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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

Are the Bank of Canada’s bond purchases illegal?

4 days ago

Pierre Poilievre, Conservative MP for Carleton, alleges that the Bank of Canada’s bond buying program contravenes the Bank’s powers enunciated in the Bank of Canada Act.The unprecedented money printing the government is doing to fund its spending is not only causing an inflation tax, it is illegal under the Bank of Canada Act. pic.twitter.com/KDfJd3niPJ— pierrepoilievre (@PierrePoilievre) July 20, 2021 Allegations that the Bank of Canada has broken the law should be taken very serious. They should not be made lightly, either. We give our public servants at the Bank of Canada a wide range of powers to enact monetary policy, but only within the bounds that we permit them.Poilievre has been actively criticizing the Bank of Canada’s pandemic response ever since Covid-19 hit in 2020. I can’t

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The dollar isn’t a meme

8 days ago

"Currencies are not memes that only have value because governments say they do," writes Brendan Greeley for the Financial Times. I agree with him. The dollar-as-meme claim is often made by cryptocurrency enthusiasts. That this idea would emanate from the cryptocurrency community makes sense, since cryptocurrency prices are a purely meme-driven phenomenon. There is no cryptocurrency for which this is more apparent than Dogecoin, a cryptocurrency started as a joke and sustained by shiba inu gifs, but it applies equally to Doge’s older cousin, Bitcoin. The harder you meme the higher a cryptocurrency’s price, as the image at top suggests.And so for cryptocurrency analysts, getting a good understanding of a given coin’s value is a matter of picking through its underlying memes and meme

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Those 70s ACH payments

18 days ago

Here is Facebook’s David Marcus, who has been involved in rolling out Facebook’s much-touted Libra/Novi/Diem payments system:I often make the parallel between money and communication networks. Unfortunately money still moves at the pace of the early 70s (ACH), and for the most part at the same price. Unacceptable. https://t.co/beNCtCD3To— David Marcus (@davidmarcus) July 9, 2021 By ACH, Marcus is referring to automated clearinghouse payments. If you want to pay your phone bill, the payment gets sent to a clearing house, which batches your payment together with many other payments and then settles it the next day. These systems were built in the 60s and 70s.I don’t want to pick on Marcus, since he isn’t the only one with this view. But modern money no longer moves at the pace of early 70s

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There are two kinds of people who label bitcoin a ponzi

June 29, 2021

There are two kinds of people who label bitcoin a ponzi. The first group is made up of salty nocoiners who launch the word ponzi as an insult. These people disliked bitcoin and/or bitcoiners pretty much from the get-go. They criticize it at every chance they get. The second group uses the word ponzi in a neutral, or analytic sense. They aren’t describing bitcoin as a ponzi in order to insult bitcoin, but in the same way that a biologist would describe a certain mosquito as belonging to the family Culiseta longiareolata rather than Culiseta minnesotae.In philosophy, this distinction is captured by the contrast between descriptive and normative statements. A descriptive claim is one that describes a situation. "Brutus killed Caesar." A normative one is that makes some sort of value

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A short and lukewarm defence of anti-money laundering standards

June 22, 2021

These days it seems that everyone is a critic of anti-money laundering rules. In this post I want to try and defend our current approach to anti-money laundering.I’m writing from the perspective of an outsider. That is, I’m not a regulator. Nor am I a member of the growing anti-money laundering industry. Mine is a lukewarm defence. I’m not terribly wedded to my views.First, a quick definition. What I mean by anti-money laundering rules are the set of standards that banks and other financial institutions have to follow to prevent criminals from using them. For instance, a cryptocurrency exchange is required to verify ID before it can open a new account. For international wires, a bank must follow the travel rule and send their customer’s personal information to the recipient bank. This is

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Why do ransomware gangs like bitcoin? It’s the censorship resistance

June 11, 2021

A new type of crime has recently emerged: big-ticket repeatable ransomware. Bitcoin is the chosen payments method for ransomware gangs. But these gangs don’t use bitcoin because it is anonymous. They’ve chosen it because it is censorship-resistant.Here’s a quick illustration of how ransomware works. A university’s servers are encrypted by a ransomware operator. Common victims also include corporations, hospitals, or police departments. Only a payment of, say, $1.14 million in bitcoins will release them (see below). The gang may up the ante by threatening to auction off the institution’s data if a ransom isn’t paid.Ouch. The University of California San Francisco just paid $1.14 million in bitcoin to ransomware operator Netwalker: https://t.co/fFbBK99lRbHere’s UCSF’s statement explaining

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A bronze currency in ancient Europe?

