public prosecutors, tax officials and fraud investigators.” (Bastian Obermayer, 2016, p. 15)

Also,

 

"The front man or woman, known as the nominee director in offshore jargon, assures the true owner that they will follow their instructions and that they don’t have any claims against them or the company (‘Nominee Director Declaration’). They then give the true owner, the beneficial owner, a ‘power of attorney’ that makes them the de facto director. In the third and final document, which isn’t filled out by default, the nominee director submits their resignation (‘Resignation Letter’). The nominee director signs this letter and passes it on to the real owner, but doesn’t enter a date, meaning that the real owner can get rid of the fake one at any time, even with retrospective effect. The nominee director is often deprived of their rights from the very start.” (Bastian Obermayer, 2016, p. 173)

 

Nominee Shareholders

 

“If there is a need for even more stringent anonymity, then Mossack Fonseca can provide not only nominee directors but also ‘nominee shareholders’. These are individuals or shell companies that hold shares virtually, on trust. Should Mossack Fonseca be forced to name one or more of a company’s shareholders, for example during an investigation, this does not mean that they are the ultimate owners, not in the slightest. The real owners can hide behind this second protective screen.” (Bastian Obermayer, 2016, p. 16)

 

Beneficial Owner

"A beneficial owner is a person who enjoys the benefits of ownership even though the title to some form of property is in another name.

 

It also means any individual or group of individuals who, either directly or indirectly, has the power to vote or influence the transaction decisions regarding a specific security, such as shares in a company." (Chen, 2020)

 

Lastly, Obermayer and Obermaier observes,

“Incidentally, Commerzbank in particular was initially very wary of working with Mossfon. Staff a the bank expressed concern that secret deals could be leaked or that nominee directors could disappear with their clients’ money. Mossack Fonseca explained the system over and over and finally suggested a particularly safe option: bank clients could conceal their money in offshore companies under the protective cover of an anonymous trust. This would give clients ‘the advantage, when asked by the German tax authorities, of being able to truthfully answer no to the questions listed above regarding the account holder, beneficial owner and authorization’. In plain English, it means clients would be able to inform the tax office that they do not own the account and that they have no access to it. This is because the account belongs pro forma to the company, and the company belongs pro forma to the trust – which, in turn, appoints the client as a beneficiary.” (Bastian Obermayer, 2016, pp. 150-151)

 

In conclusion we will sum up by stating that the rich who have access to more resources and information as it would seem not only in times previous but also in modern times if prudent continue to keep what they have accumulated and tend to accumulate more. Does this imply that you must be or get rich? Not necessarily. However, living within ones’ means would be the key regardless.

 

In today’s world as demonstrated earlier but now given by way of summary, a person or company purchases a shell company. Through documentation a person is approached to be a nominee director which is a sort of front person who appears to run the company. Since it is a corporation, it needs shareholders to appear to be a viable and functioning company. The person or company approaches others to entice them to become nominee shareholders of the shell company. Now the real director(s) and shareholder(s) are shielded from the public documents. Then you have beneficial ownership the true owners can hide behind the names of others. Of course, this is all done with a payment to the nominees and those in front of the beneficial ownership. Sometimes it is not done with a payment but through bribes, blackmail, etc. There were other methods utilized during the days of Amsterdam’s capitalist prominence. While the modern demonstration did not implicate war the more modern wars were utilized similarly. We will explore that in time as well.

 

References

Barbour, V. (1963). Capitalism in Amsterdam in the 17th Century. Ann Arbor, MI: The University of Michigan Press.

Bastian Obermayer, F. O. (2016). The Panama Papers. London, England: Oneworld Publications Ltd.

Chen, J. (2020, November 17). Beneficial Owner. (G. Scott, Editor) Retrieved June 15, 2021, from Investopedia: https://www.investopedia.com/terms/b/beneficialowner.asp#:~:text=A%20beneficial%20owner%20is%20a,property%20is%20in%20another%20name.

