Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, looks back at the history of globalisation to understand why it was on the agenda in Davos.

Luminaries from across the political and business world gathered last week for the World Economic Forum (WEF) Annual Meeting in Davos, Switzerland,

Although concerns about near-term global economic growth and trade tensions dominated conversations, the official theme of this year’s forum was ‘Globalisation 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution’.

But what does this mean and why is it expected to be important for the future?

To understand what Globalisation 4.0 means, it’s useful to look back on the previous waves and consider how they have shaped the world we live in.

Technology driving trade

Globalisation 1.0 refers to the rapid growth in world trade, mainly during the nineteenth century.

It was driven by innovations in transport and communications, including the railways, steamships and the electric telegraph.

The subsequent reduction in the cost of global transport enabled the separation of production and consumption across international borders, making previously exotic products like tea, sugar and cotton readily available and affordable in markets like the UK for the first time.

Globalisation surged again after the Second World War – dubbed Globalisation 2.0.

Driven by greater international cooperation, the post-war period saw less protectionism and a rapid growth in world trade, at least in western economies.

Enabling offshoring

The third wave of globalisation is thought to have started around 1990.

Further advances in technology, including the spread of the internet, made it easier for different stages of production to be based in various locations across the globe, leading to the emergence of modern supply chains.

This enabled firms to further cut the cost of producing products and delivering services by moving their operations to cheaper locations, known as offshoring.

However, it’s also likely have contributed towards rising disenchantment, particularly where people in more advanced economies feel that they have not reaped the rewards.

The next wave, dubbed Globalisation 4.0, is set to be driven by the Fourth Industrial Revolution, which is happening right now.

The development of advanced technologies like artificial intelligence, big data, nanotechnology, the internet of things, 3D printing and autonomous vehicles all have the potential to significantly impact global productivity.

Opportunity and inequality

Unlike the previous waves, which have mainly affected goods-producing sectors, Globalisation 4.0 is predicted to have a much greater impact on services.

Unlike the previous waves, which have mainly affected goods-producing sectors, Globalisation 4.0 is predicted to have a much greater impact on services.

And we live in an increasingly connected world, so the speed of its adoption may also be faster than in previous waves.

Attendees at Davos not only discussed the opportunities that Globalisation 4.0 is expected to create, such as increased productivity, but also considered the growing evidence of a backlash against globalisation.

The WEF could be regarded as the ultimate representation of globalisation, so it is no surprise that meeting the challenges this latest wave of economic change brings for individuals and society were high up on the delegates’ agenda.

The comments from Ian McLeod of Thomas Crown Art, follow growing concerns that the global economy is likely to experience a significant slowdown before the end of 2019.

Leading economic indicators tracked by the OECD have weakened since the start of the year and suggest slower expansion over the next six to nine months.

Similarly, the wider global expansion that began roughly two years ago has plateaued and become less balanced, according to the International Monetary Fund.

Mr McLeod observes: “There’s a growing list of investment tailwinds to consider for 2019. These include significant trade tensions, rising interest rates, political uncertainties, including Brexit, and complacent financial markets.

“The US, the world’s largest economy, has, of course, considerable influence on Asian and European economies. As such, should ther US stock market plunge – as it did recently scrapping all of its 2018 gains during a major sell-off - global markets are vulnerable too.”

He continues: “Against this backdrop, we can expect cryptocurrencies will increasingly be seen as investors’ ‘safe havens’ in 2019 and beyond.

“When the downside of the economy hits, digital assets cryptocurrencies like Bitcoin and Ethereum are likely to be viewed by investors as a robust means of storing wealth, in the same way they do with gold.”

Mr McLeod adds: “There are several keys reasons why the likes of Bitcoin and Ethereum will be safe havens. These include scarcity, because there’s a limited supply; permanence, they don’t face any decay or deterioration that erode their value; and future demand certainty as mass adoption of cryptocurrencies and blockchain, the technology that underpins them, takes hold globally.”

Of this latter point, he comments: “As mainstream adoption is going to dramatically gain momentum in 2019 as the world, especially business, realise ever-more uses for and value of crypto and blockchain.

“Ethereum’s blockchain, for instance, is used in our art business. It has allowed us to create a system to use artworks as a literal store of value; it becomes a cryptocurrency wallet.

“It also solves authenticity and provenance issues – essential in the world of art. All our works of art are logged on the Ethereum’s blockchain with a unique ‘smART’ contract.”

The tech expert concludes: “We are some way off from cryptocurrencies replacing the Swiss Franc, the Japanese Yen or gold as the preferred safe haven assets.

“However, as the world moves from fiat money to digital, and as adoption of crypto picks up, there can be no doubt that cryptocurrencies will be firmly in the pantheon of safe haven assets within in the next decade.”

(Source: Thomas Crown Art)

Assetz Capital investors are predicting the worst economic quarter of the year, according to the Q3 Investor Barometer.

Last quarter, the peer-to-peer lending platform surveyed its 29,000-strong investor base. When asked ‘how will the economic situation impact you in the next three months’, only 9% thought it would be positive, while 40% thought it would be negative.

This compares poorly to Q1 (13% positive, 36% negative) and Q2 (10% positive, 31% negative), as the potential future relationship models with the EU post-Brexit start to become clearer.

Stuart Law, CEO at Assetz Capital said: “While the government may release statistics that claim the economy is in good health, our investors are not as bullish. In fact, with confidence fading in the government’s ability to secure a good Brexit deal, our investment community is expecting this quarter to be the worst of the year.

“Until this uncertainty is lifted, we expect that conventional means of business investment will continue to stall, breeding further concern for the economy. Although peer-to-peer lending has inherent risks, it now represents the best opportunity for SMEs to secure growth capital, drive employment and give the economy a shot in the arm.”

(Source: Assetz Capital Limited)

A decade after the global recession, the world’s economy is vulnerable again. Ryan Avent, our economics columnist, considers how the next recession might happen—and what governments can do about it.

