By Andrea Civelli, PhD, Senior Economist at Algorand, Inc., and Co-Pierre Georg, PhD, Algorand Foundation Economic Advisory Council member

Practically all central banks rely on their country’s banking sector as their primary means to enforce monetary policy. While in the era of paper money and the fractional bank system this model mostly worked, the rapid digitalization of finance means that central banks will need to shift to new types of monies and intermediaries as the world evolves to digital and cryptographic forms of currency.

This is why countries should move forward with a blockchain-based, hybrid model of central bank digital currency (CBDC), issued on a private instance of a public third-generation blockchain directly overseen by their central banks. In this model, central banks retain full control over the CBDC, while simultaneously allowing commercial banks, remittance providers, and other fintech companies to facilitate currency distribution and transactions.

By no means will a system like this replace dollars and cents—the infrastructure and network of the CBDC blockchain will instead complement and help modernize the current payment system of a nation. The open nature of blockchain will allow for competition among financial service providers and hence prevent vendor lock-in. By introducing competition, central banks will be better able to serve their constituents by embracing innovative payment solutions and business models that ultimately drive the cost per transaction down.

For central banks to successfully introduce a CBDC, here are six design principles they need to consider:

1. It needs to be as trusted as cash

The key challenge when issuing a CBDC is that people need to trust it as much as its physical counterpart. This is one of the main reasons why cash issuance is so expensive: trust in cash requires a central bank to ensure that notes cannot be counterfeited and that the cash supply chain is secure. Counterfeiting CBDC issued on a third-generation distributed ledger is impossible thanks to the ledger’s cryptographic primitives. By contrast, entries on centralized ledgers can be manipulated if the ledger’s database is hacked or otherwise compromised. Eliminating cybersecurity risks will, therefore, be absolutely essential for centralized digital currencies.

Another element of trust is that the digital-analog of cash must, like its physical counterpart, have immediate settlement finality, meaning money is in the hands of the other party as soon as a transaction is complete. This is why it’s vital that the blockchain a CBDC is built on has immediate settlement finality.

2. It needs to be able to scale for a seamless user experience

Most blockchains to date, particularly those based on a proof-of-work algorithm like Bitcoin have been plagued by scalability issues and an insufficient number of transactions per second to meet even the light loads placed on them by early adopters. To reliably handle the transactions for a larger country with about 50 million CBDC users, each of which transact about two to three times per day, the CBDC would have to handle on average 1,500 transactions per second. This is a factor of 100 more than the standard proof-of-work blockchains process today, but comfortably within reach of modern proof-of-stake blockchains.

Scalability is key for a seamless user experience, which, in turn, is key for the adoption and acceptance of the new payment instrument. If users have to wait several seconds even for low-value transactions to clear, many essential use cases for cash will be inaccessible for a CBDC (even when central banks want a CBDC to complement, not replace, cash).

3. It needs to be private but fully auditable

Privacy is a human right and a necessary condition for broad adoption. For a CBDC to be successful, It is paramount to balance this right carefully with the regulatory need to ensure that transactions are KYC/AML compliant. This requires a layered approach to privacy with adjustable limits for fully private, partially private, and fully auditable transactions. Importantly, central banks must have full control over the thresholds between the different layers of privacy and be able to change these as necessary.

This layered approach to privacy is both practical and in stark contrast to the approach private crypto assets like Bitcoin and Ethereum have chosen, where there is no native notion of privacy. These blockchains instead rely on pseudonymous addresses as a means of protecting user privacy. This approach to privacy is in direct conflict with existing KYC/AML requirements. Rather than fixing this protocol flaw, it is better for a blockchain to have been designed for privacy from the beginning.

4. It needs to be inclusive

For a payment instrument to be universally accepted and trusted, it needs to be available to everyone in a country. This is a significant challenge for central banks because smartphone penetration is far from perfect, even in the United States where it stands at about 80 percent, and more so in emerging markets like India where smartphone penetration sits at around 37 percent. With limited smartphone penetration, a substantial fraction of the population will not only struggle to transact using CBDC, but even to gain access to it. This is of particular importance for unbanked people in emerging markets, and especially for refugees.

Another challenge to full inclusivity is identity—especially in emerging markets, people do not always have identity documents. In their 2016 paper "A Blueprint for Digital Identity," the World Economic Forum highlights the importance of building digital identity infrastructure for the future of financial infrastructure. Central banks issuing CBDC will have to seek broad stakeholder engagement to solve the digital identity challenge.

