Announcement of Free Upgrade of Paymaster Agreement Amid Global Conflicts : Aura Solution Company Limited
DIGITAL ECONOMY
SPACE TECHNOLOGY AND INVESTMENT
The exploration and commercialization of space represent one of the most exciting and rapidly evolving frontiers of modern technology. With advancements in space technology and increasing interest from private and public sectors, space has emerged as a crucial area for investment and innovation. At Aura Solution Company Limited, we are committed to harnessing the potential of space technology to drive growth, create new opportunities, and address some of the most pressing challenges of our time.
The Expanding Universe of Space Technology
Space technology encompasses a wide range of innovations and applications, from satellite communications and space exploration to Earth observation and interplanetary missions. The field is characterized by:
-
Satellite Technology: Satellites play a vital role in global communication, weather forecasting, navigation, and Earth observation. Advances in satellite technology are making these systems more efficient, affordable, and capable of delivering high-resolution data.
-
Space Exploration: Space agencies and private companies are pushing the boundaries of space exploration, with missions aimed at exploring the Moon, Mars, and beyond. These efforts are expanding our understanding of the universe and paving the way for potential human settlement on other planets.
-
Space Commercialization: The commercialization of space is opening new markets and opportunities. This includes space tourism, asteroid mining, and the development of space-based infrastructure and industries.
-
Space-Based Solutions: Technologies developed for space have practical applications on Earth, including advancements in materials science, remote sensing, and environmental monitoring.
Aura’s Strategic Approach to Space Technology and Investment
At Aura, our approach to space technology and investment is driven by a commitment to innovation, sustainability, and strategic growth. We focus on three core areas: investing in cutting-edge space technologies, fostering strategic partnerships, and supporting space-related research and development.
Investing in Cutting-Edge Space Technologies
Aura is at the forefront of investing in advanced space technologies that have the potential to revolutionize the industry and deliver significant returns. Our investment strategy includes:
-
Satellite Innovations: We invest in companies and projects that are developing next-generation satellite technologies, such as miniaturized satellites, advanced imaging systems, and improved launch capabilities.
-
Space Exploration Ventures: We support ventures focused on exploring new frontiers, including missions to the Moon, Mars, and other celestial bodies. These investments contribute to scientific discovery and the development of technologies that may benefit multiple sectors.
-
Emerging Space Markets: Our portfolio includes investments in emerging space markets such as space tourism, in-orbit manufacturing, and asteroid mining. These areas represent significant growth opportunities and the potential for groundbreaking advancements.
Fostering Strategic Partnerships
Collaborating with industry leaders, government agencies, and research institutions is essential for advancing space technology and investment. Aura’s strategy involves:
-
Collaborative Innovation: We partner with leading space agencies, technology companies, and academic institutions to drive innovation and develop cutting-edge solutions. These collaborations enable us to stay ahead of industry trends and leverage collective expertise.
-
Public-Private Partnerships: By engaging in public-private partnerships, we contribute to large-scale space missions and infrastructure projects. These partnerships enhance our ability to support ambitious space initiatives and access new investment opportunities.
-
Global Network: Our global network of contacts and partners allows us to identify and capitalize on emerging opportunities in the space sector. We work with international organizations to expand our reach and impact.
Supporting Space-Related Research and Development
Research and development are critical for advancing space technology and achieving long-term success. Aura supports R&D efforts through:
-
Funding Research Initiatives: We provide funding for research projects that explore new technologies, improve space mission capabilities, and address challenges in space exploration and commercialization.
-
Innovative Solutions: We invest in the development of innovative solutions that address key challenges in space, such as reducing the cost of space access, improving satellite efficiency, and enhancing space habitat technologies.
-
Technology Transfer: We facilitate the transfer of space technologies to other industries, enabling the application of space-based innovations in areas such as telecommunications, environmental monitoring, and advanced manufacturing.
Case Studies: Aura’s Impact in Space Technology and Investment
To illustrate the impact of our space technology and investment strategy, here are examples of successful initiatives:
-
Satellite Constellation Investment: Aura invested in a satellite constellation project aimed at providing global high-speed internet coverage. This investment has not only expanded internet access to underserved regions but also driven innovation in satellite technology and data services.
