What you may have missed last week:
It’s not been a great weekend for the bitcoin crew (relatively speaking). China’s central bank has banned financial institutions from handling bitcoin transactions – which is not altogether unexpected, seeing as a free market currency is the antithesis of state capitalism.
The ban prevents financial institutions and payment companies from pricing in bitcoin, buying and selling bitcoin, and from selling bitcoin-linked insurance products.
Ordinary people can still trade in it though, for the moment. However: the regulation does kill the likelihood that large companies in China will interact with bitcoin in a meaningful way. Here’s why:
- transacting with bitcoin is like transacting in a foreign currency.
- any company with large forex transactions eventually ends up hiring a lot of people to run their forward exchange department (which is basically the department that insures the company against significant movements in the exchange rate)
- it’s a cash flow thing – you can’t budget properly if you’re dealing with goal posts that are constantly shifting
- and those departments go and buy/sell those forward contracts from financial institutions.
- Only: not in China.
So not surprisingly, giant Chinese search engine Baidu announced almost immediately that it will no longer be accepting payment in bitcoin.
On the upside, a Californian Lamborghini dealership sold a Tesla Model S car last week, and “accepted payment in bitcoin”. At least, that’s what Bloomberg is saying. Having read the article, I’m willing to say that the announcement is a stretch. What really happened:
- A man offered the dealership 91.4 bitcoins ($103,000) for the car.
- The dealership took the bitcoins, sold them, and deposited the dollars in their bank account (using Bitpay, a payment processor)
- The dealership handed over the car after that had happened.
I’m sorry – but that’s not really “accepting payment in bitcoin”. That’s “accepting the admin of selling the bitcoins”. But maybe that’s semantics.
At the latest rounds of talks in Bali, ministers from 159 countries managed to agree on a trade deal.
Which is pretty astounding (as any global consensus is – I mean, we can’t even collectively agree that human rights are a good thing).
The deal is a very complicated agreement to simplify trade across borders. So there’s very little of the awkward stuff that the WTO members don’t usually agree on (tariffs and taxes, etc), although there are some subsidy concessions for developing countries. Which is, frankly, lip service: telling poor countries that they can now offer subsidies is like telling a poor person that they’re going to be allowed onto aircraft. The trouble is that they still have to pay for a ticket. Oh, and developing country subsidies will pale in comparison to the subsidies offered by the first world to their farmers.
But let’s focus on the positive.
While world trade can be hindered by tariffs and taxes – there’s nothing quite like border delays and painful customs clearance procedures to make life difficult for capitalism.
And costly: people often forget that the delays at a border can be the difference between a bumper year and a terrible year. They focus on the costs that you see on an Income Statement, and ignore the warning signs of what you don’t see: the between-the-line ratios like ‘inventory turnover time’.
To be honest – I’m not sure why this is being hailed as a good thing for developing countries. The real border clearance problems are not first world countries: they’re developing countries. And now, they’re committing to let foreign goods flow in faster than before. This makes it more economic for foreign firms to export to those countries in a more cost efficient manner. And those domestic industries will suffer.
That $1 trillion of global gains to be reaped from this deal… are unlikely to accrue to the developing world.
