Global economy April 2021-

Written by  //  June 14, 2021  //  Global economy  //  No comments

The Brutal Truth About Bitcoin
Eswar Prasad, professor at Cornell University and a senior fellow at the Brookings Institution.
(NYT Opinion) Its emergence amid the global financial crisis, which shook trust in banks and even governments, was perfectly timed. Bitcoin enabled transactions using only digital identities, granting users some degree of anonymity. This made Bitcoin the preferred currency for illicit activities, including recent ransomware attacks. It powered the shadowy darknet of illegal online commerce.
it has become clear that Bitcoin does not offer true anonymity. The government’s success in tracking and retrieving part of the Bitcoin ransom paid to the hacking collective DarkSide in the Colonial Pipeline ransomware attack has heightened doubts about the security and nontraceability of Bitcoin transactions.
Bitcoin is not innocuous. Transactions are processed by “miners” using massive amounts of computing power in return for rewards in the form of Bitcoin. By some estimates, the Bitcoin network consumes as much energy as entire countries like Argentina and Norway, not to mention the mountains of electronic waste from specialized machines used for such mining operations that burn out rapidly.
Whatever Bitcoin’s eventual fate, its blockchain technology is truly ingenious and groundbreaking. Bitcoin has shown how programs running on networks of computers can be harnessed to securely conduct payments, within and between countries, without relying on avaricious financial institutions that charge high fees.
Variants of Bitcoin’s technology are also making many financial products and services available to the masses at low cost, directly connecting savers and borrowers. These developments and the possibilities created by the new technologies have spurred central banks to consider issuing digital versions of their own currencies. China, Japan, and Sweden are already conducting trials of their digital currencies.
Ironically, rather than truly democratizing finance, some of these innovations may exacerbate inequality. Unequal financial literacy and digital access might result in sophisticated investors garnering the benefits while the less well off, dazzled by new technologies, take on risks they do not fully comprehend.

5-7 June
Gwynne Dyer: A change in the economic weather?
It’s not Bretton Woods, but it’s a start. The decision by the finance ministers of the G7 countries to create a global minimum tax rate on corporate profits is a step in the right direction, if only a baby step. The tide was due to turn about now, according to one theory, and maybe it’s finally happening.
What was actually agreed at the meeting in London on Saturday was both timid and provisional. The minimum tax rate for large international corporations was set at 15 percent, not far above the rate charged by low-tax venues like Ireland and Cyprus (12.5 percent).
That’s already down significantly from the 21 percent tax rate originally proposed by US President Joe Biden. Moreover, the G7 (the US, Germany, Japan, France, the UK, Canada and Italy) was just the first hurdle for this initiative.
The plan must also pass scrutiny by the Organisation for Economic Cooperation and Development (38 upper- and middle-income democracies), then by the G20 meeting in Italy next month (which includes Russia, China, India and Brazil), and finally by the US Congress (ratification in 2022?).
If it makes it through all that, then companies like Microsoft could no longer shield their profits from meddlesome taxation … The question is whether this is a flash in the pan or a lasting change of direction. The answer largely depends on whether or not you believe in the idea of a long (circa 40-year) cycle in the politics of the economy. If you take it seriously, then we are indeed due for a change.
The G7 Tax Clampdown and the End of Hyper-Globalization
Dani Rodrik
The G7 agreement on taxation of global corporations still needs formal approval from a wider set of countries, and there remain many details to be worked out for it to be effective. Nonetheless, it would not be farfetched to describe the deal as historic.
G-7 countries reach agreement on 15 percent minimum global tax rate
The accord announced by finance ministers could reshape tax obligations of multinational corporations
“That global minimum tax would end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people in the U.S. and around the world.”
In remarks at the close of the meeting, Yellen told reporters that the agreement represented the revival of multilateral cooperation after years of strain under President Trump.
Under the deal, the U.S. is expected to give up some taxing rights on overseas profits of U.S.-based tech giants.