-
Mars Mission Partnership: We collaborated with a leading space agency and a private aerospace company on a mission to Mars, focusing on the development of advanced propulsion systems and life-support technologies. This partnership has advanced our understanding of space travel and contributed to future interplanetary exploration.
-
Space Tourism Venture: Aura supported a startup that offers suborbital space tourism experiences. This investment has accelerated the commercialization of space travel, creating new opportunities for space tourism and inspiring interest in space exploration among the public.
The Future of Space Technology and Investment
The future of space technology and investment is poised for remarkable growth and transformation. As technology continues to advance, new opportunities will emerge in areas such as:
-
Space Resource Utilization: The potential for mining asteroids and other celestial bodies for valuable resources is an exciting frontier that could revolutionize resource availability and drive economic growth.
-
Sustainable Space Exploration: Developing sustainable technologies and practices for space exploration is crucial for long-term success. This includes advancements in propulsion, habitat design, and waste management.
-
Interstellar Exploration: The pursuit of interstellar exploration and the search for extraterrestrial life will drive innovation and expand our understanding of the universe.
Conclusion
At Aura Solution Company Limited, we are committed to leading the way in space technology and investment. Our strategic focus on cutting-edge technologies, strategic partnerships, and support for research and development positions us at the forefront of this exciting and rapidly evolving field. By embracing the opportunities and challenges of the digital economy, we are driving growth, innovation, and progress in space exploration and commercialization.
Contact Aura today to learn more about our space technology and investment initiatives and how we can support your ventures in the final frontier.
Technology and space industries have always inspired each other, and ever since the mid-20th century, they have changed our lives forever. Our proposed SpaceTech framework reveals the relationship between space and technology and how it can be a single innovation engine for the region. There has been much discussion about recent developments in the space sector, the democratization and consumerization of space industries, and the decreasing cost of manufacturing. However, it is important to note that space and technologies, particularly those related to digital and communication, should not be considered separately. They have inspired each other since the second half of the 20th century. SpaceTech is already a reality and the potential for innovation and economic growth resulting from the space and technology sectors is enormous.
Advancements in the Region
The region has witnessed, over the last few years, ambitious plans for the space and technology sectors. Significant advances have also been made by countries of the Gulf Cooperation Council (GCC), with many having their independent space programs. National transformation agendas, efforts to localize manufacturing and services, and the introduction of effective regulation and deregulation will continue to propel the transformation of the sectors.
Last year, KSA sent Rayyanah Barnawi – the first Arab woman in space – to the ISS. On the ground, the Kingdom is establishing the foundations for the execution of its space strategy which is expected to be released soon. The former Saudi Space Commission has been transformed into the Saudi Space Agency which is already making global news through the inaugural Space Debris Conference in February 2024, expected to be established as a bi-annual event in the Kingdom.
From launching the Arab world’s first Mission to Mars to signing the Artemis Accords, the UAE has also emerged as a leader in space exploration. Emirati astronauts, Hazzaa Al Mansoori and Sultan Al Neyadi flew on ISS missions in 2019 and 2023 respectively. The uncrewed Mars mission “Hope Probe” was launched in 2020 and has been in Mars orbit since 2021.
Aura SpaceTech Framework
Various advanced and emerging technologies play a key role across space sector activities. In Aura Middle East, we have established a framework mapping these technologies against a taxonomy of business, research, and exploration activities in the space sector. The framework reveals the relationship between Space and Technology, helping us to identify application areas, clusters of entrepreneurial activities, and the description, profiling, and measurement of economic activities across the space upstream, midstream, and downstream value chain.
Technology is pervasive across the six space sector domains highlighted in the framework: Access to Space, Remote Sensing, Satellite Communications and Satellite Navigation, Space Safety, and Outer Space Activities. Our framework suggests a view of space and technology as essentially one single innovation engine for countries and economies. Policymakers and regulators must work together across sector boundaries to leverage this economic and innovation potential. Only through the juxtaposition of space activities and related digital technologies will we be able to discover all investment and innovation opportunities, clusters of entrepreneurship, skills gaps, and required improvements to legislative and regulatory frameworks. As the socio-economic transformations across the region continue to be daring.