Zac Cohen, General Manager at Trulioo, discusses the key considerations for businesses before engaging in commerce in high-risk countries.

Doing business internationally is a complicated undertaking. Aside from the standard logistical challenges associated with doing business globally, organisations have to factor in considerations specific to different regions and countries. These considerations may include factors such as legislative, political, currency and transparency challenges.

Nevertheless, globalisation is storming ahead and businesses must be prepared to look beyond their domestic surroundings if they are to remain competitive in our global marketplace. International trade secretary Liam Fox has endorsed a move for UK-based businesses to adopt a more international focus, highlighting the importance of global competitiveness. Consequently, UK businesses are feeling the pressure to ramp up their efforts to target a more international consumer base. As if this wasn’t enough for international businesses and investors to grapple with, further complications and difficulties are liable to arise when doing business with “high risk” countries.

1. Fraud and Corruption

A recent study by the World Bank estimated that an extra 10 per cent is added to the cost of doing business internationally as a direct result of bribery and corruption.¹ Considering the immense amount of international trade, this figure is significant. The danger of doing business with countries considered to be “high risk” – defined by the Financial Action Task Force (FATF) as any country with weak measures to combat money laundering and terrorist financing – is the heightened potential of inviting transactions that are either fraudulent or otherwise corrupt.¹ The following considerations should be carefully observed before entering into any commercial dealings with a country considered to be high-risk.

2. Enhanced Due Diligence

As a result of the 4^th Anti Money Laundering (AMLD4) directive, developed by the European Union, businesses have to adopt a risk-based outlook. The AMLD4 specifies that EU-based businesses must collect relevant official documents directly from official sources like government registers and public documents, rather than from the organisation in question. If a potential trading partner is located in a high-risk country, or serves an industry that has a higher than normal risk of money laundering, then that partner must conduct Enhanced Due Diligence (EDD) on the business entity. This Enhanced Due Diligence process involves additional searches that must be carried out by any firm seeking to do business with this kind of organisation. These searches may include parameters such as the location of the organisation, the purpose of the transaction, the payment method and the expected origin of the payment.

3. Ultimate Beneficial Owners

AMLD4 also outlines the need to discover the ultimate beneficial owner of a business, whether they are customers, partners, suppliers or connected to you in another business relationship.

According to the Financial Action Task Force (FATF),

Beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.

This is important as businesses need to understand who they are dealing with when physical verification is not a practical option. Difficulties could arise when verifying UBOs in high-risk countries as some national jurisdictions impose secrecy policies which block access to verification documentation. This problem is compounded when checking UBOs against international sanction and watch lists as there are more than 200 lists, which vary in scale and uniformity.

4. Virtual Identification

However, verification can still be successful. Many are now turning to software that helps businesses to perform the necessary diligence checks. We gave a lot of consideration to the specific complexities of working with high-risk countries when developing our Global Gateway platform. Programmes such as these are designed to allow companies to perform the Enhanced Due Diligence, Know Your Business and Know your Customer checks that are required when doing business internationally, particularly with high-risk countries. Compliance with the various pieces of legislation on this topic should be at the forefront when implementing the necessary verification checks.

Across the world, markets are becoming increasingly more open, paving the way to a truly global economy. If companies can get to grips with the key due diligence requirements, this is a move that will ultimately benefit the global consumer and customers alike.

With the 10^th anniversary of the Lehman Brothers’ shocking and unprecedented bankruptcy this month, Katina Hristova looks back at the impact the collapse has had and the things that have changed over the last decade.

Saturday 15 September 2018 marked ten years since the US investment bank Lehman Brothers collapsed, sending shockwaves across the financial world, prompting a fall in the Dow Jones and FTSE 100 of 4% and sending global markets into meltdown. It still ranks as the largest bankruptcy in US history. Economists compare the stock market crash to the dotcom bubble and the shock of Black Friday 1987. The fall of Lehman Brothers was a pivotal moment in the global financial crisis that followed. And even though it’s been an entire decade since that dark day when it looked like the whole financial system was at risk, the aftershocks of the financial crisis of 2008 are still rumbling ten years later - economic activity in most of the 24 countries that ended up falling victim to banking crises has still not returned to trend. The 10^th anniversary of the Wall Street titan’s collapse provides us with an opportunity to summarise the response to the crisis over the past decade and delve into what has changed and what still needs to.

As we all remember, Lehman Brothers’ fall triggered a broader run on the financial system, leading to a systematic crisis. A study from the Federal Reserve Bank of San Francisco has estimated that the average American will lose $70,000 in lifetime income due to the crisis. Christine Lagarde writes on the IMF blog that to this day, governments continue to ‘feel the pinch’, as public debt in advanced economies has risen by more than 30 percentage points of GDP – ‘partly due to economic weakness, partly due to efforts to stimulate the economy, and partly due to bailing out failing banks’.

Afraid of the increase in systemic risk, policymakers responded to the crisis through quantitative easing and lowering interest rates. On the one hand, quantitative easing’s impact has seen an increase in asset prices, which has ultimately resulted in the continuation of the old adage, the rich get richer and the poor get poorer. The result of Lehman’s shocking failure was the establishment of a pattern of bailouts for the wealthy propped up by austerity for the masses, leading to socio-economic upheavals on a scale not seen for decades. As Ghulam Sorwar, Professor in Finance at the University of Salford Business School points out, growth has been modest and salaries have not kept with inflation, so put simply, despite almost full employment, the majority of us, the ordinary people, are worse off ten years after the fall of Lehman Brothers.

Lowering interest rates on loans on the other hand meant that borrowing money became cheaper for both individuals and nations, with Argentina and Turkey’s struggles being the brightest examples of this move’s consequences. Turkey’s Lira has recently collapsed by almost 50%, which has resulted in currency outflow and a number of cancelled projects, whilst Argentina keeps returning for more and more loans from IMF.

