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Paying cross-border, pitching monetary rocket fuel, picking tech winners


This week in Keeping Tabs: a start-up’s plans to change correspondent banking; an argument for dual interest rates; state aid after Brexit; and etiquette in the coronavirus age.

RTGS Global said this week it had progressed in its plans to change how cross-border payments work.

The organisation, launched by Worldpay-founder Nick Ogden, said that that it was launching “stage one” of its operational rollout. The company is calling itself the first cross-border liquidity network, and says it will make interbank liquidity visible.

 It recently hired Jim Cowles, once the chief executive of Europe, the Middle East and Africa at Citi, to be an executive director of the board.

GlobalMarkets, sister publication to GlobalCapital, has previously reported that its plans could make initiatives for global stablecoins, such as Facebook’s Libra, redundant.

The company says that its network removes settlement and counterparty credit risk when it comes to correspondent banking and avoids the need to fund in advance a nostro account (an account that a bank holds in another bank in a foreign currency).

The venture involves “atomic settlement” for commercial and central banks, i.e. where in a transfer of assets, the transfer of one only occurs if the transfer of the other happens too. RTGS Global locks available liquidity at the transacting banks.

“As we become increasingly used to interacting on a real time or instant basis, it’s obvious that the international payments system is nowhere near fit for purpose in today’s global digital economy,” said Ogden.

“Invisibility of liquidity undoubtedly contributed to the last global financial crisis. We believe that we have made significant progress by ensuring that every international transaction is matched to corresponding real-time institutional liquidity.”

If this idea could change the role of central banks, so too could dual interest rates.

At VoxEU fund manager Eric Lonergan and economist Megan Greene advocate targeting the interest rate on loans and the interest rate on deposits separately, as a means of stimulus. As it allows the central bank to boost income of both borrowers and lenders, they call this “the equivalent of monetary rocket fuel”.

They say that conventional negative nominal interest rates only give a stimulus to borrowers, while harming depositors, and also create difficulties for financial intermediation. Meanwhile, in a dual rate system, the cheap borrowing could be subject to certain criteria, such as new lending targets or repricing existing loan books.

With central banks having already introduced targeted lending schemes and tiered reserves, and the European Central Bank having actually adopted dual rates when adjusting its Targeted Longer-Term Refinancing Operation (TLTRO) programme in March, Lonergan and Greene say that the idea “falls, rather uncontroversially, into the defined realm of monetary policy”. This may make it more palatable politically than, say, helicopter money.

Onto the UK, where in The Times James Forsyth talks up the chances of the government pushing ahead with a no deal Brexit if it does not get its way. Of course, we do not know yet whether stubborn noises from the UK side are just bluster.

But Keeping Tabs was interested in exactly why the government (or the EU, depending on your perspective) is said to be digging its heels into the mud.

“The sticking point isn’t fish — I’m told that there is a ‘deal to be done’ there — but state aid, the question of how much freedom Britain should have to subsidise companies and industries,” writes Forsyth.

And it is thinking about one sector in particular.

Forsyth says: “The Johnson government wants to use the power of the state to mould and develop what it sees as the industries of the future. One figure with intimate knowledge of the negotiations and how they link to domestic policy tells me ‘state aid is critical if you are going to try and shape markets in technology’.”

This could be a signal of the post-coronavirus world, where a mid-sized, rich, economically liberal country like the UK wants to be able to intervene more in sectors it sees as sensitive. The desire to do this may be amplified by Sino-American geopolitical tensions.

“The concern is that unless the UK can [develop large technology companies at scale], it will end up a technological vassal — reliant on either the United States or China,” says Forsyth.

Finally, coronavirus has forced us all to adopt different living and working practices. Is this any different for society’s upper crust?

Clara Strunck has written a (hopefully?) tongue-in-cheek piece for Tatler on “how to navigate the minefield of being upper class in the age of coronavirus”, with a corresponding list of rules.

Some items we can all empathise with, like “owning a bike”, “holidaying in the British Isles”, and “new soap”.

But “bowing instead of shaking hands” may be taking it a bit far when it comes to those post-lockdown in-person meetings with clients or other work contacts.

Also on the list is “investing in Learjet”, a brand of aircraft from Bombardier. The company’s share price is actually down 80% this year to date, so maybe not a great investment — but maybe Tatler meant actually buying an aircraft?