4 June
Kenneth Rogoff: A Curse Worse than Cash
Although prominent cryptocurrency advocates are politically connected and have democratized their base, regulators simply cannot sit on their hands forever. Malicious ransomware attacks targeting growing numbers of firms and individuals could prove to be the tipping point.
(Project Syndicate) [R]ecent ransomware attacks, and cryptocurrencies’ central role in enabling them, are a public relations disaster.
The attacks include last month’s shutdown of the Colonial Pipeline, which drove up gasoline prices on the US East Coast until the company paid the hackers $5 million in Bitcoin, and, even more recently, an attack on JBS, the world’s largest meat producer. Such episodes highlight what for has been a longstanding concern: difficult-to-trace anonymous cryptocurrencies offer possibilities for tax evasion, crime, and terrorism that make large-denomination bank notes seem innocuous by comparison. Although prominent cryptocurrency advocates are politically connected and have democratized their base, regulators cannot sit on their hands forever.The view that cryptocurrencies are just an innocent store of value is stupefyingly naive. Sure, their transaction costs can be significant enough to deter most ordinary retail trade. But for anyone trying to avoid stringent capital controls (say, in China or Argentina), launder illicit gains (perhaps from the drug trade), or evade US financial sanctions (on countries, firms, individuals, or terrorist groups), crypto can still be an ideal option.

24 May
Five myths about cryptocurrency
Eswar Prasad, Senior Fellow – Global Economy and Development
(Brookings) Cryptocurrencies might turn out to be a massive speculative bubble that ends up hurting many naive investors. Indeed, many cryptocurrency fortunes have already evaporated with the recent
plunge in prices. But whatever their ultimate fate, the ingenious technological innovations underpinning them will transform the nature of money and finance.
Myth No. 1 A cryptocurrency is real money that can be used for payments.
Myth No. 2 Cryptocurrencies are a good investment.
Myth No. 2 Cryptocurrencies are a good investment.
Myth No. 4 Cryptocurrencies will displace the dollar.
Myth No. 5 Cryptocurrencies are just a fad and will fade away.
China crypto mining business hit by Beijing crackdown, bitcoin tumbles
A State Council committee led by Vice Premier Liu He announced the crackdown late on Friday as part of efforts to fend off financial risks. It was the first time China’s cabinet has targeted virtual currency mining, a sizable business in the world’s second-biggest economy that some estimates say accounts for as much as 70% of the global crypto supply.
Crypto miners use increasingly powerful, specially-designed computer equipment, or rigs, to verify virtual coin transactions in a process which produces newly minted crypto currencies such as bitcoin.”Crypto mining consumes a lot of energy, which runs counter to China’s carbon neutrality goals,” said Chen Jiahe, chief investment officer of Beijing-based family office Novem Arcae Technologies.
The crackdown is also part of China’s stepped-up drive to curb speculative crypto trading, he added.
Investor protection and money laundering are particular concerns of global financial regulators who are grappling with whether and how they should regulate the cryptocurrency industry.
The latest shakeout in digital currencies also stems from tighter scrutiny in the United States. Last Thursday, U.S. Federal Reserve Chairman Jerome Powell said they pose risks to financial stability, and indicating that greater regulation of the increasingly popular electronic currency may be warranted.

21 May
Peter Berezin: The Crypto Impossibility Theorem
• The drubbing that cryptocurrencies have received over the past two weeks is just a taste of things to come.
• Crypto markets will continue to face tighter regulation, as this week’s announcements from China and the US Treasury underscore.
• The hope that cryptocurrencies can ever truly “go green” is wishful thinking. Given their decentralized nature, cryptocurrencies require real resources to be expended to permit secure transactions to take place.
• In addition to their technical limitations, cryptocurrencies face a fundamental constraint, which we dub the “Crypto Impossibility Theorem.”
• The Crypto Impossibility Theorem states that cryptocurrencies will be viable only if they offer a higher return than equities.
• The assumption that cryptos can generate a return in excess of equities is almost certain to be false since it would require that cryptocurrency holdings rise more quickly than income in perpetuity.
• In the near term, the pain in crypto markets could drag down other speculative assets such as tech stocks. In the long term, diminished investor interest in cryptos will benefit the stock market, as investor attention focuses back on equities.
Robert Reich on Facebook:
Cryptocurrencies like Bitcoin and Dogecoin are all the rage these days, bolstered in part by the incessant tweeting of Elon Musk. Before you buy, here are 4 facts you may not know:
First, their price is easily manipulated. One negative word from a self-interested billionaire like Musk and the price plunges.
Two, they can be incredibly risky investments. Some cryptocurrencies — particularly smaller “altcoins” — are just “pump and dump” schemes, where the price is artificially inflated by bad actors and leaves unwitting consumers holding worthless cryptocoins.
Three, they can enable fraud and other illicit activities. Since October, cryptocurrency scams have soared 1000 percent and Americans have lost $80 million. This month, a ransomware group extorted nearly $5 million from the Colonial Pipeline Company, forcing it to shut down the biggest fuel pipeline in the U.S. before regaining access to its systems.
Four, they use up huge amounts of energy. Electricity demand for bitcoin is outpacing electricity consumption in several countries including Argentina.

