Brian Evan Smith, Financial Analyst

Cryptocurrencies are supposed to be currencies in their own right. They are not.

Circle provides one of the largest liquidity pools for crypto in the world. In 2015, it obtained a BitLicense to operate a BitCoin wallet. It did so by insuring BitCoin deposits. This is a similar role that the FDIC plays with banks.

However, Circle did not manage its own insured deposits. When Circle's deposits of $3.3B in SVB were locked up in the bank's failure, its stable coin lost its peg to the dollar. This was 8% of its cash reserves, but still locked up its liquidity. While a swap market for FDIC insured accounts allows one to have insured deposits above the FDIC's $250,000 limit, called an FDIC sweep program, Circle evidently both had massive uninsured reserves while claiming to insure its own deposits, and over-exposed itself to having too much of its reserves in one insured institution. The payout of FDIC insurance is not instantaneous. Circle is a pseudo-financial institution that claims to provide liquidity for crypto markets. Thus, they must, themselves, always maintain sufficient liquidity. Since it is unregulated, that is difficult to do & impossible for the crypto holder to evaluate.

We seem to be witnessing layer upon layer of under-regulation that is causing systemic risk. If Circle had failed, after the recent failure of FTX, a weak crypto market could have been further devastated. The value destruction could have been enormous. The two largest crypto banks have now failed: Silvergate & Signature. The only thing that saved Circle, including its proprietary stablecoin, USDC, is the government's guarantee of all deposits. This includes those at Signature bank, which still failed after the guarantee was announced.

In the case of Circle, crypto was rescued by the securing of dollar backing. Thus, crypto is not a true diversification against the dollar. In any scenario in which the dollar goes to 0, crypto either ceases to exist, or ceases to have any utility, in other words, it also goes to 0. While it does not correlate to the dollar, it does not diversify from the dollar when such diversification would really matter. They are not a stable store of utilitarian value. The value of crypto is purely perceived value. They are comic books. A comic book seems to have value until society runs out of toilet paper, then its utility, and thus, its value changes.

Because accounting standards & Fed policies set up regional banks to fail, the only way the Fed & the Treasury Department could find to stop a run on and the failure of all the regional banks, is to guarantee all deposits, not just the $250,000 banks paid to insure. That seems to put the solvency of the FDIC at risk. However, in the financial system, customer confidence is everything. If that can create enough customer confidence to stop bank runs, then the FDIC may get away with only paying out on a relatively small number of deposits, keeping it solvent. This seems to be good behavioral economics. But if neither Fed policy on small & regional banks nor accounting standards on their bond holdings change, the root problem remains, & we remain at risk for another financial crisis.

SVB's, Silicone Valley Bank's assets' value were allowed by current accounting rules to be inflated by $1T, 1 Trillion dollars for a bank whose net assets were only supposed to be $208B. This means that SVB's actual net assets were -$792B. If a company invests in stocks, it has to declare their current value, or mark them to market. The financial system has perpetuated the myth that bonds are less risky. SVB was allowed to do what it did because they were bond investments & accounting standards allowed them to claim they would hold these bonds until maturity. The problem is at the margin, when a bank is facing a liquidity problem, a cash crunch, those assets suddenly have to switch categories and be sold to market rates, when they never had to be marked to market rates. This designs bank failures.

From the IMF re the currency composition of global foreign exchange reserves.

International Monetary Fund

Do you do your banking on the go or do you prefer to manage your finances at home?

Turkey is the country with the highest share of mobile bankers, with 85% of respondents saying it was how they carried out their transactions, according to the latest data from the Statista Global Consumer Survey. Nigeria and South Africa came next in line, with similarly high figures for mobile banking, at 82% and 79% respectively.

For all three, the figures for classic online banking tell a slightly different story, with only 48% of Turkish respondents using a PC or laptop for their banking, versus 32% in Nigeria and 43% in South Africa.
https://www.statista.com/chart/27528/share-of-mobile-bankers-by-country/

Do you know what Latin America's main exports are? If not, we've got you covered.

Latin America and the Caribbean has abundant natural resources, and explains why this region dedicates large parts of its economy on the commercialization of said wealth. Primary products, including food, vegetable products, hydrocarbons and raw materials, make up the majority of the value of its exports.

According to data from the Observatory of Economic Complexity (OEC), soybeans and their derivatives are the main product exported by Brazil, Argentina and Paraguay. Mineral and energy exports, meanwhile, predominate in most Andean countries. In 2020, copper was the most exported product for Peru and Chile, while oil was for Ecuador, Colombia and Venezuela.

Much like other regions which base their economy on primary products, such as Africa and the Middle East, the challenge for Latin America continues to be the transformation of these raw materials and their conversion into a source of growth.

As our map shows, the contribution of the industrial sector in Latin American exports is still emerging. Value-added generating industries (such as the manufacturing of vehicles, medical equipment or textile products) are responsible for the most exported goods in just a handful of countries in the region, namely, Mexico (vehicles and their parts), Costa Rica (medical instruments), El Salvador and Honduras (garments).

Brian Evan Smith, Financial Analyst updated their information in their About section.

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