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West Australian
24-07-2025
- Business
- West Australian
THE ECONOMIST: The Cryptocurrency big bang is a game-changer that will revolutionise finance
Among the strait-laced denizens of Wall Street, crypto's 'use cases' are often discussed with a smirk. Veterans have seen it all before. Digital assets have come and gone, often in style, sending hype-prone investors in memecoins and NFTs on a ride. Their use as anything other than a tool for speculation and financial crime has been repeatedly found wanting. Yet the latest wave of excitement is different. On July 18th US President Donald Trump signed the GENIUS Act into law, providing stablecoins — crypto tokens backed by conventional (usually dollar) assets — with the regulatory certainty that insiders have long craved. The industry is booming; Wall Streeters are now scrambling to get involved. 'Tokenisation' is also taking off: a rapidly growing volume of assets trade on blockchains, representing stocks, money-market funds, and even private-equity stakes and debt. As with any revolution, the insurgents are euphoric and the old guard concerned. Vlad Tenev, chief executive of Robinhood, a digital-assets broker, says the new tech can 'lay the groundwork for crypto to become the backbone of the global financial system'. Christine Lagarde, President of the European Central Bank, sees things a little differently. She worries that the rush of new stablecoins amounts to nothing less than 'the privatisation of money'. Both appreciate the scale of the change at hand. The present moment holds the potential of something far more disruptive for mainstream markets than earlier crypto speculation. Whereas bitcoin and other cryptocurrencies promised to be digital gold, tokens are wrappers, or vehicles representing other assets. That may sound unimpressive, but some of the most transformative innovations in modern finance simply changed the way in which assets are packaged, sliced and reconstituted — the exchange traded fund (ETF), the eurodollar and securitised debt among them. Today there are $US263 billion ($398b) in stablecoins in circulation, some 60 per cent more than a year ago. Standard Chartered, a bank, expects the market to be worth $US2 trillion in three years' time. Last month JPMorgan Chase, America's biggest bank, announced plans for a stablecoin-like product called JPMorgan Deposit Token (JPMD), despite the long-held crypto scepticism of the firm's boss, Jamie Dimon. The market for tokenised assets is worth just $US25b but has more than doubled in size over the past year. On June 30 Robinhood launched over 200 new tokens for European investors, enabling them to trade American stocks and ETFs outside of ordinary trading hours. Stablecoins allow for transactions that are cheap and fast, as ownership is registered instantaneously on digital ledgers, cutting out intermediaries who run traditional payment rails. This is especially valuable for cross-border transactions that are currently expensive and slow. Although stablecoins are now involved in less than 1 per cent of financial transactions around the world, the GENIUS Act will provide a boost. It confirms stablecoins are not securities, and requires the coins to be fully backed by safe, liquid assets. Retail giants, including Amazon and Walmart, are reportedly considering their own coins. To consumers, these might work like a gift card, providing a balance to spend with the retailer, perhaps at lower prices. That would cut out firms such as Mastercard and Visa, which make a margin of 2 per cent or so on sales they facilitate in America. Tokenised assets are a digital copy of another asset, whether that is a fund, a share in a company or a bundle of commodities. Like stablecoins, they can make financial transactions faster and easier, particularly ones involving less liquid assets. Some offerings are gimmicky. Why tokenise individual stocks? Doing so may enable 24-hour trading, since the exchanges on which the shares are listed do not need to be open, but the advantages of that are questionable. And marginal trading costs are already very low, or even zero, for many retail investors. A lot of offerings are less gimmicky, however. Consider money-market funds, which invest in Treasury bills. A tokenised version could double as a form of payment. The tokens are, like stablecoins, backed by safe assets, and can be swapped seamlessly on blockchains. They are also an investment that beats bank interest rates. The average American savings account offers a rate of less than 0.6 per cent; many money-market funds offer yields of 4 per cent. BlackRock's tokenised money-market fund, the largest, is now worth over $US2b. 'One day, I expect tokenised funds will become as familiar to investors as ETFs,' wrote Larry Fink, the firm's boss, in a recent letter to investors. This will prove disruptive for incumbents. Banks may be trying to get involved with the new digital wrappers, but they are doing so in part because they are aware tokens are a threat. A combination of stablecoins and tokenised money-market funds could, in time, make bank deposits a less attractive product. The American Bankers Association notes that if banks lost about 10 per cent of their $US19t in retail deposits — their cheapest form of funding — it would raise their average funding cost from 2.03 per cent to 2.27 per cent. Although total deposits, including commercial accounts, would not be reduced, bank margins would be squeezed. The new assets may also prove disruptive for the broader financial system. Holders of Robinhood's new stock tokens, for example, do not actually own the underlying securities. Technically, they own a derivative that tracks the value of the asset, including any dividends the company pays, rather than the stock itself. Thus they do not gain the voting rights usually conveyed by stock ownership. And if the issuer of the tokens goes