VoxEU - Currency wars and the euro < 5min

Having promised to do ‘whatever it takes’ to ensure the survival of the euro, the ECB now faces the problem of record high unemployment combined with a strong currency. There is accumulating evidence that the ECB is more willing to fight currency appreciation than the Bundesbank would have been. Capital inflows have been a key source of recent upward pressure on the euro. Should this continue, the ECB may need to intervene more aggressively in order to promote economic recovery in the Eurozone. ... as the currency continues to strengthen and moves into ‘strong territory’ relative to its history, the negative growth effects may eventually become intolerable. The basic challenge for the ECB is to ease overall financial conditions to the benefit of Eurozone growth. So far, easier credit conditions have pulled in foreign capital and caused the currency component of financial conditions to tighten. The ECB may need to enter the currency war more actively to secure a more competitive euro in 2014, and thereby support a more robust economic recovery.

PS Magazine - How Americans Cheat the Argentinean Economy < 5min

I had vaguely fantastical notions of being robbed, but really, I just wanted to pay what equated to a dollar for a liter of beer. My friend had told me about the system. Once, a burly dude escorted him up a dark flight of stairs and into a dimly lit room with an official money-changing tray and a thick glass barrier. Other times he had been led into a basement or even did it right out in the open. … With all of this in mind, I walked through the street doing my best to look as touristy as possible without tipping my trepidation and excitement. The street was filled with arbolitos and my initial anxiety of not finding a partner was placated quickly. The man at the magazine stand altered his sales pitch when he saw me approach. I heard the “Cambio! Cambio! Cambio!” I was looking for and shot back a hopefully nonchalant come-hither look. We went inside his stand and counted out our respective amounts to trade. I checked the authenticity of the bills, shook his hand, and was on my way in under a minute. The rate of the day was 8.4 pesos/dollar, a cool 3.3 pesos higher than Argentina’s official rate.

The New York Times - How Bitcoin is Disrupting Argentina’s Economy 5-15min

With its volatile currency and dysfunctional banks, the country is the perfect place to experiment with a new digital currency. ... His occupation is one of the world’s oldest, but it remains a conspicuous part of modern life in Argentina: Calle Florida, one of the main streets in downtown Buenos Aires, is crowded day and night with men and women singing out “cambio, cambio, cambio, casa de cambio,” to serve local residents who want to trade volatile pesos for more stable and transportable currencies like the dollar. For Castiglione, however, money-changing means converting pesos and dollars into Bitcoin, a virtual currency, and vice versa. ... That afternoon, a plump 48-year-old musician was one of several customers to drop by the rented room. A German customer had paid the musician in Bitcoin for some freelance compositions, and the musician needed to turn them into dollars. Castiglione joked about the corruption of Argentine politics as he peeled off five $100 bills, which he was trading for a little more than 1.5 Bitcoins, and gave them to his client. The musician did not hand over anything in return; before showing up, he had transferred the Bitcoins — in essence, digital tokens that exist only as entries in a digital ledger — from his Bitcoin address to Castiglione’s. Had the German client instead sent euros to a bank in Argentina, the musician would have been required to fill out a form to receive payment and, as a result of the country’s currency controls, sacrificed roughly 30 percent of his earnings to change his euros into pesos. Bitcoin makes it easier to move money the other way too. The day before, the owner of a small manufacturing company bought $20,000 worth of Bitcoin from Castiglione in order to get his money to the United States, where he needed to pay a vendor, a transaction far easier and less expensive than moving funds through Argentine banks. ... Avalancha offers customers a 10 percent discount when they use the virtual currency, because accepting credit cards generally ends up costing Avalancha more than 10 percent as a result of the vagaries of the Argentine financial system.

The Economist - Zimbabwe after hyperinflation: In dollars they trust < 5min

Grubby greenbacks, dear credit, full shops and empty factories … Inflation reached an absurd 231,000,000% in the summer of 2008. Output measured in dollars had halved in barely a decade. A hundred-trillion-dollar note was made ready for circulation, but no sane tradesman would accept local banknotes. A ban on foreign-currency trading was lifted in January 2009. By then the American dollar had become Zimbabwe’s main currency, a position it still holds today. … Zimbabwe’s dollar had been too liberally printed: a swollen stock of local banknotes was chasing a diminished supply of goods. Now the American banknotes the economy relies on have to be begged, borrowed or earned. Even so, the monetary system works surprisingly well. A scarcity of greenbacks keeps inflation in the low single digits. The economy has made up much lost ground.

