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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

Cutting Martin Sellner off from the payments system

13 days ago

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?

28 days ago

"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

29 days ago

[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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Starbucks, monetary superpower

August 22, 2019

I recently spent some time on Twitter musing about the monetary wonders of Starbucks:

Wow Starbucks, what a great gig. Starbucks has ~$1.6 billion in ‘stored value card liabilities’ i.e. the Starbucks Card. So ~6% of the firm’s liabilities are comprised of coffee addicts paying 0% for the privilege of lending to their supplier.
Source: https://t.co/nGH2arujYz pic.twitter.com/cGcSW3L4MM
— JP Koning (@jp_koning) August 11, 2019
Starbucks has around $1.6 billion in stored value card liabilities outstanding. This represents the sum of all physical gift cards held in customer’s wallets as well as the digital value of electronic balances held in the Starbucks Mobile App.* It amounts to ~6% of all of the company’s liabilities. This is a pretty incredible number. Stored value card liabilities

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Stigmatized money

August 5, 2019

Some payments systems are so awkward they scare away the average user. The only people with the patience to stick around must have a motivation for doing so. These include ideologues with an ax to grind, hobbyists who happily embrace complicated features, and criminals/weirdos who are shut out of everything else. Here are a few examples of awkward payments systems:-Local Exchange Trading Systems, or LETS
-Bitcoin/Dogecoin
-Labor notes
-Stamp scrip When usage of a payments system is confined to a narrow group of like-minded individuals, this may stigmatize these systems, scaring away mainstream users. Stigmatization only compounds the initial awkwardness. After all, if fewer venues accept the stigmatized payments option then it becomes harder for the small band of users to make

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Classifying cryptocurrencies

July 5, 2019

Whenever biologists stumble on a strange specimen, they first try to see if it fits into the existing taxonomy. If it doesn’t fall within any of the pre-existing categories, they sketch out a new one for it.For people like myself who are interested in monetary phenomena and finance, Bitcoin and other cryptocurrencies like Dogecoin and Litecoin have presented us with the same challenge. How can we classify these strange new instruments?Because they have the word ‘currency’ in them, the knee-jerk reaction has been to put cryptocurrencies in the same bucket as so-called fiat money, i.e. instruments like bank deposits and banknotes. But this is wrong. Bitcoin, Dogecoin, and other cryptocurrencies are fundamentally different from $100 bills or Citibank deposits.  To see why, here is a chart

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Esperanto, money’s interval of certainty, and how this applies to Facebook’s Libra

June 25, 2019

Facebook recently announced a new cryptocurrency, Libra. I had earlier speculated about what a Facebook cryptocurrency might look like here for Breakermag. I think this is great news. MasterCard, Visa, and the various national banking systems (many of which are oligopolies) need more competition. With a big player like Facebook entering the market, prices should fall and service improve, making consumers better off. The most interesting thing to me about Facebook’s move into payments is that rather than indexing Libras to an existing unit of account, the system will be based on an entirely new unit of account. When you owe your friend 5 Libras, or ≋5, that will be different from owing her $5 or ¥5 or £5.  Here is what the white paper has to say:
"As the value of Libra is effectively

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Is bitcoin getting less volatile?

June 13, 2019

I’m going to make the following claim. The price of bitcoin is inherently volatile. Even if bitcoin gets bigger, its core level of volatility is never going to fall. Bitcoin’s hyperactive price movements prevent it from becoming a popular medium of exchange. Merchants are too afraid to accept bitcoins. If they do, they could experience large losses. Consumers who hold bitcoins are loath to spend them. Many of these hodlers are trying to change their financial lives by getting exposure to the very same roller-coaster ride that merchants are trying to avoid. If they use their bitcoin to buy stuff, they risk losing out on the opportunity for life-changing returns.Why is bitcoin’s high volatility intrinsic to its nature? Bitcoin is a rare example of a pure Keynesian beauty contest. Players

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Revisiting stablecoins

May 28, 2019

Source: Gravity Glue (2014)
Cryptocurrencies were supposed to destroy the traditional monetary system. Ten years on, where are we?Bitcoin has been wildly successful, but as a financial game–not as a medium of exchange. It’s a fun (and potentially profitable) way to gamble on what Keynes once described as what "average opinion expects the average opinion to be." But no one really uses it to pay for stuff. It’s nature as a gambling token makes it too awkward to serve as a true substitute for banknotes and credit cards.A number of stablecoins have emerged over the last five or six years. (I first wrote about stablecoins four years ago). Like bitcoin, stablecoins exist on a blockchain. But unlike bitcoin, these tokens have a mechanism for ensuring their stability. Stablecoin owners can

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Kyle Bass’s big nickel bet

May 10, 2019

In 2011, hedge fund manager Kyle Bass reportedly bought $1 million worth of nickels. Why on earth would anyone want to own 20 million nickels? Let’s work out the underlying logic of this trade. A nickel weighs five grams, 75% of which is copper and the rest is nickel. At the time that Bass bought his nickels, the actual metal content of each coin was worth around 6.8 cents. So Bass was buying 6.8 cents for 5 cents, or $1.36 million worth of base metals for just $1 million. To realize this 6.8 cents, Bass would have to sell the copper and nickel as metal, not coin. But liberating the actual metal from each token isn’t so easy. Since 2006 it’s been illegal to melt pennies and nickels down. As a regulated hedge fund manager, Bass probably isn’t willing to break the law. Which means he’d

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The difference between two colourful bits of rectangular paper

April 29, 2019

David Andolfatto had a provocative and open-ended tweet a few days back:

The difference between money and debt. pic.twitter.com/CSQuLzUJPU
— David Andolfatto (@dandolfa) April 26, 2019

We see two coloured pieces of paper, both with an old dead President on it. They each have a face value of $500. Both are issued by a branch of the government, the $500 McKinley banknote (at right) by the Federal Reserve while the $500 Treasury bond (at left) by the Treasury. Both are bearer instrument: anyone can use them.So why do we bestow one of them the special term "money" while the other is "credit"? I mean, they seem to be pretty much the same, right?The word money is an awful word. It means so many different things to different people that any debate invoking the term is destined to go off-track

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Supernotes

April 17, 2019

The U.S. $10,000 was available till Nixon nixed it in 1969
For the last few years the conversation about cash has been dominated by Ken Rogoff’s proposal to remove high-denomination banknotes. In an effort to broaden the discussion, last year I wrote an essay for Cato Unbound about introducing a new U.S. supernote. The value of the current highest denomination note–the $100 bill–has deteriorated over the decades thanks to inflation. Is it time to restore the purchasing power of U.S. cash by bringing out a $1,000 note?In the same essay I also floated the idea of taxing the supernote. Why a tax? A new $1,000 bill could be used for both good and nefarious purposes. Given that nefarious supernote usage (tax evasion and crime) could impose costs on society, a tax would make up for this by

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