June 2, 2021

Metal scraps from a soldier’s pouch found at the Late Bronze Age battlefield of Tollensee Valley (source)1) Last month I wrote about hacksilver currency in the ancient Middle East. This month I thought I’d share some fascinating archaeological research exploring what Europeans may have used as money during the Bronze Age.2) By Bronze Age Europe, what is generally meant is the period beginning with the first appearance of bronze, a product of copper and tin, in southern Europe around 3000 BC and spreading north into the rest of Europe. It lasted till the introduction of iron between 1000 BC – 600 BC, depending on the region.3) Did Bronze Age Europeans develop the idea of using metal as a common medium of exchange? There’s a big hurdle to answering this question. Europe lacks textual

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The overconsumption theory of bitcoin (and decentralization in general)

May 15, 2021

Bitcoin mining farm (via CoinDesk)There are two extreme theories about cryptocurrency energy consumption, both of them bitterly opposed to each other. The first I’ll call the big waste theory. Cryptocurrencies such as Bitcoin and Ethereum serve no useful purpose. Yet they are sucking up huge amounts of useful electricity. Let’s ban them. The second theory is the vital cog theory. Cryptocurrencies are a useful bit of global financial infrastructure. And so the huge amounts of energy that they are consuming is beneficial. Let’s not impede them.(This is an adaptation of an article I wrote for the Sound Money Project. Do head over to read it.)In this post I’m going to trace a reasonable path between these two extremes with an overconsumptionist theory of bitcoin and decentralized

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A nickel is worth more than a nickel

May 6, 2021

Having just emerged from the fiasco of last year’s coin shortage (which I wrote about here and here), the U.S. Mint has a new problem on its hands. The melt value of the nickel, or five cent coin, has suddenly moved higher than the coin’s face value.Thanks to the big rally in copper prices, a nickel coin is once again worth more than 5¢ https://t.co/2ZEkkxqEVR pic.twitter.com/2O2ce0eccN— John Paul Koning (@jp_koning) May 5, 2021 The melt value of a nickel refers to the market value of the 3.25 grams of copper and 1.75 grams of nickel inherent in each five cent coin. In the chart below I’ve mapped out the melt value of a U.S. nickel going back to 2000, decomposed into its copper and nickel components.As you can see, the last time that the intrinsic value of a coin exceeded its face value

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Is DeFi unregulatable?

April 29, 2021

Government’s can’t regulate DeFi, can they? It’s too wild and uncontrollable.DeFi, or decentralized finance, is the set of anarchic financial tools built on top of the Ethereum blockchain. These tools mimic what you’d see in the real world. MakerDAO is a decentralized bank, Compound and Aave are decentralized lending marketplaces (like Lending Tree), and Uniswap is an exchange, like the NASDAQ, except on a blockchain.Unlike regular financial institutions, none of these Ethereum-based institutions operates with a license, registration, or a permit. MakerDAO, for instance, recently financed some real world mortgages by issuing U.S. dollar deposits. So it seems to be operating as a commercial bank. However, MakerDAO hasn’t secured a banking license from any of the world’s biggest banking

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Why did Dogecoin take off but Feathercoin didn’t?

April 21, 2021

Dogecoin makes us all shake our heads. Introduced in December 2013 as a joke, Dogecoin is now worth over $50 billion, more than Ford Motor Co. Meanwhile Feathercoin, a more serious cryptocurrency that debuted in April 2013 (and initially worth more than Dogecoin), is currently valued at a tiny $10 million.Here’s the December 2013 list of top cryptocoins. After the first 3, all of them are pretty much dead/inactive except for the one that was started as a joke and is now worth $17 billion. 🤷https://t.co/ImBu5CUxpr pic.twitter.com/R0tPBWl35C— John Paul Koning (@jp_koning) April 14, 2021 How are we supposed to understand the strange thing that is Dogecoin?Let’s start by exploring what these odd instruments are. While Dogecoin and Feathercoin seem like an entirely new phenomenon, I’d suggest

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The Biden stimulus and the big jump in cash

April 12, 2021

Since mid-March, the stock of U.S. banknotes has surged by $45 billion. That’s a 2.1% increase in just 30-days.  This jump surprised me (ht to David Beckworth, who brought it to my attention). That’s because cash demand patterns are typically quite predictable. We always see a seasonal Christmas/New Year’s rush for cash. After Christmas vacation is finished the stock of cash always falls as notes and coins are returned to banks. For the rest of the year the stock of notes slowly rises. During crisis (i.e. Y2K, 9/11, the 2008 credit crisis, and the coronavirus panic) the demand for cash spikes. But there shouldn’t be a cash surge in the middle of a quiet March.To see how odd this spring’s jump in the stock of cash is, I’ve plotted banknote data from the period beginning November 2020 to

