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Jp Koning

Jp Koning

Working in the bowels of the finance industry. Blogging about monetary phenomena is my side gig.

Articles by Jp Koning

How the Bank of Canada’s balance sheet went from $118 billion to $440 billion in eight weeks

2 days ago

Ever since the coronavirus hit, the Bank of Canada’s balance sheet has exploded. In late February its assets measured just $118 billion. Eight weeks later the Bank of Canada has $440 billion in assets. That’s a $320 billion jump! To put this in context, I’ve charted out the Bank of Canada’s assets going back to when it was founded in 1935. (Note: to make the distant past comparable to the present, the axis uses logarithmic scaling.)

The rate of increase in Bank of Canada assets far exceeds the 2008 credit crisis, the 1970s inflation, or World War II. Some Canadians may be wondering what is going on here. This blog post will offer a quick explanation. I will resist editorializing (you can poke me in the comments section for more colour) and limit myself to the facts.We can break the $320

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One country, two monetary systems

14 days ago

I often write about odd monetary phenomena on this blog. Here’s a new contender, Yemen’s dual banknote system. Yemen uses the Yemeni rial as a unit of account. As one of the poorest countries in the world, Yemen still relies mostly on banknotes to make transactions, which are issued by the Central Bank of Yemen, or CBY. One of the convenient features of banknotes is their fungibility. This means that one banknote is perfectly interchangeable with another. For a few months now, something strange has happened to Yemen’s banknotes. Old rials and new rials have ceased to be fungible. Any rial note that was printed prior to 2016 is now worth around 10% more than newer rial notes. More generally, the entire Yemeni monetary system has split on the basis of banknote age. From a Western

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Why Fedcoin

22 days ago

Six years ago I wrote a blog post about Fedcoin. Fedcoin is a type of central bank digital currency, or CBDC. (I called it Fedcoin at the time, but it could be any central bank that issues it, not just the Federal Reserve.)So why Fedcoin?The rough idea was that it might make sense for the Federal Reserve to create a digital version of the banknotes it issues. To do so it would use a blockchain, much like the blockchains that power Ethereum or Bitcoin. Anonymous users all over the world could download Fedcoin software and run it on their computers. In the same way that anyone can use a U.S. banknote (or bitcoin), anyone could get some Fedcoins and spend them. Why a blockchain?Public blockchains have many well-known problems. Because they are decentralized, they rely on work-intensive

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The best investment in the world

April 23, 2020

I’ve blogged about strange trades before. There’s Kyle Bass’s bet on 5-cent coins. The great Japanese gold trade of 1859. And the epic bull market in shares of the Swiss National Bank, Switzerland’s central bank.This post is about the best investment in the world. I won’t leave you hanging. It’s the U.S. "Series EE" savings bond. The coronavirus pandemic has led to a huge collapse in U.S. interest rates. As of April 21, the 30-year U.S. government bond rate was at 1.17%, down from 2.33% at the beginning of the year. The 20-year rate was at 0.98%, down from 2.19%.But there’s one corner of the U.S. government debt market where a a juicy 3.5% interest rate is still to be had: grandpa’s savings bond. Snap it up quick, because it may not last.Savings bonds have been around since 1935, when

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Stephen Poloz needs to be honest with Canadians about negative interest rates

April 19, 2020

To soften the blow of the COVID-19 pandemic, the Bank of Canada is running what it sees as an expansionary, or loose, monetary policy. I think an expansionary policy makes a lot of sense. The problem is this. The Bank of Canada has several tools it can use to loosen. Some are better than others. But it has stopped trying to use its best tool.What is its best tool? Well, there are three ways that the Bank of Canada can loosen monetary policy.Say interest rates are at 4%. Stephen Poloz, the Governor of the Bank of Canada, can either…1) Cut the interest rate, say to 3.75%
2) Keep rates at 4% but do $20 billion or so in quantitative easing. This is just a fancy term for buying up assets like government bonds.
3) Keep rates at 4%, but promise to maintain them at 4% for extra-long. This is

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Cash and COVID-19

April 6, 2020

"I work at a bank and some lady tried to microwave her money to clean it…….. 🤦🏼" from Twitter
I’ve written a series of posts and tweets over the last month about cash and COVID-19. The first set of posts has to do with the idea of banknote contamination.Banknote contamination In my research for BullionStar, I found that the odds of a banknote being contaminated by a virus depends to some degree on the type of banknote. Traditional paper banknotes like the U.S. dollar are probably a lot safer than plastic ones, since they have porous surfaces that are less welcoming to viruses. Polymer and coated banknotes, like what we have here in Canada, are non-porous and thus much more conducive to both virus survival and transferal to fingers.Funny enough, one of my references for the article was