The Microchip
The Apollo program stands as a monumental achievement in human history, showcasing the power of science, engineering, and exploration with the historic 1969 Moon landing. Amidst numerous challenges, the success of Apollo hinged on pioneering technologies, notably the Apollo Guidance Computer (AGC), a digital computer that emerged as the unsung hero. The AGC computer was revolutionary since it leveraged integrated circuits or microchips, which allowed NASA engineers to maximize system performance while minimizing size and weight to meet the various constraints posed by the mission. This breakthrough not only propelled humanity to the Moon but also accelerated the development and adoption of integrated circuits.
AURA
A HUMAN- LED CYBER SECURITY
The intersection of human expertise and technological innovation is transforming the cybersecurity landscape. Aura Solution Company Limited proposes a new cybersecurity framework that emphasizes the crucial role of human-led strategies combined with advanced technology to create a robust defense mechanism for organizations.
The Importance of a Human-Led Approach
While technology is essential for detecting and mitigating cyber threats, the human element remains irreplaceable. Cybersecurity professionals bring critical thinking, contextual understanding, and adaptive problem-solving skills that technology alone cannot replicate. Human expertise is vital for interpreting complex data, understanding nuanced threats, and making strategic decisions.
Key Aspects of Human-Led Cybersecurity
-
Expert Analysis and Decision Making:
-
Cybersecurity experts analyze data and trends to identify potential threats that automated systems might miss.
-
Strategic decision-making based on experience and contextual knowledge.
-
-
Threat Hunting:
-
Proactive identification of security threats by cybersecurity professionals.
-
Continuous monitoring and analysis to anticipate and neutralize threats before they can cause harm.
-
-
Incident Response:
-
Rapid and effective response to security incidents.
-
Coordination between different teams and stakeholders to manage and mitigate damage.
-
The Role of Technology in Cybersecurity
Technology enhances the capabilities of cybersecurity teams by providing advanced tools for detection, analysis, and response. These tools help in handling large volumes of data, identifying patterns, and automating routine tasks, thereby allowing human experts to focus on more complex issues.
Key Technologies in Cybersecurity
-
Artificial Intelligence (AI) and Machine Learning (ML):
-
AI and ML algorithms can analyze vast amounts of data to detect anomalies and potential threats in real-time.
-
Predictive analytics to forecast potential cyber-attacks based on historical data.
-
-
Automated Threat Detection:
-
Automated systems can quickly identify and respond to known threats, reducing the time and effort required for manual intervention.
-
Use of signatures and behavior-based detection methods.
-
-
Advanced Encryption:
-
Ensuring data privacy and integrity through robust encryption methods.
-
Protecting sensitive information from unauthorized access.
-
-
Blockchain Technology:
-
Enhancing security and transparency in transactions and communications.
-
Use of decentralized ledgers to prevent tampering and fraud.
-
Integrating Human Expertise and Technology
Aura Solution Company Limited’s cybersecurity framework advocates for a symbiotic relationship between human expertise and technological tools. This integrated approach maximizes the strengths of both elements, creating a more resilient cybersecurity function.
Framework Highlights
-
Collaboration and Communication:
-
Encouraging collaboration between cybersecurity teams and other departments.
-
Clear communication channels to ensure timely sharing of information and response to threats.
-
-
Continuous Training and Development:
-
Regular training programs for cybersecurity professionals to keep up with the latest threats and technologies.
-
Development of skills in using advanced cybersecurity tools and technologies.
-
-
Comprehensive Risk Assessment:
-
Regular risk assessments to identify vulnerabilities and potential threats.
-
Use of both human judgment and technological tools to evaluate and mitigate risks.
-
-
Adaptive Security Measures:
-
Implementation of adaptive security measures that can evolve with changing threats.
-
Use of AI and ML to continuously learn and improve security protocols.
-
-
Regulatory Compliance:
-
Ensuring compliance with relevant regulations and standards.
-
Regular audits and assessments to maintain compliance and improve security practices.
-
Conclusion
Aura Solution Company Limited’s human-led and tech-enabled cybersecurity function represents the future of digital security. By combining the strategic thinking and problem-solving abilities of human experts with the power and efficiency of advanced technologies, organizations can create a robust and adaptive cybersecurity framework. This integrated approach not only enhances security but also fosters a culture of continuous improvement and resilience in the face of evolving cyber threats.
