At Harris Sliwoski, we keep close tabs on what is happening around the world, and we know that our friends and clients do, as well. We are happy to provide this podcast series: Global Law and Business, hosted by international attorneys Fred Rocafort and Jonathan Bench, where we look at the world by talking with business leaders, innovators, service providers, manufacturers, and government leaders around the world.

In Episode #46, we are joined by Marc Chandler to discuss global currencies, foreign exchange, and global economic policies. We discuss:

  • How developed and developing nations are weathering Covid and their post-Covid prospects.
  • Whether debt-fueled Covid recovery monetary policies are smart, which nations are more likely to successfully employ such strategies, and which will struggle.
  • U.S. Treasury bonds compared to the European bond market.
  • What one generation owes to another generation in terms of its economic legacy.
  • China’s role in helping countries in its economic orbit recover from Covid.
  • The role of a boutique foreign exchange provider in international business transactions.
  • The interplay between global currencies and monetary policies.
  • The role of virtual currencies and central banks’ reactions to them.
  • Countries on Marc’s watchlist – for good and less good reasons.
  • Reading, listening, and watching recommendations from:

We’ll see you next week when we sit down with James Cooper for a provocative conversation about international intellectual property.

Fred Rocafort  0:07 

Global law and global business go hand in hand, but never seem to keep pace with each other. The importance on the global stage of developing and developed nations waxes and wanes, while consumption and interconnectedness steadily increase all the while laws and regulations change incessantly requiring businesses to stay nimble. But how do we make sense of it all? Welcome to Global Law and Business hosted by Harris Sliwoski International Business attorneys. I’m Fred Rocafort.


Jonathan Bench  0:37 

And I’m Jonathan Bench. Every week, we take a targeted look at legal and economic developments in locales around the world as we try to decipher global trends in law and business with the help of international experts. We cover continents, countries, regimes, governance, finance, legal developments, and whatever is trending on Twitter. We cover the important the seemingly unimportant, the relatively simple and the complex.


Fred Rocafort  1:02

We hope you enjoy today’s podcast. Please connect with us on social media to comment and suggest future topics and guests.


Jonathan Bench  1:21 

Mark Chandler has been covering the global capital markets for more than 30 years, including stints as the Global Head of currency strategy for both HSBC and brown brothers Harriman Chandler joined at Bannockburn global forex LLC as a managing partner and chief market strategist in 2018. Mark is a prolific writer and speaker and regularly appears in the financial media. He is often quoted in the Financial Times The Wall Street Journal, Barron’s Bloomberg and The Washington Post, among others. Mark also provides his insights and commentary on the markets on the most widely watched financial news channels including CNBC, Bloomberg TV, CNN and Fox Business. Mark’s first book making sense of the dollar, was published by Bloomberg press in 2009, and received a bronze award from independent publishers. His second book Political Economy of tomorrow was published in February 2017. Mark is an Honorary Fellow of the foreign policy Association and has been named a business visionary by Forbes. Currently he teaches at NYU Center for Global Affairs, where he is an associate professor. He’s also an honorary visiting professor at the Darden School of Business at the University of Virginia. Mark, welcome to Harris Sliwoski’s Global Law and Business.


Marc Chandler  2:31 

Thank you very much.


Fred Rocafort  2:32 

Mark, welcome to the podcast. Many of our episodes, I would say most have a country specific focus. So we’d love to have guests like you on the show to do allow us to look at things from a global perspective and financial markets and currencies really underpin everything, they bring everything together. So looking at it from that perspective, what can you tell us about the current state of the world? We are particularly interested in your thoughts regarding how economies around the world will be able to weather not just the the ongoing stresses of the pandemic. But what will come after COVID.


Marc Chandler  3:12 

Yeah, that’s fascinating. We don’t we live in an interesting time. I think it’s partly a curse, to be in living in interesting times. But I think in some ways the world began afresh. When we turn we took a fork in the road and inflection point, in early November, two big things happened. One, of course, was US politics. And when when it was clear that the democrats were going to win, people began pricing in assuming that it’d be more fiscal stimulus. The other important thing that happened right after the election, and it’s still an early November, is the announcement of the vaccine. And these two things have excited the market like few other things have. What this means is people now investors, these great pools of capital, are very confident of a global economic recovery, probably beginning the second half of this year. And so I’d say that in the short run, people, I think, for the first time, we people recognize that we are in a tunnel, but there’s light at the end of it. And that light comes from the huge amount of fiscal stimulus the US providing but other countries as well. And the vaccines so we can get back to what we used to think was normal.


Jonathan Bench  4:25 

So Marc, as we’re, as we’re talking about COVID, I mean, we’re all living through COVID it, it’s painful. A lot of us don’t have the data, the financial context to even deal with, with a lot of the day to day news that we’re hearing. Right. So can you talk a little bit about what seems to be working and what isn’t working?