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Alphabet soup

March 29, 2020

It’s that time of the economic cycle. Financial writers are flocking to the phrase alphabet soup again. This was a phrase we all adopted in 2008 to describe the hodge podge of credit facilities created by the Federal Reserve to deal with the credit crisis. Twelve years later, alphabet soup applies just as well to the Fed’s response to the coronavirus crisis.As in 2008 the Fed is currently trying to get funding into as many nooks & crannies of the credit system as it can. The easiest way to do this would be for the central bank to create a slew of new deposits and either lend them directly to corporations (and other counterparties like municipalities) or buy up already-issued corporate bonds and other debt instruments.But things aren’t that easy. The Fed’s money is taking a somewhat

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The bitcoin-to-salvia divinorum trade route

March 7, 2020

I am now writing editorial articles for Coindesk. In my first piece I explored Strike, a new app that intends to bring bitcoin payments to a mainstream audience. Coindesk allows me to repost articles after a delay. Rather than putting up the whole thing, I’m just going to take a few bits from it and try to create something new.We’ve been discussing bitcoin-as-money on this blog for almost eight years now. Since then the stuff has always been just one design flaw away from taking off as a way for regular folks to make payments. So when I heard about Strike, my curiosity was piqued. Is it bitcoin’s killer app, the one that that covers up enough of bitcoin’s nuisances that it brings bitcoin payments to a mainstream audience? Or is bitcoin so intrinsically awkward that it will always be

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Transferwise, why so fast?

February 26, 2020

This post explores some of the technological advancements that have allowed remittances to be completed in seconds rather than days.If you follow me on Twitter, you’ll often see me retweeting folks who have just made really fast remittances using Transferwise, a company that specializes in cross-border payments. Like this one:

Australia to Thailand, less than a minute.Remittance providers can achieve speeds like this by stitching together domestic 24×7 real-time payment systems, in this case Thailand’s PromptPay and/or Australia’s New Payments Platform. https://t.co/6UCdcVMFyO
— John Paul Koning (@jp_koning) February 17, 2020

No, I’m not a paid shill for Transferwise. I’m providing a public service. By shining a light on these quick remittances, I’m hoping to counteract two bad

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Cutting Martin Sellner off from the payments system

February 11, 2020

I few weeks back I learned who Martin Sellner is. If you haven’t heard of him, Sellner is a prominent Austrian populizer of remigration, the idea that non-whites living in Western nations should be sent back to where they come from.In a recent tweet from his wife, Brittany Sellner, we find out that Sellner has been kicked off of by a long list of banks and payments platforms.

List of all the banks/platforms Martin has been banned from. pic.twitter.com/FDNqjp7J21
— Brittany Sellner (@BrittPettibone) January 15, 2020

The companies that are accused of removing Sellner include German bitcoin exchange Bitpanda, a number of European banks, and payments processors PayPal and Stripe. Should we support efforts to stop prominent remigrationists from making payments? It’s a tricky question, one

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What happens when a 96 bitcoin ransom payment ends up on Bitfinex?

January 27, 2020

"Hello, to get your data back you have to pay for the decryption tool, the price is $1,200,000… You have to make the payment in Bitcoins."This is a snippet from a recent court case concerning ransomware that just crossed my desk. Companies that fall victim to ransom attacks fear the publicity it might attract, so the details of these attacks are usually swept under the table. But in this case, the ransom payer—a British insurer that traced the bitcoins to Bitfinex, a major bitcoin exchange—has appealed to the UK High Court for an injunction, thus providing us with a vivid peak into the inner workings of an actual attack.Ransomware is a big issue these days. A hacker maliciously installs software on a victim’s computers, encrypts various files, and then asks for a bitcoin ransom to fix

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Monetary policy is not a tightrope

January 26, 2020

[This is a guest post by Mike Sproul. Mike has posted a few times before to the Moneyess blog.]Here is a summary of the Federal Reserve’s Principles for the Conduct of Monetary Policy, which aims at “walking the tightrope” between inflation and unemployment:
…the central bank should provide monetary policy stimulus when economic activity is below the level associated with full resource utilization and inflation is below its stated goal. Conversely, the central bank should implement restrictive monetary policy when the economy is overheated and inflation is above its stated goal.
In contrast, here is the real bills doctrine:
Money should be issued in exchange for short-term real bills of adequate value.
The real bills doctrine was developed by practicing bankers over centuries of

