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As Central Banks Sell off Record US Debt, Blockchain Offers Cost Cutting for Financial Industry
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As Central Banks Sell off Record US Debt, Blockchain Offers Cost Cutting for Financial Industry

by Justin OConnellSeptember 2, 2016

Central banks are playing hot potato with America’s debt.

Banking District

The first six months of this year saw foreign central banks sell a net $192 billion of U.S Treasury bonds – double that of last year.

China, Japan, France, Brazil and Colombia have dumped the most in the largest selloff of US debt since 1978.

“Net selling of U.S. notes and bonds year to date thru June is historic,” says Peter Boockvar, chief market analyst at the Lindsey Group, an investing firm in Virginia.

U.S. Treasury’s were the safest asset in the world, as many countries hold their cash in U.S. Government Bonds due to post-World War II economic arrangement via Bretton-Woods world order. By selling their holdings of U.S. Treasuries, the nation’s benefit by putting downward pressure on the U.S. dollar relative to their currencies.  The lesson: the global economy is still weak.

Low oil prices, China’s economic slowdown and a so-called “race to the bottom” as global currencies lose value weigh on what the IMF terms a “fragile” economy in 2016.

Private demand for the bonds has skyrocketed as the US pays historically low-interest rates. The 10-year U.S. Treasury, at a record low of 1.34% earlier this year, bounced to about 1.58%.

Meanwhile, financial institutions celebrate blockchain technology as a potential boon to the global economy. Financial institutions want to streamline trade. Why? They see the above-mentioned problems as a reason to suspect the US Federal Reserve will increase interest rates, thereby increasing the cost of money.

HSBC, upon announcing a partnership with Bank of America Merrill Lynch to experiment with bitcoin inspired technology, told CNBC that the blockchain could be “revolutionary” in international trade and commerce.

Bank of America Merrill Lynch and HSBC published recently published proof of concept showing how blockchain could revolutionize trade.

Global nodes

“Over $2 trillion of trade today depends on the physical exchange of documents,” Vivek Ramachandran, the bank’s global head of product and propositions for global trade and receivables finance, told CNBC late last month.

“What we’ve shown is blockchain has the potential to take away paper, which could be completely revolutionary if commercialised.”

He adds: “(Blockchain) makes the system much more efficient. It’s expensive to adopt it, but the upside is huge.”

Juniper Research reported findings that $290 million of venture capital has been invested in blockchain tech in the first half of 2016 over 30 startups.

“While blockchain technology offers the potential for increased speed, transparency and security across an array of verticals, there has to be rigorous and robust roadtesting in each unique use case before any decision is taken,” research author Windsor Holden stated.

It appears global financial institutions, as Russia and China prove to less likely to bail out the global economy, are turning to the blockchain to streamline the way the world works on the financial level. As the World Economic Forum notes:

“Distributed ledger technology (blockchain) has the potential to drive simplicity and efficiency by establishing new financial services infrastructure and processes.”

Images from Shutterstock.


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