14.05.2020 – Special Report. Surprise: The Federal Reserve is likely to pump even more money into the market soon. Because the economy is paralyzed, a new stock market storm is quite likely. The Corona crisis is far from over. All this speaks in favour of investing in gold. And even the block chain technology is a bullish factor for the yellow metal. We will shed some light on the background.
Even more air money from the Fed
So now it is official: the Federal Reserve does not want to introduce a negative interest rate. Immediately the doubters reported: “For all the measures taken by the Fed and fiscal authorities to counter the COVID19 shock, policy remains too tight.” In other words, even the Fed’s expansionary monetary policy is not enough to counter the Corona shock, according to credit strategist Stuart Sparks of Deutsche Bank. The real interest rate is already at -1 percent. But if the Fed shrinks from negative key rates, all that remains is more quantitative easing.
Listen and be amazed: The Fed has already expanded its balance sheet by $2.6 trillion in the past two months. Deutsche Bank estimates that the Fed has to expand its balance sheet by 3.3 trillion dollars. Even more air money, therefore, which devalues the dollar. The other central banks should follow suit. And so we have the most important argument for gold at the moment.
Marathon of money printing
Recently, Fred Hickey, publisher of the investment newsletter “The High-Tech Strategist” had already expressed similar views. Despite the name of his stock market letter, he is currently keeping his distance from overheated tech stocks. Instead, he is investing in gold miners. Hickey also argued with monetary policy: “At this point, it’s an all-out printathon: In 2008, the Fed printed up a trillion dollars in eight months. Now, they have printed up two trillion dollars in six weeks. In an interview with the “Neue Züricher Zeitung” he said that the Fed had created a gigantic bubble – as it had only done before in 2000 and 2007. His conclusion: “Gold does well in chaos and uncertainty”.
Possible gold cover of the E-Yuan
It could now be argued that the expansion of the money supply also speaks in favour of Bitcoin. That could well be the case. If an uncontrolled currency were not a thorn in the side of all governments which pursue economic policy via the intrinsic value of money. In other words, all governments. In fact, even the way into the blockchain probably leads ultimately to gold.
Because the blockchain should lead to a universe of cyber-foreign currencies with a gold standard. The Strategic Culture Foundation thought that the new e-yuan could be covered by gold. If this is officially announced by Beijing, it could strike the greenback like lightning.
China advances at Blockchain
Let us recall: a few weeks ago, the Chinese central bank announced the start of a field trial with the e-yuan in four different regions. The People’s Bank of China (PBOC) will now at some point roll out the blockchain-based currency nationwide, the Digital Currency Electronic Payment (DCEP). The driving force behind the plan is PBOC Governor Yi Gang – according to Pepe Escobar of The Strategic Culture Foundation, other cities after Suzhou, Xiong’an, Chengdu and Shenzhen will be available by the start of the Winter Olympics in 2022. Yi Gang is in no hurry, however – he wants to incorporate anti-money laundering mechanisms and customer registration requirements into the new e-finance. “Know your customer” is the keyword.
Part of the pilot test is also a mobile app on WeChat, which was developed by the Agricultural Bank of China. The test includes 19 shops, including restaurants like Starbucks, McDonald’s and Subway. The Blockchain Service Network (BSN) is to be deployed worldwide at some point, it is run by the central bank, Baidu and Tencent, according to the Chinese Ministry of Industry and Information Technology.
Good reasons for the e-currency
So back to the gold standard. The potential pioneers of gold-based e-currency – Russia and China – have good reasons for introducing such a new currency. For one thing, the US could not devalue its currency reserves via its interest rate policy. In addition, Washington would no longer be able to simply declare default on its government bonds in the event of political crises – this option is still being considered as a weapon against China because of the cover-up on the Corona issue.
Furthermore, corruption can be eliminated via a cyber currency: If the government pays with a blockchain based currency, it is always clear who got how much money and when. And it is precisely in Russia, China and India that bribery is rampant.
Away from the dollar
The whole process to circumvent the dollar towards gold has been going on for years, especially between Russia and China. Three years ago, the two countries had already agreed on bilateral trade in their respective currencies. Both have been building up gold reserves for a long time. The post-Corona world now offers a good opportunity for the new currency, the Strategic Culture Foundation added.
Further advantages: Trading partners could also assume that a gold-backed e-foreign currency is not gutted by quantitative easing. And in addition, the banks as intermediaries and thus the fees for foreign exchange are eliminated. We add: The disadvantage of such an e-currency would be that any government with access to the blockchain technology could simply empty the electronic wallet of a disgraced holder.
Nevertheless, we should keep an eye on the issue of gold backing of cybercurrencies. The head of the Shanghai Gold Exchange (SGE), Wang Zhenying, already called for an international super currency a few weeks ago, according to Reuters, in order to get rid of the dollar. The Federal Reserve will sooner or later sink the dollar in its reaction to Covid-19, he said.
The Bernstein Bank wishes successful trades and investments!
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