OMFIF

The rapid growth of bitcoin treasury companies has created what some observers have dubbed an ‘infinite money glitch’ in financial markets. These publicly traded companies, most notably Strategy (formerly MicroStrategy), have discovered a seemingly perpetual cycle of raising capital to buy bitcoin, watching their stock prices soar as bitcoin appreciates, then using their elevated valuations to raise even more capital.

After the September Federal Reserve rate cut, investors anticipate further rapid and decisive monetary easing. However, the data give reason to doubt whether a series of rate cuts is – or indeed should be – in the cards. The latest meeting of the Federal Open Market Committee was one of the most consequential in recent times, with a wide diversity of views and shrouded in political intrigue, anathema to the Fed’s technical ethos.

Europe is beset by a fast-changing, polarised world dominated by Chinese-American rivalry. In the three-and-a-half decades since the fall of the Berlin Wall, the European Union and the continent as a whole have failed to implement a strategy for success. Britain’s EU exit has weakened both sides. Vladimir Putin’s machinations, Russia’s invasion of Ukraine, China’s rise and Donald Trump’s shocks highlight the shortcomings.

An air of foreboding is hanging over the world economy, with apparent calm on financial markets masking deeper nervousness about the global economic order. That was the underlying message from a meeting of the OMFIF advisory council on 18 September, assembling 32 participants from six continents. The meeting, chaired by Lord Norman Lamont, who took over as chairman in May, was the first since the death in July of previous incumbent Lord Meghnad Desai.

Around the world, we’re seeing renewed attention to public debt and fiscal tightening, particularly as debt levels continue to rise in advanced economies. Governments face difficult trade-offs: cut spending on services, delay infrastructure investment or raise taxes.

The signing of the Genius Act into federal law kicked off a new era for money and payments in the US that will have global implications. Stablecoins were already delivering faster and more efficient payments inside and across borders. Even the Bank for International Settlements acknowledged it in a recent analysis of cross-border crypto flows.

William Dudley, chair of the Bretton Woods Committee and former president of the Federal Reserve Bank of New York, joins OMFIF US Chair Mark Sobel to discuss the September Federal Open Market Committee outcomes and the outlook for US monetary policy. VIDEO

The digital transformation of money presents a paradox. While technology enables seamless cross-border value transfer, regulatory frameworks remain fragmented across jurisdictions. As central banks explore digital currencies and cryptoassets gain mainstream adoption, achieving regulatory interoperability becomes not just desirable but essential for the future of finance.

Financial markets face a growing threat of ‘fiscal dominance’ – when finance ministries force central banks to underwrite government debt or reduce interest rates to cope with burgeoning government debt. As has long been recognised, hampering central banks’ independence weakens safeguards against inflation, upsets markets and ends up not supporting but reducing growth.

Central banks are facing a problem – potentially a fatal one. An increasing number of academic studies have emerged that blame central banks for having a much greater influence on the development of long-term real interest rates than mainstream economic thought has previously attributed. This is no small matter. If the findings of these studies are confirmed, they will necessitate rewriting basic economics textbooks.