US Push On CBDCs – Plus Loan Auction Latest
The capital-management crisis behind the war in Ukraine is largely unseen and unfollowed. Prevailing analysis starts with the idea that buying gas from Russia is a bad idea as the cash is used to fuel Putin’s war machine. The thinking pretty much stops there too.
There’s little doubt that control of capital is a key to most things in life – certainly funding a war. And central governments around the world are acutely aware of this. A key stratagem is to present a digital currency run by central banks (central bank digital currencies, aka CBDCs) as an alternative to genuine cryptocurrency, which is controlled by an independent algorithm as opposed to a centrally administered ledger.
Given that CBDCs are the best hope of central governments to swerve take-up of genuine cryptos, the recent boosting of them in the United States comes as no surprise.
In his annual letter to shareholders, Blackstone CEO Larry Fink commented on a broad range of issues including the “end of globalization” and the power of capital markets. The end of globalization is largely due to the unprovoked invasion by Russia and war in Ukraine and the need for the US to be more self-reliant as trading partners can go bad just like Russia. Another topic of interest is Fink’s musings on central bank digital currency (CBDC) or a digital dollar – an area where he sees promise.
At least tangentially, Fink is of the opinion that the war is accelerating digital currencies as well as the potential for a US CBDC.
- And here’s our previously blogged view on CBDCs…
The recent report from the Economic Affairs Committee of the House of Lords is a classic case of heads in the sand – or wherever the sun doesn’t shine. The members of the committee are on the whole clever people with strong backgrounds in finance and its academic study. They seem to be committed to be public service and doing the right thing. But they may well have fallen victim to a bad case of wishful thinking.
The issue here is the potential launch of a British central-bank digital currency (CBDC), neatly entitled Britcoin. And the Economic Affairs Committee has come out against it.
Consider this news snippet from Fintech Futures: “The Economic Affairs Committee, made up of lords and baronesses, cited concerns over financial stability, surveillance and data protection, determining that a UK CBDC is a ’solution in search of a problem’.
Committee chair Lord Forsyth of Drumlean says a UK CBDC would have ‘far-reaching consequences’ and any potential benefits were overstated or achievable through less risky alternatives.”
The report, published last week, says that “while a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy.”
The problem would be compounded, as reported by Coindesk, in that “the House of Lords committee said it would be “inevitable” that consumers would transfer money from their bank accounts into CBDC wallets. Therefore safeguards would be required on the amount of CBDC individuals could hold to avoid financial instability being exacerbated during turbulent economic times by people replacing bank deposits with digital banknotes.
Loan Auction Latest
- The end of the tax year is approaching, and we currently have four loan auctions on site.
All these loans can be held, up to £20,000, as Innovative Finance Individual Savings Accounts (IFISAs). IFISAs are explained in more detail below. Here’s the latest from the auction room:
- Mar-Key has a credit rating of A+, a yield of 7 per cent and a term of two years. It is currently 20 per cent filled.
- HTHL Ltd has a credit rating of A+, a yield of 7 per cent and a term of one years. It is currently 15 per cent filled.
- Fleetwood Legal has a credit rating of A, a yield of 7 per cent and a term of one year. It is currently 31 per cent filled.
- Bonnington Law has a credit rating of A, a yield of 7 per cent and a term of one year. It is currently 20 per cent filled.
- Harris & Co. has a credit rating of A, a yield of 8 per cent and a term of one year. It is currently 11 per cent filled.
- You can see detail on each by logging in and downloading the credit note.
Historical Performance And IFISA Process Guide
- Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee).
That figure is the result of over £24 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
- Money&Co. has been lending for over 5 years and has only had two bad debts so far, representing a bad debt rate of 0.03 per cent per annum.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
- Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
- Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
- Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.
The ISA allowance for 2020/21 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.