SYDNEY, – The Reserve Bank of Australia, like some other major central banks, has stepped up research into running its own digital currency, but remains unconvinced of the merits, its payments chief said on Thursday.
The comments, made at a financial services conference, follow an Australian Senate report last month that called for laws to be changed in ways that were more amenable to digital currencies.
Most major economies are now considering whether to issue a central bank digital currency (CBDC) – an internet-only cash equivalent that is different to cryptocurrency since it is not de-centralised – although none have done so yet, said Reserve Bank of Australia head of payments policy Tony Richards.
However, “given the possibility that the balance could shift towards a case for issuance of retail CBDCs, the Bank has been stepping up its CBDC research”, Richards said in a speech at the Australian Corporate Treasury Association.
Noting that the European Central Bank and Sweden appeared to be the most advanced of the major economies to consider a role for CBDCs, Richards said the U.S. Federal Reserve was more cautious.
“Reserve Bank (of Australia) staff have also not been convinced to date that a strong policy case has emerged in Australia for a CBDC,” he said.
“Australia’s existing electronic payments system already provides households and businesses with a wide range of safe, convenient and low-cost payment services.”
Amid the rush to internet-only money, which has been spurred along partly by the shift toward online living during the pandemic, Australia’s biggest bank also said this month that it was offering some cryptocurrency trading services via its smartphone app. (Reporting by Byron Kaye; Editing by Simon Cameron-Moore)
– Gold prices edged lower on Tuesday, weighed down by an uptick in the dollar as investors eye upcoming key central bank meetings this week. FUNDAMENTALS
* Spot gold fell 0.1% to $1,805.96 per ounce by 0116 GMT. U.S. gold futures was flat at $1,806.60.
* On Monday, the metal rose nearly 1% to a high of $1,809.66, only about $4 shy of an over one-month peak scaled last week.
* The dollar rose 0.1% on Tuesday, recovering from a near one-month trough hit during the previous session. A stronger greenback makes gold more expensive for buyers holding other currencies. [USD/]
* Benchmark 10-year U.S. Treasury yields were also a tad higher at 1.6431%, raising non-interest bearing gold’s opportunity cost. [US/]
* Market participants eye meetings from the Bank of Japan and the European Central Bank (ECB) on Thursday. Neither of the central bank is likely to announce a change in policy, though the ECB might address how inflationary pressures could affect policy.
* Bank of England interest rate-setter Silvana Tenreyro said she needed more time to judge how the end of the government’s job-saving furlough scheme was affecting the labour market, adding to signs that she sees no urgency to raise rates.
* Gold is often considered an inflation hedge, though reduced stimulus and interest rate hikes push government bond yields up, translating into a higher opportunity cost for holding bullion which pays no interest.
* Spot silver fell 0.1% to $24.53 per ounce. Platinum edged 0.1% down to $1,056.35 and palladium gained 0.2% to $2,055.16.
DATA/EVENTS (GMT)
1400 US Consumer Confidence Oct
1400 US New Home Sales-Units Sept
(Reporting by Nakul Iyer in Bengaluru; Editing by Rashmi Aich)
* Capital shortfall seen at less than 27 bln euros
* Basel III directive also tackles climate change, branches
FRANKFURT, – Only 10 major European banks may need to raise capital as a result of the rollout of new global rules and their shortfall could be smaller than 27 billion euros ($31.43 billion), according to draft European Union regulation seen by Reuters.
The impact would be much smaller than the 52.2 billion euros estimated by the European Banking Authority (EBA) last year, a sigh of relief for a sector that has been plagued by low profits for a decade and is still recovering from a pandemic-induced recession.
The draft of European Commission‘s Basel III directive, which transposes the final batch of global rules aimed at avoiding a repeat of the 2008 financial crisis, put the increase to EU banks’ minimum capital requirements at between 0.7% and 2.7% by 2015 and 6.4%-8.4% by 2030.
“According to estimates provided by the EBA, this impact could lead a limited number of large EU banks (10 out of 99 banks in the test sample) to have to raise collectively… less than 27 billion euros,” the Commission said in the document.
The EBA said the banks in the test sample were from 17 EU countries and represented around 75% of total EU banks’ assets.
Banks had lobbied for a more flexible interpretation of the “output floor”, which limits their discretion in setting their own capital requirement, but their wishes were not fulfilled.
The European Parliament will have the final say on approving the rules, but regulators have warned the bloc not to stray from the standards already agreed at a global level.
The directive, which is due to be published next week, also gives supervisors the power to impose requirements relating to climate risk and contains stricter rules for branches of foreign banks in the EU.
This gives extra legal backing to the European Central Bank, which has been putting pressure on banks to disclose and tackle risks relating to climate change, such as weather hazards and changes in regulation.