20 May
Paul Krugman: Technobabble, Libertarian Derp and Bitcoin
The story so far: Bitcoin, the first and biggest cryptocurrency, was introduced in 2009. It uses an encryption key, similar to those used in hard-to-break codes — hence the “crypto” — to establish chains of ownership in tokens that entitle their current holders to … well, ownership of those tokens. And nowadays we use Bitcoin to buy houses and cars, pay our bills, make business investments, and more.
Oh, wait. We don’t do any of those things. Twelve years on, cryptocurrencies play almost no role in normal economic activity. Almost the only time we hear about them being used as a means of payment — as opposed to speculative trading — is in association with illegal activity, like money laundering or the Bitcoin ransom Colonial Pipeline paid to hackers who shut it down.
Twelve years is an eon in information technology time. Venmo, which I can use to share restaurant bills, buy fresh fruit at sidewalk kiosks, and much more, was also introduced in 2009. Apple unveiled its first-generation iPad in 2010. Zoom came into use in 2012. By the time a technology gets as old as cryptocurrency, we expect it either to have become part of the fabric of everyday life or to have been given up as a nonstarter.
The values of major cryptocurrencies fluctuate wildly — Bitcoin fell 30 percent Wednesday morning, then made up most of the losses that afternoon. Their collective value has, however, at times exceeded $2 trillion, more than half the value of all the intellectual property owned by U.S. business.
Why are people willing to pay large sums for assets that don’t seem to do anything? The answer, obviously, is that the prices of these assets keep going up, so that early investors made a lot of money, and their success keeps drawing in new investors.
…governments are well aware that cryptocurrencies are being used by bad actors, and may well crack down in a way they never did on gold trading. Also, the proliferation of cryptocurrencies may prevent any one of them from achieving the semi-sacred status gold holds in some people’s minds.
The good news is that none of this matters very much. Because Bitcoin and its relatives haven’t managed to achieve any meaningful economic role, what happens to their value is basically irrelevant to those of us not playing the crypto game.
Jack Dorsey Says Bitcoin Can Make the World Greener. Could He Be Right?
(New York) The day before Earth Day this year, Jack Dorsey, Twitter’s CEO, tweeted that “#bitcoin incentivizes renewable energy.” It was a counterintuitive, provocative assertion as cryptocurrency critics and environmental advocates have decried bitcoin — and were especially noisy about it that week — for using too much electricity. So it seemed exactly backward what Dorsey was saying, that bitcoin was actually positive for the environment. To support his assertion, Dorsey had shared a new white paper from Square, his other company, which argued that “Bitcoin mining presents an opportunity to accelerate the global energy transition to renewables,” and “could encourage investment in solar systems.”
Beyond the 17,500 people who liked Dorsey’s tweet, there was one particularly interesting reply: Elon Musk, the ecocentibillionaire CEO of Tesla, answered simply, “True.”

17 May
Media Advisory – Special Annual Meeting
The World Economic Forum has been preparing a Special Annual Meeting in Singapore to take place just three months from now.
Regretfully(sic), the tragic circumstances unfolding across geographies, an uncertain travel outlook, differing speeds of vaccination rollout and the uncertainty around new variants combine to make it impossible to realise a global meeting with business, government and civil society leaders from all over the world at the scale which was planned. This is despite the excellent support provided by the Government of Singapore.
The next Annual Meeting will instead take place in the first half of 2022. Final location and date will be determined based on an assessment of the situation later this summer.
Special Annual Meeting in Singapore to Take Place in August 2021

Foreign Affairs May/June
Globalization’s Coming Golden Age -Why Crisis Ends in Connection
By Harold James
Over the past two centuries, the course of trade and globalization has been shaped by how governments and people have responded to such crises. Globalization comes in cycles: periods of increasing integration are followed by shocks, crises, and destructive backlashes. After the Great Depression, the world slid into autarky, nationalism, authoritarianism, zero-sum thinking, and, ultimately, war —a series of events often presented as a grim parable of the consequences of globalization’s reversal. Yet history shows that many crises produce more, rather than less, globalization.
Modern globalization, for instance, began as a response to social and financial catastrophes in the 1840s. The most recent wave of globalization followed scarring economic disruptions in the 1970s. In both cases, shocks laid the foundation for new international connections and solutions, and the volume of world trade surged dramatically. The truth is that historic ruptures often generate and accelerate new global links. COVID-19 is no exception. After the pandemic, globalization will come roaring back.
The challenge of the new upswing in the cycle of globalization will be to find ways to learn and adapt—increasing the effectiveness of government and business—without compromising fundamental values. As in the 1840s and the 1970s, financial and monetary innovation, or the tonic of inflation, will drive transformational change. Memories of crisis will push countries and governments to adapt in 2021 and beyond, just as they have before.

