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THE BLOCKCHAIN REVOLUTION IS BEGINNING TO DELIVER

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Khai Nguyen, Director at Gowling WLG and Christian Kourtis, Associate at Gowling WLG

By Khai Nguyen, Director at Gowling WLG and Christian Kourtis, Senior Associate at Gowling WLG

Kourtis - Nguyen

Kourtis – Nguyen

The beginning of 2017 has already been marked with an explosion of new blockchain ventures and last year’s forecast of the predominant role for blockchain is becoming reality: this year it appears that it is going mainstream.

Blockchain, the shared record of transactions maintained by a network of computers on the internet, became the predominant buzzword of 2016 and enabled several sectors to carry out fundamentally new ways of conducting digital transactions. But security risks and its complexity have made people question how long it will take for the new technology to have a real break-through.

Despite this, here are five recent global blockchain developments, which indicate that blockchain is gaining traction and moving from hype to reality.

Commonwealth Bank of Australia claims blockchain gold

Earlier in January, the Commonwealth Bank of Australia announced that it had built the first ever government bond using blockchain technology. The bank reported that its capital markets blockchain platform was used to arrange “a virtual cryptobond” for Queensland Treasury Corporation, the Australian state’s central financing authority.

This use of a new technology, which still needs to receive approval from the regulators before it can be rolled out to real deals, marks an important milestone for the traditional banking industry, which was initially sceptical about blockchain.

Blockchain Alliance for Fortune 500

Major investment banks, as well as several Fortune 500 companies, joined an effort to develop blockchain technology for use to fix gaps in financial services.

Enterprise Ethereum Alliance members now include Microsoft, J.P. Morgan, Credit Suisse and UBS just to name a few. The initiative intends to promote blockchain adoption and to build enterprise level Ethereum applications for widespread implementation.

Accenture, which also is part of the alliance, estimated that the world’s top eight largest investment banks could save an average of $10 billion in annual cost by 2025, assuming blockchain technology reaches widespread use and regulatory approval.

The blockchain alliance demonstrates the gradual transition of incumbent financial institutions from more traditional financial systems to innovating in the space and developing their own ideas of what blockchain technology could represent for their institutions.

China highlights blockchain development in its new five-year plan

China, a country which dominates in bitcoin trading and contains one in every five internet users, is giving institutional backing to blockchain. Its 17th five-year plan listed blockchain technologies as one of the country’s main development directions.

On top of this news, China’s central bank, the People’s Bank of China, has announced earlier this year that it will make the necessary moves to develop a digital version of a national currency. The new currency will be based on the same underlying technology as blockchain.

China isn’t the only country toying with the idea of a national digital currency. The Monetary Authority of Singapore has been testing one and in the UK, Bank of England economists are also considering the idea.

Russia’s determination to deploy blockchain by the end of 2019

In March, Russia’s Prime Minister Dmitry Medvedev ordered two state ministers and a state-owned development bank to investigate the use of blockchain technology in the public sector. Following the investigation, Russia’s Ministry of Communications has announced it is aiming to “legalise” blockchain technology by 2019. What remains unclear is how the regulation might dovetail with efforts in Russia to regulate crypto currencies like bitcoin.

In addition to this, a round table discussion initiated by the Commission on Development of Science and Education took place on the 10th March at the Civil Chamber of the Russian Federation. This was set up to discuss the popularisation and adoption of blockchain technology, especially formed to spotlight innovation and technological development at Russian universities.

DTCC’s attempt to revolutionise Wall Street with new blockchain-enabled project

On Wall Street, the post-trade provider Depository Trust & Clearing Corporation (DTCC) has announced it will develop a blockchain-based distributed ledger software for managing credit default swaps, which is believed to further streamline, automate and reduce the cost of derivatives processing across the industry.

The new blockchain-enabled project is currently being developed with input from a number of market participants including JP Morgan, Barclays, Credit Suisse and UBS, just to name a few.

As if this wasn’t enough, the DTCC is also working with New York-based start-up Digital Asset Holdings on developing blockchain-based technology for the syndicated loans market.

Whether you are a blockchain enthusiast or not, these are all interesting developments from an emerging technology perspective.Despite the many obstacles for massive adoption of blockchain, it is on its way to radically transform the face of financial services, and with time, probably other industries as well.

Shorter term obstacles that remain to be addressed will be to overcome regulatory hurdles for the adoption of blockchain and for financial services participants to agree and apply blockchain technology to cross-party applications between parties in financial services. This will increase blockchain’s traction with financial services participants and should help drive innovation and use of blockchain in the future.

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UK might need negative rates if recovery disappoints – BoE’s Vlieghe

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UK might need negative rates if recovery disappoints - BoE's Vlieghe 1

By David Milliken and William Schomberg

LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.

Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.

Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.

Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.

“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.

“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.

Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.

Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.

Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.

Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.

Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”

“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.

By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”

Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.

“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.

Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.

($1 = 0.7146 pounds)

(Reporting by David Milliken; Editing by William Schomberg)

 

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UK economy shows signs of stabilisation after new lockdown hit

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UK economy shows signs of stabilisation after new lockdown hit 2

By William Schomberg and David Milliken

LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.

The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.

A separate survey of households showed consumers at their most confident since the pandemic began.

Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.

The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.

Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.

Official data for January underscored the impact of the latest lockdown on retailers.

Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.

“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.

The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.

BORROWING SURGE SLOWED IN JANUARY

There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.

Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.

That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.

The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.

Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.

“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.

Some economists expect higher taxes sooner rather than later.

“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.

Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.

The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.

IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”

However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.

Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.

“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”

($1 = 0.7160 pounds)

(Editing by Angus MacSwan and Timothy Heritage)

 

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Oil extends losses as Texas prepares to ramp up output

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Oil extends losses as Texas prepares to ramp up output 3

By Devika Krishna Kumar

NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.

This week, both benchmarks had climbed to the highest in more than a year.

“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.

Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.

Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.

“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.

Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]

The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.

“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.

(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)

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