5. It needs interoperability

The hardest part of designing new financial infrastructure is developing the protocols and processes in a robust and resilient way that is compatible not just with legacy systems but also with future ones. This is why it’s vital CBDCs need to be built on an open platform that can’t be captured by any private actors while giving central banks and government agencies full control over which users and use cases are allowed.

6. It needs to incentivize competition

The rise of private digital assets has set off a flurry of innovation among small startups, large banks, and big tech companies alike. A lot of this innovation, however, happens outside of the purview of existing regulatory bodies. Consequently, billions of dollars worth of transactions are happening outside of official sight, and then settled to fiat. An official state-sponsored digital currency can allow much more of this digital innovation to happen in the light of day.

To foster competition, an open system without barriers to entry is paramount. No walled garden solution can achieve this because its rules can be modified at any time by the solution provider, destroying incentives for competition.




https://www.nasdaq.com/articles/6-design-principles-for-a-successful-central-bank-digital-currency

Do you think buying your first landed property in a bushy area is a good investment for the future.

The Game Theory Optimal is a strategy that leaves you unexploitable by other players. This makes you almost impossible to beat

Additionally, this strategy guarantees to make money

I'm completely ignorant on buying currencies as a hedge or a safer place than the US dollar.

With a strong dollar would it be wise to scope a few percentages of like the Swiss Franc?

Sometimes I wonder what will be the implications of Bitcoin's price within the short term with both currencies (USD and EUR) in parity with one another.

Also, do you think the EUR parity with the USD is only temporary? If not, why? Your input will be greatly appreciated. Thank you very much.

Goldman Sachs warned that the Eurozone is on the edge of recession

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Americans' confidence in newspapers and television news has plummeted to an all-time low, according to the latest annual Gallup survey of trust in U.S. institutions.

Why it matters: The erosion of trust in media is one of the most significant signs of deepening polarization in America.

• Political party affiliation has become the primary driver of opinions about the media's trustworthiness, as Gallup has noted.
• A 2021 poll from Pew Research Center found that Republicans are far less likely to trust media sources that are considered "mainstream."

Details: Television news is today considered the second-least trusted institution in the country, following Congress, according to the poll.

• While other institutions have also experienced precipitous declines, including banks and the medical system, others — like small business and the military — have held steady over the past few decades.

By the numbers: The trust fall in the news media been driven mostly by Republicans, according to the data.

• Just 5% of Republicans said they had "a great deal or quite a lot of confidence" in newspapers, compared to 35% of Democrats.
• Only 8% of Republicans said they had "a great deal or quite a lot of confidence" in TV news, compared to 20% of Democrats.
• Independents' views are generally closer to Republicans'.

The big picture: The media trust gap between Democrats and Republicans began to widen during the the Bush and Obama administrations, but grew dramatically during the Trump era and has continued to widen.

• Censorship and media bias have become a rallying cry among conservatives, prompting a slew of new media and tech investments, including alternative social media networks, entertainment companies and podcast networks.

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Between the lines: The lack of trust in traditional news institutions is growing as partisan voices become more accessible online.

• Data and experts suggest the public struggles to distinguish fact-based journalism from opinion content online.
• The standards used by traditional media outlets — like fact-checking, bylines, datelines, and corrections — have not been fully-adopted by online news commentators on blogs, podcasts and social media.

Yes, but: The internet can't be fully blamed for the erosion of media trust. And distrust in traditional institutions could force them to reckon with institutional problems, like a lack of diversity.

• Semafor's Ben Smith noted on stage Thursday at an event in Washington that the "single most important factor" in media distrust was "the horrible coverage" in the run-up to the Iraq war and "the disastrous media coverage in the years after 9/11," when television and newspapers were still the dominant forms of news.
• Politico founding editor and editorial chairman John Harris reminded Smith on stage that "in the old days," a handful of people at a small number of outlets had all the agenda-setting power and they "would’ve all been white men."
• "All of us have biases and that maybe true objectivity is, what does your newsroom look like? How diverse is it?" said Al Jazeera English host Femi Oke at the event.

https://www.axios.com/2022/07/08/news-republicans-democrats-trust-partisanship

My question is, can you remember a time when you reached your threshold of loss while gambling?

There has been a sense in financial circles that the fever among American executives to shorten supply lines and bring production back home would prove short-lived. As soon as the pandemic started to fade, so too would the fad, the thinking went.

And yet, two years in, not only is the trend still alive, it appears to be rapidly accelerating.