Discussing the things that we still struggle with, Christine Lagarde continues: “Too many banks, especially in Europe, remain weak. Bank capital should probably go up further. 'Too-big-to-fail' remains a problem as banks grow in size and complexity. There has still not been enough progress on how to resolve failing banks, especially across borders. A lot of the murkier activities are moving toward the shadow banking sector. On top of this, continued financial innovation—including from high frequency trading and FinTech—adds to financial stability challenges. In addition, and perhaps most worryingly of all, policymakers are facing substantial pressure from industry to roll back post-crisis regulations.”

The Keynesian renaissance following that fateful September day, often credited for stabilising a fractured global economy on its knees, appears to have slowly ebbed away leaving a financial system that remains vulnerable: an entrenched battalion shoring up its position, waiting for the same directional waves of attack from a dormant enemy, all the while ignoring the movements on its flanks.

If you look more closely, the regulations that politicians and regulators have been working on since the crash are missing one important lesson that Lehman Brothers’ fall and the financial crisis should have taught us. Coming up with 50,000 new regulations to strengthen the financial services market and make banks safer is great, however, it seems  that policymakers are still too consumed by the previous crash that they’re not doing anything to prepare for softening the blow of a potential new one. They have been spending a lot of time dealing with higher bank capital requirements instead of looking into protecting the financial services sector from the failure of an individual bank. Banks and businesses will always fail – this is how capitalism works and no one knows if there’ll come a time when we’ll manage to resolve this. Thus, we need to ensure that when another bank collapses, we’ll be more prepared for it. As Mark Littlewood, Director General of the Institute of Economic Affairs, suggests: “policymakers need to be putting in place a regulatory environment that means that when these inevitable bank failures occur, they can fail safely”.

In the future, we may witness the bankruptcy of another major financial institution, we may even witness another financial crisis – perhaps in a different form. However, we need to take as much as we can from Lehman Brothers’ collapse and not limit our actions to coming up with tens of thousands of new regulations targeted at the same problem. We shouldn’t allow for a single bank’s failure to lead us into another global crisis ever again.

Written by Andrew Boyle, CEO of LGB & Co

With global debt hitting another record high in the first quarter of 2018, some are sounding the alarm over the threat of a new financial crisis. The global economy has been growing for a prolonged period, so the argument goes, and it is now at the stage in the cycle at which something could go wrong. The latest figures from the Institute of International Finance (IIF) are undeniably eye-wateringly high. According to the IIF, the global debt mountain was $247 trillion (£191 trillion) in the first quarter of 2018. Meanwhile, the International Monetary Fund (IMF) has begun to warn that corporate and government debt is now higher than before 2008’s financial crisis at 225% of global GDP. The IMF also warned that governments in particular, and corporations, with elevated debt levels were “vulnerable to a sudden tightening of global financing conditions, which could disrupt market access and jeopardise economic activity.” But the current level of global debt may not be as destabilising as some fear. Taking into account its composition, we are probably better placed today to manage global debt than we were ten years ago.

Debt levels are high but have rebalanced

There are some differences between the 2008 financial crisis and now. The main one is debt which is now more evenly distributed. According to the IIF’s own figures, in the first quarter of 2018 household debt accounted for 19% ($46.5trillion) of global debt, corporate debt stood at 30% ($73.5 trillion), government debt at 27% ($66.5 trillion) and debts of financial institutions at 25% ($60 trillion) of the total figures.

Compare those figures with the same quarter a decade ago and they look like this: household debt 21% ($37 trillion), corporate debt 26% ($46 trillion), government debt 21% ($37 trillion) and financial institutions, 32% ($57 trillion).

Two things stand out. The first is that household debt has fallen a little in percentage terms, which suggests its current level is not excessive. The second is the increase in government debt and decrease in financial debt are almost the same. This is consistent with the objectives of the quantitative easing (QE) that we have seen since the financial crisis. QE involves financial institutions selling government and corporate bonds to central banks and on-lending the proceeds principally to companies.

Government debt can be good for economic growth

The debt to global GDP ratio has actually been falling for four consecutive quarters, according to the IIF. This is because global GDP has been picking up fairly robustly over the last year leading to incomes rising faster than debts. This should make the private sector debt burden easier to service, even if interest rates start to creep up.

While other factors are also at play, greater levels of public debt lead to private sector surpluses and stimulate economic activity. A simple way to look at this is that government expenditures include salaries and payments to contractors that are deposited into bank and savings accounts. Financial institutions then enable governments to balance their books by purchasing government bonds.

A substantial portion of a government’s deficit expenditure should be allocated to investment in infrastructure and innovation so that productivity gains will enable the additional debt burden to be serviced through rising tax contributions. Infrastructure investment and support for innovation are certainly high up on the UK government’s agenda. Of course, we will only know in hindsight if its allocation of resources to these areas has been adequate.

Corporate net debt ratios are stable

There is a fear that corporate debt is now so high that should interest rates rise suddenly, many companies would be unable to service the increased interest. Once again, the aggregate level of debt is not the only factor to consider.

In fact, many large corporates have huge stockpiles of cash sitting idle. US corporations alone are estimated to be sitting on around $2.1 trillion at present. While admittedly the majority of this cash stockpile is held by the US giants, corporates overall have borrowed fairly responsibly and have, in general, manageable maturity schedules. Corporate net debt levels are sitting around their 30-year average, so while the headline figures look alarming, the ability of most companies to cover their debts is reasonably robust.

Central bank policy will remain accommodative

Moreover, central banks have been at pains to point out that they are in no hurry to hike interest rates. Levels of government borrowing make them inclined to do so only if absolutely necessary.

When the Bank of England raised rates on 2nd August, its main concerns were the tightness of the labour market and firming of unit labour costs, and the impact that these factors might have on inflation. However, its Monetary Policy Committee concluded that any future increases in the Bank Rate were likely to be at a gradual pace and to a limited extent. Markets currently forecast that the Bank of England will only hike interest rates once next year and once again in 2020 taking the UK base rate to 1.25%. At this rate of increase it may not be until the 2030s that we reach the interest rate levels last seen in 2008.