Marc Chandler  4:43 

Well, I would say that, that of course, whenever you have a big like shock, there’s winners and there’s losers. And so in the US and in other countries, the manufacturing sector, the people are making the you know, the things that the goods that It’s been a relatively strong sector, and the combination of low interest rates and people staying at home. We’ve seen in many of the NX Anglo American economies the US, Canada, Australia, New Zealand, the UK, we’ve seen housing prices rise, there’s a lot of housing activity going on. And it’s not just building houses, it’s buying them. It’s refurbishing remodeling. And so the actually the manufacturing sector, the housing sector, very strong. The downside of that, is that that makes up a relatively modest amount of the economy. Do you think about the basket of goods that Americans buy that other people in high income countries buy? It typically is services. And so the services have been hard hit. And services, you might consider going to the pub or the restaurant as a good that you’re buying, but it’s really counted as food services. And so the hospitality industry, airlines, they did have big sectors of the economy, they’re also very labor intensive. And when you think about that hospitality sector, all those restaurants, bars, nail salons, barber shops, these small businesses have been crushed. They were they were under pressure before trying to compete with the big businesses. You know, we talk about the kind of bottom of an economy, what should it look like? Some people thought it’d be a V shaped, we got hit very hard last spring, and then we come bouncing back. Some people think it’d be maybe more of a U shaped piece, it’s a bit longer. But I wonder if the better letter to think about is really key, that there’s gonna be some people who benefit primarily those who are well positioned beforehand. Like beforehand, he was about 30 million Americans that could work from home, they already cooked, they have this flexibility. They could do their jobs, through the internet and mobile, things like that. I was fortunate I was one of those people. But a lot of people aren’t so fortunate. And without a job that you can do on the internet.  I mean, this right here, here’s we talked today, the US has, has about 10 million people that were working on the eve of the pandemic and aren’t working now. And a lot of that is in the service sector. That’s been the hardest hit. So I’d say what’s worked manufacturing housing. What’s it hasn’t worked is a services. But I think that we’re in the midst of this huge transformation, things that we didn’t think were people like myself, I could buy books online, my might, I might buy some videos online, but I’m not going to buy clothes online. I’m not going to buy groceries online, but here in COVID, why not? So not it’s not necessarily everything. I had an appoint with a doctor. And part of it was over the internet. And I’m glad it wasn’t my product. ologists. But in general, right, we talked about things that services, the how the internet, how this COVID experience is expedited accelerated, some changes are already taking place in society, like flexible work, mobility, the idea of buying things over the internet, trusting the internet, trusting the you know that network to buy your groceries or to buy a pair of clothes in a pair of pants,


Jonathan Bench  8:10 

I think we’ll have to save the topic of of home doctor visits and what your what our doctors asked us to do online for another topic, it’ll probably be something else in here. So So let’s look at the topic of debt fueled COVID recovery. This is something that’s interesting to me, but I haven’t taken the time to research it. So my shortcut is to ask someone smart like you about it. So should the US and other countries using these big stimulus packages be worried about dumping debt onto our future generations? And the follow on to that is it problematic that wealthier nations like the US can do more than less wealthier nations?


Marc Chandler  8:49 

Yeah, you know, I think that this issue at deck is really like fascinating, especially here in the United States. Because most Americans are going to spend their whole lives in debt. Right? Go to college, get into debt, graduate school, have more debt, you buy a house more debt, you buy a car, you’re borrowing the money. And I think it sounds very, for many other parts of the world spending your life in debt is a Is it the anomaly? It’s not the normal practice. And yet, what we’ve learned as Americans, I think, is a couple things. One, is it’s not so much the size of your debt that matters. It’s not about size, it’s about can you service the debt. And so what’s happened is it kind of amazing is that, despite the us having a lot more debt at the end of 2020, than we did in 2019, because interest rates fell so much. The debt servicing costs are actually less. So I you know, you asked an important question, too. I think it really gets to our core. You know, in Germany, for example, in Netherlands, the word debt and guilt have you seen what works? And I think many Americans maybe with a puritanical streak also somehow think that that is bad. And I think that it’s sort of like an old fashioned way of thinking about things. It’s not that like, of course, you say, Well, why can’t be in so much debt? And the whole question is, can you service your debt? And so I think that it’s true that the US debt to GDP perspective is we’ve borrowed what a little bit more than one year’s worth of output. All the goods and services of the US produces, we’re about that much in debt. The good thing about that debt, though, is it’s the best in the world. And by that, I mean the Treasury market, when the Federal Reserve has an auction to go in the Treasury Department has an auction sells bonds, they’re raising an individual issue, they might be raising 30 – $40 billion at a time. So if you’re a large central bank, large reserve the sovereign wealth fund, a hedge fund, you can buy those. But if you’re in a Europe, the European bond market doesn’t really exist, to the French bond market did a German bond market, to the British gilt market. But those markets are more like the US Muni market, a lot of small issuers with their own like idiosyncratic rules, issuance, dates, calendars, coupon payments. And so in some ways, which stands behind the US, and I think this may be a one one contribution in the US to like, to the history of empires, because we did it with OPM, OPM, other people’s money. The US has been a net debtor for most of its history. And yet, you think about 13 small colonies on the east coast. Within 100 years, they were I mean, literally, I mean, 18 back, I remember the San Francisco 40, Niners,  the Gold Rush, 40 Niners. So within within 75 years of the revolution, we swept across the nation, the whole continent. Within the next 100 years, we are like the Masters, we are like the hegemonic power in the world. And that’s despite the deck. What I think what what the books would show is something like this, the US borrows money from the world. And as a smart, traditionally leaving aside the 0809 re financial crisis. The US has been a really a masterful investor, those money that we borrow, typically say a country, invest money buys US Treasury bonds, we’re giving them a fixed income. And what do we do with that money? Americans are risk takers, we as Americans don’t buy foreign bonds as much as we buy foreign stocks. So the return that we get on our investment has to be better. Because partly, we’re taking on more risk. And so I think that really, America, I think it’s been founded on debt. And maybe it was when George Washington, supposedly threw at silver, silver continental into the Potomac, that sort of was the basis of us fiscal policy ever since. But yet we’ve grown it that has not really prevented us from growing. And so I think it’s a question of management that that, and can you service the debt. But I also think you’re right, that there is a generational issue here.