9 May
As Scrutiny of Cryptocurrency Grows, the Industry Turns to K Street
Companies behind digital currencies are rushing to hire well-connected lobbyists, lawyers and consultants as the battle over how to regulate them intensifies.
Globally, the value of all outstanding cryptocurrency has jumped to about $2.4 trillion — or more than the approximately $1.2 trillion of United States currency in circulation worldwide — from about $200 billion two years ago. This is from an industry that was born only a dozen years ago, when the first cryptocurrency, Bitcoin, was introduced.
As the stakes have grown, so has the recognition that the industry’s future — at least in the United States — will be shaped in Washington, prompting the rush to scoop up well-connected advocates.

5 May
‘Joke’ Bitcoin Rival Dogecoin Found To Have ‘Remarkably Strong Fundamentals’ As The Price Hurtles Toward $1 And A $100 Billion Market Cap
(Forbes) Dogecoin, the meme-based, tongue-in-cheek bitcoin rival that’s soared by more than 20,000% over the last 12 months, is still climbing.
The dogecoin price has added 130% in the past week, taking it to highs of 69 cents, as hype builds ahead of Tesla TSLA +1.3% billionaire and dogecoin devotee Elon Musk’s planned SNL appearance. In comparison, the bitcoin price is only up a mere 500% since May 2020 and has been more-or-less trading sideways since mid-February (even as other cryptocurrencies break fresh ground).
Now, as trading platform eToro and cryptocurrency exchange Gemini add support for dogecoin, bitcoin and crypto researchers have released a report that’s found the memecoin has “remarkably strong fundamentals”—and warned dogecoin “should not be ignored.”

20 April
Global Goliaths, Multinational Corporations in the 21st Century Economy
How multinationals contribute, or don’t, to global prosperity
(Brookings) Globalization and multinational corporations have long seemed partners in the enterprise of economic growth: globalization-led prosperity was the goal, and giant corporations spanning the globe would help achieve it. In recent years, however, the notion that all economies, both developed and developing, can prosper from globalization has been called into question by political figures and has fueled a populist backlash around the world against globalization and the corporations that made it possible.
In an effort to elevate the sometimes contentious public debate over the conduct and operation of multinational corporations, this edited volume examines key questions about their role, both in their home countries and in the rest of the world where they do business. Is their multinational nature an essential driver of their profits? Do U.S. and European multinationals contribute to home country employment? Do multinational firms exploit foreign workers? How do multinationals influence foreign policy? How will the rise of the digital economy and digital trade in services affect multinationals?
In addressing these and similar questions, the book also examines the role that multinational corporations play in the outcomes that policymakers care about most: economic growth, jobs, inequality, and tax fairness.

11 April
(Foreign Affairs) Last week, the administration of President Joe Biden announced a plan to make corporations pay higher taxes. The proposal comes after years of growing concern that the clever accounting practices of big companies—including stashing profits in overseas tax havens—are denying states their fair share of taxes. Last year, the economists Joseph Stiglitz, Todd Tucker, and Gabriel Zucman noted the troubling implications of corporations evading national tax regimes. “Unchecked, these developments will concentrate wealth among a smaller and smaller number of people, while hollowing out the state institutions that provide public services to all,” they wrote.
…momentum for reform is building on both sides of the Atlantic. Klaus Schwab, the executive chair of the World Economic Forum, lamented the “deterioration of the bond between business and society” and the tax evasion that deprives governments of badly needed income. Recent events give the Biden administration and other governments the impetus for action, according to Robin Niblett and Leslie Vinjamuri: “Liberal democracies should . . . use the current fiscal stress and unprecedented government borrowing during the pandemic as an opportunity to rethink outdated national tax structures.”

7 April
G20 takes step towards global minimum corporate tax rate
Meetings of finance ministers follow change in US stance, with consensus growing on tackling tax avoidance
(The Guardian) The virtual meetings between the group of 20 major industrial nations come after the US made the case for an international base rate this week, in a move by the Biden administration to end US resistance to international tax reforms.
According to Reuters, France and Germany have signalled support for the US approach, which could after years of political wrangling pave the way for an agreement on global tax changes this summer.

