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Next year DeFi will crash
It’s been a torrid year for investors in cryptocurrency but the worst is not over, says Carol Alexander, my guest on the latest New Money Review podcast.In 2023 the crash will shift to decentralised finance (DeFi), predicts Alexander. DeFi, she argues in the podcast, is repeating the mistakes of the centralised crypto lending schemes—like BlockFi, Celsius and Voyager—that faltered this year. And DeFi’s “magic money tree” is bound to fail in the same way, she says.Alexander is professor of finance at the University of Sussex. Now focusing in her work primarily on crypto markets, she has worked in financial risk management, in mathematical finance and as an econometrician. She also blogs regularly on crypto, digital money and quantitative finance.In the podcast we discuss:The role of clearing, custody, margin finance and insurance funds at crypto exchangesWhy Alameda’s exemption from FTX’s liquidation algorithm was a big dealWhy retail investors shouldn't trade on crypto exchangesWhy crypto exchanges are rigged to benefit professional tradersWhy “proofs of reserves” at crypto exchanges are worthlessWhy crypto exchange audits require stress tests and operational checksWhy DeFi will be the focus of the crypto crash of 2023Staking as a service, yield farming and the magic money tree of DeFiWhy Tether is so dangerousHow Tether and Binance are dollarising the worldWhy Tether and Binance may fight a stablecoin war
When audits go wrong
An auditor verifies the accuracy of a company’s financial records. He or she is supposed to spot any material misstatements, including those due to fraud or errors.And yet in two of the largest financial frauds in history—the 2021 collapse of German payment firm Wirecard and the recent bankruptcy of crypto exchange FTX—auditors had placed a stamp of approval on the companies’ accounts.How did they get things so badly wrong?To find out how audits can mislead I’m joined on the latest New Money Review podcast by Francine McKenna.Francine has worked for many years as an auditor and columnist writing about accountancy. She is currently a lecturer on accounting at the University of Pennsylvania’s Wharton Business School.Listen to the podcast to hear us discuss:What happened at FTXWhy FTX’s audit practices raised red flagsThe dangers of related party transactionsThe Tether and Circle stablecoinsWhy the 2002 Sarbanes-Oxley Act failed to stamp out corporate fraudRegulatory capture and political corruptionWhy audit is a process, not a testHow investors can protect themselves
Following the money
We are living in the golden age of fraud.But we’re also in a golden age for data leaks.In the last six years we’ve seen a cascade of information from places like Panama, Switzerland and Dubai—these are countries where lawyers, accountants and bankers promise secrecy while serving the rich and powerful. The tens of millions of leaked documents have helped shine light on the financial affairs of the wealthy and well-connected. But they’ve also opened the ill-gotten gains of many corrupt politicians and bureaucrats to public view. For every money movement through a tax haven, there’s a digital record that can be traced by a growing army of citizen journalists and activists. In the latest New Money Review podcast I’m joined by someone who’s helped organise that activist army and tell some of their data-driven stories.Paul Radu is an investigative journalist and co-founder of the Organized Crime and Corruption Reporting Project (OCCRP).Paul is a winner of the Daniel Pearl Award, the Global Shining Light Award, the European Press Prize, and the Skoll Award for Social Entrepreneurship. He was also part of the Panama Papers team that won the 2017 Pulitzer Prize in Journalism.When oligarchs, corrupt politicians or criminals seek to move their money out of the public eye, the OCCRP is there to shed light on what they are doing.This is a global and a growing problem. The amounts being looted are increasing exponentially, reaching trillions a year. The money launderers are becoming ever more sophisticated in hiding what they are doing. There’s a global network of bankers, accountants, lawyers and PR agents supporting them. And in many countries, the oligarchs and criminals are effectively above the law.This is a topic we should all know something about. Listen in for a fascinating discussion of large-scale financial crime, including:Why transnational organised crime groups are now more powerful than statesHow investigative reporting can combat their influenceWhy criminal money flows often follow a patternHow the OCCRP discovered the ‘laundromats’ that service multiple criminal groupsWhy banks didn’t notice the problem at the outsetWhy criminals are some of the cleverest entrepreneursHow money launderers exploit geopolitical riftsWhy some countries with low corruption scores are enablers of financial crimeHow open-access real estate and property registries can combat money launderingCriminals’ Achilles heel—where to place their stolen moneyThe Russia/Ukraine war and political grand corruptionCoping with the enormous scale of leaked dataStaying current with ‘follow-the-money’ techniquesHow a new generation of citizen investigative journalists can help
Money meets geopolitics
There are periods in human history when money and foreign policy converge—and this is one of them, says Paul Tucker, my guest on the latest New Money Review podcast.Tucker, deputy governor of the Bank of England for several years in the aftermath of the 2008 financial crisis, is now a fellow at Harvard University’s Kennedy school of public policy and government.During what is his first-ever podcast interview, Tucker talks about his new book, ‘Global Discord: Values and Power in a Fractured World Order’.In the book, Tucker lays out principles for a sustainable system of international cooperation, showing how democracies can deal with China and other illiberal states without sacrificing their deepest political values.Drawing on three decades' experience as a central banker and regulator, Tucker applies these principles to the international monetary order, including the role of the US dollar, trade and investment regimes and the financial system.During the podcast, we discuss:Why economic policy and foreign policy are convergingDo US/China interdependencies make the world safer or riskier?Proxy wars, Russia/Ukraine and the wider US/China conflictThe relevance of the 18th century competition between England and FranceWhy shadow banking policy should be part of national security policyWhy central banks need to disclose on what terms they will bail out shadow banksThe recent liability-driven investment (LDI) crisis in the UKHow to resolve failing cross-border financial institutionsWhy the monetary architecture faces its biggest changes in 250 yearsEnsuring public oversight of digital currenciesWhy G7 governments should set out design principles for CBDCsWhy the West cannot afford another financial crisisIf you enjoy the New Money Review podcast, please like it or review it on your preferred podcast platform. And why not share an episode with a friend or colleague?
Why community money could have a big future
In his 2017 book, “Before Babylon, Beyond Bitcoin”, David Birch predicted that we would all live in a world of multiple competing currencies.And communities, said Birch, would be one of the five main future issuers of money (along with four other “Cs”—central banks, commercial banks, cryptographic protocols like bitcoin, and companies).But community currencies have so far struggled to get off the ground. In the UK, attempts to launch a local version of the pound in Brixton, Bristol and elsewhere have failed.Bristol’s subsequent idea to launch a new app called Bristol Pay, which would reward community initiatives, is stuck at the funding stage.But there are still plenty of attempts to build local money systems from the ground up. In the latest New Money Review podcast, California-based non-profit and social entrepreneur David Anderson talks about community currencies.Anderson is president and lead volunteer at Simbi, a California-based non-profit focused on community and individual development. Simbi provides a web-based community platform to help non-profit projects find and reward volunteers. It aims to promote community development, mutual aid among those in need and the development of individual skills.In the podcast, we discuss:Why local currencies are nothing to do with cryptoWhy community currencies need incentives to workSeparating incentives from speculationThe Simbi community currency modelCommunity development and non-profit modelsCan community money compete with state, bank and bigtech money?
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