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Renaissance Italy Presents a Strong Case for Decentralization

December 29, 2017

Renaissance Italy Presents a Strong Case for Decentralization

Common wisdom tells us that without a clear leader and monopoly on force, chaos reigns until a new order is established.
My political theory is rooted in a single axiom that I came to independently: governments are mafia. I actually came to this conclusion in the reverse order when I was disillusioned to find that despite a great PR campaign, the southern Italian mafia was nothing more than another government.

I remember thinking that in Sicily the competition for security services created a comfortable and entertaining environment, with private security doing most of the necessary security work. The Polizia Municipale often working for the mob, and Carabinieri following them around trying to catch a dirty cop. On another trip to Italy, I spent about a month in Tuscany and I started to toy with the idea that competition in force and hierarchy, in general, was preferable.

It is not by any accident that the renaissance began in a city governed by merchants-turned-bankers.

The Medici Family

There is something honest and refreshing about the role that the Medici family played in Tuscany. They were merchants in the textile trade who turned a dime into a dollar and ended up establishing the largest bank in Europe. With influence from the guild of the Arte della Lana they were able to gain positions on the guild appointed Signoria(appointed by the gonfaloniere who was appointed by the guilds) that ruled the Republic of Florence, and eventually consolidate power in the city.

Despite the centralized influence of the Vatican, there was a true independence to the city-states and by that virtue true diversity. A one hour drive south through Greve in Chianti brings you to the former Republic of Siena, which never fell to the House of Medici until Spain offered the territory as payment of debts to the Medici Bank after an 18-month siege in 1555.

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“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

January 31, 2016

“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

Having urged “don’t panic” just 4 short months ago, it appears Nigeria just did just that as the global dollar short squeeze forces the eight-month-old government of President Muhammadu Buhari to beg The World Bank and African Development Bank for $3.5bn in emergency loans to help fund a $15bn deficit in a budget heavy on public spending amid collapsing oil revenues. Just as we warned in December, the dollar shortage has arrived, perhaps now is time to panic after all.

In September, Nigerian central bank Governor Godwin Emefiele ruled out a naira devaluation on Thursday and told people not to panic about a government order which risks draining billions of dollars from the financial system.

In an interview with Reuters, Emefiele said he was ready to inject liquidity if needed into the interbank market, which dried up this week following the directive to government departments to move their funds from commercial banks into a “Treasury Single Account” (TSA) at the central bank.

The policy is part of new President Muhammadu Buhari’s drive to fight corruption, but analysts say it could suck up as much as 10 percent of banking sector deposits in Africa’s biggest economy – playing havoc with banks’ liquidity ratios.

With global oil prices tumbling, banks and companies are already struggling with the consequences of a dive in Nigeria’s energy revenues that has hit the naira currency and triggered flows of capital out of the country.

Then JP Morgan kicked Nigeria out of its influential Emerging Markets Bond Index last week due to restrictions that the central bank imposed on the currency market to support the naira and preserve its foreign exchange reserves.

Since taking office in May, Buhari has vowed to rein in Nigeria’s dependency on oil exports which account for 90 percent of foreign currency earnings.

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Nigerian Currency Collapses After Central Bank Halts Dollar Sales To Stall “Hyperinflation Monster”

January 12, 2016

Nigerian Currency Collapses After Central Bank Halts Dollar Sales To Stall “Hyperinflation Monster”

Having told banks and investors “don’t panic” in September, amid spiking interbank lending rates and surging default/devaluation risks, it appears the massive shortage of dollars that we warned about in December has washed tsunami-like ashore in oil-producing Nigeria. Following the Central bank’s decision this week to halt dollar sales to non-bank FX market operators, black market exchange rates spiked to 282/USD (vs 199 official) and CDS spiked to record highs implying drastic devaluations loom.

As Reuters reports, Nigeria’s central bank is halting dollar sales to non-bank foreign exchange operators and letting commercial banks accept dollar deposits with immediate effect, its governor said on Monday, in an effort to shore up dwindling foreign reserves.

Africa’s biggest economy, an OPEC member state that depends on oil sales for about 95 percent of its foreign reserves, has been hammered by a collapse in global oil prices, which has triggered a slide in its naira currency.

Godwin Emefiele said the sale of foreign exchange to bureaux de change would be discontinued because they were using up the country’s foreign reserves for illegal transactions and selling the dollar at 250 naira compared to the official central bank rate of 197 naira.

The currency hit a record low of 282 per dollar on the unofficial market on Monday after the central bank’s announcement.

Emefiele said foreign reserves stood at around $28 billion compared with $37 billion in June 2014, and that the bureaux were depleting them at a rate of $28.4 million per week.

“This is a huge haemorrhage on our scarce foreign exchange reserves, and cannot continue,” Emefiele told a news conference in the capital Abuja.

To avoid devaluing the currency, a stance so far supported by President Muhammadu Buhari, the central bank adopted increasingly stringent foreign exchange rules last year and effectively banned dollar access for the purchase of 41 items, which has also been criticised at the World Trade Organisation by the United States and the European Union.

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Azerbaijan Currency Crashes 50% As Crude Contagion Spreads

December 21, 2015

Azerbaijan Currency Crashes 50% As Crude Contagion Spreads

OPEC blowback continues to ripple around the world. With Russia’s Ruble pushing back towards record lows against the USD, and Kazakhstan’s Tenge having tumbled to record lows, the writing was on the wall for Azerbaijan. As Bloomberg reports, the third-biggest oil producer in the former Soviet Union moved to a free float on Monday and the manat crashed almost 50% instantly to its weakest on record with the second devaluation this year.

First the Russian Ruble…

Then Kazakhstan’s Tenge…

While Azerbaijan’s former Soviet allies Russia and Kazakhstan have moved to floating currency regimes in the past year,the Azeri central bank has questioned whether the country was prepared for a similar shift. Governor Elman Rustamov said there was no need for another devaluation of the manat, according to a televised interview broadcast on Sept. 25.

And now Azerbaijan’s Manat crashes 50%…

As Bloomberg reports, “It looks like Azerbaijan’s authorities are following Kazakhstan’s devaluation path,” said Oleg Kouzmin, a former Russian central bank adviser who works as an economist at Renaissance Capital in Moscow. “After devaluing the currency once, some time ago, they concluded that the first move was not enough to tackle all the challenges of a weaker oil price environment.”

Azerbaijan relies on hydrocarbons for more than 90 percent of its exports and the manat has lost almost half its value against the dollar this year, the worst performance of currencies globally.

The Azeri central bank’s reserves were at $6.2 billion at the end of November, down from more than $15 billion a year earlier.

The Russian ruble’s collapse and a 70 percent plunge in the crude price since June last year have ushered in a new era of volatility for Azerbaijan, which is also beset by challenges ranging from declining oil output to a festering conflict with neighboring Armenia.

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Olduvai IV: Courage
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