That the sort of the baby boomer generation has racked up a lot of debt. And now a new generation, maybe aside the current administration, the new generation is coming to power. And what’s involved here, I think, is partly what is like the one generation or the other generation. And there is, I think, a generational tension over the budget. But I don’t think over the deficit in debt, but I don’t think it’s really over the debt and deficit, really, I think there’s more symbolic of a greater value change. I mean, you think about this, we’ve known for example, we’ve known since like the 40s, or at least the 50s, about cigarettes were dangerous. And yet, it taken is really most of through most of the baby boomer generation, that they first got hooked on it. And now we’re weaned off of it as a huge cost to the medical establishment. And I just think that we do other things that the baby boomer generation, I mean, still stuck on carbon. I mean, the, for me, the biggest problem that we’re going to give to the next generation is not really the debt. But the environment that’s degrading. And when it comes to the deck, I mean, here’s the other kind of interesting thing that’s happened with the debt. If you’ve got one arm of the government issuing the debt, US Treasury Department, you got another arm of the government buying the debt, the Federal Reserve, so give you like some hard numbers here between the December fiscal package under Trump and this one that the current administration is working on, you’re looking at something on a magnitude of 14% of GDP. The Federal Reserve at an annual pace is buying about 7% of GDP worth of government bonds. So now who’s the largest owner of US Treasuries, we don’t have to worry about the Chinese selling their bonds. The biggest holders of US Treasury bonds are here in the United States, the Federal Reserve and Social Security. We owe the debt to ourselves, as opposed to say, some other countries in which foreigners own a large part of their debt, say, like in Argentina. So I think, because we own the debt, ourselves, and the role the Treasury market in the world economy is, in fact, the Keystone. So that last March, when the financial when the pandemic was striking, we had a horrible financial disruption that even affected the Treasury market. And it was like it, I would say that the the house of finance shook because of that it down to its very roots down to the down to down to the base, and that the treasuries. So other countries take on foreign debt, all of our trade, all of our debt is in dollars. And China might have made the printing press, but we have a good had the best printing press for US dollars. So it’s hard to conceive of a country, like the US could control its own currency had its debt and its own currency becomes a problem. The problem that arises and this is where that modern monetary theory comes in, is that this idea that the government can run better that because we print out, we can print off as much money as we want. It’s true up to a point. And a point is where other people, investors, including ourselves, domestic investors, lose confidence. And that confidence could be expressed to higher inflation. And I know, I know that, for many, many people who will listen to this podcast, inflation is not something that they experienced. We’ve been having since 40 years, inflation been falling in the US, generally trending lower, and not just in the US, but in the world. And now there’s people who think that a combination of the federal government’s large deficits, plus the monetary easing of the central bank, is going to fuel inflation is going to break this 40 year down cycle and begin lifting inflation and lifting interest rates for the first time in a generation.


Jonathan Bench  17:26 

So many questions, Marc. Unfortunately, we have a limited time. So let me ask you a related question about other countries, right? US seems to be poised well to weather this right, including having, you know, issuing debt to help our economic recovery. What about countries that aren’t as credit worthy as the US? Are they going to fare through this?


Marc Chandler  17:44 

Yeah, no, I think you’re right, that it’s partly everybody was here with the shock at the same time, roughly the COVID. But then how we come out with the policy response. And so I think the US has been like it was an 08 09, very aggressive in its response. few countries can keep up with how aggressive the US is. And so that’s going to produce on the other side of it’s going to produce another divergence. I’d say that, as we were talking about the domestic economy, so to the global economy, the US and China went into it as the giants, the two world powers. And I think the other side of COVID, they too, are bigger and more important than a lot of these more important in terms of the world economy. And so I do think that the emerging market countries, many of them, who have less social trust, maybe leaders who don’t really believe in the full, like, don’t really appreciate the power of the pandemic. Some countries were like Argentina was heavily in debt beforehand. And so how can they spend their way out? And I think that so there are some countries emerging market countries that have that will do well, and right now, I’d say that the leaders of that is really in the Chinese orbit. That is Asia, with China through this huge gravity to it. Other countries are moving in its orbit. And the strong demand from China is helping South Korea helping Vietnam helping Philippines helping Indonesia, helping Taiwan. And so I think that those countries have a big, Friendly Giant on its on a doorstep. Eastern Europe, like Poland, Hungary, Czech, these are these countries are sort of protected by their trade ties with Europe. The problem is Europe grows slowly, even the best of times, and they’re slow now, and the vaccine rollout is slow. So Eastern Europe may be more vulnerable. And then when we come to like the Americas, both the two big countries, Mexico and Brazil have leaders who are has sort of challenged like the economic orthodoxy, ironically, from different sides, you’ve got a mlo in Mexico who’s sort of a left populist. And you’ve got both in Arlen Brazil, who’s sort of a right populist. And both of them are seeing record levels. I mean, do where you look around the world who’s got the highest problems with COVID, Brazil and Mexico are often listed in the tops of those lists. And both countries are challenging, like the the orthodoxy that global investors like. And so this year, so far, we’re only two months into it. But the weakest currencies are those in Latin America, Brazil, Mexico, Argentina, Chile, and I’m sorry, Colombia, and Chile, because that’s the other part of the story is as you have this reflation, as people are betting on global expansion, and Asia is already picking up steam, what we’ve seen happening now is we’re getting a huge rise in commodities. And it’s, again, one of the first times in a generation, we’ve seen such huge moves, for example, copper, is at its highest level in over a decade. Oil last April, during the COVID, the heart of the COVID crisis, oil prices fell in below zero. That is, you had to pay somebody because a storage was all filled, there’s no place for people to put the oil, you had to pay for people to take the oil away from you. And now oil is over $60 a barrel. And so throughout the commodity space and some commodity producers, for example, Chile is one of the I think it produces about a third of the world’s copper. And as we shift away from carbon towards electricity, whether it’s electric vehicles, batteries, electric appliances, copper is what people need. And copper is going through the roof and that’s good for some countries like Chile.