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From Circle-of-Gold to Mega$Nets to Bitcoin

April 1, 2021

We tend to dismiss chain letters as mere scams or frauds. In this post I want to get readers thinking about chain letters as a type of financial innovation, one that has been steadily updated over the decades.Chain letters are lists. That list is governed by a rule: the first people on the list are to be paid by the latecomers. The chain letter stop working, or paying out, when no one else wants to join up. The amount of money flowing to early-birds who joined the list is equal to the amount arriving from latecomers. No additional value gets created. That’s why chain letters are zero-sum games.The greatest technological strength of a chain letter is its decentralization. Each node, or participant, is independently responsible for receiving, copying, updating, distributing, and marketing

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Hacksilver

March 15, 2021

1. Over the last month or two I’ve been following an interesting archaeological debate over the discovery of coinage. I thought I’d share it with you.2. It’s generally accepted by archaeologists and numismatists that the first coins were invented in Lydia, modern day western Turkey, in the 7th Century B.C.E. (i.e. 610 B.C.E. or so). The idea quickly spread to Greece. The Lydians used electrum, a strange silver/gold mix, to make their discs. (I wrote about electrum coins here). I’ve included an example below.Electrum coin from Ephesus, 625–600 BC [Source]We don’t know exactly why the Lydians used electrum, or even if they treated their discs in the same way that future generations would use coins. But when the Greek city states copied Lydian coinage in the 6th Century, they didn’t use

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Tether, a bigger badder PayPal

March 6, 2021

My recent article on Tether, a stablecoin, was just published at Coindesk. In the article I commented on Tether’s recent settlement with the New York Attorney General’s office. Because the settlement forces Tether to adopt a bunch of new practices, I think it’s a win for stablecoin consumers. Why have I been focusing so much of my time on Tether stablecoins? Diligent readers will recall I wrote about it twice last month. (1 | 2 ).First, I’ve been writing about stablecoins for a long time now, and Tether has always been the biggest of the bunch. So it merits our attention. But it isn’t just the biggest stablecoin. These days it’s also becoming big by regular fintech standards. According to its website, Tether recently passed $35 billion in deposits, ranking it above PayPal’s $34 billion.

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Ponzis and bitcoin as a response to a bad economy: the case of Nigeria

February 22, 2021

Usually when I think about gambling and speculative excess, I’ve always associated it with giddy prosperity. When an economy is doing well, productivity is improving, new technology is being introduced, and unemployment is low, people have extra income that they can throw away at the casino. Or they put it into their brokerage account and, with the help of margin, generate speculative bubbles.But lately I’ve been rethinking this view. Speculative bubbles and over-gambling are just as likely to be driven by sick and decaying economies as they are by prosperous ones. And Nigeria is a prime example of this.Nigeria, one of Africa’s largest major oil producer, plunged into recession in 2015 as oil prices collapsed. It saw only anemic growth from 2017 to 2019 before COVID-19 pushed it back into

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Defining the “regulated” in “regulated stablecoin”

January 28, 2021

1/n This is a thread on what is means to be a "regulated stablecoin." (This was originally meant for Twitter, but I didn’t feel like wrestling with the 240-word limit and threading, plus it got a bit long, so now it’s a blog post). 2/n People in the cryptocurrency space often use the term of art "regulated stablecoin." No one has a monopoly over what "regulated stablecoin" means. It is a community-defined term. It’s not terribly well-defined. But it should be.  3/n It should be well defined because when newcomers enter the crypto space, and they have to choose what stablecoins to adopt, they may assume that those stablecoins that are tagged as "regulated stablecoins" are products that offer a degree of government-provided consumer financial protection. 4/n But are there government

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The fabrication of trust in various types of dollars

January 23, 2021

How are we consumers to know whether the dollars that financial institutions provide us aren’t fraudulent dollars? On what basis can we assume that the funds we hold at PayPal, for instance, or in Cash App, are "good money"?It’s an age-old problem. If you were alive in 1889 and someone offered to pay you with a $10 note from Banque d’Hochelaga (see below), a privately-owned Montreal-based bank, how could you know the issuer wasn’t a fraud and that it had enough assets on hand to always redeem notes with gold and/or silver?1889 $10 note, Source: Bank of CanadaThe question of fabricating trust in dollars also applies to today’s rapidly growing stablecoin sector. Stablecoins are dollars issued on public blockchains like Ethereum or Tron. Tether has an astonishing $24 billion in U.S. dollar