In the US, while the Federal Reserve has already begun hiking interest rates and done so at a slightly faster pace, this has been justified by the fact that its economy is growing more quickly than the UK’s. It also still has more than $4 trillion of QE to unwind and, as was seen in February, any attempt to speed up the process up is likely to lead to a sell-off on Wall Street. So, the US Federal Reserve is likely to continue to tread carefully as will the Bank of England and the European Central Bank (ECB). Any rise in interest rates and any unwinding of QE will happen at a slow and gradual pace.

Borrowing in foreign currencies

Many countries have run into trouble by borrowing in foreign currencies. For example, Argentina has $4.1 billion in debt to pay this year and $13.3 billion in 2019, of which $3.4 billion and $5.9 billion are denominated in US Dollars. The recent collapse of the Peso and hiking of interest rates to 60% have made its position precarious.

Turkey too has seen a 40% plunge in the value of its currency, the lira, as well as high inflation. Turkey faces a series of problems, not least of which, around $179bn of Turkish external debt matures in the year to July 2019, equivalent to almost a quarter of its annual economic output. Most of the maturing debt — around $146 billion — is owed by the private sector, especially banks. With luck the knock-on effect of Turkey’s difficulties is likely to be minimal. While the collapse of the lira has an obvious and crippling impact on their ability to refinance that debt, no foreign financial institution has lent so much to Turkish companies that it is at risk of collapse, although some may take a significant hit.

The main concern is that the crises in Argentina and Turkey will spread to other countries and that the current strength of the US dollar puts at risk the $3.7 trillion of dollar denominated debt that has been borrowed by emerging market economies in the past ten years. But the current dollar strength will probably also hold back the US Federal Reserve from raising interest rates for fear of putting the whole of that debt at risk.

It is possible that significant currency movements will be triggered by political developments such as Brexit or international trade disputes. For the time being the pattern seems to be a sharp rhetoric from political leaders followed by compromise or a shift in position.

China

And then there is China. In 2007, China accounted for just 4% of global debt, but this had ballooned to 15% by 2016. When critics of global debt talk about their concerns about a looming crisis or fresh financial crash, a large part of that is bound up with concerns about China and it’s not hard to see why.

Corporate bank-borrowing has exploded since the global financial crisis. It is harder to understand where debt is being invested in China and there are many who are suspicious that much of this money has been wasted risking a destabilising financial crisis or long-term stagnation in the world’s second largest economy.

Debt in Chinese state-owned entities (such as banks) stands at 115% of GDP, but equally China is a huge creditor nation. Meanwhile, the pace at which debt is being accumulated in China has been falling for a number of years, so it is likely that the risk presented by debt in China is also falling.

Have the lessons been learnt?

Taking into account the composition of global debt, it does seem that the risks to the world’s financial system are less than implied by the absolute level of borrowing. The exposure to households, corporates and financial institutions is proportionately less than it was ten years ago. Debt service costs are low. Nevertheless, events in Argentina and Turkey highlight the need for all borrowers, whether governments or in the private sector, to match borrowing with the resources to pay.

Finance Monthly delves into the potential impact of an ‘Amazon tax’ and the alternative solutions that can help the struggling British bricks-and-mortar retailers.  

With a series of high-profile collapses and CVAs, including the recent turbulences that House of Fraser is faced with, Britain has seen its fair share of high-street horror stories in 2018. Stores like Toys R Us UK, Maplin and Mothercare are all facing extinction, whilst online retailers such as Amazon are stronger than ever, cashing in $2.5bn per quarter and paying less and less corporation tax with Amazon’s UK tax bill falling about 40% in 2017, and it paying just £4.6 million ($5.6 million). In times like these, the UK retail industry has naturally called on the Government to review its outdated corporation tax system and take action to help the struggling high street. Chancellor Philip Hammond has in turn announced that he is considering a special retail tax on online business, dubbed the ‘Amazon tax’, in order to establish a “level-playing field” for online retailers and high-street shops. But is a new tax really the solution that will balance the market out? Will it be the solution that traditional trade needs? 

Is Amazon’s Existence the Biggest Problem?

Consumer habits are changing rapidly with the continued growth of online shopping, but the truth is that the extraordinary success of web traders is only one of the aspects to consider when looking for the reasons behind the decline in traditional retail. And even though a hike in the tax that Amazon pays may seem like a necessary and logical step, it will be nothing more than a minor distraction from the bigger issue and something that will mainly benefit the Treasury.

It is worth noting that the UK store chains that have collapsed recently did so due to not having the right products at the right prices, not staying up-to-date with consumer trends, not targeting the right customers or not investing enough in their businesses. Surely, online-only merchants have transformed the trade landscape and the UK tax system needs to be adjusted in order to reflect the current retail dynamics – especially when Amazon’s tax bill for 2017 was only £4.6 million on £2 billion of sales. But is the fact that the web giant is paying such a low amount of tax the reason for the collapse of a number of bricks-and-mortar retailers? I think not.

Moreover, as Bloomberg points out, an internet shopping tax could end up backfiring and hurting the bricks-and-mortar retailers it is intended to help. According to the British Retail Consortium, in 2017, more than 17% of sales were made online. Over half of them were with businesses that also have shops. Thus, retailers such as Next Plc, which has both online and offline businesses, could face “a double tax whammy”.

The Real Problem

Driving restrictions around city centres, increased parking charges by local councils and state demands such as minimum wage legislation and Sunday trading laws have had a negative impact on bricks-and-mortar retail. Then there is the main challenge in the face of sky-high business rates which have been the bane of countless entrepreneurs trying to establish a high-street presence. In an article for The Telegraph, Ruth Davidson wrote that the UK retail sector, which makes up 5% of the country’s economy, is paying “25% of all business rates, over £7 billion per year”. One might argue that in order to help bricks-and-mortar retailers and keep British town centres bustling with thriving commerce, politicians could perhaps work towards reducing the financial burden they’re faced with, before punishing web giants for offering an easy and convenient way to shop in this digital era. In order to keep up with their online competitors, traditional stores need to focus on technology innovation and redesigning the experience that the modern-day customer expects. But most importantly, they need the budget to do so and a reduction in business rates for high-street stores could be one way to provide them with some extra cash to invest in technology.