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Flooding or marijuana? Two theories for falling cash demand

January 15, 2020

When Canada legalized marijuana in October 2018, the amount of banknotes in circulation took a sudden plunge. In a 2019 paper available here, economists Charles Goodhart & Jonathan Ashworth theorized that because the marijuana trade has always been conducted using anonymity-providing cash, legalization meant that Canadians could now buy pot with debit and credit cards. Thus the big drop in cash held that October.Here is one of the charts that the pair used:Source: Goodhart & Ashworth
Goodhart & Ashworth went on to suggest that October’s $1.5 billion decline in cash outstanding (1.4% of all banknotes!) provided early evidence that Canadian Prime Minister Trudeau’s 2015 promise to keep "profits out of the hands of criminals" had been successful.Hold on! said Bank of Canada researchers

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Cryptocurrency in a land of strict gambling laws

January 5, 2020

Kim Jin-Woo, K-pop star jailed for online gambling [source]
I recently read that South Korea will not be taxing capital gains on cryptocurrencies next year. Young Koreans who became paper multi-millionaires when XRP or some other cryptocurrency skyrocketed from 0.1 cents to 25 cents have reason to celebrate. They can sell without having to give up a single won of their winnings to the Korean tax authority. Letting off the crypto-rich may sound like a bad tax policy. In this post I’ll make the argument for why it isn’t. Cryptocurrency gains enjoyed by a retail clientele probably shouldn’t be taxed (nor should a big loss on their cryptocurrency holdings allow them to reduce their taxable income.) Few nations have taken to cryptocurrency with as much gusto as South Korea. In a study from

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The Watergate banknotes

December 26, 2019

Cash isn’t quite anonymous, it’s anonymous-ish. To illustrate this, a few years ago I wrote about the 1932 Lindbergh kidnapping case. The ransom was paid in gold certificates, not Federal Reserve notes. By coincidence, the U.S. went off the gold standard the next year, and all gold certificates were called in. So when the kidnapper spent some of his gold certificates in 1934 to buy gas, his purchase was odd enough to out him to the authorities. I recently stumbled on a more recent example of cash de-anonymization. Most people know the gist of the Watergate scandal, but to recap five burglars were caught breaking into Democratic headquarters at the Watergate building on June 17, 1972. Who were they and what were they doing there? At first, no one had a clue. But the police did find

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Buying coffee with Tesla shares

December 19, 2019

It’s fascinating to see how brokerages these days are offering no-commission trades, fractional share ownership, and debit card-linked accounts. With this combination of features, maybe we’re getting closer to the day when we can buy a $2.50 coffee with 0.007 Tesla shares. Right now, a debit card purchase can only proceed if there are uninvested cash balances in the linked-to account. But what if the securities held in your brokerage account could also be debit-cardized?Imagine going to Tim Hortons, ordering a double double, and paying with your RobinHood MasterCard debit card. Behind the scenes RobinHood, an online brokerage, checks your account. All you own is a few shares of Tesla. RobinHood won’t actually transfer the shares to Tim Hortons. Instead, it quickly sells a small

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Bitcoin and sanctions

December 12, 2019

I recently watched a video with Alex Gladstein on the importance of financial privacy. In general I agree. We should be working on expanding the scope for transacting privately, although I am conscious of the tradeoffs. Anonymity helps good people evade bad rules, but we need to be wary of how it abets bad people evading good rules. (See for instance my recent post on the good & bad of using prepaid debit cards to donate anonymously). In the above list, Gladstein intimates that bitcoin has a positive role to play in evading U.S. sanctions. I have two quick points to make. I mean, there are U.S. sanctions that I agree with and those that I don’t agree with, and I’m sure the same goes for Gladstein. I hope that the sanctions that I agree with are in fact the morally justified ones, and

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A way to make anonymous online donations

December 7, 2019

Paying for things online usually means giving up plenty of privacy. But this needn’t always be the case. Last night I donated to a local charity via their website and didn’t have to give up any of my personal information. The trick for achieving a degree of online payments anonymity? Not bitcoin, Zcash, or Monero. I used a product created by old fashioned bankers: a non-reloadable prepaid debit card. (I wrote about these cards here and here). Had I used a credit card or PayPal, all sorts of parties would have gotten access to my personal information including the site owner, the payments processor, my bank, the site owner’s bank, the credit card networks, my partner, and many more. To get a good feel for how many different parties touch an online payment, check out this graphic by