Fred Rocafort  21:51 

Interesting that that you bring up copper, I remember many, many years ago when I was in college, studying the Chilean experience and how they within at least Latin America, shining economic star, one of the things that our professors would point to is the fact that that economy had been very dependent on copper for a long time. And they had sought to diversify. And that’s how, I mean, obviously, they’ve had a wine industry for for a long time. But that’s really when they began to emphasize their wine industry, their fisheries, etc. So it’s interesting to see how now it’s copper, once again, that’s that’s helping them out. You addressed what’s happening in let’s say, at a regional level, although you spoke about some specific countries, but looking ahead, from your perspective, what are what are some countries that you’re looking at maybe some regions as well, whether for good or bad reasons. But one thing that I find is that if you get a lot of smart people together and ask them, you know, what’s a country that I should track? Obviously, there’s going to be some overlap. But depending on the particular focus that you have, depending on your particular line of business, you’re going to have different priorities and different rationales for saying, I think this is important, we should keep an eye on what’s happening here. So maybe, in addition to what to what you just said, Are there other places, other regions that are worth keeping an eye on with a view to how those places could could help shape future events?


Marc Chandler  23:30 

Yeah, I think about this a lot. And I often think about the world as like a big chessboard, maybe like a risk board, if you will. And I think there’s a few pieces that are mobile. So like states, you know what, some states are always Democrat. And you say, well, it’s really important to swing state. That’s the key. And same thing. So I think there’s like four or five pieces on the global chessboard, that are flexible that can move, like Venezuela, Cuba, close to home. But I think the more the more difficult places really now is the confrontation between the US and China, in the in the Pacific, but especially in the South China Sea. And so countries like for me, the doomsday scenario would look something like this, the US trying to do the right thing annoyed by way how China’s treated Hong Kong, how they treat the Muslims. And so we don’t want China to be doing be intimidating its neighbors. And so we offer Taiwan, a mutual defense pact, which we don’t have right now. Well, maybe even a trade deal. Or maybe we we recognize them as a country because ever since 1979. We have a one China policy. And so I can imagine where the US and other countries trying to do the right thing. To express the dissatisfaction with the way Beijing acts on the international stage. And to China, we’d be sending a signal besides army to Taiwanese, we’ll be sending them a signal that if they don’t move, you’re going to lose Taiwan. That piece of the chessboard is going to go from Neutral place to away from them for another generation. And I think that would could give President Xi of China, the incentive to do what he’s done elsewhere and display this sort of Iron Fist nationalism, like I’m thinking about Tibet, Macau, Hong Kong, the or the Muslims. And so I, I do worry about that as a piece. And there’s, it’s so strategic there to the Philippines. Now, that was the that’s the only colony The US has ever had. The Philippines, it’s, we basically took it from Spain, the Spanish kind in the US took transit, Callie was only colony The US has had. And yet the current President of the Philippines is very anti American. And so is that a piece, which, which also where the Philippines are in the region, it’s a very strategic place, besides that the US has bases there. And so I so I think that from a geopolitical point of view, leaving aside like the foreign exchange market of money, but just thinking about geopolitics, I worry about pieces that can change pieces change sides in the board, Taiwan, Philippines, and even in the heart of Europe. I worry about Turkey, you know, Turkey is Turkey’s wanting to join the EU for a long time. And Europe always has a reason why not to and I think it comes down really to two things. You might not be polite to say that, but it’s because they’re poor, and because they’re not Christian. And I think that acts as a certain hurdles, perhaps not decisive, but I think those are big hurdles, in the way of, for Turkey to be accepted into Western Europe’s fold. At the same time, they’ve got strategic interests that have gone against the US interests, even though, you know, the reason we have NATO is because of Turkey and Greece, that gave rise to NATO. And Turkey has many of its strategic issues. It’s more aligned with Russia. And Turkey is another piece that I could see, moving from one side part of NATO to another site, not right away, but it’s already where last year, Turkey bought and tested an anti aircraft and anti like, like an aircraft defense system that I bought from Russia, and whose it aimed at NATO airplanes. And so, so yeah, so I think there’s some hot spots in the world. But one last part that I would mention, and I know that many, many of us and I lived a little bit out of farm, where the where I learned my lesson from naming a calf, because we ended up eating it. And I you know, what we eat things that we don’t necessarily know and want to know how they got on our plate. And the same thing with our technology, that our technology is not clean technology, the metals, many of the metals come from either ecologically bad for the environment to get where they come from very disputed parts of the world, especially like parts of Africa, we can get these very rare metals. And I think that if there is a division in the world, and superpowers and a Cold War, I think that we want to keep an eye on those where those resources are. And are there alternatives. And I think that there are many of us. I mean, I know even for myself, that I have no clue where all the pieces of my cell phone comes from. And that if I could imagine how if someone knew and could corner one of those metals that are essential, which is what China talks about with these rare earths,  it’s just that they’re not very efficient combined to like, gather together and then process. And China has tried to weaponize them with Japan about a decade ago. And the US has responded. For me, I thought it was like a Sputnik moment. It was like a wake up. And I think that there are other Sputnik moments to come. They were a bit naive Americans a bit naive about where these things come from, and how safe they are, how safe and secure access to them really are.