AURA
POWER OF A.I.
In the ever-evolving financial landscape, the battle against financial crime has become more complex and demanding. Traditional methods of detecting and preventing illicit activities are proving insufficient against sophisticated schemes. As a result, the financial sector is turning to an increasingly powerful ally: Artificial Intelligence (AI).
The Rising Threat of Financial Crime
Financial crime encompasses a range of illegal activities, including money laundering, fraud, terrorist financing, and insider trading. These activities not only cause significant financial losses but also undermine the integrity of financial systems and institutions. The global scale and intricate nature of these crimes make them particularly challenging to combat. Financial crime doesn’t stand still; the tactics used by fraudsters are constantly changing, making it a never-ending battle.
AI: A Game Changer in Financial Crime Prevention
Artificial Intelligence has emerged as a transformative force in various industries, and its potential in fighting financial crime is immense. At Aura, we check about 1.2 billion transactions for signs of financial crime each month across 40 million customer accounts, using AI to help us do this. Here’s how AI is making a difference:
1. Enhanced Detection Capabilities
Traditional rule-based systems often fall short in detecting complex and evolving financial crimes. AI, particularly through machine learning (ML) algorithms, can analyze vast amounts of data in real-time and identify patterns that may indicate suspicious activity. As new financial crime tactics or trends emerge, we teach our AI what to look out for. As a result, we’re able to find and tackle financial crime faster and more thoroughly than ever before. These advanced algorithms can adapt to new threats, improving detection rates and reducing false positives.
2. Real-Time Transaction Monitoring
AI-powered systems can monitor transactions in real-time, flagging any anomalies that could signify fraudulent behavior. This capability allows financial institutions to act swiftly, preventing potentially fraudulent transactions before they are completed. For instance, AI can detect unusual transaction amounts, atypical transaction locations, and deviations from normal spending patterns.
3. Improved Customer Due Diligence
Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations require financial institutions to verify the identities of their clients and assess their risk profiles. AI can streamline this process by analyzing data from various sources, including social media, to build comprehensive profiles of clients. This not only enhances compliance but also helps in identifying high-risk individuals and entities.
4. Fraud Prevention and Mitigation
AI can predict and prevent fraudulent activities by analyzing historical data and recognizing patterns associated with fraud. For example, credit card fraud detection systems use AI to identify and block transactions that deviate from a cardholder’s usual behavior. Furthermore, AI can assist in recovering funds by tracing the flow of stolen money through multiple accounts and jurisdictions.
5. Strengthening Cybersecurity
Financial crime often intersects with cybercrime, as criminals exploit vulnerabilities in digital systems. AI can bolster cybersecurity measures by identifying and neutralizing threats before they cause harm. Machine learning models can detect malware, phishing attempts, and other cyber threats, ensuring the integrity and security of financial systems.
Challenges and Considerations
However, while powerful, AI can also be misused, and each deployment option presents trade-offs. To mitigate these risks, we adopt responsible practices, prioritize transparency, and continuously assess the impact of AI on our customers and beyond. Responsible use of AI is at the forefront of our design choices as we seek to increase our use of these new technologies. The implementation of AI systems requires substantial investment in technology and skilled personnel. Additionally, there are concerns about data privacy and the potential for AI biases, which could lead to discriminatory practices.
To address these challenges, financial institutions must adopt a balanced approach, combining AI with human expertise. Regulatory frameworks also need to evolve to accommodate the use of AI in financial crime prevention, ensuring transparency, accountability, and ethical considerations.
Conclusion
The fight against financial crime is a continuous and dynamic process. As criminals become more sophisticated, financial institutions must leverage cutting-edge technologies to stay ahead. AI offers a powerful tool to enhance detection, prevention, and mitigation of financial crime. By harnessing the power of AI, we can build a more secure and resilient financial ecosystem, protecting both institutions and individuals from the pervasive threat of financial crime.
FUTURE OF MONEY
Inflation is a critical economic indicator, reflecting the rate at which the general level of prices for goods and services rises, consequently eroding purchasing power. When inflation affects a currency, it can lead to significant shifts in economic stability, investment strategies, and everyday consumer behavior. At Aura Solution Company Limited, we understand the complexities and impacts of currency inflation and aim to provide a comprehensive overview of its dynamics and implications.