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The unbanked, the post office, and fintech in the 1880s

January 1, 2021

"A large population of people are excluded from the financial system because they don’t have bank accounts. Fintechs compete to connect them and parallel plans emanate from the government to reach the unbanked, including postal banking." What year am I describing in the above paragraph? It could be 2021. But it also describes 1870s. It’s 2021 and the U.S. still has a large population of unbanked, those who have so little money that banks would rather not serve them. An astonishing 5.4% of Americans—that’s 7.1 million households—do not have bank accounts.Financial technology companies (aka fintechs) like PayPal and Facebook’s Libra have well-meaning plans to connect the American unbanked population. Government-run proposals abound too. Postal banking is probably the most popular option,

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Dolphin Safe Tuna and Fair Trade bank accounts?

December 24, 2020

The Royal Bank, Canada’s largest bank, says that it won’t lend to clients that get more than 60% of their revenue from thermal coal or coal-fired power generation. Should a bank be able to avoid providing services to businesses just because they don’t engage in the sorts of activities the bank, or its depositors, approve of? Put differently, should the Royal Bank be able to avoid "dirty" loans so that it can offer its depositors the semblance a Fair Trade, or green, bank account?Critics would say that the Royal Bank shouldn’t be allowed to avoid banking coal-fire dependent companies because it operates within a “regime of privilege.” That is, the Royal Bank benefits from a system of government regulation, central bank lender of last resort benefits, Federal deposit insurance, and direct

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Judy Shelton at the Bank of Canada? No thanks

December 6, 2020

How would I feel if Judy Shelton was a candidate for Governor of the Bank of Canada? Here are my thoughts.A bit of background first. Judy Shelton was a Trump appointee to a key spot on the Federal Reserve board, the U.S.’s central bank. A President’s appointees must be confirmed by Congress, and this was probably the most heated confirmation process I’ve ever followed. Shelton has espoused several controversial view points, including a return to the gold standard. The reason this appointment is so important is because Federal Reserve board members determine American monetary policy. That is, they decide whether to pluck interest rates up or down in order to ensure that the central bank is hitting its mandated targets. That’s a pretty important job! Not only would Shelton have been in the

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Stablecoins as a route into Venezuela?

November 23, 2020

Over the last decade, few nations have experienced as much monetary and payments chaos as Venezuela has. Fans of bitcoin, Dash, and other cryptocurrencies have all tried to help by introducing Venezuelans to their preferred coin. But even with Venezuela’s bolivar currency entering hyperinflation stage, cryptocurrency adoption never happened. Circle, a U.S.-based company that issues the stablecoin USDC, is the latest to join the Venezuelan crusade. Last week it belatedly announced that it had partnered with the opposition Guaidó government  to deliver financial aid to Venezuelan health care workers. Here is Circle’s CEO, Jeremy Allaire:Breakthrough use-case for $USDC — with US Govt permission, we partnered with the exiled govt of Venezuela (@jgauido) and Airtm @theairtm to distribute aid

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Programmable money isn’t new, we’ve had it for ages

November 19, 2020

I often hear that modern money just isn’t up to snuff because it isn’t programmable. That’s why we need Ethereum, stablecoins, and other exotica like central bank digital currencies. These platforms will provide the world with much needed programmability.Stablecoin issuer Circle is one of the bigger marketers of this idea, but it’s far from being the only one: "While value exchange may be the initial killer app, it’s the
programmability of digital money that will ultimately usher in business
model breakthroughs." [link]I disagree. We’ve had programmable money for ages. Let me offer a quick guide.Microsoft doesn’t have a bunch of employees who sit at desks and manually sign paper checks all day. No, it uses software that automates payments to its tens of thousands of suppliers,

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Why are so many Americans content to be unbanked?

November 10, 2020

SourceHere’s a surprising statistic: 5.4% of American households didn’t have a bank account in 2019. That’s 7.1 million households. Oddly, unbanked households seem fine with this state of affairs. More than 56% of unbanked households say they are "not at all interested" in owning a bank account.  For us non-Americans looking in, these numbers are very strange. I live in Canada, and bank accounts are pretty much universal here. If you don’t have one, you’d probably be quite interested in getting one. Ditto for other developed nations such as Australia, Japan, Sweden, France, and Germany. The banked rate in these countries lies between 99%-100%, much higher than the U.S.’s 94.4%.In this post I want to try and figure out why there are so many U.S. households without bank accounts, and why so

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How would Tony Soprano cope with a pandemic?