Fred Rocafort  29:14 

I just want to follow up on a couple of points. First, this most recent idea that you that you brought up the fact that like you said, we we don’t really know the world in which we live in the all of the conveniences that we have. I think there’s not enough thought given to what it takes to get those thing to us. And we become dependent right on our computers on our on our phones. But like you said, I mean, that can become a real problem. To put it in one way if if all of a sudden, we were to tell Americans or Europeans for that matter if we were to say, Well, look, there’s an important choice that we have to make and it’s either we put up with some horrendous human rights catastrophe or we have to give up our phones for a year. I don’t know how many people would answer that question, honestly. But we all know, deep down that there’s going to be a lot of people that say, Well, look, I’m sorry. I mean, I it’s not that I want these terrible things to happen. But you know, I just can’t afford to go back, right. And then I like this idea of the risk board or the or the, or the chess board. That’s a very interesting way of looking at, at what’s happening around the world. And I think that part of what lies behind that, that way of envisioning things is how different events or different trends can really impact the current equilibrium set that that we have, right. And I think Turkey is a great example of that. And, you know, without wanting to get too much into Turkey itself, that would be a topic for another podcast, for sure. But that is already proving to be a game changer. And I understand to some degree, why Europe would have its apprehensions about accepting Turkey as a member of the EU, etc. But I think that I really feel that history is going to look at that as one of the key moments really, when the actions of the West for lack of a better word, opens the door to far worse scenarios. I mean, I think, over time, Turkey came to the correct conclusion that Europe really didn’t want anything to do with them, at least not at the same level at which European countries engage with each other. And turkey did the logical thing, right, they’re beginning to look in other directions they’re cozying up to, to Russia on the one hand, but they’re also finding an outlet for their aspirations in in this sort of revival of their of their own traditions. And and, you know, if you look at the way they’ve been intervening in Azerbaijan, well, in support of Azerbaijan in its in its struggle with Armenia, I mean, that right there. And I think this doesn’t get the attention that it should, but the fact that the president of Turkey flies out to serve by john for the victory parade, or so called victory parade, I don’t want to give my own assessment of the outcome of that conflict. But the fact is, there there was clearly a lot of Turkish participation on the side of Azerbaijan. And in other times, or if you if you’re, if you go back and look at that history, that’s precisely the sort of change that the sort of paradigm shift that often precedes major world events, right. Like all of a sudden, you have a country that for a long time, like you said, NATO member trying to, you know, get into the European club, at some point saying, fine, we’re going to look somewhere else. And now they’re starting to intervene in the affairs of other countries in the region, they probably have aspirations further afield, obviously, because of the cultural connections that they have with countries in Central Asia. And again, not to not to make this about Turkey, right? It’s just to just to illustrate how these shifts can can really have lasting consequences. So that was two very interesting perspectives to bring.


Jonathan Bench  33:02 

So Mark, we only have a few minutes left. So I like to hit you with this question, because you are much better poised to answer this than then me googling it. So let’s talk about digital currencies or virtual currencies. I’m still a little mystified by them. And I kind of follow I don’t own any Bitcoin, but I read a lot. Right. And so I’m, I’m curious what your thoughts are on the emergence, you know, kind of bitcoins been in the news a lot lately, the last little while, you can talk a little bit about virtual currencies in general, you know, maybe using Bitcoin as the poster child. And then also, you know, the other big thing is, is China rolling out its digital un and and why that matters, right? Why, why it might be important, or something to pay attention to.