As regards foreign branches, which had assets worth 510 billion euros at the end of last year and are concentrated in Belgium, France, Germany and Luxembourg, they will now be subject to a common authorisation procedure.
They will also have to comply with requirements relating to their capital, liquidity, governance and risk management, the draft shows. ($1 = 0.8591 euros) (Reporting by Huw Jones, Writing By Francesco Canepa in Frankfurt, Editing by Alex Richardson)
Euro zone inflation is at risk of overshooting projections so the European Central Bank needs to carefully monitor price growth and should end its emergency stimulus programme next March, ECB policymaker Bostjan Vasle told Reuters.
Inflation has surged above the ECB’s target due to a long list of one-off factors, leading to fears that what was once considered a temporary price rise could become more permanent through higher wages and corporate pricing structures.
“There are early signs that in parts of the economy and certain regions, the risk regarding the labour market could become more material,” Vasle, a conservative member of the ECB’s Governing Council, said in an interview.
“In some parts of the economy, labour is in short supply and if this trend will continue, or spread to other sectors, it could pose a risk to inflation,” Vasle said. “That’s why I think we should be very careful about second round effects.”
While there is no hard data yet, anecdotal evidence from businesses indicates that labour shortages are becoming more pronounced and workers are demanding higher wages, Vasle added.
Fearing that the COVID-19 pandemic-induced recession would lead to a self-reinforcing deflation spiral, the ECB unleashed unprecedented stimulus last year to prop up the euro zone economy.
Although the 19-country bloc has now recovered nearly all of the lost output, the ECB has yet to dial back support significantly, even as other central banks have either started to tighten policy or signalled imminent moves.
The ECB will need to decide in December whether to wind down its 1.85 trillion euro Pandemic Emergency Purchase Programme and Vasle joined a growing chorus of policymakers backing its end.
“If these trends continue, then in next March it will be appropriate to end PEPP, as announced when the programme was implemented,” Vasle said.
“It’s also important to emphasize that even when we decide to end it, we’ll continue to provide plenty of liquidity to the economy with our other instruments.”
For the Q&A of this interview, click on
STILL FAVOURABLE
With inflation on the rise, markets are now pricing in an ECB interest rate hike before the end of next year, an aggressive stance that appears out of sync with the ECB’s interest rate guidance.
Vasle downplayed the significance of market-based rate expectations.
“I think we made clear what our intentions are and what will be the most important developments that will influence our decisions,” he said. “So, at the moment, I wouldn’t put too much emphasis on this shift.”
He also dismissed concerns about a recent rise in government bond yields, arguing that real, or inflation-adjusted, financing conditions remain favourable as defined by the ECB.
Vasle would not be drawn on whether the ECB should top up other instruments to compensate for lost asset purchase volumes but argued that the central bank cannot maintain all of the flexibility embedded in the emergency scheme.
“I’m not against a discussion regarding additional flexibility to our existing instruments,” Vasle added. “But I’d like to stress that in normal times, this sort of extraordinary flexibility would not be warranted.”
The ECB currently permits itself to buy up to a third of each member country’s debt and must buy broadly in line with the size of each economy, rules that may be up for discussion at its Dec. 16 meeting. Policymakers will also meet next week, when no change in policy is likely.
But increasing the share of supranational debt in the ECB’s portfolio appears an easier move.
“This would be a natural proposal and I expect it to be part of our discussion,” Vasle said. (Editing by Catherine Evans)
The currency aims to reach a population of 340 million, if adopted by all of the nations part of the Eurozone.
The European Central Bank, in July 2021 launched a digital euro project. The investigation phase that will start this month and last for about two years will aim to address key issues regarding design and distribution.
Central banks around the world, including the Reserve Bank of India, have been contemplating the launch of their very own CBDC. A total of 81 countries, representing 90% of global GDP, are exploring CBDC as of May 2021, compared with 35 countries in May 2020, according to Atlantic Council, a US think tank.
“Some of the other countries, like the UK and Sweden, also have their own projects, which are more or less in a similar stage in terms of progress, following their own path in terms of policy and design,” Aleksi Grym, head of digitalisation at Bank of Finland said.
The currency aims to reach a population of 340 million, if adopted by all of the nations part of the Eurozone.
What is Digital Euro?
The Digital Euro would be a form of central bank money issued by the European Central Bank, and will remain its liability at all times.
According to the ECB, the Digital Euro would still be a euro, like banknotes but digital. It would be an electronic form of money issued by the Eurosystem (the ECB and national central banks) and accessible to all citizens and firms. It will not be a parallel currency.
“The broad consensus is that CBDC would complement rather than substitute any existing part of the financial industry,” said Grym.
The operational and legislative framework to introduce the CBDC will be discussed with the European Parliament and other European institutions, and the access to the digital euro will be intermediated by the private sector.
What are the reasons to issue a digital Euro?