6 April
IMF upgrades forecast for 2021 global growth to a record 6%
(AP) — The rollout of COVID-19 vaccines and vast sums of government aid will accelerate global economic growth to a record high this year in a powerful rebound from the pandemic recession, the International Monetary Fund says in its latest forecast.
The 190-country lending agency said Tuesday that it expects the world economy to expand 6% in 2021, up from the 5.5% it had forecast in January. It would be the fastest expansion for the global economy in IMF records dating back to 1980.
In 2022, the IMF predicts, international economic growth will decelerate to a still strong 4.4%, up from its January forecast of 4.2%.Transcript of April 2021 World Economic Outlook Press Briefing

5 April
Janet Yellen calls for global minimum corporate tax rate
(The Guardian) The treasury secretary, Janet Yellen, made the case for a global minimum corporate tax rate on Monday as the Biden administration faces opposition to its plans to raise rates on US businesses.
Yellen’s comments come as Republicans and some Democrats have pushed back on Joe Biden’s proposed $2.3tn infrastructure investment bill. The bill would be funded in part by raising rates on US business and closing loopholes that allow domestic and foreign corporations to take advantage of lower taxes overseas.
“Competitiveness is about more than how US-headquartered companies fare against other companies in global merger and acquisition bids,” Yellen said in remarks to the Chicago Council on Global Affairs. “It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”
The Organization for Economic Cooperation and Development (OECD) has been working on a new set of cross-border tax rules that would include a global minimum tax rate for multinational corporations.
Yellen warns that slow vaccine rollout in poor countries poses threat to U.S., global economies
Treasury Secretary Janet Yellen on Monday called for speeding up the distribution of the coronavirus vaccine in poorer nations, arguing the U.S. and global economies are threatened by the impact of covid-19 on the developing world.
(WaPo) While the United States and other rich countries are hoping for a return to normalcy as soon as this fall, many parts of the developing world are not on pace to have widespread vaccination of their populations until 2023 or 2024. Those countries have largely suffered more devastating economic impacts from covid, in part because they do not have the fiscal capacity to authorize the levels of emergency spending approved in the United States.
… Yellen’s remarks come at a pivotal juncture for her ambitious international agenda. In a reversal from the decision of the Trump administration, the Treasury Department under Yellen will this month authorize a new allocation of an emergency form of aid to developing nations known as “Special Drawing Rights.”

April 2021 update to TIGER: The world economy stumbles toward a two-track recovery
Brookings Editor’s Note:
In collaboration with the Financial Times (FT), Eswar Prasad of Brookings and Aryan Khanna and Darren Chang of Cornell have constructed a set of composite indexes that track the global economic recovery. The Tracking Indexes for the Global Economic Recovery (TIGER) is also featured in the Financial Times. A version of this article appears in Project Syndicate.
The Global Economy’s Uneven Recovery
While the US, China, and other leading economies are on their way to a robust recovery, many others are struggling to return to pre-pandemic GDP levels. In most regions, including Europe and Latin America, the 2020 recession will most likely leave long-lasting scars on both GDP and employment.
Eswar Prasad
(Project Syndicate) The US and China are shaping up to be the main drivers of global growth in 2021. Household consumption and business investment have surged in both economies, along with measures of private-sector confidence. Industrial production has rebounded in most countries, firming up commodity prices and international trade. Nonetheless, the US, China, India, Indonesia, and South Korea will probably be the only major economies to exceed pre-pandemic GDP levels by the end of this year. In most other regions, the 2020 recession will most likely leave longer-lasting scars on both GDP and employment.
… The world economy has thus arrived at a pivotal moment. Many countries are grappling with whether to open up their economies despite the continued spread of the virus, and whether to unleash additional macroeconomic stimulus, which could expose them to an unfavorable tradeoff between short-term benefits and longer-term vulnerabilities. Uncertainties are rife, the stakes are high, and indecisive policymaking would hurt consumer and business confidence in the weaker economies, adding to economic strains.
The recipe for a strong and durable recovery remains the same: resolute measures to control the virus, coupled with balanced monetary and fiscal stimulus and policies that both support demand and improve productivity. In economies that are recovering strongly, it would be premature to ease up in either dimension; elsewhere, policymakers will need to redouble their efforts in both.

2 April
Mohamed A. El-Erian: Ensuring a Stronger and Fairer Global Recovery
Although tough trade-offs are sometimes unavoidable, there is a way for policymakers to maintain a robust global economic recovery in 2021 and beyond while simultaneously pulling up disadvantaged countries, groups, and regions. But it will require both national and international policy adaptations. Rich nations must either help developing countries fight Covid or live in a fortress

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