Marc Chandler  33:45 

Sure, that that incredible thing how like, imagine this, I tell you that if you solve a computer problem, which might take you as much electricity as the whole country of New Zealand uses start a computer problem, I’ll give you a token. And with this token, turns out that this token is now worth over $50,000. Now, I sort of think of bitcoins and its cyber currencies in a way that, like my wife is a Catholic. She’s Catholic, because she’s self identified as a Catholic. Bitcoins call himself money, but they don’t have any of the characteristics that one would think of as money. Typically, economists say there’s three characteristics of money. One, they’re used as a medium of exchange. And people aren’t really using Bitcoin to cyber currencies to buy goods and services. The second function of money is that it is a store of value. And so I know I can imagine what some of your listeners are thinking another dollar dollars and Bobby would it be when I was a kid, I say one way is that the fiat money, the money that we have slowly changed. Its purchasing power over gradually over a long period of time. Think about how In the last couple of days to Bitcoin, the range between the high and the low, some days is 20%. So it can’t really be use as a payment vehicle. I mean, you know, there’s this urban legend, high from the same people who talk about a cat that jumps into a microwave, they talk about a guy who bought pizza with a Bitcoin, imagine the problems that would have, you know, you pay $50,000, for what. So it’s a means of exchange, store value or a unit of account. And when I write who can like price, something like as a unit of account, my trade balance is 50 bitcoins, where my salary is 10 bitcoins, people we don’t think about in those terms. So I’d say that, for the most part, I’d say that idea that Bitcoin to cyber currencies or money is a big stretch to me, they don’t have the functions or they don’t look like money. But the other thing here, I think there’s a contradiction at the very center of it. So if the idea is that fiat money, this mind that we have is no longer backed by gold, or silver is going to be based over time, it’s going to fall in value over time, then what we want to do with the cyber currencies is hold on to them. Not using to buy goods and services, use wasting asset, like paper money to buy your goods and services, keep your savings in bitcoins or cyber currencies. And that’s what a lot of people are doing, you know, they’ve got a name for this h o DL, hold on for dear life. And what this means really, is that out of the bitcoins, most like I want to say like over a third of them have not really changed hands in the past couple of years. And also, I kind of think that the cryptocurrencies is a bit of navel gazing exercise. I have a couple of sisters in the Midwest, they don’t have a clue about Bitcoin to cyber currencies. They’re lucky to make ends meet, let alone speculate, and something’s moving around like this. Remember, only half of American households own stock. I saw one survey that said only about 6% of Americans have invested are traded in cyber currencies in the past year. So, but I do think that that is sort of like I do think they have a function though. And here’s what I think in my work. The supply and demand is like gravity, it’s the law. You might not like it, but it’s the law. And, and when something falls in price so much, you have to think there’s either a lot of supply or weak demand. And so as we as we talk here today, like I mentioned it about 14 or $15 trillion in negative yielding bonds in the world equity valuation before this last little hiccup, was stretched beyond most people’s imaginations. The other day, the Case Shiller, who reports home prices in the US said that house prices in the US rose by over 10%. Last year. There’s so much money circulating that there’s equally distributed but there’s tons of money in the system. And I wonder if the cyber currencies do for savings, what trees do for carbon? Trees are great carbon trap, right? If you want to get rid of the carbon of the year, plant a billion trees. Trees are carbon sink. And I wonder if the crypto space inventing a new asset, what incredible imagination and foresight, but maybe it’s for a different purpose than the inventors and the players think maybe what it does, the socially responsible and socially good thing it does is all the money that’s chasing the cryptocurrency space, it would be pushing yields into more negative territory, driving equity prices higher or building redundant capacity factories or or office buildings, we no longer need malls. And so for me those cryptocurrencies might have a purpose, but not as money, but as a place to store savings, and especially for people who have surplus savings. But I think you’re also right that there is a move underway to take advantage of this technology, blockchain, a shared ledger, digital, which is, incidentally, when I if I write you a check, if you deposit your bank, and they tell you couldn’t have those funds for two days, why two days? Why can’t we do it instantaneously. And so I do think that there’s about might be 30 central banks in the world that are looking at investigating the possibility of a digital version of your currency. So like, right now, if I go to buy, go to Amazon and I buy a book, I can pay them by a cheque. I can pay them with my credit card, I can pay them with PayPal, I can pay them with the old credit card through my company scrip, if you will. they lend me the money to buy their stuff. And so down the road, I might be able to pay them with digital dollar. This so I would think about what’s going on with the central banks. If that’s kind of a currency, per se, I would think of it much more as a payment system. And I think that’s important point about China is that China is ahead of the game. And I know many, many Americans have this idea that China steals all of our technology. China has developed the technology for their own digital RMB. Digital one, they developed that technology, and they’re always unfolding it that is already experimented in some cities, giving people money. But remember what that would assume. It assumes that you have access to like a smartphone, or access to a bank. And a lot of Americans are not banked. A lot of Chinese aren’t banked either. But they might have a cell phone. The point is China’s ahead of the curve. And they’ll probably be among the first to roll it out. But in China’s case, it’s not so much simply about payment systems. But think about what it does. We I think of it as exceed three, command control communication. They’ve centralized now they there’s no more tax evasion. There’s no more illegally underground economy, if everything’s got to be cleared, or seen by some official, you know, in the United States, we’ve got these things out of the highways for these easy passes, you can just drive through instead of having to stop at the top. A lot of Americans were reluctant to adopt that technology, because they were afraid that police were going to time them between tools. And if it was faster than 60 miles an hour or whatever it was, they’d get a ticket in the mail. And so Americans, especially paranoid about this, I think and that what I think what happens is that China might have it with a central government plays the key role, centralization, that’s China’s way, America’s ways much more decentralized. So I could see where we divide a wholesale market, where the Federal Reserve provided digital dollars to the commercial bank. And then the commercial, you have account at the commercial bank and you say, I want to I want to put some digital dollars into my wallet. So I go shopping on the internet. Well, you’d get those dollars from your bank. So that would be a wholesale and retail market with a central bank. Federal Reserve is more in the wholesale market does not want to compete with the commercial banks the way maybe China wants to compete with Ali pay or WeChat.


Fred Rocafort  42:11 

You bring up a great point right about the the transparency, you know, the transparency that this kind of payment system can bring and I lived in China for a little more than 10 years and lived through that that transformation and it’s just incredible right you went from you went from a place where cash was was king where there were not that many places that would take a credit card where there were not that many ATMs even at least that you could use as a foreigner you had to walk around with wads of cash and whatever you you got up to there was really no record of it. And now we’re at the the opposite end of that right where it’s an exception right to run into someone in China that’s using cash on a regular basis it’s the exception right but of course that means that there is a record there’s someone keeping track of that I remember having a conversation many years ago with someone in in in China talking about what’s going to happen with the you know with these they’re not that popular here but in Asia for example every major city you have the public transport card you use that when you take a train when you get on a bus you’re you’re tapping that card and you can use them at least in places like Hong Kong for example they have the octopus card you can use it for almost everything you can you pay your utility bills with it you can go to McDonald’s, you can go to the drugstore, but that creates records right and I would be interested in finding out but I wouldn’t be surprised if if the police are using that information. They probably have and then they they’re probably going to start doing so increasingly right like looking and saying okay, well let’s look at this octopus card that we found then on this person and boom there you go. You were you were a block away from from the crime right. so fascinating topic as well before we sign off like to give you an opportunity to talk about your work and and your company tell us about Bannockburn forex coincidentally I think it was two days ago that I read something about the Battle of Bannockburn I don’t know if there’s a connection between the the name of the company and the the battle in Scotland. It could be something completely different. You know, there might be some some town here in the US. So please let us know how the name was chosen, but more importantly, what the company does and what you do there.