Rolling Stone - The Rise and Fall of a Bitcoin Kingpin 5-15min

How a bullied geek forged an empire out of digital currency, and became a suspect in a half-billion-dollar heist ... During his reign, bitcoin, the leading form of virtual currency, rose in value from approximately a quarter to more than $1,200. The Wall Street Journal estimated that at one point Mt. Gox was processing 80 percent of all bitcoin transactions in the world. At its peak, the company traded more than $4 million a month. ... in February 2014, it was discovered that a half-billion dollars worth of bitcoins simply vanished from Karpeles' exchange, leaving customers around the world unable to withdraw their funds. It's the largest online heist in history. (Estimates vary on the exact amount. Many have reported $450 million; Karpeles says it could be as high as $650 million.) Some — including even those who worked closely with Karpeles — suspected it was an inside job. ... Mt. Gox was originally a site McCaleb had made for people to exchange Magic cards (thus the name — Magic: the Gathering Online Exchange, or Mt. Gox for short). But by July 2010, he'd devoted it to bitcoin instead, setting it up as the currency's first online brokerage ... According to Karpeles, the problem stemmed from what's called a "transaction malleability," a software flaw that allowed people on the outside to manipulate the bitcoin transactions and steal money from the exchange. At first, he tells me, he had no idea how much bitcoin was missing, but the deeper he dug, the worse it became

Financial Times - The Sardex factor 5-15min

Across the island of Sardinia there are more than 7,000 ancient towers built with large blocks of local stone. Known as nuraghi, they resemble giant beehives, jutting out across the landscape. Little is known about the nuraghi or their Bronze Age architects but almost every Sardinian I met had a theory about their purpose. Some told me that they were forts; others that they were residences, places of exchange, even communication beacons. “The amazing thing is that from every single nuraghe you see another nuraghe,” Carlo Mancosu, a 34-year-old Sardinian, told me. “Now imagine a system of communication with flames or light or mirrors. I think there existed a people in a network.” ... It was this system, real or imagined, that inspired Mancosu and a group of childhood friends to found Sardinia’s first local currency: Sardex. Arts and humanities graduates with little financial experience, they built it from scratch in their home town of Serramanna as the island reeled from the financial crisis. Their hope was that the project would give them a job in the place where they had grown up. But six years later it has turned into a symbol of local action, spreading to create a new network of thousands of businesses. Together, they have traded nearly €31.3m in Sardex this year. ... For at least 150 years, business people, utopians, social reformers and eccentrics have tried to introduce local currencies, often in response to money scarcity. Their creations have taken an array of different forms, such as credit systems, time banks or paper money, and ranged from the ingenious to the absurd. Many have been shortlived — but others have outlasted the conditions that brought them into existence. ... “The permanent feature of monetary systems in Europe throughout the period from Charlemagne to Napoleon — for a good millennium — [is] a distinction between different moneys for different purposes,” says Luca Fantacci, an economist and historian at Bocconi University in Milan.

Bloomberg - China's Money Exodus 5-15min

The ranks of China’s wealthy continue to surge. As their economy shows signs of weakness at home, they’re sending money overseas at unprecedented levels to seek safer investments — often in violation of currency controls meant to keep money inside China. ... The methods include China’s underground banks, transfers using Hong Kong money changers, carrying cash over borders and pooling the quotas of family and friends — a practice known as “smurfing.” The transfers exist in a gray area of cross-border legality: What’s perfectly legitimate in another country can contravene the law in China. ... In Hong Kong, more than 1,200 currency-exchange shops have seemingly little daily activity. These brightly lit storefronts specialize in helping wealthy Chinese transfer their money overseas. The premium isn’t high — only about 1,000 yuan ($160) per HK$1 million ($130,000) more than bank exchange rates would be if they could do the transaction. ... It works like this: Chinese come to Hong Kong and open a bank account. Then they go to a money-change shop, which provides a mainland bank account number for the customer to make a domestic transfer from his or her account inside China. As soon as that transaction is confirmed, typically in just two hours, the Hong Kong money changer then transfers the equivalent in Hong Kong or U.S. dollars or any other foreign currency into the client’s Hong Kong account. Technically, no money crosses the border -- both transactions are completed by domestic transfers. ... While the first exchange has to be set up face-to-face, customers can place future orders via instant-messaging services such as WhatsApp or WeChat, and money changers set no limit on how much money they can move.

Forbes - Skype For Cash: How TransferWise Is Upending The Way Consumers Move $3 Trillion Around The Globe 5-15min

Since banks charge transaction fees and bake in markups to exchange rates, the duo’s frequent currency transfers were costing them a small fortune. One year Käärmann thought HSBC had lost some of his Christmas bonus because 500 euros less than expected arrived in his account. ... The Estonian software engineers devised a simple solution: Hinrikus would transfer euros from his Estonian bank account into Käärmann’s Estonian account, while Käärmann would transfer pounds from his British HSBC account to Hinrikus’ at Lloyds. This would save them on international transfer fees, as well as on currency drag since they used the real exchange rate, known as the midmarket rate. Soon they had a Skype chat going with other Estonians who wanted to exchange money this way. Eventually this Skype-linked money exchange forum morphed into TransferWise. ... TransferWise uses a system not unlike the ones big financial institutions use to “cross-trade” securities, without incurring costs or commissions, by internally matching buyers and sellers. In this case the official midmarket price offers clarity–neither side is speculating–so it’s simply a balancing process, as TransferWise’s computers simultaneously verify that both sides have the money ready to swap. Indeed, its matching system means funds rarely cross international borders. ... The company is now producing roughly $5 million in revenue a month versus about $1 million per month a year ago. ... Of the $150 trillion in currency-transfer volume annually, the consumer portion amounts to an estimated $3 trillion. ... Still, that’s a decent-size market, with the revenue generated from it exceeding $45 billion.