The Digital Euro will be a viable option for the Eurosystem, in order to support digitisation in payments. It could act as a new monetary policy transmission channel and mitigate risks to the normal provision of payment services, the ECB said.
The bank further mentioned that it could serve as a response to a significant decline in the role of cash as a means of payment.
Furthermore, the bank said that it could reduce the significant potential for foreign CBDCs or private digital payments to become widely used in the euro area while fostering the international role of the euro.
What will it look like?
The ECB has not yet specified a particular design of a Digital Euro. It wants to fulfil a number of principles and requirements including accessibility, robustness, safety, efficiency and privacy.
Although, based on the possible features of a Digital Euro, two broad types have been identified that would satisfy the desired characteristics – offline and online.
“The design of the CBDC has to be compatible with the objective of monetary and financial stability,” Grym said.
“For the Eurozone, we primarily look at retail CBDC, and the reason for that is that we already have quite a sort of advanced infrastructure for the wholesale cases,” he added. When will the Eurozone have its CBDC?
The CBDC project was launched in July this year. However, the ECB has said that the end of this project will not necessarily result in the issuance of this currency, and that the central bank is merely preparing for the possibility of its issuance in the future.
“From the European perspective, we kind of envision what the world will look like not today but in 10, 20 or 30 years. The idea is that we’re looking at moving towards a much more digitized world, which is moving faster.That’s where cbdc will be designed for not necessarily the work we see today,” Grym said.
The investigation phase will examine the advantages and weaknesses of specific types of digital euro and how they would meet the needs and expectations of European citizens, businesses and financial intermediaries.
Gold prices were flat on Tuesday as investors adopted a risk-averse stance amid caution ahead of US Federal Reserve‘s policy meeting where the central bank is expected to provide cues on when it will begin tapering its asset purchases.
Bullion is considered as a hedge against inflation and currency debasement likely resulting from the widespread stimulus. A hawkish move by the Fed would diminish gold’s appeal, while an eventual interest rate hike would also raise the opportunity cost of holding the non-interest bearing asset.
FUNDAMENTALS Spot gold was steady at $1,763.60 per ounce, as of 0123 GMT.
Prices had recovered on Monday from an over one-month low on safe-haven demand as China’s Evergrande debt woes fuelled sharp sell-off in stocks worldwide.
Worries about the fallout from property developer Evergrande’s solvency issues spooked financial markets and lifted the dollar index, which hit a near one-month peak on Monday. A firmer dollar generally makes bullion more expensive for other currency holders.
Fed is likely to provide an outlook on how soon and how often they think the economy will need interest rates rises over the next three years when they release new forecasts at their policy meeting on Wednesday.
The volume of the European Central Bank‘s bond purchases is becoming “less important” as the economic outlook improves and the money-printing scheme becomes a tool for guiding rate expectations, ECB board member Isabel Schnabel said on Monday.
Russia’s gold reserves stood at 73.8 million troy ounces as of the start of September, the central bank said on Monday.
Silver edged up 0.1% to $22.26 per ounce, having hit a more than nine-month low of $22.01 in the previous session.
Palladium climbed 0.6% to $1,896.30 after slumping to its lowest level since June 2020 on Monday.
Platinum rose 0.5% to $915.05, having touched a 10-month low on Monday.
Gold prices edged lower on Tuesday as a stronger dollar crimped bullion’s appeal ahead of US inflation data that could offer cues on the possible timeline for the Federal Reserve‘s tapering.
FUNDAMENTALS Spot gold fell 0.2% to $1,790.74 per ounce by 0138 GMT.
US gold futures eased 0.1% to $1,792.10.
The dollar index was steady after hitting a two-week high on Monday, making gold more expensive for holders of other currencies.
US consumer price data is due at 1230 GMT. Economists expect core CPI, an index which strips out volatile energy and food prices, to have risen 0.3% in August from July.
Expectations of US consumers for how much inflation will change over the next year and the coming three years rose last month to the highest levels since 2013, according to a survey released on Monday by the New York Federal Reserve.
Inflation in the euro area will “in all likelihood” ease as soon as next year but the European Central Bank is ready to act if it does not, ECB policymaker Isabel Schnabel said on Monday.
A city in China’s southeastern province of Fujian has closed cinemas and gyms, sealed off some entries and exits to highways and told residents not to leave town as it battles a local COVID-19 outbreak.
SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings rose 0.2% to 1,000.21 tonnes on Monday from 998.17 tonnes on Friday.
Silver fell 0.1% to $23.70 per ounce, platinum was down 0.1% at $959.71 and palladium rose 0.3% to $2,092.64.
Gold prices held steady on Wednesday as investors awaited a key US jobs report for clues on when the Federal Reserve might start reducing its pandemic-era stimulus measures.
FUNDAMENTALS Spot gold was steady at $1,813.93 per ounce by 0109 GMT.