Another thing to consider, as Andrea Felsted suggests, could be raising business rates for offices and warehouses and cutting them for shops. That would “address the disparity between shopfront-heavy retailers and online-only businesses, which rely on distribution centres to serve their customers”.

A potential Amazon tax for all web-only retailers will not help bricks-and-mortar retail to innovate. Surely, it will level the playing field, but apart from that, all we can expect will be a slowdown in online shopping without doing anything to solve the current problems that traditional traders are struggling with.

Brian G. Sewell, Founder of Rockwell Capital; a family office committed to educating investors about cryptocurrency, and Rockwell Trades, below explains the intricacies of cryptocurrencies, shares the latest SEC regulatory updates, and provides expert insight into the future of cryptocurrencies across the globe.

The August 6th SEC decision to postpone a ruling on whether to approve the SolidX Bitcoin Shares ETF for trading on The Chicago Board Options Exchange is a good sign. Given previous SEC statements, the postponement appears to suggest that the U.S. regulatory agency wants to issue a well-thought-out approval ruling that protects cryptocurrency investors and nurtures innovators. I agree with the CBOE that "investors are better served by products traded on a regulated securities market and protected by robust securities laws.” And I would rather see the SEC make a methodical decision to approve a cryptocurrency ETF, with thoughtful guidelines than a rash decision to reject one.

Bitcoin’s Challenges and Promise
Since 2010, when it emerged as the first legitimate cryptocurrency, Bitcoin has been declared “dead” by pundits over 300 times. Critics have cited the cryptocurrency’s hair-raising price volatility; it’s scalability challenges, to handle a large volume of transactions as a payment method, or the improbability of a central bank ceding monetary control to a piece of pre-set software code. T he adoption of Bitcoin as an alternative to transacting by credit card or other payment methods is rising. After its release as open-source software in 2009, Bitcoin alone has facilitated over 300 million digital transactions, while hundreds of other cryptocurrencies have emerged, promising to disrupt a host of industries.

Granted, no more than 3.5% of households worldwide have adopted cryptocurrency as a payment method. But as developers and regulators resolve the following key issues, global cryptocurrency adoption will likely grow -- both as a consumer payment method, and through business-to-business integration, streamlining a variety of operations in the private and public sectors. The prospect of more widespread adoption explains why I think cryptocurrencies may continue to outperform other investment assets in the long term and improve how the world does business.

Four Key Reasons Why Cryptocurrency is Here to Stay:

1. An SEC-Approved Bitcoin ETF Can Boost Liquidity, Protect Consumers, and Nurture Innovators
Though the SEC may not reach a final decision until next year on the proposed listing of SolidX Bitcoin Shares ETF, I think the agency will eventually approve what many experts say represents the best proposal for a cryptocurrency ETF. The proposal -- which requires a minimum investment of 25 Bitcoins, or USD 165,000 assuming a Bitcoin price of $6,500 -- seems to meet the SEC's criteria on valuation, liquidity, fraud protection/custody, and potential manipulation.

By boosting institutional investment, SEC approval would represent another milestone in the validation of cryptocurrencies. To reiterate, rising adoption could benefit the U.S. financial system and other financial systems worldwide, because cryptocurrency promises to create significant financial savings and societal benefits -- by streamlining how the world transacts for goods and services, updates mutual ledgers, executes contracts, and accesses records.

2. Comprehensive U.S. Regulation Can Improve Protection, Innovation, and Investment
Beyond a potential Bitcoin ETF, demand is mounting for a comprehensive regulatory framework that protects consumers while nurturing innovation. Because the dollar remains the leading global fiat currency, institutional investors across the globe are especially watching for what framework of rules and policing U.S. regulators develop. Although many institutional investors are assessing the risk/reward proposition of cryptocurrency investments, that doesn’t mean they’re ready to invest. Many such endowments, pension funds, and corporate investors are awaiting U.S. regulatory guidance and protections to honor their fiduciary duties. How, if at all, for example, will exchanges be required to implement systems and procedures to prevent hacks and otherwise protect or compensate investors from cyber attacks?

Though there’s mounting pressure on regulators to act, cryptocurrency regulation that both protects consumers and nurtures innovation requires a nuanced set of rules, a sophisticated arsenal of policing tools, sound protocols, and well-trained professionals. Developing such a unique strategy takes time, and may involve some stumbles. But I think U.S. regulators will eventually succeed in developing a comprehensive and balanced regulatory framework for cryptocurrency. If institutions become more confident that regulations can help them meet their fiduciary duties, even small allocations from reputable endowments, pensions, and corporations could unleash a new wave of investment in cryptocurrencies.

3. Bringing the Technology to Scale
Bitcoin and other cryptocurrencies are still developing the capacity to function at a mass scale, which will require processing tens of thousands of transactions per second. But technology such as Plasma, built on Ethereum, and the Lightning Network, a second layer payment protocol compatible with Bitcoin, are being tested, which could enable cryptocurrencies to execute faster, cheaper payments and settlements than any other payment method. Though developing applications that bring cryptocurrencies such as Bitcoin and Ethereum to scale may not happen overnight, I think sooner or later; developers will get it right.

Making cryptocurrency scalable would probably unleash an explosion of new applications. That would boost adoption by allowing consumers and businesses to more easily take advantage of cryptocurrency by seamlessly integrating it with debit and credit payment systems – again, to execute transactions, update mutual ledgers, execute contracts, and access records. Such financial activities would likely happen more quickly, cheaply, and efficiently than ever because there would be no banking intermediary needed to validate the transaction and take a cut of the fees. This could improve the cost and efficiency of commerce – between businesses, between businesses and consumers, between governments and consumers, between nonprofits and consumers, and in every combination thereof. The seeds for this transformation of commerce have been planted, and like the internet before it, can innovate in ways we can’t fully anticipate.