What Causes Currency Inflation?
Currency inflation can be influenced by a multitude of factors:
-
Demand-Pull Inflation: This occurs when the demand for goods and services exceeds supply, leading to higher prices. Economic growth often drives demand-pull inflation, as increased consumer confidence and spending power push prices upward.
-
Cost-Push Inflation: When the costs of production increase, businesses often pass these costs onto consumers in the form of higher prices. Factors such as rising wages, increased raw material costs, and supply chain disruptions can all contribute to cost-push inflation.
-
Monetary Policy: Central banks play a pivotal role in managing inflation through monetary policy. An increase in the money supply can lead to inflation if it outpaces economic growth. Conversely, tightening the money supply can help control inflation.
-
Exchange Rates: Fluctuations in exchange rates can impact inflation. A weaker currency makes imports more expensive, leading to higher overall price levels. Conversely, a stronger currency can help mitigate inflation by reducing import costs.
-
Expectations: Inflation expectations can become self-fulfilling. If businesses and consumers anticipate higher future inflation, they may adjust their behavior in ways that contribute to actual inflation, such as demanding higher wages or increasing prices.
Impacts of Currency Inflation
The effects of currency inflation are wide-ranging and can significantly impact both the economy and individuals:
-
Erosion of Purchasing Power: As prices rise, the purchasing power of a currency decreases. This means consumers need more money to buy the same goods and services, effectively reducing their standard of living if wages do not keep pace with inflation.
-
Uncertainty and Investment: High and unpredictable inflation creates economic uncertainty, which can deter investment. Investors seek stable environments, and inflation can lead to volatility in markets, affecting returns on investments.
-
Interest Rates: Central banks often respond to inflation by adjusting interest rates. Higher interest rates can help control inflation but also increase borrowing costs for consumers and businesses, potentially slowing economic growth.
-
Income Redistribution: Inflation can have redistributive effects. Fixed-income earners, such as pensioners, may see their real income decline, while borrowers may benefit if they repay loans with money that is worth less in real terms.
-
Global Competitiveness: Inflation can affect a country’s competitiveness in international markets. Higher domestic prices can make exports less competitive, while a weaker currency can boost exports by making them cheaper for foreign buyers.
Managing Currency Inflation
Managing inflation is a delicate balance for policymakers. Strategies include:
-
Monetary Policy Adjustments: Central banks can raise interest rates to cool down an overheating economy and control inflation. Conversely, lowering rates can stimulate economic activity if inflation is below target.
-
Fiscal Policy Measures: Governments can use fiscal policy to influence inflation. Reducing public spending or increasing taxes can help control demand-pull inflation, while targeted spending can stimulate economic activity in times of low inflation.
-
Supply-Side Policies: Improving productivity and efficiency in the economy can help control cost-push inflation. Investments in infrastructure, education, and technology can enhance the economy's capacity to produce goods and services.
-
Exchange Rate Interventions: In some cases, central banks may intervene in foreign exchange markets to stabilize the currency and control inflationary pressures from exchange rate fluctuations.
Conclusion
Currency inflation is a multifaceted phenomenon with far-reaching implications. Understanding its causes and effects is crucial for making informed economic and investment decisions. At Aura Solution Company Limited, we are committed to providing insights and strategies to navigate the complexities of inflation, ensuring our clients are well-equipped to manage the challenges and opportunities it presents.
Currencies Focus - July 2024
1. US Dollar (USD)
-
Performance: The US Dollar Index (DXY) appreciated by around 1.3% in June.
-
Outlook: We expect the Federal Reserve to initiate a rate cut in September 2024, followed by four cuts in 2025 and two more in 2026. Our 3-month EUR/USD target remains at 1.06, with a 12-month target of 1.12.
-
Economic Indicators: Unemployment at 4.1%, ISM Non-Manufacturing PMI at 48.8, ISM Manufacturing PMI at 48.5, and an international trade deficit of $75.1 billion.
2. Euro (EUR)
-
Performance: The Euro Index (EXY) remained flat in June.
-
Outlook: The ECB announced its first rate cut on June 6th. We anticipate two more cuts this year and three in 2025. Economic momentum favors the Eurozone, with stable unemployment at 6.4% and core inflation at 2.6%.