Marc Chandler  44:30 

Sure. Yeah. So yeah, if you can imagine that. Some of the guys that founded company are very proud of their Scottish roots. I don’t know that whether it’s golf or their finance capabilities. But so Bannockburn is really a small boutique. And here’s what happens. I think, you know, we all know when we go out and buy a pair of shoes or shirt or a suit, we know they were paying retail. And we know that whoever we’re buying it from probably paid wholesale, and that’s their profit. But we think about money. Few people realize that money there’s a wholesale and retail market for it. I tell you the wholesale market, banks can borrow money from the federal reserve from the central bank for zero. And you know what the retail side of it is my credit card charges me 21%. What happens we find is that I spent most of my career helping large businesses, large asset managers. And then I began thinking that maybe I was part of the problem. Thinking of your problem, one of the key problems besides the environment is disparity of wealth and power in the US. And I would think, and I’ve been spending my career helping the largest and so I thought that before I get too old, before they give me the the glue factory, that I would try to take my skills and help small businesses, and Bannockburn help small and medium sized businesses. By bundling up a lot of the small guys, they can get into the wholesale market. Give me an example for a large business multinational, a large bank asset manager, when they try to trade the euro. They don’t just trade it in pennies. They don’t trade intensive pennies, or hundreds of a penny, the spread between the bid and the offer, which is where the price lies like in a house can be 1,000th of one penny. Small and medium sized businesses in America are sometimes paying three and 4% spread. So we try to help these small businesses sort of get institutional level of efficiency, that means better pricing, execution transparency, and then actually my team comes in is providing them with the analysis understanding the tools that they have access to, that institutions have access to and how to make those those available to retail, I can’t think it’s a it’s a story that I like David versus Goliath, helping bring these skills, these efficiencies, transparencies down to small medium sized businesses that are Bannockburn guy that specializes in foreign exchange helps really just small medium sized businesses, it’s not going to be the s&p 500. And and where we could do is you know if they’re like an interesting to if the variable rate business, that a bank will charge whatever they can get away with. But we want to turn into that variable into a fixed to make it more transparent, a fixed markup. So everybody knows what markup what retail spread the pain.


Jonathan Bench  47:22 

That’s great Marc. Yeah, it did a great job of explaining it so that even I can understand what you do, which is, which is kind of the it’s the low bar, but it’s an important bar to hit. So we always like to end our podcast with recommendations from from all of us. So we’d like to ask you, do you read anything, listen to anything lately, if it’s been either on point with our topic today, or something completely unrelated?


Marc Chandler  47:46

Yeah, it’s good question. I think about like I spend my days, I basically live London hours in the US. I’m up at about four o’clock in the morning, where every morning by about 630. In the morning, I’ve done like about a 14, 1500 word essay about what’s happened while we were sleeping. It’s almost like tofu. No tofu is partly digested soy bean cheese. And what my team does, what I do is we party digested news. So our clients don’t have to be reading 1000s of headlines they can get up they can find, here’s a quick summary of what’s going on in the world. And by merely looking at the capital markets. But I find that even though I can do this, like 12 hours a day, we need to think about other things besides this narrow political economy. And so I kind of think that was helpful sooner, like cross training, your play a sport, you want to you want to train your body other ways besides just that one thing. And so I thought about the question and I thought of two things I could share that are to me are changes the the way I can see the world. And one of them is a book called The hidden lives of trees, by this guy, Peter, woven, and I never will see a tree quite the same way. The argument of the book is essentially that we humans make too big of a distinction between animals and plants. And the trees are amazingly communal, like they they’re more much more like bees and ants as social as they live in groups, and the root structure. And just like in our in our, in our intestines or throughout our bodies, we’ve got these micro biomes these these bacteria that actually help our body function. Same thing for trees, but so much of it takes place underground in the root structure. It’s a fascinating book. It’s maybe anthropomorphizing trees a little bit too much, but it’s a fascinating story. And seriously now when I take my little walks around town, I’m always looking at trees a bit differently than I did before. And maybe it’s also like the story about a butterfly that lives for a day and lands on a big powerful oak tree and thinks the oak tree is dead and the trees work on it. timeframe, there are people like me who is like having too many things during the day, like we always rushed for time, the trees are sort of like, they react so much slower to these things and sort of like more relaxing. And the other book do, I’d like to share with you, it’s something that does relate to a lot of these issues we talk about, because we’re assuming a certain type of person type of value system. And a lot of the things that we learn about people takes place because we’ve experimented with one small subsection, that this book called The weirdest people in the world, the word doesn’t mean that we’re just strange, but it means that it stands for Western, educated, industrialized, rich democracies. And so a lot of things that we allow the kind of experiments, the social experiments about the cube gets a piece of candy. And he’s told, if you didn’t eat that piece of candy, they’ll get you’ll get another two pieces. All these things are sort of based on traditionally a very narrow sample of the human species. And it’s not just it’s a narrow sample, but it might not really be representative. And if the argument of book, it’s not really representative of the human experience, and it’s interesting what he traces it to, and it’s traced ultimately to the ability to read, then we begin to forcing people to read a change, that is cultural thing, teaching people to read, change the way the brains work. So for example, the ability to recognize people’s emotions from looking at pictures, goes down with readers. And, and, and some even more than that, is that just readers because for a lot of, for a lot of our history as a species, when we since we’ve been like developing reading as a skill, men got to read women didn’t. They were trained to read, they weren’t taught to read. And so what changed that was a Protestant Reformation. Because it meant that you had to read the Bible yourself, you didn’t depend on the priest to tell you what it was. And so the book traces a little bit about the, the as Protestantism grew, so did women education, women reading. And so it’s the old site, you know, we all know about, like, the sort of capitalism and the rise of Protestantism. But this really puts a different spin on it, to explain it. Explain like the world from like a different angle, like looking at a different end of the telescope, if you will. So this the weirdest people in the world, written by it, the subtitle is how the West became psychologically peculiar, and particularly prosperous by this guy Joseph Henriques. And it’s a thick book. So it’s not something that you know, you read overnight, but it is it does. I guess it’s not like a Stephen King novel. But it’s a it’s fascinating. It reads a bit like a novel cuz you’re sort of like wondering, like, how is it that we believe this stuff, and then to see the diversity of how other people in the world think it’s quite amazing. So both of those books, they hidden life of trees, and the weirdest people in the world, I think are kind of the kind of books that help you see the world a little bit differently, maybe with a little bit more of a critical eye, and maybe with a little bit more sensitivity to like the other in this case, I trees that can exist as a community.