Hayes, A. (2020, December 30). Nominee. Retrieved June 15, 2021, from Investopedia: https://www.investopedia.com/terms/n/nominee.asp

Globally Systemically Important Banks (G-SIBs) and Systemically Important Financial Institutions (SIFIs)

 

In line with our previous discussion on the counterparties/primary dealers of the Federal Reserve (FED) and the member banks of the FED, we will now show the more international aspect of modern banking and finance. There are some banks that are equal if not even above the banks that some of us had once believed were more government controlled. The FED is a central bank.[1] Central banks and financial institutions are governed by international entities. The bank that sets policy for central banks is the Bank for International Settlements (BIS). Then you have the Financial Stability Board (FSB). We will find the modern landscape of banking and finance are far more important with a dire need of exploration than many may realize. With all of this said let us move forward.

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[1] A national bank that provides financial and banking services for its country's government and commercial banking system, as well as implementing the government's monetary policy and issuing currency. (Online, central bank, n.1, 2021)

 

“Certain large banks are tracked and labelled by several authorities as systemically important financial institutions, depending on the scale and the degree of influence they hold in global and domestic financial markets. Since 2011, the Financial Stability Board has published a list of global systemically important banks (G-SIBs), while individual countries also maintain their own lists of domestic systemically important banks (D-SIBs), also known in Europe as "national SIFIs". In addition, special lists of regional systemically important banks (R-SIBs) also exist.” (Wikipedia, 2020)

 

“At recent Summits, G20 Leaders asked the FSB to develop a policy framework to address the systemic and moral hazard risks associated with systemically important financial institutions (SIFIs).” (Board, 2011)

 

The meeting took place in Seoul in 2010. Something that is of extreme interest is found later within the Financial Stability Board (FSB) document,

“SIFIs are financial institutions whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity. To avoid this outcome, authorities have all too frequently had no choice but to forestall the failure of such institutions through public solvency support. As underscored by this crisis, this has deleterious consequences for private incentives and for public finances.” (Board, 2011)

 

We would have to properly define what the FSB means/meant by ‘public solvency support,’ and ‘public finances.’

 

Public

the public treated as singular or plural Ordinary people in general; the community. (Online, 2021)

Within the context of discussing solvency support and finances the public is being included. Authorities have had to involve the finances of the public to forestall the failure of such institutions due to the distress or disorderly failure of the SIFIs. If all things were equal, then those who made the mistakes or performed utter wrongfulness would be held accountable instead of including others that were not a part of those mistakes or wrongfulness. 

We will focus upon two categories that the Basel Committee on Banking Supervision (BCBS) of the BIS discusses in their section on Indicator-based measurement approach concerning their methodology for assessing the systemic importance of G-SIBs,

As far as cross-jurisdictional activity category when a bank has cross-jurisdictional assets and liabilities the distress or failure of that bank could have international impacts. “… The greater a bank’s global reach, the more difficult it is to coordinate its resolution and the more widespread the spillover effects from its failure.” (Settlements, 2018, p. 6)

Concerning the size category if a bank possesses large shares of global activity, then that bank's distress or failure could have global implications. “… The larger the bank, the more difficult it is for its activities to be quickly replaced by other banks and therefore the greater the chance that its distress or failure would cause disruption to the financial markets in which it operates. … One indicator is used to measure size: the measure of total exposures used in the Basel III leverage ratio, including exposures arising from insurance subsidiaries.” (Settlements, 2018, p. 6)

 

As we have previously discussed some of the counterparties/primary dealers and even the member banks of the FED we will take time to mention another counterparty/primary dealer JP Morgan Chase. In 1893 there was a stock market panic which led JP Morgan (Morgan) in 1895 to demand a meeting with the then current president Grover Cleveland. (Edwards, 2000) A plan by Morgan was implemented to have the U.S. sell 3.5 million ounces of gold to the British. This was amid job losses as well as the depleting funds of the US Treasury Department due to nervous investors desiring to be paid in gold for their dollars. So, a bailout agreement was made between Morgan and the US Government that paid $60 million into the US Treasury Department. (Daily, 2017) Why is this important? Because JP Morgan is not only a counterparty/primarily dealer of the FED (under the name of J.P. Morgan Securities LLC), but also a G-SIB, and a SIFI. According to the BCBS Morgan is a bank that has a cross-jurisdictional presence and is of a size that could have implications, if it were to become distressed or fail, that would reach globally and obviously cause authorities to utilize ‘public finances’ to shore up losses. So, a bank that at one time brokered a deal to bail out the U.S. government later became a counterparty/primary dealer with the FED. They are also a G-SIB and a SIFI. Until next time ...