bankrupt, the owners would find themselves in a difficult legal situation, competing with the collapsed firm's other creditors over who should take possession of the underlying assets. Something similar has happened with Linqto, a fintech startup that filed for bankruptcy earlier this month. The company had offered shares in private firms through special-purpose vehicles. Buyers are now unclear whether they own the assets they believed they possessed. It is one of the greatest opportunities for tokenisation that presents the greatest difficulty for regulators. Pairing illiquid private assets with easily exchanged tokens opens a cloistered market toms of retail investors, who have trillions of dollars of capital to allocate. They could buy slivers of the most exciting private companies, currently beyond their reach. This raises questions. Agencies such as the Securities and Exchange Commission (SEC) have far more sway over publicly listed firms than private ones, which is what makes the former suitable for retail investment. Tokens representing private shares would turn once-private stakes into assets that could be traded as easily as an ETF. But whereas the issuers of an ETF promise to provide intraday liquidity by buying and selling the underlying assets, the providers of tokens do not. At a large enough scale, tokens would in effect turn private firms into public ones, without any of the disclosure requirements normally required. Even pro-crypto regulators want to mark clear lines in the sand. Hester Peirce, a SEC commissioner known as 'crypto mom' for her digital-friendly approach, emphasised in a statement on July 9 that tokens ought not to be used to skirt securities laws. 'Tokenised securities are still securities,' she wrote. As such, disclosure rules for companies issuing securities will be enforced, regardless of whether the securities come wrapped in new crypto packaging. Although that makes sense in theory, a plethora of new assets with novel structures means that watchdogs will be playing catch-up endlessly in practice. So there is a paradox. If stablecoins are to be truly useful, they will also be truly disruptive. The more attractive tokenised assets are to brokers, customers, investors, merchants and other financial firms, the more they will change finance, in ways both welcome and worrying. Whatever the balance between the two, one thing is already clear: the view that crypto has not produced any innovations of note can be consigned to the past.
Sydney Morning Herald
23-07-2025
- Business
- Sydney Morning Herald
Australia quietly pays US another $800 million for AUKUS despite review
Washington: Australia has quietly paid the United States another $800 million towards the AUKUS submarine deal, taking the total to $1.6 billion, despite the Trump administration placing the agreement under a review. This masthead confirmed the second payment was made in the second quarter of this year, per the agreed schedule. By the end of 2025, Canberra will have paid $US2 billion, or just over $3 billion, to the American shipbuilding industry to boost submarine production. A Defence Department spokesperson said Australia had been clear since March 2023 that it would make a 'proportionate contribution' to the American industrial base under the AUKUS agreement. 'Australia's contribution is about accelerating US production rates and maintenance to enable the delivery of Australia's future Virginia class submarines,' the spokesperson said. 'The payments are occurring in line with Australia's commitment to contribute US$2 billion by the end of 2025, which underscores our commitment to the successful delivery of AUKUS Pillar I outcomes.' The government was unfazed by the Pentagon's review of the AUKUS agreement and said it was natural that a new US administration would want to examine the progress of key initiatives. 'All three countries are continuing to progress the AUKUS pathway at pace, ensuring it meets national and trilateral objectives,' the Defence spokesperson said. While Australia's first $800 million payment was announced with fanfare in February, when Defence Minister Richard Marles met his US counterpart, Pete Hegseth, in Washington, the second payment was not announced.
The Age
23-07-2025
- Business
- The Age
Australia quietly pays US another $800 million for AUKUS despite review
Washington: Australia has quietly paid the United States another $800 million towards the AUKUS submarine deal, taking the total to $1.6 billion, despite the Trump administration placing the agreement under a review. This masthead confirmed the second payment was made in the second quarter of this year, per the agreed schedule. By the end of 2025, Canberra will have paid $US2 billion, or just over $3 billion, to the American shipbuilding industry to boost submarine production. A Defence Department spokesperson said Australia had been clear since March 2023 that it would make a 'proportionate contribution' to the American industrial base under the AUKUS agreement. 'Australia's contribution is about accelerating US production rates and maintenance to enable the delivery of Australia's future Virginia class submarines,' the spokesperson said. 'The payments are occurring in line with Australia's commitment to contribute US$2 billion by the end of 2025, which underscores our commitment to the successful delivery of AUKUS Pillar I outcomes.' The government was unfazed by the Pentagon's review of the AUKUS agreement and said it was natural that a new US administration would want to examine the progress of key initiatives. 'All three countries are continuing to progress the AUKUS pathway at pace, ensuring it meets national and trilateral objectives,' the Defence spokesperson said. While Australia's first $800 million payment was announced with fanfare in February, when Defence Minister Richard Marles met his US counterpart, Pete Hegseth, in Washington, the second payment was not announced.