4. Meeting Developing World Needs
At its current technological stage, use of cryptocurrency adoption as a payment method could grow fastest in emerging markets, especially those without a secure, reliable banking infrastructure. Many consumers in such regions have a strong incentive to transact in cryptocurrency -- either because their country’s current banking payment system is inefficient and unreliable, and they lack a bank account altogether. Globally, 1.7 billion adults remain unbanked. Two-Thirds of them own a mobile phone that could help them use cryptocurrency to transact and access other blockchain-based financial services.[2]

Data underscores the receptiveness of Developing World consumers to cryptocurrency as a transaction medium. The Asia Pacific region has the highest proportion of global users of cryptocurrency as a transaction medium (38%), followed by Europe (27%), North America (17%), Latin America (14%), and Africa/The Middle East (4%), according to a University of Cambridge estimate.[3] Although the study’s authors caution that their figures may underestimate North American’s proportion of global cryptocurrency usage, they cite additional data from LocalBitcoin, a P2P exchange platform, suggesting that cryptocurrency transaction volume is particularly growing in developing regions, especially in:

• Asia (China, India, Malaysia, Thailand)
• Latin America (Brazil, Chile, Colombia, Mexico, Venezuela),
• Africa/The Middle East (Kenya, Saudi Arabia, Tanzania, Turkey)
• Eastern Europe (Russia, Ukraine).[4]

As more applications launch in the developing world to facilitate the use of cryptocurrencies to buy and sell goods and services at lower cost and in expanded markets -- and more young people receptive to such new technologies come of age -- cryptocurrency adoption could well rise exponentially.

Remember The Internet - Investment Bubbles and Bursts Will Identify The Winners
High volatility is inherent in the investment value of this nascent technology, due to factors including technological setbacks and breakthroughs, the impact of pundits, the uneven pace of adoption, and regulatory uncertainty. Bitcoin, for example, generated a four-year annualized return as of January 31st, 2018 up 393.8%, a one-year 2017 performance up 1,318% -- and year-to-date, down 52.1%. Bitcoin has experienced even larger percentage drops in the past, before resuming an upward trajectory.

I believe roughly thirty percent of Bitcoin investors over the past half year are speculators since the cryptocurrency has dropped on the negative news by as much as a third. In my view, Bitcoin and other cryptocurrencies will experience many more bubbles and bursts, in part, fueled by speculators, who buy on greed and sell on fear.

But as the dot-com era underscores, the bursting of an investment bubble may signal both a crash and the dawn of a new era. While irrational investments in internet technology in the 1990’s fueled the dotcom bust, some well-run companies survived and led the next phase of the internet revolution. Similarly, despite periodic price crashes, I believe a small group of cryptocurrencies and other blockchain applications, including Bitcoin, will become integrated into our daily lives, both behind the scenes and in daily commerce.

Although “irrational exuberance” will continue to impact the price of cryptocurrencies, this disruptive technology represents the future not only of money but of how the world will do business.

Said markets present anticipated price developments daily, weekly, monthly and yearly, and when scouting for profits, bidding investors will act according to the market sentiment.

If the anticipated price development of a market’s stock is upwards, meaning the value of certain stock is rising or expected to rise, as a consequence of trends, single events, supply materials, current affairs or many other factors, the market sentiment is expressed as bullish. Vice versa, if the anticipated price development is on the downtrend, by any of the same reasons, the market sentiment is expressed as bearish.

It isn’t always as simple as this however. Market sentiment is also considered to be a contrarian indicator. For example, extremely bearish markets may subsequently display dramatic spikes – the turning point for this is often where the risky decision making appears.

Market sentiment, the overall expression of a certain market as bullish or bearish, is normally determined by a variety of technical and statistical methods that factor in the comparisons of advancing & declining stocks as well as new lows & new highs in the market. One of these is known as the Relative Strength Index (RSI); it relates the number of assets bought to assets sold, indicating whether capital is flowing in or out of the market in question. Normally, as a market follows sentiment either way, the flock follows, meaning the overall movement of the market’s stock follows the market sentiment directly. To quote a popular Wall Street phrase: “all boats float or sink with the tide.” The more investors buy, the more investors buy; it’s usually exponential development.

This of course could happen indefinitely, if it weren’t for the fact that as stock trading volumes rise, as does the price. Eventually the price hits a market high and the potential for profits is minimized. At this point the fall to a bearish market usually comes to fruition. On the other hand, as trading volumes fall, prices go down, to the point where eventually the price is so low it would be foolish not to buy, therefore turning the market on its head.

As obvious as it may seem, the words bullish and bearish reflect exactly what you would expect and are not simply paraphrases. An optimistic investor, happy to buy, buy, buy as the market sentiment is bullish, is considered a bull; aggressive, optimistic and almost reckless, striking upwards with its horns. Equally a bearish investor is considered a bear because he or she does not trade without utmost consideration, he or she is pessimistic towards trading expectations and believes prices will fall, or fall further than they already have. The bear therefore decides to sell, sell, sell, and pushes the prices down; as a bear that strikes its paws to the ground.

Make sure you check one of our top read features ‘The Top 10 Greatest Stock Market Trades Ever’.

After some time of speculation, the Bank of England confirmed interest rate hike last week, by 0.25%. Already we have seen some banks act fast in passing this hike onto the customer, in particular mortgage buyers, as opposed to savings rates.

In this week’s Your Thoughts, Finance Monthly has collated several expert comments from UK based professionals with expert knowledge on this topic.

Richard Haymes, Head of Financial Difficulties, TDX Group:

While an interest rate rise is positive news for people living on their savings income, or holding pensions and investments, it may prove to be the tipping point for those in financial difficulty or struggling with debt.