-
Targets: 3-month EUR/USD target at 1.06, 12-month target at 1.12.
3. British Pound (GBP)
-
Performance: Elections in the UK and France had little impact on currencies. GBP strength could persist due to the recent hawkish message from the BoE.
-
Outlook: We expect two rate cuts from the BoE this year, starting in September. Our 3-month target for EUR/GBP is 0.84, with a 12-month target of 0.86.
4. Brazilian Real (BRL)
-
Performance: Despite being undervalued, the BRL further depreciated due to uncertainty regarding Brazil’s central bank outlook.
-
Outlook: The yield differential should favor the BRL. We maintain our USD/BRL targets at 5 for both the 3-month and 12-month periods, suggesting an appreciation for the BRL.
Detailed Views
USD VIEW >> TARGET 12M VS EUR: 1.12
-
Performance: The US dollar appreciated 1% against the Euro in June, trading around 1.08 on July 10th.
-
Economic Indicators: Core PCE year-over-year at 2.6%, economic surprise index at -45.
-
Outlook: We maintain our EUR/USD targets at 1.06 (3 months) and 1.12 (12 months), suggesting short-term dollar strength followed by gradual depreciation.
GBP VIEW >> TARGET 12M VS EUR: 0.86
-
Performance: The GBP appreciated 0.4% against the Euro in June, trading around 0.84 on July 10th.
-
Economic Indicators: UK GDP year-on-year for Q1 2024 at 0.3%, retail sales year-on-year at 1.3%.
-
Outlook: We revise our 3-month target to 0.84 and keep our 12-month target at 0.86, expecting short-term GBP strength.
CHF VIEW >> TARGET 12M VS EUR: 0.98
-
Performance: The CHF appreciated 1.3% against the Euro in June, trading around 0.97 on July 10th.
-
Economic Indicators: Swiss inflation at 1.4%, manufacturing PMI at 43.9.
-
Outlook: We maintain our EUR/CHF targets at 0.98 for both the 3-month and 12-month periods, expecting continued CHF strength.
JPY VIEW >> TARGET 12M VS USD: 140
-
Performance: The JPY depreciated 2.7% against the USD in June, trading around 161 on July 11th.
-
Economic Indicators: Japan’s inflation at 2.8%, unemployment at 2.6%.
-
Outlook: We maintain our USD/JPY targets at 150 (3 months) and 140 (12 months), expecting Yen appreciation.
SEK VIEW >> TARGET 12M VS EUR: 11
-
Performance: The SEK remained flat against the Euro in June, trading around 11.4 on July 10th.
-
Outlook: We maintain our EUR/SEK targets at 11 for both the 3-month and 12-month periods, expecting slight SEK appreciation.
NOK VIEW >> TARGET 12M VS EUR: 10.80
-
Performance: The NOK depreciated 0.5% against the Euro in June, trading around 11.6 on July 10th.
-
Outlook: We maintain our EUR/NOK targets at 11.3 (3 months) and 10.8 (12 months), suggesting NOK appreciation.
AUD VIEW >> TARGET 12M VS USD: 0.70
-
Performance: The AUD remained flat against the USD in June, trading around 0.67 on July 10th.
-
Outlook: We maintain our AUD/USD targets at 0.68 (3 months) and 0.7 (12 months), suggesting some upside potential for the AUD.
NZD VIEW >> TARGET 12M VS USD: 0.63
-
Performance: The NZD depreciated 1.4% against the USD in June.
-
Outlook: We maintain our NZD/USD targets at 0.60 (3 months) and 0.63 (12 months), suggesting moderate NZD upside.
CAD VIEW >> TARGET 12M VS USD: 1.30
-
Performance: The CAD depreciated 0.6% against the USD in June, trading around 1.36 on July 10th.
-
Outlook: We maintain our CAD/USD targets at 1.32 (3 months) and 1.30 (12 months), suggesting moderate CAD appreciation.
CNY VIEW >> TARGET 12M VS USD: 7.2
-
Performance: The CNY depreciated 0.3% against the USD in June, trading around 7.27 on July 10th.
-
Outlook: We revise our USD/CNY 3-month target to 7.4 and maintain our 12-month target at 7.2, suggesting short-term downward pressure on the CNY.
