Apr 4, 2014 11:13 UTC

Euro crisis 2.0 will need a new shock absorber


By Neil Unmack and George Hay

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Future euro zone crises will need a different shock absorber. European banks kept yields down during 2010-13 by buying sovereign debt. New capital rules make this an altogether dicier affair.

Apr 4, 2014 10:20 UTC

Review: Zero margin call


By Robert Cole

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Seismic shifts in the organisation of human civilisation have occurred only twice in the last 10,000 years. Or so says Jeremy Rifkin in his new book, “The Zero Marginal Cost Society.” We are, he writes, in the throes of a third transition. It is one that will bring the death of capitalism and the onset of the “Collaborative Commons.”

Apr 4, 2014 05:43 UTC

China stock market opening is opposite of Big Bang


By Peter Thal Larsen

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

China’s approach to opening up its stock market is the opposite of a Big Bang. Investors are once again getting excited about the prospect of mainland shareholders being allowed to buy Hong Kong stocks. But such hopes have proved premature before. As with any loosening of China’s capital controls, progress is bound to be gradual.

Apr 3, 2014 11:38 UTC
Edward Hadas

Central bankers live in silent fear


By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

It’s scary to think what higher policy interest rates might do to a financial system habituated to virtually free money. Central bankers, though, profess not to be too worried about this risk. They are either overconfident – or living in silent fear.

Apr 3, 2014 06:20 UTC

Alibaba shopping spree needs better explanation


By Robyn Mak

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Alibaba’s shopping spree needs better explanation. The Chinese e-commerce giant has spent $3.8 billion on acquisitions and investments since 2013. The land grab may excite prospective investors ahead of its long-awaited initial public offering (IPO). But Alibaba will eventually have to justify its purchases.

Apr 2, 2014 14:56 UTC

The question ECB hasn’t answered: why wait?


By  Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

There is only one question worth asking Mario Draghi right now: what does he intend to do to boost inflation? The European Central Bank of which he is president is failing at its only mandate – maintaining price stability in the euro zone, defined as a rate of inflation “below but close” to 2 percent. The most recent numbers – inflation last month was at an annual rate of 0.5 percent, and prices  have risen 1.2 percent in the last 12 months – is nowhere near the target. And judging by the ECB’s own forecast, the rate won’t get much nearer by 2016. Real deflation remains, so far, a low-risk scenario. But economies like Spain or Greece are suffering from the ECB’s inaction. And is even a small risk of dangerous deflation worth taking? Acting now could spare the ECB more aggressive policies later. What’s the upside of playing with fire?


Mr. “Whatever it Takes” is really “Whatever I can say”

seriously what kind of conflict do you think it would setup with the German high court if they did QE?

LTRO is only useful if liquidity was a problem which it isn’t

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Apr 2, 2014 07:26 UTC

Noble China joint venture still faces market test


By Una Galani

The author is a Breakingviews columnist. The opinions expressed are her own.

Noble Group’s joint venture with China still faces a test from market forces. The Singapore trader is selling 51 percent of its agricultural business to a consortium led by state-backed COFCO for around $1.5 billion. China’s desire to control its food supply should guarantee volumes for the joint venture. But it’s less clear that will translate into healthy margins.

The precise size of the COFCO’s investment depends on how the unit, which processes everything from grains to coffee, performs over the next nine months. The final price will be equivalent of 1.15 times its book value in 2014. The headline price implies a valuation of $2.94 billion for the business, which accounted for 16 percent of Noble’s revenue last year.

Apr 1, 2014 22:00 UTC

High-speed traders just latest market rent-seekers


By Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

High-speed traders are just the latest to earn opprobrium as market rent-seekers. In his new book “Flash Boys,” Michael Lewis claims they are rigging U.S. equity markets. Even Goldman Sachs Chief Operating Officer Gary Cohn acknowledges concerns. New rules, taxes or structures could reduce the high-frequency traders’ unfair advantages.

Apr 1, 2014 06:29 UTC

OCBC’s Chinese ambition comes with hefty price tag


By Peter Thal Larsen

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Oversea-Chinese Banking Corp is paying a hefty price to expand in the People’s Republic. The Singaporean group is realising a long-held ambition by splashing out almost $5 billion for Hong Kong’s Wing Hang bank. But the deal looks expensive at a time when growth on the mainland is slowing and the U.S. Federal Reserve’s tapering is threatening to push up deposit costs.

Mar 31, 2014 17:51 UTC

Official attention will make or break bitcoin


By Daniel Indiviglio
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Official attention will make or break bitcoin. Scrutiny from tax authorities like the U.S. Internal Revenue Service and financial regulators around the world may deter off-the-grid types from using the digital money. Yet interest from investors and even creators of derivatives could start drawing bitcoin into the mainstream.


There is a dual flaw at the heart of the Bitcoin episode that won’t go away. At its core it is a speculative digital commodity, aspiring to be a currency. To be a currency it needs to be a unit of account, a store of value and a means of transaction. On the surface it appears to be all three, and that has prompted the speculative market in the Bitcoin. It has also attracted a hoard of “fellow traveler” Bitcoin community service providers, doing much as Levi-Strauss did supplying rivet pocketed pants to gold miners in the California gold rush. The gold rush is history but Levi-Strauss sails on. Some of those services providers are looking to what they can learn, and how they can position themselves in online financial services, in the next big thing after the demise of the Bitcoin.

So, what are the flaws in the Bitcoin. They are two, they are very simple. They do not prevent a short term speculative market in Bitcoins. As economist John Maynard Keynes said about successful speculation: “All you have to do is out speculate the speculators”. This is as true in Bitcoins as it was in the Dutch tulip bulb bubble.

The Bitcoin flaws are not the imposition of government commodity market regulations, or taxation schemes. Neither of those has killed markets or speculation in other commodities. The first flaw is that the Bitcoin is nowhere legal tender. This looks minor but it is not. Even the weakest of national currencies has a legal standing for payments somewhere in the world. In the absence of hyperinflation that puts a floating bottom (albeit a weak floor) on the currency’s exchange value in foreign markets. The other flaw is that there is no outside Bitcoin value barometer that traders (those using it to buy/sell goods and services) can look to as they can with legal tender currencies.

Contrast this with: What is the Botswana Pula worth and where is it likely to go? Exchange rate markets look at national trade balances (imports/exports), capital flows, and central bank foreign reserves (or gold holdings), as well as national monetary policy with regard to interest rates and money supply. Other than a short term speculator trying to outguess other speculators, where is that barometer?
There is nothing other than speculative expectations to give the Bitcoin an exchange rate. When the press reports that someone bought a fancy car or expensive apartment with Bitcoins one can be assured that the other side of the transaction has already arranged to Bitcoin-fiat currency swap that follows in nano-seconds. The Bitcoin has assured acceptance, and no floor. Those are fatal flaws.

Is there a future for digital currencies? Yes, but it will travel a path more like that of the U.S. Dollar in the 20th Century, as it went from being a national currency to a global fiat commodity. One might speculate that China is in a position to mount a digital currency backed by gold (given its gold reserves). Consider what could but won’t happen here. China could peg central bank purchases and sales of Bitcoins to 10 grams of gold (today about $450US) and the Bitcoin would have a reference price – the price of gold. In time China could move the peg over to the Yuan, and (as per Nixon) drop the link to gold. It could of course do this without the Bitcoin. There is a hole in the Bitcoin bubble, and there is no way to plug that hole.

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