Otago Daily Times
23-07-2025
- Automotive
- Otago Daily Times
Trump strikes trade deal with Japan to cut tariffs
The United States and Japan struck a deal to lower the hefty tariffs President Donald Trump threatened to impose on goods from its Asian ally that included a $US550 billion ($NZ915b) package of US-bound investment and loans from Tokyo. The agreement will bring immediate relief to Japan's critical autos sector with existing tariffs cut to 15% from 25%, and proposed levies on other Japanese goods that were set to come in on August 1 also cut by the same amount. Autos make up more than a quarter of all Japan's exports to the United States. "I just signed the largest TRADE DEAL in history with Japan," Trump said on his Truth Social platform. "This is a very exciting time for the United States of America, and especially for the fact that we will continue to always have a great relationship with the Country of Japan," he added. Japanese Prime Minister Shigeru Ishiba, who local media reported will soon resign after a bruising election defeat on Sunday, hailed the deal as "the lowest figure among countries that have a trade surplus with the US." The US investment package includes loans and guarantees from Japanese government-affiliated institutions of up to $550 billion to enable Japanese firms "to build resilient supply chains in key sectors like pharmaceuticals and semiconductors," Ishiba said. Japan will also increase purchases of agricultural products such as US rice, a Trump administration official said. Ishiba said the share of US rice imports may increase under its existing framework but that the agreement would "not sacrifice Japanese agriculture." The announcement ignited a rally in Japanese stocks, with the benchmark Nikkei climbing 2.6% to its highest in a year. Shares of automakers surged in particular, with Toyota up more than 11%, and Honda and Nissan both up more than 8%. The exuberance extended to shares of South Korean carmakers as well, as the Japan deal stoked optimism that South Korea could strike a comparable deal. The yen firmed slightly against the dollar, while European and US equity index futures edged upward. But US automakers signalled their unhappiness with the deal, raising concerns about a trade regime that could cut tariffs on auto imports from Japan to 15% while leaving tariffs on imports from Canada and Mexico at 25%. "Any deal that charges a lower tariff for Japanese imports with virtually no US content than the tariff imposed on North American-built vehicles with high US content is a bad deal for US industry and US auto workers," said Matt Blunt, who heads the American Automotive Policy Council which represents General Motors N and Chrysler parent Stellantis. 'MISSION COMPLETE' Autos are a huge part of US-Japan trade, but almost all of it is one way to the US from Japan, a fact that has long irked Trump. In 2024, the US imported more than $US55 billion of vehicles and automotive parts while just over $US2 billion were sold into the Japanese market from the US. Two-way trade between the two countries totalled nearly $US230 billion in 2024, with Japan running a trade surplus of nearly $US70 billion. Japan is the fifth-largest US trading partner in goods, US Census Bureau data show. Trump's announcement followed a meeting with Japan's top tariff negotiator, Ryosei Akazawa, at the White House on Tuesday. "#Mission Complete," Akazawa wrote on X, later saying the deal did not include Japanese exports of steel and aluminum that are subject to a 50% tariff, nor any agreement on defence budgets. The deal was "a better outcome" for Japan than it potentially could have been, given Trump's earlier unilateral tariff threats, said Kristina Clifton, a senior economist at the Commonwealth Bank of Australia in Sydney. Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, said that "with the 15% tariff rate, I expect the Japanese economy to avoid recession." Japan is the largest investor in the United States. Together with pension giant GPIF and Japanese insurers, the country has about $US2 trillion invested in US markets. Besides that, Bank of Japan data shows direct Japanese investment in the United States was $US1.2 trillion at the end of 2024, and Japanese direct investment flows amounted to $US137 billion in North America last year. Speaking later at the White House, Trump also expressed fresh optimism that Japan would form a joint venture with Washington to support a gas pipeline in Alaska long sought by his administration. "We concluded the one deal ... and now we're going to conclude another one because they're forming a joint venture with us at, in Alaska, as you know, for the LNG," Trump told lawmakers at the White House. "They're all set to make that deal now." Trump aides are feverishly working to close trade deals ahead of an August 1 deadline that Trump has repeatedly pushed back under pressure from markets and intense lobbying by industry. By that date, countries are set to face steep new tariffs beyond those Trump has already imposed since taking office in January. Trump has announced framework agreements with Britain, Vietnam, Indonesia and paused a tit-for-tat tariff battle with China, though details are still to be worked out with all of those countries. At the White House, Trump said negotiators from the European Union would be in Washington on Wednesday.
Sydney Morning Herald
20-07-2025
- Business
- Sydney Morning Herald
Warren Buffett has set alarm bells ringing on Wall Street
Wall Street banks are coining it in Donald Trump's America. Goldman Sachs last week reported a 22 per cent jump in profits, driven by record trading revenues as tariffs roiled stock markets. Citigroup's profits jumped by 25 per cent, beating analysts' expectations. The KBW Nasdaq Bank Index is close to an all-time high. But not everyone is convinced that the good times are going to last. Warren Buffett, the so-called Sage of Omaha, has been shedding his US bank holdings. At the start of the year, Buffett's Berkshire Hathaway sold about $US3.2 billion ($4.9 billion) of shares in American banks and financial companies. Buffett sold about a $US1 billion stake in Citigroup, ditched shares worth more than $US2 billion in Bank of America and dropped some of its holdings in Capital One. Loading 'Berkshire has clearly been reducing its exposure to US bank stocks,' Larry Cunningham, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, says. 'That activity signals a cautious or even bearish outlook on banking.' Moves of this size are not unusual for Berkshire Hathaway. But Buffett, arguably the most successful investor of all time, has a reputation for being preternaturally gifted at foreseeing market trends.