Jonathan Bench  53:09 

Great. Thank you, Marc. Fred, what do you have for us today?


Fred Rocafort  53:12 

So I’ve been looking back at some of the memorable reads that I’ve had over the years. And I’d like to recommend something from the from the playback machine. This This article is from October 2007. It appeared in the Foreign Service journal, which I used to receive when I was still in the Foreign Service. And I guess for a little bit afterwards, with all due respect, most of the stuff in the in the journal wasn’t that interesting. But there was one article that stuck over the years because of the topic. It’s called the Foreign Service murder and that already gives away part of the plot and basically, it’s a first hand account about us firsthand if an account this you can get the murder of the US ambassador to equitorial Guinea in 1971 by his deputy, so basically an American diplomat killed another at an African embassy it’s a pretty good read. I mean, the story itself is rather salacious and and it’s what well told by someone who who who knows about it. There’s a lot of urban legends that swirl around the state department involving this incident I had heard you know, snippets of it so it was good to get the the actual story. But anyway, it’s a it’s a good read about a really interesting incident in in American diplomatic history. It was written by another Foreign Service officer called Len Shurtleff, and we’ll provide the details on the blog posts but it was the October 2007 edition of the of the Foreign Service journal Foreign Service murder. What about you, Jonathan, what do you have for us?


Jonathan Bench  55:02 

So I’m taking us to the sports arena today, because I saw an article this morning that struck me in part because I used to be a distance runner. And there’s a really great distance runner at my alma mater, BYU. And I didn’t know that BYU won it’s first college cross country championships on the men’s side in 2019. And that was Alaska, it was held because they didn’t have it last year. BYU was number one runners name is Connor Mantz. It was interesting, because he’s, you know, one of the one of the top distance athletes in the world now. And I think he’s still got two years of college eligibility left. But the thing I thought was most interesting, because I was doing a workout this morning, and, and it was one of my harder workouts. And I was hating life and is, you know, as a 15 minute workout. So it’s not like I was really pushing myself to the limits, I was in a lot of pain. And so his coach describes him, as somebody who has a high tolerance for pain, he takes these distance races, and rather than, you know, if you’ve if you’ve ever watched distance races, especially in track, they’ll generally stay together, right, the pack of runners will stay together until the last lap, and then it’s a dead sprint to the end doesn’t doesn’t really matter how long it is. And this guy runs, he just runs out front, he just, he just takes off. And anyone who can keep up with him can keep up. And when he was a younger collegiate runner, they got burned a few times during this, but he just pushes through the pain. And I think this quote that I read about him, you know, he said, I’ve come to grips with the fact that this pain is is temporary, right, that there is a 0% chance that I will die from this pain that I’m putting myself through. And so I just run as hard as I can, right. I mean, I’m paraphrasing, but I thought that was very powerful. I mean, on a lot of levels, in a lot of parallels in our lives that we can draw from that, right. And that is an enduring pain is not necessarily a bad thing, especially if you’re on your way to doing something. And very rarely is the pain of the degree that it’s going to kill us so so just keep pushing, there will be an end to it. And you can come out better, right? You can really continue to build on your character, whether it’s physically whether it’s mentally, emotionally, right. And so I find some good parallels for life in that and also as an athlete or a weekend warrior athlete, I take a lot of comfort in that and it’s a good kick in the butt because what we need once in a while to say, Hey, you know what, it hurt, but you’re kind of being a baby. So just suck it up and keep going. Right. So that’s my closing advice for us today. Uh, Marc, we want to thank you again for your time today with us. It’s been fascinating. I certainly loved your insights and hope that we can check in with you again at some point and get an update.


Marc Chandler  57:23 

Thank you very much. I enjoyed it. Good luck to everybody.


Jonathan Bench  57:28 

We hope you enjoyed this week’s episode. We look forward to connecting with you on social media to continue discussing developments in global law and business. This podcast was produced by Harris Sliwoski with executive producer Madeline Williams music composed by Stephen Schmid. Tune in next week for another episode. We’ll see you then.


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