The Week - UK (2022-04-09)

46 CITY

THE WEEK 9 April 2022

Talking points

The discovery of Russian atrocities in the

Ukrainian town of Bucha “has horrified

the world anew”, said Bloomberg. And

there’s been no delay in Western

economic retaliation. The US, EU and

G7 are “coordinating on a fresh round

of sanctions” – including a US ban on

investment in Russia, and an EU ban on

coal imports. A concurrent crackdown

on individuals is reported to include

Vladimir Putin’s daughters. That will

probably enrage the Russian president,

but he may be relieved on two counts.

First, Russian gas – a vital fuel for several

European countries – is not on the EU

list. Secondly, the US had held off

imposing “secondary sanctions” affecting

organisations and people in countries not

subject to its jurisdiction. These would close “the loopholes”

Russia uses to trade with third-party countries. But they’re

controversial because of the possible impact on US allies. “If

Germany continues buying oil and gas from Russia, for example,

it could find itself on the wrong side of US sanctions.”

The rouble weakened against the dollar on news of the penalties.

But actually, it’s been doing rather well of late, said Patricia Cohen

in The New York Times. Having lost “nearly half its value”, it has

“clawed its way back” almost to “where it was before the

invasion”. Putin, after all, “has economic weapons of his own” –

as he reminded the world last week,

when he demanded that 48 “unfriendly”

states “violate their own sanctions” by

paying for natural gas in roubles. Russia

might also look forward to increased oil

revenues, said The Economist. With its

“Urals crude” trading at a discount of

$31 a barrel, two big countries that have

not joined in with the West’s sanctions –

India and China – “sense a bargain to

be had”. India is experimenting with a

“rouble-rupee mechanism” that would

bypass dollar payments. China might

prove a big buyer. “As Russia’s trading

position weakens, the Urals discount

will go up. So will China’s purchases.”

“The Kremlin is certainly in trouble

on the battlefield, but it is not yet running out of money,” said

Ambrose Evans-Pritchard in The Daily Telegraph. It will face “a

greater test” this month as pre-invasion sales contracts expire and

“shippers struggle to secure insurance and financing for fresh

Russian cargoes”. But the health of the rouble shows the failure

of previous rounds of sanctions and curbs on the Russian central

bank. “The country does not need to tap its frozen foreign

reserves to defend the currency as long as revenues keep flowing

from the sale of hydrocarbons and metals.” The West’s “phoney

economic war” must now give way to “a harsher phase”. Nothing

less than “a total energy embargo against Russia” will do.

Issue of the week: the economic war

An oil rig in the Caspian Sea

Crypto-hub Britain: what the experts think

● Problem habit?

Addiction experts

report that “young men

trading cryptocurrency

have begun to seek

help for symptoms

associated with

problem gambling,”

said Patrick

O’Donoghue in

The Sunday Times

(Ireland). Barry Grant

of Extern Problem

Gambling warns of a “classic” progression.

“You dabble with it. You do something

small, you’re having a bit of fun. Maybe

you’re doing a bit of research about it.

Then you have a big win.” Once hooked,

the lack of safeguards means it may well

be more difficult “to quit crypto than it is

to kick a problem gambling habit”.

● Crypto conversion

The findings aren’t the great news for the

Treasury, which has just laid out plans to

make the UK “a global hub” for the

crypto industry, following criticism that

its “stringent approach was throttling

innovation”, said the FT. The shift in tone

is welcome, but care clearly needs to be

taken. The new initiative coincided with

a warning from BoE governor Andrew

Bailey that crypto currencies were the new

“frontline” in criminal scams. Much of

what the Treasury is proposing is

uncontroversial, said Charles Walmsley on

Citywire. Plans include

advancing the use of

“stablecoins” (online

currencies pegged to the

traditional, fiat sort) in

payments, and creating

a regulatory “sandbox”

to allow businesses

“to experiment with

cryptocurrency

models”. But the most

eye-catching plan – to

create an NFT (non-

fungible token) via The Royal Mint – was

also the most controversial. While some

compare these digital assets to works of

art, others argue “they are very risky

investments” with no “inherent value”.

● Rule Bit-tannia!

“There’s nothing wrong with the Treasury

taking an exploratory walk round the

crypto block,” said Nils Pratley in The

Guardian. Yet the Chancellor, Rishi Sunak,

has “rather undermined” the seriousness of

the project by dabbling in “faddish stunts”

like NFTs. Better to “stick to boring

technical assessments of payment systems”.

It feels as though the Treasury is ignoring

all that dull stuff about “illicit activity and

carbon emissions” to embrace crypto as

“the best thing ever”, agreed Jemima Kelly

on FT Alphaville. “Rule Bit-tannia!” and

all that. Or as the crypto bros like to say

“WAGMI” – “we are all gonna make it”.

What could possibly go wrong?

Making the UK “a global hub” for crypto

Getting tighter

In its quest “to douse down rampant

inflation”, the BoE’s monetary policy

committee has lifted interest rates “at

three meetings in a row” for the first

time since 1997, said Jack Barnett on

City AM. But according to JPMorgan

forecasts, the fun is only just beginning.

The Wall Street investment bank

expects Threadneedle Street to lift

borrowing costs “four more times this

year”, in “a 1980s-style rate hike cycle”

that will eventually see rates “settle” at

1.75% by the end of the year. Whether

or not that will be enough to tame the

beast is open to question. Inflation,

currently running at a 30-year high of

6.2%, is likely to peak at near 9% in

October, according to the Office for

Budget Responsibility.

The US Fed, meanwhile, is preparing

“to shrink its assets”, said The

Economist. The aim is to “rapidly

reduce” its “$9trn balance sheet”, which

doubled during the pandemic, starting

as early as May. The Fed hopes this

“quantitative tightening”, coupled with

rate rises, will rein in inflation “without

damaging the economy”. But it won’t

be easy. “Stingier monetary policy

always stymies growth” and “central

bankers admit that they do not really

know how quantitative tightening

works”. For global markets – already

unsettled by risks ranging from

snarled supply chains to the war in

Ukraine – the policy is “one more

big source of uncertainty”.

Will the latest round of sanctions be enough to derail the Russian war machine?