October 26, 2020

When The Sopranos was running I never watched it, but during the pandemic I finally had some extra time to give it a try. It was excellent. As I watched I kept wondering how Tony Soprano would have tried to pull his business through COVID-19. Below I’ve adapted two scenes from Season 4, Episode 1 to incorporate the problems a mob family might be experiencing in 2020. Before you read the adaptation, you may want to check out my blog post How the pandemic has clogged the global economy with paper currency. In short, there has been a huge buildup in cash in Europe, U.S., Canada, UK, Australia, Norway, and more. My hypothesis is that with money laundering avenues (i.e. casinos and restaurants) closing due to virus fears and lockdowns, criminals have no choice but to hoard huge amounts of

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A very very simple explanation of monetary policy

October 22, 2020

Scale & weights | Aylmer, Quebec | Canadian Museum of History This post is for my dad, who says he doesn’t understand my writing but remains a loyal reader nonetheless.I am going to try and explain one of the most important things that central banks do: monetary policy. We often see news clips in which bespectacled central bankers discuss their "inflation targets," or tell us that they are ratcheting interest rates up or down, or that they are engaging in "quantitative easing". The catch-all term that we use to describe what they are doing is monetary policy. But what does this mean? What is monetary policy?Central banking is confusing, so here’s what I propose. Let’s find something simple, something we all intuitively understand. And then I’ll show why monetary policy is like that simple

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The ECB’s digital euro: anonymous or not?

October 5, 2020

The European Central Bank (ECB) recently published a report that explores the idea of introducing a digital euro for use by the general public. This project is known as a central bank digital currency, or CBDC, and many other countries are exploring the same idea. John Kiff has a useful database here showing how far these projects have progressed.Will the ECB’s new euros-for-all be relatively open and anonymous like cash? Or will they require ID and permission like a bank account? In short, the report says that anonymity may have to be "ruled out." It says that regulations do not allow anonymity in electronic payments, and the ECB must comply with regulations. I quote the passage below:"While [anonymity] is currently the case for banknotes and coins, regulations do not allow anonymity in

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Adopting a clean gold standard

September 28, 2020

Last month I wrote an article about banning gold mining. It received plenty of feedback from different parts of the internet. Some loved it, some didn’t. [ GATA | Boing Boing | Hackernews ]In this follow-up post, I want to outline a less draconian and more market-friendly alternative to banning gold mining.But first, let me quickly reprise the original blog post. Unlike coal or oil or wheat, gold never gets consumed. We mostly "use" gold by holding it in vaults where it is kept safe from wear and tear. If people collectively want to hold more of the yellow metal, then a simple rise in price will suffice. After all, if the price of gold jumps to $4000/oz from $2000/oz then the world’s gold hoards will have doubled. Voila, demand satisfied.With price doing all the work of responding to

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Different bitcoins different prices

September 2, 2020

Not all bitcoins are the same. If someone steals 100 bitcoins from a cryptocurrency exchange and tries to sell them, they’ll have to price them at a discount to the market price in order to compensate the buyer for the risk of laundering them. Different bitcoins different prices.This isn’t just a bitcoin phenomenon. There are two wholesale markets for banknotes, too. The legitimate one is comprised of banks, retailers, and cash-in-transit companies like Brinks that exchange notes at par. And the illegitimate one is made up of mob lawyers, drug dealers, and note brokers exchanging dirty notes at 20 or 30 cents on the dollar. Different dollars different prices.You can find this same fractionalization everywhere: in electronics or prescription medicine or used cars. There is a licit and

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18 things about Tether stablecoins

August 26, 2020

Before I start my list, a bit of introduction.Tether is a stablecoin. It happens to be the most popular stablecoin in the world.A stablecoin is a digital IOU that is implemented on a blockchain. In Tether’s case, it takes the form of a U.S. dollar-denominated IOU implemented on the Ethereum blockchain. Tether holds U.S. dollars in a traditional bank account. It issues digital blockchain-based Tethers that are convertible into those bank account dollars at a 1:1 rate. This promise is what stabilizes them. And so a user can send some Tethers to another Tether user, say as payment, and neither party need worry about bitcoin-style price disruption. If you didn’t understand any of that, think of Tether as basically PayPal, except on a decentralized database instead of a centralized one.

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