Individual Voluntary Arrangements (IVAs) have reached record levels and we expect the rate of monthly IVAs and Trust Deeds to grow by around 17% this year. A rise in interest rates will make it much harder for people in these arrangements, and there’s a risk they’ll default on their strict requirements.

A large portion of people who are in personal insolvency hold a mortgage (over a fifth according to personal insolvency practice Creditfix), and a rate rise will obviously increase their mortgage repayments. Due to these people’s unfavourable credit circumstances, it’s likely that majority of mortgage holders in insolvency are tied to variable mortgage products, leaving them particularly vulnerable to a higher interest environment.

Holders of a £250,000 mortgage will have to absorb a monthly repayment increase of £31* as a result of this 0.25% hike. Modest as it may appear to many, for people in structured debt management plans or IVAs this could have a very significant impact, even resulting in their debt solution becoming defunct or in need of renegotiation.

Jon Ostler, UK CEO, finder.com:

This rate rise decision comes as no surprise. Our panel of nine leading economists unanimously predicted that the interest rate would rise by 25 base points, and this is a positive sign that the economy is growing stronger.

It’s particularly good news for savers, who have suffered ultra-low interest rates for the past decade. They can expect a rise to their savings, albeit a small one. Now is a good time to consider switching your banking products, as banks will be reviewing their rates. Make sure you keep an eye on which banks are offering the best interest rates as not all of their products will increase by the BoE’s 25 basis points.

On the other hand, borrowers and homeowners with a mortgage are likely to face extra costs. For example, those paying off the UK’s average mortgage debt with a variable rate mortgage face paying an extra £17-£18 per month, which adds up to an extra £200 per year or more than £6,000 over the life of a 30-year loan term.

Angus Dent, CEO, ArchOver:

While banks are likely to pass the rate rise straight onto borrowers, they will be less keen to pass it on immediately to savers. Aspirational borrowing such as mortgages and bank loans will get more expensive – so the man in the street needs to counter that with strong returns on savings. Only 50% of savings account rates changed after last year’s rise, so there’s good reason to be underwhelmed.

But this is certainly a step in the right direction for the cautious Bank of England. While such an incremental rise won’t shake the earth, and probably means business as usual, it nevertheless spells good news for the UK.

The country is still hungry for a stronger economy, ten years after the financial crash. Both savers and investors are now aware that to chase higher returns, they need to open the door to alternative opportunities. Alternative finance options that offer higher yields – without sacrificing security – offer savers a path to higher returns in a still-struggling economy.

Savings accounts still aren’t the safety net they once were. Despite this rate rise, savers still need to cast the net wide in the hunt for higher returns.

Markus Kuger, Senior Economist, Dun & Bradstreet:

This rate hike had been anticipated by the markets, despite inflation having fallen in recent months, as UK growth seems to have recovered from the poor performance in Q1. The effects of the rate rise will be minimal, given the Bank’s forward guidance over the past months. The progress in Brexit talks will remain the most important factor for companies and households in the near to medium term. Dun & Bradstreet maintains its current real GDP and inflation forecasts for 2018-19 and we continue to forecast a modest recovery in 2019, assuming the successful completion of the talks with the EU.

Max Lehrain, Chief Operating Officer, Relendex:

The increase in interest rates is a significant moment as it is the first time the Bank of England has raised interest rates above 0.5 in nearly a decade. However, for savers, this change should act as a wakeup call as it is not likely to have a material impact on their investment meaning that those stuck in standard savings accounts are still missing out.

This is in large part down to the rate of inflation far outstripping interest rates, even with today's increase. In simple terms this means that if your savings earn 0.75% interest they are being eaten into by the effects of inflation.

With traditional lenders offering low returns on their savings accounts and cash ISA products, savers who are looking to achieve higher rates of returns should still consider alternative options. Peer-to-Peer (P2P) lending for example, can offer substantially higher returns, giving a good income boost when interest rates are still relatively low.

Innovative savers will identity these options to take this interest rate rise out of the equation. In real terms, over a three year period investing £5,000 in a cash ISA is likely to render a return ranging from £15 to £113, whereas P2P providers offer prospective returns far exceeding that. For example, investing £5,000 in a provider that offers 8%, would see returns of approximately £1,300 over a three year period.

Nigel Green, CEO, deVere Group:

Hiking interest rates now – for only the second time since the financial crash – is, to my mind, premature.

At just above the Bank’s target of 2%, inflation is not currently a key issue. In addition, major uncertainty surrounding Brexit, the looming threat of international trade wars, and absolutely average economic growth, business and consumer confidence are on the slide.

As such, there seems little real justification to increase interest rates now.

Against this back drop, why is the Bank of England raising rates today?

Has the decision been motivated in order to protect reputations and credibility after the Bank’s Governor and some of the committee had effectively already said the rise would happen?

Whilst today’s decision to hike rates is unnecessary, I think that the Bank is likely to refrain from any more increases until after Brexit.

Paul Mumford, Cavendish Asset Management:

The decision on balance might be the wrong one. While all agree that rates need to return to normality eventually, panicking and doing it for the sake of it - or just because other countries are doing it - will only make things worse.

The idea, as in these other regions, is to start incrementally escalating rates in a managed way as growth and inflation tick up. But the UK is in quite a distinct situation. To borrow some terminology from the Tories, the economy is stable, but far from strong - and certainly not booming. Higher interest rates could have very disruptive effects on sectors such as housing, where it could trigger a rush to buy at fixed rates, and motors and retail, which are performing OK but contain a lot of highly geared companies. This does not look like the sort of economy you want - or can afford - to remove demand from. Meanwhile the pound is holding firm at its lower base, so there is no immediate impetus to shore up the currency.

And of course looming behind all this is Brexit. Interest rates may be needed as a weapon to combat sudden inflation from tariffs should the worst happen and we crash out of Europe without a deal. It would make more sense to save the powder until there is more clarity on this front, and we now what sort of economic environment we're all heading into. The last thing we want is to be in a situation where we are stuck with higher and higher rates to combat inflation, while growth remains anaemic or stagnant.