US gold futures were down 0.2% to $1,815.10.
The dollar index clawed 0.1% higher, having hit a more than three-week low on Tuesday.
Friday’s US nonfarm payrolls data is expected to help shape the Fed’s stance on monetary policy.
Gold is considered a hedge against inflation and currency debasement, which can be caused by massive stimulus measures.
US consumer confidence fell to a six-month low in August as worries about soaring COVID-19 infections and higher inflation dimmed the outlook for the economy.
Euro zone inflation surged to a 10-year high this month with further rises still likely to come, challenging the European Central Bank‘s benign view on price growth and its commitment to look past what it deems a transient increase.
ECB policymaker Robert Holzmann called for reducing the central bank’s emergency bond purchases as soon as next quarter, adding he expected a discussion on the matter next week.
SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.2% to 1,000.26 tonnes on Tuesday, its lowest level since April 2020.
Silver was flat at $23.88 per ounce, while platinum rose 0.3% to $1,015.49. Palladium climbed 0.5% to $2,479.06.
FILE PHOTO: German Bundesbank President Jens Weidmann attends the 29th Frankfurt European Banking Congress (EBC) at the Old Opera house in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski/File Photo
BERLIN, – The European Central Bank must tighten monetary policy if it needs to counter inflationary pressures and cannot be put off from doing so by the financing costs of euro zone states, ECB policymaker Jens Weidmann told the Welt am Sonntag newspaper.
Euro zone countries have ramped up their borrowing to cope with the coronavirus pandemic, potentially leaving them exposed to increased debt servicing costs if the central bank tightens policy to counter upward pressure on prices.
“The ECB is not there to take care of the solvency protection of the states,” said Weidmann, whose role as president of Germany’s Bundesbank gives him a seat on the ECB’s policymaking Governing Council.
Should the inflation outlook rise sustainably, the ECB would have to act in line with its price stability objective, Weidmann said. “We have to make it clear again and again that we will tighten monetary policy if the price outlook calls for it.
“We cannot then take into account the financing costs of the states,” he added.
After its July 22 policy meeting, the ECB pledged to keep interest rates at record lows for even longer to boost sluggish inflation, and warned that the rapidly spreading Delta variant of the coronavirus posed a risk to the euro zone’s recovery.
“I do not rule out higher inflation rates,” the paper quoted Weidmann as saying. “In any case, I will insist on keeping a close eye on the risk of an excessively high inflation rate and not only on the risk of an excessively low inflation rate.”
The euro zone economy grew faster than expected in the second quarter, pulling out of a pandemic-induced recession, while the easing of coronavirus curbs also helped inflation shoot past the ECB’s 2% target in July, hitting 2.2%.
When the ECB decides it is time to tighten policy, Weidmann expected the central bank would first end its PEPP emergency bond purchase programme before scaling back its APP purchase plan.
“The sequence would then be: first we end the PEPP, then the APP is scaled back, and then we can raise interest rates,” he said. (Writing by Paul Carrel Editing by David Holmes)
Banks in the European Union must have a 10-year plan spelling out how they will deal with environmental, social and governance (ESG) risks to their bottom line, the bloc’s banking watchdog said on Wednesday.
Increasing volumes of money are going into climate-friendly investments and regulators want investors to have a reliable snapshot of a company’s green credentials.
A report from the European Banking Authority (EBA) on Wednesday set out recommendations for banks and their supervisors for approaching ESG risks and help the EU meet its goals of cutting carbon emissions by 2050.
Banks should plan strategically over a period of at least 10 years to show their resilience to different scenarios, disclose strategic ESG objectives, and assess the need to develop sustainable products, EBA said.
Climate risks can include “physical” or weather-related events like floods, and “transition” risks from sudden changes in asset values.
The EBA report looks at the second pillar of core banking rules that assess how risks at a lender are managed.
It is expected to set out detailed guidance for the third pillar relating to disclosures of risks later in the year. Work on pillar one or whether actual capital requirements need changing to reflect ESG risks, is expected at a later date.
The report builds on existing EU initiatives such as a taxonomy that defines a sustainable product, and disclosure rules for all types of companies.
The European Central Bank which regulates top euro zone lenders will use the report from the end of 2022 for updating its annual “SREP” review of whether banks hold enough capital to cover risks on their books.
All EU banking supervisors will be required to apply the report or explain any gaps.
“We are putting an initial emphasis on climate-related risks as data is more advanced, but banks should also advance their identification and understanding of social and governance risks,” said Fabien Le Tennier, a policy expert in EBA’s ESG Risks unit.
Banks typically plan strategically for up to five years ahead at present.
“Most of our recommendations will not come as a surprise for banks, but there will probably be a challenge for banks to meet all of them, at least in the near term,” Le Tennier said.