MXN VIEW >> TARGET 12M VS USD: 17.50
-
Performance: The MXN depreciated 8.3% against the USD in June, trading around 17.8 on July 10th.
-
Outlook: We maintain our USD/MXN targets at 17 (3 months) and 17.5 (12 months), suggesting slight MXN appreciation.
BRL VIEW >> TARGET 12M VS USD: 5.0
-
Performance: The BRL depreciated 7.8% against the USD in June, trading around 5.4 on July 10th.
-
Outlook: We maintain our USD/BRL targets at 5 for both the 3-month and 12-month periods, suggesting BRL appreciation.
hen Franklin Roosevelt told his economic advisers he was about to take the U.S. off the gold standard, they freaked out. The President was leading the country into “uncontrolled inflation and complete chaos,” one of them said. Another said it was “the end of Western civilization.” Roosevelt’s aides weren’t wild-eyed reactionaries; their view was conventional wisdom.
The gold standard, almost everybody agreed, was the natural way to do money. Under its rules, anybody who wanted to could trade in paper money for a fixed amount of gold. In the U.S., $20.67 got you an ounce of gold, year in and year out. That unchanging value was the whole point of the gold standard. Take away the gold, and money would obviously be just worthless paper.
This worldview turned out to be completely wrong. Clinging to the gold standard was part of what created the Great Depression in the first place. Leaving it in 1933 was an essential step toward economic recovery. So why were Roosevelt’s advisers, and most of the leading economists of the day, blinded by their devotion to gold?
There’s this thinking error we almost always make with money. The way money works at any given moment feels like part of the natural order, as with water or gravity. Any alternative to the way money works seems like some absurd game. Paper money not backed by anything? That’s like expecting water to flow uphill!
Then some political or technological or financial shock comes along, and suddenly there’s something new: paper money backed by metal, or paper money backed by nothing, or simply numbers on a screen. Pretty soon, we get used to the new money. It comes to seem like the natural state of things, and anything else is foolishness.
We may be on the cusp of one of those shifts now. It’s impossible to say for sure how things will play out, but history provides some deep insights into what should make us hopeful about the future of money—and what should scare us.
Money Is Technology
Around A.D. 100, a Chinese court official ground up a mash of mulberry bark, rags and fishnets, and invented paper. A few centuries later, someone—maybe a Buddhist monk who was tired of writing the same sacred text again and again—carved a sacred text into a block of wood and invented printing.
A few centuries after that, a merchant in the capital of Sichuan set out to solve another problem: the money his customers were using was terrible. It was mostly iron coins, and it took a pound and a half of iron to buy a pound of salt. It would be the modern equivalent of going grocery shopping with nothing but pennies.
So the merchant told his customers that they could leave their coins with him. In exchange, he gave them a claim check—a piece of paper that could be used to retrieve the coins. People started using the claim checks themselves to buy stuff, and paper money was born. It was a huge hit.
Pretty soon, the government took over the business of printing paper money, and it spread throughout China. In an era when there was no mechanized transport, the ability to move value around on a few pieces of paper—rather than a wagon full of metal coins—was a breakthrough.
Paper money relied on paper and printing, which were a kind of technology. But paper money itself also was a new technology—a tool that made trade easier. This led to an increased exchange of ideas and more economic specialization, which in turn meant people could grow more food and make more stuff. Paper money helped China get richer. At the same time, that new technology came with risks—it meant rulers could print lots of money, which sometimes led to ruinous inflation.
Today, new technologies allow us to move money using the supercomputers in our pockets. In the coming years, technology will drive even more dramatic changes in money, as the full impact of crypto-currencies becomes clear. Like paper money, these new technologies will continue to bring new opportunities, efficiencies and risks.
Money is both public and private
One key dynamic to watch as digital currency evolves is the tension between the government and private firms, a theme that runs like a golden thread through the history of money.
Consider the case of America in the mid–19th century, when almost any bank could print its own paper money. The $2 bill from Stonington Bank in Connecticut had a whale on the front; the $5 bill from the St. Nicholas Bank of New York City had a picture of Santa Claus. At one point, private banks were printing more than 8,000 different kinds of money.