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Mooning over daylight overdrafts

December 4, 2019

Every few days for the last month or so I’ve been refreshing a Federal Reserve page that shows data about daylight overdrafts. For some reason the Fed only updates it every few months. I had been getting quite curious to see what happened during the great September interest rate spike. Well, finally the Fed has uploaded the data. If you don’t know about the September rate spike, I’d suggest reading Nathan Tankus’s tweet, listening to David Beckworth’s podcast with Bill Nelson, or picking through this blog post from Stephen Cecchetti and Kermit Schoenholtz. In short, there was a sudden increase in the demand for Fed balances (also known as reserves), and the Fed was slow to react by increasing the supply of balances. And so the rate at which banks were willing to borrow balances spiked

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In-game virtual items as a form of criminal money

November 29, 2019

A few weeks back Vice had an interesting story about Valve, a game maker, putting an end to trade in various in-game items because "worldwide fraud networks" had been using these items to "liquidate" their gains. You can see the blog post from Valve here:
"Why make this change? In the past, most key trades we observed were between legitimate customers. However, worldwide fraud networks have recently shifted to using CS:GO keys to liquidate their gains. At this point, nearly all key purchases that end up being traded or sold on the marketplace are believed to be fraud-sourced."
Having not played a video game since the original Super Mario Bros, this all sounded all very strange to me. But I couldn’t resist digging a little deeper. After all, strange media-of-exchange are a major theme

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Notes from an inter-planetary monetary anthropologist

November 22, 2019

My work as an inter-planetary monetary anthropologist has brought me to dozens of different planets to study their monetary systems. The monetary system of the most recent planet that I visited, the planet of Zed in the Xv2 galaxy, falls into the same classification as the systems on Vigil X and Earth (which I last visited in 1998 and, according to other anthropologists, hasn’t changed much). As on Earth, markets on Zed tend to lie towards the free end of the spectrum. Zedians can own property. And property rights are enforced. Zedians often put their savings in institutions much like banks and earn interest. Banks in turn lend to individuals and business. However, one of the oddities of the planet of Zed is that its inhabitants universally adhere to an economic religion, Zodlism. One

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“Controllable anonymity”

November 14, 2019

Reuters and Coindesk report that that the People’s Bank of China’s imminent central bank digital currency (CBDC) is going to have a feature called controllable anonymity. Perhaps some wires have been crossed in the translation, but it’d be hard to come up with a more Orwellian piece of double speak than this. Plenty of people on Twitter are sneering. But in this post I’m going to take China’s side, if only tepidly. None of the news articles have made much of an effort to explain controllable anonymity. But we’ve actually known about this feature for quite some time. Back in 2018, the project’s head, Yao Qian, provided a short description of it. It’s not as Orwellian as it seems.China’s new CBDC, otherwise known as the Digital Currency Electronic Payment (DCEP) platform, requires users

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From unknown wallet to unknown wallet

November 6, 2019

Antony Lewis recently published a useful article on stablecoins. In it he describes something called "permissioned pseudonymity". In traditional payments systems, people only get to access to payments services after opening an account. This requires that they provide suitable identification. So these systems are not pseudonymous. Usage and personal identity are linked.Stablecoins operators, on the other hand, sever this link. Users can transfer stablecoins to other users without providing personal information. John Doe can pay Jane Doe, no questions asked. Antony calls this permissioned pseudonymity because regulators permit pseudonymous usage of stablecoin networks.

? ? 30,000,000 #USDC (29,926,581 USD) transferred from unknown wallet to unknown walletTx: https://t.co/ujdi6cvpZ8

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Bitcoin, 11-years in

November 2, 2019

Satoshi’s first email [source]
Eleven years ago, Satoshi Nakamoto announced the bitcoin whitepaper to the world. Coinbase, a large cryptocurrency exchange, recently celebrated this milestone with a retrospective. I’m going to remix Coinbase’s narrative to tell a different account of bitcoin’s last 11-years.The thing that fooled us all for a while, myself included, is that we all thought bitcoin was solving a monetary or payments problem. It was labelled a coin, after all, and coins fall within the realm of monetary economics. To further complicate matters, Satoshi told his story using phrases like "electronic cash system" and "non-reversible transactions". Perhaps we deserve to be forgiven for not seeing bitcoin’s underlying nature. After all, tearing down the existing monetary system

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Is the strength of U.S. sanctions due to U.S. dollar hegemony?

