May 02, 2011
PARIS - It doesn't take long before those unanswerable sorts of questions start popping up. Why are we here? What is the purpose of our existence? Is there a hereafter? Existential angst can strike without warning, and it may soon affect a very special group of economic actors: the central bankers of the world. In normal times, this category of people should not be vulnerable to this kind of doubt. They are chosen for their highly rational -- and rigid, some might say -- minds. The most eccentric of them all was a former journalist who became the deputy governor of the Bank of England, and who was shown the door for rolling around with someone else's wife right on the thick carpets of the "Old Lady" -- quite a fantasy indeed.
But today, the Central Banker has some radical soul-searching to do. He is accused of having provided the oxygen money that inflated the biggest speculative bubble in a century. Charles Goodhart, a venerable British economist who was a member of the Bank of England's Monetary Policy Committee, went as far as asking whether "a Central Bank that manages both liquidity and financial stability should also be given the task of setting interest rates."
What, then, is the real job of a Central Banker? What is his future? What exactly do people expect from him?
From a historical point of view, the answer to these questions is rather straightforward: Central Banks were invented to pay for war. The English founded theirs in 1694 to finance the reconstruction of the British fleet after it was destroyed by the French. Napoleon created the French equivalent, the Banque de France, in 1800, to which he immediately entrusted the mission to find money for his armies.
Over time, wars have mercifully become scarcer, but Central Banks continue to perform similar functions, because financial markets also need a tap from which rivers of money can flow in case of emergency. The awful liquidity crisis that affected the United States in 1907 led to the creation of the Federal Reserve six years later. For Charles Goodhart, "the essence of the Central Bank lies in its power to create liquidity."
In the 1930s, utterly unconscious Central Bankers refused to open the tap, with dire consequences on the Great Depression. Their short-sightedness brought them under the control of ministers. After the war, most economic affairs were administered in an almost ineffective but largely stable financial system. Bankers operated by the 3/6/3 rule (pay depositors 3% interest, lend money at 6%, and head for the golf course by 3 p.m.), while Central Banker supervised their actions and kept an eye on the then small financial markets.
But once capital markets became international, bankers started slipping out of the Central Bankers' control. At the beginning of the 1970s, massive financial flows contributed to making the international monetary system go bust. Then followed a massive creation of liquidity that eventually degenerated into inflation.
Starting in the 1980s, a consensus arose that the role of the "modern" central bank should be: preventing inflation, and "maintaining price stability," as stated in Article 127 of the Treaty on the functioning of the European Union. The rules of the game could not have been any easier. Central Bankers had one goal, and interest rates (or the price of what flows from the tap) were the instrument they would use to achieve that goal.
Central Bankers gradually forged the tools needed to organize their work -- "inflation targeting" and the "Taylor rule," which stipulates how interest rates should change depending on the rate of inflation. It was logical that Central Bankers also needed to became free of interference by governments, if they wanted to perform their activities unhindered. So Central Banks obtained their de facto independence (the United States in the early 1980s) and legal independence (New Zealand in 1989, France in 1993, the United Kingdom in 1997). The whole system thus seemed to work wonderfully: inflation had almost disappeared.
But it was nothing but an illusion. Completely obsessed by monetary matters, Central Bankers lost sight of finance -- which did what finance usually does when it is regulated solely by the market: it went bust. Bankers had to hurriedly open the tap and even take "unconventional" measures to direct cash where it was most needed. Today, most economists agree that Central Bankers will have to simultaneously decide when to open the money tap and how to set the price of what comes out of that tap, all the while trying to prevent anyone from drowning in the pool (liquidity, interest rates and financial stability are part of the now famous "macroprudential" strategy).
This raises a new series of problems. There is no completely satisfactory tool today for measuring financial stability. Central bankers will have to learn to handle new instruments, such as the level of reserves that banks are required to keep on deposit to protect themselves and avoid a credit boom. There is also the excruciatingly difficult question of knowing who should be in charge of monitoring all the ‘systemic" institutions that can cause the whole system to flounder along with them.
These debates are not only technical. Central Bankers will have to make tricky choices between different goals, such as price stability and the health of banks. In other words, they will have to do the work of politics even if no one elected them. Their independence will thus start to be questioned. There is no escaping the fact that their statutes shall have to be rewritten. Central Banks everywhere, and the European Central Bank in particular, must miss the good old days when controlling inflation was their only worry.
Read the original article in French
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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 but the simplest of errors exposed the scam and limited the damage to investors.
October 27, 2021
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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