LONDON â€" In most of the developed world, central banks are free to set monetary policy without the interference of those who depend on voters for their employment. That independence, though, is "not set in stone," as former Federal Reserve Chairman Alan Greenspan noted in his September 2007 memoirs. And there are worrying signs that, against the current backdrop of record-low interest rates, politicians are tempted to start meddling.
The latest attack on independence comes from a very unlikely source. In an article for the Telegraph newspaper published on Tuesday, former U.K. Foreign Secretary William Hague wrote that "central bankers have collectively lost the plot. They must raise interest rates or face their doom."
Bemoaning the lot of savers in a low-interest rate world has become commonplace. Prime Minister Theresa May was scathing earlier this month in her attack on the unwelcome side effects of Bank of England policy. German politicians have grilled European Central Bank President Mario Draghi about his negative interest-rate policies.
But this is different. Hague went on to issue a sinister threat to the Fed and its central-banking brethren: "Unless they change course soon, they will find their independence increasingly under attack. The only way out is for the U.S. Fed to summon the courage to lead the way to higher interest rates, and others to follow slowly but surely. If they fail to do so, the era of their much-vaunted independence will come, possibly quite dramatically, to its end."
Last month, U.S. presidential candidate Donald Trump accused Fed Chair Janet Yellen of keeping U.S. borrowing costs "artificially low to get Obama retired." Trump also said Yellen was "very political," and that "she should be ashamed of herself." In February, he tweeted that it is "important to audit the Federal Reserve."
Now, whatever you think of Trump, his claim that Fed policy is partisan and designed to aid the Democrat party is patently absurd, and easily dismissed as part of his scattergun approach to politics and populism. But Hague is no firebrand with a story to sell; he's an old-fashioned Tory patrician who was leader of the Conservative party at one point, and was a member of Parliament for a quarter-century.
So Hague's comments -- coming just a day after the prime minister had to publicly declare her support for Bank of England Governor Mark Carney -- seem like nothing less than a shot across the bows of central-bank independence. Toby Nangle, co-head of asset allocation at Columbia Threadneedle Asset Management, summarized the threat in a tweet: "Raise rates or have your independence revoked."
Bank of England chief Mark Carney, back in 2010 when he led Canada's central bank Photo â€" WEF
Carney has already made his displeasure known. "It can be difficult sometimes if there are political comments on our policies," he said last week. "The objectives are what are set by the politicians. The policies are done by technocrats. We are not going to take instruction on our policies from the political side."
Central bank independence isn't enshrined in the laws that govern the universe; the Bank of England, for example, has been free to set interest rates as it sees fit for less than two decades. And while worries that independence is under attack might seem overblown, re-reading what May told her party last month in the light of Hague's article this week should give pause: "While monetary policy, with super-low interest rates and quantitative easing provided the necessary emergency medicine after the financial crash, we have to acknowledge there have been some bad side effects. People with assets got richer, people without them have suffered, people with mortgages have found their debt cheaper, people with savings have found themselves poorer. A change has got to come and we are going to deliver it."
Governments have abdicated responsibility for economic stability to their central banks. They've set inflation targets of 2 percent almost everywhere. Politicians can't complain if their appointees attempt to fulfill their mandates by keeping interest rates at record lows -- even when that hurts savers.
But the more powerful central bankers become, the more tempted politicians will be to meddle. Here's what Alan M. Taylor, an economics professor at the University of California in Davis, told a conference organized by the Austrian central bank in Vienna last month:
"Society may now be asking more of central banks, and central banks will now try to find a way to serve those goals. Central banks can therefore expect to become less independent and more politicized going forward."
I'm as skeptical as any gold bug of the merits of allowing unelected academic economists to run the global economy; but my concerns are about the resulting groupthink and the lack of entrepreneurs and business folk among the policy makers, not their freedom. But trying to bully central bankers into raising interest rates by threatening to annul their independence seems like a dangerous game -- especially given the fragility of the global economy.
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.
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.
The infamous typo that brought the Air Next scam down
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".
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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