October 31, 2019

I often hear the idea that the U.S. dollar is the means by which the U.S. implements sanctions. And since the U.S. dollar pervades all corners of the globe, the U.S. government’s sanctions are uniquely powerful. For instance, Reuters reports that Russian resource giant Rosneft is shifting all its contracts over to euros in order to "shield its transactions from U.S. sanctions."Another version of this idea was recently floated by David Marcus, the head of the Libra payments project:
"The future in five years, if we don’t have a good answer, is basically China re-wiring” a large part of the world “with a digital renminbi running on their controlled blockchain,” Marcus said. He warned about the prospect of “having a whole part of the world completely blocked from U.S. sanctions and

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A free market case for CBDC?

October 26, 2019

Central bank digital currency, or CBDC, is a form of highly-liquid digital debt that most governments have, till now, held back from issuing. But there is a growing push to change this. Free market economists are generally not big fans of CBDC. They see it as government encroachment on the banking sector.In this post I’m going to push back on the free market consensus. (This post was inspired after reading posts by Tyler Cowen and Scott Sumner).Look, we’re always going to have a government. Right? And that government is going to have to raise funds somehow in order to keep the lights on. The question is, how? Should it issue 30-day Treasury bills? Fifty-year bonds? Perpetual debt? Paper currency? Why not issue currency-ish debt instruments in digital form?Let’s start with a parable.

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Getting up to monetary mischief

October 16, 2019

By Harcourt Romanticist [source]
This post is dedicated to the protesters in Hong Kong. I am awed at how courageous they have been in the face of continuing pressure from China’s Communist party. The same regime is complicit in persecuting Uighur Muslims and imprisoning two Canadians, Michael Spavor and Michael Kovrig. There are all sorts of creative forms of non-violent mischief that citizens can use to protest against oppressive governments. This post explores a sub-category of non-violent mischief: monetary mischief. Money stampingOne of the most popular forms of monetary protest is to overstamp currency. This involves stamping banknotes or countermarking coins. Coins and banknotes are vital to trade and circulate widely. Which makes them a great way to advertise a cause or complaint.

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A fifty-year history of Facebook’s Libra

September 24, 2019

Last week, we finally got some information about what Libra’s currency basket would look like.

A Libra currency basket will reportedly include…
-no Chinese yuan
-50% dollar
-18% euro
-14% yen
-11% pound
-7% Singapore dollarhttps://t.co/YNbRY9Q02xLibra could have automated the decision by adopting an established unit of account, say the IMF’s SDR…
— John Paul Koning (@jp_koning) September 20, 2019

If you haven’t heard, Libra is a proposed global blockchain-based payments network. It is being spearheaded by Facebook along with a coalition of other companies including Uber, MasterCard, PayPal, and Visa.The hook is that rather than going the conventional route and expressing monetary values using existing units-of-account like the dollar, yen, pound, or euro, the Libra network will

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The life and death of an internet monetary meme

September 18, 2019

Over the last few years I’ve increasingly crossed paths with the following claim on the internet: "The average life expectancy for a fiat currency is 27 years." Is this claim true? What definitions are being used? I mean, are we talking about inconvertible paper money here, or currency that was convertible into gold, too? I finally got curious enough that I decided to chase down the source of this meme. After all, without knowing what data it is based on, it’s hard to evaluate the claim’s truthfulness. Below I give a description of my trek through internet history.The average-life-of-fiat meme has become particularly popular among cryptocurrency types. For instance, here is Jimmy Song, a popular bitcoin educator/developer, confidently invoking the slogan back in 2017:
"When a society

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Why the discrepancy?

August 31, 2019

Vitalik Buterin had a thought-provoking tweet a few days back about interest rates.

Lending DAI to Compound offers 11.5% annual interest. US 10 year treasuries offer 1.5%. Why the discrepancy?
— Vitalik Non-giver of Ether (@VitalikButerin) August 23, 2019
Today’s post explores what goes into determining interest rates, not blockchain stuff. So for those who don’t follow the blockchain world, let me get you up to speed by decoding some of the technical-ese in Buterin’s tweet.DAI is a version of the U.S. dollar. There are many versions of the dollar. The Fed issues both a paper and an electronic version, Wells Fargo issues its own account-based version, and PayPal does too. But whereas Wells Fargo and PayPal dollars are digital entries in company databases, and Fed paper dollars are

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