Rattled by the most recent wave of strict Covid lockdowns in China, the long-time manufacturing hub of choice for multinationals, CEOs have been highlighting plans to relocate production -- using the buzzwords onshoring, reshoring or nearshoring -- at a greater clip this year than they even did in the first six months of the pandemic, according to a review of earnings call and conference presentations transcribed by Bloomberg. (Compared to pre-pandemic periods, these references are up over 1,000%.)



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More importantly, there are concrete signs that many of them are acting on these plans.

The construction of new manufacturing facilities in the US has soared 116% over the past year, dwarfing the 10% gain on all building projects combined, according to Dodge Construction Network. There are massive chip factories going up in Phoenix: Intel is building two just outside the city; Taiwan Semiconductor Manufacturing is constructing one in it. And aluminum and steel plants that are being erected all across the south: in Bay Minette, Alabama (Novelis); in Osceola, Arkansas (US Steel); and in Brandenburg, Kentucky (Nucor). Up near Buffalo, all this new semiconductor and steel output is fueling orders for air compressors that will be cranked out at an Ingersoll Rand plant that had been shuttered for years.

Scores of smaller companies are making similar moves, according to Richard Branch, the chief economist at Dodge. Not all are examples of reshoring. Some are designed to expand capacity. But they all point to the same thing -- a major re-assessment of supply chains in the wake of port bottlenecks, parts shortages and skyrocketing shipping costs that have wreaked havoc on corporate budgets in the US and across the globe.

In the past, says Chris Snyder, an industrials analyst at UBS, it was as simple as “if we need a new facility, it’s going in China.” Now, he says, “this is being thought through in a way that has never been done before.”

In January, a UBS survey of C-suite executives revealed the magnitude of this shift. More than 90% of those surveyed said they either were in the process of moving production out of China or had plans to do so. And about 80% said they were considering bringing some of it back to the US. (Mexico has also become a popular choice.)

This is, of course, a nascent trend. And so many manufacturing jobs were lost here over so many decades -- about 8 million from peak to trough -- that almost no one would argue that the current trend marks a return to those halcyon times. The rise of automation, which has eliminated many low-skilled, low-paid jobs, means US factories today require a much smaller group of workers.

What’s more, the soaring US dollar threatens to curtail the whole thing just as it’s beginning. As the dollar surges against the yuan, yen, pound and euro, it becomes costlier to make goods in the US rather than in those countries.

‘Better and Cheaper’


To Kevin Nolan, the CEO at GE Appliances, all this fretting about high costs in the US is overdone.

It has been for years, he says. Around 2008, he came to realize that on large items -- like, say, dishwasher size and up -- the savings earned by eliminating overseas shipping could outweigh the extra money spent on labor here. The key, he determined, was to wring maximum efficiency out of the factory floor to keep those labor costs down. A year later, he decided to test the thesis out and moved some of GE’s water-heater production to Louisville. Other product lines followed.

It’s all been such a success for the company -- which is now, ironically, owned by China’s Haier Smart Home -- that Nolan has been waiting for other CEOs to follow his move. It took a pandemic to convince them to do it.

“I’ve always said, this is just economics, people are going to realize that the savings they thought they had aren’t real,” Nolan said in an interview, “and it’s going to be better and cheaper to make them here.”



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For some companies, the first nudge they got to revamp their supply-chain lines came two years before Covid, when then-President Donald Trump began slapping tariffs on Chinese products again and again.

Generac Holdings, a maker of power generators, started mapping out plans to shift some production from China, and when the pandemic hit, those plans got supercharged. The company now gets more of its parts from suppliers in the US and Mexico, produces more generators near its headquarters outside Milwaukee and runs a brand new plant in a small town just north of Augusta, Georgia.

“We wanted to be closer to our customers in the southeast,” said Chief Operations Officer Tom Pettit. Low shipping costs and quick delivery times are proving a hit with clients and paving the way for the company to keep growing, he said. Opened just a year ago, expansion work on the plant is already underway.

Russia’s invasion of Ukraine also got Pettit’s attention.

Not just because the war further snarled global trade and added to the surge in freight costs but because it reminded him that China could try something similar in Taiwan. And in the same way that business ended for most Western companies in Russia, so too it could end in China. Suddenly, that benign geopolitical backdrop that had helped encourage so many executives to globalize their operations over the past few decades was vanishing. And this, Pettit said, added to his sense of urgency to change things up.

“President Xi Jinping has not been shy about wanting to reunify China and Taiwan,” Pettit said. “We still think China is incredibly competitive. However, we need to have dual sources outside of China.”


https://www.bloomberg.com/news/articles/2022-07-05/us-factory-boom-heats-up-as-ceos-yank-production-out-of-china