This was still the era when paper money was a claim check for gold or silver. If a bank went bust, the valuable claim check was suddenly just a piece of paper with a picture of Santa Claus on it.
This presented a problem for merchants who faced customers using thousands of kinds of money. How could they know which banks were sound? For that matter, how could they tell real money from counterfeit? Publications called banknote reporters sprang up to solve both problems. They were little magazines that listed bills from all around the country, with brief physical descriptions and recommendations for whether to accept the money at full value or, in the case of shaky banks, at a discount.
That world disappeared around the time of the Civil War, when a new federal tax on paper money drove most of the old banknotes out of existence. But even as the variety of paper money declined, money created by private banks persisted.
Even today, banks create new money out of thin air every time they make a loan. This money, stored as balances in checking and savings accounts, is not so different from the paper money banks used to print. Well into the 20th century, depositors in the U.S. could lose their money when a bank went bust—just like their ancestors who were left holding worthless pieces of paper.
It was only in the 1930s, when the federal government started insuring most bank deposits, that this risk disappeared. In other words, modern banks create money that is in turn guaranteed by the federal government. Is this money public or private? It is both!
The original dream of cryptocurrency was purely private money—a currency that needed neither governments nor banks. And although this remains a technical possibility, it’s striking that more than a decade after Bitcoin was invented, almost no one uses crypto-currency in the ordinary way people use money—to buy stuff in everyday life. If crypto-currency does become ordinary money, it probably won’t be as some purely private libertarian money, but as the kind of public-private hybrid that money has almost always been. In fact, regulators have started to crack down on so-called stablecoins, a type of crypto-currency designed to substitute for our existing money.
Stable money is risky money
What should we worry about when we worry about the future of money? Sure, there are plenty of new cryptocurrencies whose values fluctuate wildly from week to week. But if we’re worried about broader risks—to the economy, rather than just to speculators—maybe we should focus on stablecoins. Rather than promising overnight wealth, many stablecoins offer stability with the claim that each virtual coin will be worth exactly $1 today, tomorrow and forever. As more and more people trade a growing number of crypto-currencies, stablecoins such as Tether and USD Coin have exploded in popularity. And in the history of money, we often find the promise of boring stability is ultimately more risky than the promise of quick riches.
Money-market mutual funds are a telling example. They were invented in the 1970s, and the idea was to offer something that seemed like a bank account but paid higher interest. As Bruce Bent, the inventor of the money-market fund, said again and again, “The purpose of the money fund is to bore the investor into a sound night’s sleep.” Even the name is dull.
Money-market funds worked like banks. Investors put money in. The fund then lent that money out, collected interest and paid some of the interest back to the investors. People and companies put trillions of dollars into money-market funds for safekeeping, and it seemed a lot like money in the bank—put a dollar in, take a dollar out, plus interest. But, unlike bank deposits, money-market fund investments were not guaranteed by the federal government.
In September 2008, the investment bank Lehman Brothers went bankrupt. As it happened, a large money-market mutual fund had lent $785 million to Lehman Brothers—and the bankruptcy meant that the fund might not get that money back. Investors in the money-market fund started demanding their money back. But the fund couldn’t deliver. In the parlance of money-market mutual funds, it “broke the buck”—investors could no longer take out a dollar for every dollar they put in.
The moment an asset that seemed safe suddenly seems risky can be profoundly destabilizing. Overnight, investors started trying to pull hundreds of billions of dollars out of money-market mutual funds. It was like a bank run, and as often happens in a run, the money-market funds weren’t going to be able to come up with all the money. Within a few days, as part of an effort to prevent a broader economic collapse, the federal government stepped in.
The most popular stablecoins work a lot like these funds. When people buy stablecoins, some of the companies that run stablecoins turn around and invest that money. When people want to redeem their stablecoins for dollars, the creators of the coins have to sell off those investments. If the investments lose a lot of money, or if everyone suddenly wants to redeem their stablecoins at once, stablecoins might prove unstable—investors might suddenly be unable to get a dollar out for every dollar they put in.
Regulators know this. And over the past few months, some of the most powerful economic officials in the country have suggested that stablecoins may soon come in for stricter regulation.
The rise of stablecoins, and the government’s response, is the history of money and the future of money playing out in the present: a new monetary technology that brings new benefits, new risks and new fights between public and private interests.