These things are all swings and roundabouts, of course - one big plus from rate rises is that they will ease our mounting problem with big pension fund deficits. Whether this will make it worth the risk remains to be seen.

Stuart Law, CEO, Assetz Capital:

It looks like savers will be disappointed once again. Although the rate has risen slightly, this is unlikely to be passed on to savers, with many banks having form for just applying increases to borrowers.

What’s more, the Bank of England's statement that future increases will be at a 'gradual pace' implies that savers won't see returns that outstrip inflation for months - and potentially even years.

Rob Douglas, VP of UKI and Nordics, Adaptive Insights:

Ultimately, it is the companies that do not currently have sound financial planning processes in place that are likely to be impacted when changes like this occur, as it can upend budgeting and forecasting, making it difficult for finance and management teams to develop accurate financial plans and make business-critical decisions.

The 0.25% extra interest rate is being announced at an already uncertain time, when many fear the long-term effects of a possible no-deal Brexit or a potential trade war with the US on their business, organisations across the country will need to once again adjust their financial plans accordingly. To do this, companies must plan in real-time, with current data from across the organisation, so that they can mitigate potentially damaging consequences, such as a negative impact on profit margins.

The interest rate hike, while expected, is a reminder why businesses need to be able to continuously update their financial forecasts in real-time. Manual spreadsheets and processes simply don’t cut it anymore and finance teams need to be able to respond to economic changes such as this efficiently and effectively. With a modern, active approach to planning and forecasting, businesses will have the foresight and visibility to make better decisions faster, minimising the impact of unexpected government, regulatory or economic changes.

Paddy Osborn, Academic Dean, London Academy of Trading (LAT):

As widely expected, the Bank of England’s Monetary Policy Committee (MPC) raised the UK base rate by 0.25% today, stating that the low GDP data in Q1 2018 was just a blip, the UK labour market has tightened further and wage growth is increasing. This is the highest level of interest rates in the UK in more than nine years, and the MPC’s vote to raise rates was actually 9-0, against expectations of 8-1 or even 7-2.

There was also an unanimous vote to keep the level of government bond purchases at £435 billion, although the MPC remains cautious about the potential reactions of households, businesses and financial markets to future Brexit developments.

Assuming the economy develops in line with current projections, they stated that any future increases in the Bank rate (to return inflation to the 2% target) are likely to be “at a gradual pace and to a limited extent”.

In currency markets, GBP/USD spiked 50 pips higher from 1.3070 within 10 minutes of the announcement, but has since collapsed back below 1.3100. The longer term view for GBP/USD remains bearish, although there are a number of political and fundamental factors which may affect Cable in the coming weeks, namely Brexit developments, the developing trade war, and US interest rates.

The stock market, having fallen over 200 points since yesterday morning, failed to find any solace in the MPC comments and is currently trading at its 1-month lows around 7550. Higher interest rates mean higher cost of debt for companies, and this will often encourage investors to take some money out of their (more risky) stock market investments.

Feel free to offer Your Thoughts in the comment box below and tell us what you think.

Amidst the recent shock resignations of Brexit Secretary David Davis and Foreign Secretary Boris Johnson, investment uncertainty, slower economic growth and a weaker pound, the United Kingdom is on its way to a slow but steady Brexit, with negotiations about the future relations between the UK and the EU still taking place.

And whilst the full consequences of Britain’s vote to leave the EU are still not perceptible, Finance Monthly examines the effects of the vote on economic activity in the country thus far.

Do you remember the Leave campaign’s red bus with the promise of £350 million per week more for the NHS? Two years after the referendum that confirmed the UK’s decision to leave the European Union, the cost of Brexit to the UK economy is already £40bn and counting. Giving evidence to the Treasury Committee two months ago, the Governor of the Bank of England Mark Carney said the 2016 leave vote had already knocked 2% off the economy. This means that households are currently £900 worse off than they would have been if the UK decided to remain in the EU. Mr. Carney also added that the economy has underperformed Bank of England’s pre-referendum forecasts “and that the Leave vote, which prompted a record one-day fall in sterling, was the primary culprit”.

Moreover, recent analysis by the Centre for European Reform (CER) estimates that the UK economy is 2.1% smaller as a result of the Brexit decision. With a knock-on hit to the public finances of £23 billion per year, or £440 million per week, the UK has been losing nearly £100 million more, per week, than the £350 million that could have been ‘going to the NHS’.
Whether you’re pro or anti-Brexit, the facts speak for themselves – the UK’s economic growth is worsening. Even though it outperformed expectations after the referendum, the economy only grew by 0.1% in Q1, making the UK the slowest growing economy in the G7. According to the CER’s analysis, British economy was 2.1 % smaller in Q1 2018 than it would have been if the referendum had resulted in favour of Remain.

To illustrate the impact of Brexit, Chart 1 explores UK real growth, as opposed to that of the euro area between Q1 2011 and Q1 2018.

As Francesco Papadia of Bruegel, the European think tank that specialises in economics, notes, the EU has grown at a slower rate than the UK for most of the ‘European phase of the Great Recession’. However, since the beginning of 2017, only six months after the UK’s decision to leave the EU, the euro area began growing more than the UK.

Reflecting on the effect of Brexit for the rest of 2018, Sam Hill at RBC Capital Markets says that although real income growth should return, it is still expected to result in sub-par consumption growth. Headwinds to business investment could persist, whilst the offset from net trade remains underwhelming.”

All of these individual calculations and predictions are controversial, but producing estimates is a challenging task. However, what they show at this stage is that the Brexit vote has thus far left the country poorer and worse off, with the government’s negotiations with the EU threatening to make the situation even worse. Will Brexit look foolish in a decade’s time and is all of this a massive waste of time and money? Or is the price going to be worth it – will we see the ‘Brexit dream’ that campaigners and supporters believe in? Too many questions and not enough answers – and the clock is ticking faster than ever.