 

Photo courtesy of the New York Federal Reserve https://www.newyorkfed.org/markets/primarydealers

Photo courtesy of the FSB https://www.fsb.org/wp-content/uploads/Policy-Measures-to-Address-Systemically-Important-Financial-Institutions.pdf

Photos courtesy of the BIS https://www.bis.org/bcbs/gsib/

References

Board, F. S. (2011, November 11). Policy Measures to Address Systemically Important Financial Institutions. Retrieved April 14, 2021, from Financial Stability Board: https://www.fsb.org/2011/11/r_111104bb/

Daily, H. (2017, April 20). During the Panic of 1893, JP Morgan Used $60 Million in Bonds to Bail Out the United States Government. Retrieved April 19, 2021, from History Daily: https://historydaily.org/panic-of-1893

Edwards, R. (2000). The Morgan Bonds. Retrieved April 19, 2021, from Vassar College: http://projects.vassar.edu/1896/morganbonds.html

Online, O. (2021, March). central bank, n.1. Retrieved April 19, 2021, from Oxford University Press: https://www.lexico.com/en/definition/central_bank

Online, O. (2021, March). public, n.1. Retrieved April 19, 2021, from Oxford University Press: https://www.lexico.com/en/definition/public

Settlements, B. f. (2018, July). Global systemically important banks: revised assessment methodology and the higher loss absorbency requirement. Retrieved April 19, 2021, from Bank for International Settlements: https://www.bis.org/bcbs/publ/d445.htm

Wikipedia. (2020, September 20). List of systemically important banks. Retrieved April 14, 2021, from Wikipedia: https://en.wikipedia.org/w/index.php?title=List_of_systemically_important_banks&oldid=979420123

 

 

When Corporations Assists Governments in Wars

 

One might ask the question ‘Does corporations ever assist governments in wars?' One might then ask ‘What was the earliest time that such a thing took place?' While the following demonstration may not be the first time that such a thing has taken place it certainly is amongst the earliest.

 

We will visit again the work of Hunt Janin titled, The India-China Opium Trade in the Nineteenth Century. After a long period of facing piracy, Commander C. Dalrymple Hay, RN, commanded an operation aboard HM Columbine, an 18-gun brig,[1] assisted by the Peninsular and Oriental (P&O) Steam Navigation Company (P&O Nedloyd folks) aboard their ship Canton and HM gunboat Fury cornered Chiu Apoo, one of two leaders amongst pirate fleets, capturing them and killing more than 400 men. They later destroyed 23 pirate junks[2] and set ablaze the pirates’ shipyards. (Janin, 1999, p. 141)

So, we have:

 1. British Royal Navy

2. Peninsular and Oriental (P&O) Steam Navigation Company

 

Though they are fighting piracy, one of the reasons why they are fighting piracy is to protect the movement of opium, among other goods. We also find that days later along with eight (8) junks of the Chinese navy, the HM gunboat Fury was also assisted by the paddle steamer Phlegethon owned by the East India Company.

Finally, later we find that Shap-‘ng-tsai, the boss of Chiu Apoo, after he was unable to be captured “… was bought off by the Chinese government and rewarded with a job as a naval mandarin.” (Janin, 1999, p. 142)

Oh, how our entities merge at times with an overall goal or goals in mind. Governments, corporations, and at times criminals. Until next time …

 

References

Janin, H. (1999). The India-China Opium Trade in the Nineteenth Century. Jefferson, North Carolina: McFarland & Company, Inc. Publishers.

Online, O. (2021, April). brig, n.1. Retrieved April 1, 2021, from Oxford University Dictionary: https://www.lexico.com/en/definition/brig

 

 

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[1] A two-masted, square-rigged ship with an additional gaff sail on the mainmast. (Online, 2021)

[2] Ship