Economy

Draghi, Yellen And Central Banks In The Age Of Trump

In the wake of the U.S. election, central bankers unite to stabilize the world economy in the face of populist calls to scrap regulations.

Yellen, Trump, Draghi
Yellen, Trump, Draghi
Marco Zatterin

-Analysis-

BRUSSELS — Two of the world's most powerful central bankers have united to warn U.S. President-Elect Donald Trump to leave financial regulations intact. After Federal Reserve Chair Janet Yellen criticized Trump's campaign promise of deregulation, European Central Bank President Mario Draghi made sure to swiftly express his support for his transatlantic counterpart.

An unwritten code of solidarity exists between central bankers. Former Italian President Carlo Azeglio Ciampi, who had earlier headed the Bank Of Italy, once argued that this was due to the strategic mission of central banks, which forces central bankers to work "between discipline and discretion, between autonomy and dialogue with the executive branch." When the going gets tough in an interconnected world, bank governors across the world often find themselves on the same side in the fight to guarantee financial stability in the global economy.

The tacit alliance between Yellen and Draghi has already come to the fore twice this year. In mid-June, both the Federal Reserve and the ECB pledged to do "whatever it takes' to stabilize financial markets in the lead-up to the United Kingdom's referendum on pulling out of the European Union. Now they are renewing their cooperation in the aftermath of Trump's stunning election victory, which has cast a pall of uncertainty on the economy even as stock markets perform strongly.

Mutual admiration

The strong bilateral links between the ECB and the Fed persists despite the different challenges facing the central banks" respective leaders. Draghi and Yellen are said to have a reasonably strong working relationship, fostered through frequent meetings at the G7 and at the annual economic symposiums in Jackson Hole, Wyoming.

The relationship has had a few tense moments when their interests have diverged: Draghi's unconventional monetary policy led to minor deflation and an appreciation of the U.S. dollar, hurting American exports, and the two institutions disagreed on banking risk laws from the Basel Accords.

Former ECB president Jean-Claude Trichet characterized the relationship between European central bankers as a "strong brotherhood based on mutual admiration," a description that also applies to the bond between the ECB and the Fed. When Yellen announced a week after Trump's election that she would stay on as Chair of the Fed, and continue with plans to raise interest rates, Draghi echoed her call to keep current financial regulations in place.

According to Draghi, legislation aimed at regulating financial markets since 2008 strengthened banks and made them more stable than they were before the financial crisis. He supports Yellen's declaration that we cannot "turn back the clock" on regulation, calling for effective implementation of existing policies rather than an overhaul.

The ECB chief remains convinced that the current regulatory framework should stay untouched. This would primarily ensure monetary stability, but also prevent any deregulation that makes European firms and credit institutions less competitive than their American rivals. Draghi views Yellen's opposition to Trump during the just concluded campaign as a kind of mutual guarantee of resistance, one comparable to his long-held opposition to German austerity policies. While the two situations are undoubtedly different, they are both examples of central bankers guarding their independence from political pressures.

Some financial analysts disagree, claiming that Trump's election provides Draghi an opportunity to take stronger action in Europe. He could pursue policies he believes in against the objections of the German Bundesbank, like extending the bond-buying program by six months in December to prop up the Eurozone economy.

Despite their divergence on interest rates — Washington raised them last December while Frankfurt hasn't — Yellen and Draghi share the same concerns that all central bankers have. They represent institutions that must resist the populist wave sweeping through politics and fight speculators who seek to take advantage of weaknesses in the economy. They possess the power to intervene in the economy and the financial markets at their discretion, but they must respect well-established rules. In the eyes of Yellen and Draghi, the American president-elect would do well to heed this message and respect the financial laws already in existence.

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Economy

Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.


Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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