An expert opinion on negative-yield government bonds: Just nuts

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Facebook wants to create a worldwide digital currency

A GLOBAL DIGITAL currency would make sending money across the world as easy as texting. It would do away with fees, delays and other barriers to the flow of cash. It might give those in less developed countries access to the financial system and a means to protect hard-earned wages against runaway inflation. It could trigger a wave of innovation in finance, much as the internet did in online services.

That, in a nutshell, is what Facebook promised on June 18th. Within a year, the social network will launch a new currency to be known as Libra, in honour of an ancient Roman unit of mass—it is also the word for “pound” in many romance languages. Inevitably, Facebook dished out a generous helping of trendy words like crypto and blockchain. Unable to contain its appetite for Silicon Valley platitudes, Facebook claimed that its mission was to “empower billions of people”. Making money or strengthening its market power are, apparently, a sideshow.

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Notwithstanding the guff, the commercial potential is indeed significant—as are the potential problems. If each of Facebook’s 2.4bn users converted a slice of their savings into Libras, it could become a widely circulated currency. It could also, if broadly adopted, vest unprecedented power in the hands of its issuer. In a tacit acknowledgment that its mishandling of user data, tolerance of the spread of misinformation and other sins have devalued its stock with policymakers, users and potential partners—though not investors—Facebook wants to outsource the running of Libra to a consortium of worthies recruited from the world of finance, technology and NGOs. The consequences for the global financial system could be significant (see article). So could the impact on Facebook’s business.

If the project lives up to the mock-ups, buying, selling, holding, sending and receiving Libras will become a doddle. It can be done in Facebook’s Messenger app or WhatsApp, another messaging-service-cum-social-network it owns—and, later next year, in a stand-alone app.

So far, so familiar. Messenger already offers payments to Americans. WhatsApp is testing a similar function in India. But these services do not cross borders, and require users to have a bank account. Fintech firms like TransferWise, which offer international transfers, take a 4-5% cut to wire $200, a third less than Western Union. But Libra will be much cheaper, and require no bank accounts: more Bitcoin than Venmo.

Except that, unlike Bitcoins and other cryptocurrencies, Libras will change hands in seconds, not minutes, for next to nothing, not a few dollars. The system should handle 1,000 transactions a second at its launch, and more later, compared with no more than seven a second for Bitcoin. The virtual coins will be bought with real money, which will top up the reserve backing the currency. This should prevent wild price swings from speculation.

If it works, Libra could be a money-spinner for Facebook, albeit not directly. Notional transaction fees would not generate much revenue. But Libras should allow Facebook to charge more for online ads, by making purchases of advertised products quicker and simpler. It could furnish a new source of data to target adverts, making up for user information Facebook will forgo with the “pivot to privacy”, which Mark Zuckerberg, its boss, proclaimed in March in respect of messaging. Facebook may catch up with WeChat, a Chinese super-app which offers payments and other services, and whose foreign ambitions are on hold as the Sino-American trade war rages on.

Technically and financially, Facebook could probably pull off such an ambitious undertaking on its own. But not politically. Its culture is less amoral than it was in its youth, when it aspired to “move fast and break things”—but only a bit. Chary consumers may choose not to entrust their money to a social network which has, until recently, leaked their personal data left and right. Unless users are on board, merchants may be reluctant to embrace the currency, however hassle-free.

Enter the Libra consortium. The association, to be based in Geneva, will take over from Facebook before the first Libra has been spent, and manage the hard-currency reserves. Facebook has enlisted 28 other prospective founding members out of an envisaged 100, each with equal voting rights and operating a node in a decentralised system which issues coins. They include financial firms (Visa, Stripe), online services (Spotify, Uber), cryptocurrency wallets (Anchorage, Coinbase), venture capitalists (Andreessen Horowitz, Union Square Ventures) and charities (Kiva, Mercy Corps)—though, for the time being, no banks. Not a libertarian alternative to the existing financial system, in other words, but a complement.

To add credibility to its promise, broken in the past, to keep social and financial data separate, Facebook has created a subsidiary, Calibra, to run Libra services within its apps. It is unlikely to face hurdles to uptake from Apple or Google. It is impossible to imagine them expelling Messenger and WhatsApp—and later other providers Facebook is inviting to the open-source project—from their app stores, as they have done with other cryptocurrency offerings, many of which were scams.

To get Libra going, the consortium will pay merchants to offer discounts to customers who use the new currency, financed by a $10m one-off fee each member pays for a seat at the table. Eventually, Facebook would like anybody, not just the consortium, to be able to generate the currency, transfer it and offer services on top of its “blockchain” (crypto-speak for the database that keeps track of who owns what). At that point, Libra would turn into Bitcoin, minus the kinks and the libertarianism.

Hard currency

In a project with so many moving parts, much can go wrong. Although Facebook says it has a working prototype, the technology is untested; sceptics doubt that a 100-node system, let alone a bigger one, could process thousands of transactions per second. Hackers are doubtless champing at the bit.

Then there are consortium dynamics. Facebook will have to prove to the other 99 Libra members that it is truly prepared to give up control. At the same time, because important decisions need a two-thirds majority, someone has to knock heads together. The history of information technology is littered with initiatives that collapsed under the weight of internal conflict.

The biggest barrier may be political. Facebook has apparently consulted many regulators. The providers of digital wallets will have to comply with national rules, such as those against money-laundering. Calibra, whose integration into Messenger and WhatsApp will initially make it the dominant wallet, is bound to stoke competition concerns. These may recede as the currency grows bigger and more decentralised, only to be replaced by worries about financial stability.

Libra’s success, then, is far from assured. But it could prove useful even if it flops, for it offers a blueprint for how Facebook itself could one day be governed. The Libra Association’s main task is to oversee the blockchain, ensuring, for instance, that Calibra does not enjoy privileged access to it. An equivalent Facebook Association, some observers have ventured, could be composed of representatives of users, advertisers, data-protection authorities and so on. Their job could be to oversee the “social graph”, another database, which lists all of Facebook’s users and the links between them—and to guarantee that Facebook users can post to another social network, and vice versa.

Calls for a Facebook constitution along these lines have grown louder as the social network’s influence on world affairs, from election-meddling in America to genocide in Myanmar, has become apparent. Mr Zuckerberg is no stranger to such thinking. In 2009 Facebook let users vote on big changes in its privacy policies but abandoned the experiment with global democracy a few years later. Last year Mr Zuckerberg announced that Facebook wanted to set up a “content review board” of independent experts—a kind of “Supreme Court”, in his words, which would make “the final judgment call on what should be acceptable speech”.

Asked whether Libra could serve as a model for Facebook, David Marcus, who is in charge of the project, replies that it marks “a coming of age, the moment we recognise that there are some things that we shouldn’t control—and a radical departure from the traditional way of operating things”. Perhaps. But checks and balances would almost certainly make Facebook less profitable. It would be ironic if a new digital currency marked the beginning of the end of Facebook’s money-minting days.

This article appeared in the Business section of the print edition under the headline “Coin flip”

Why giving your child a financial lesson may be better than an allowance

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We use cookies and other technologies to customize your experience, perform analytics and deliver personalized advertising on our sites, apps and newsletters and across the Internet based on your interests. By clicking “I agree” below, you consent to the use by us and our third-party partners of cookies and data gathered from your use of our platforms. See our Privacy Policy and Third Party Partners to learn more about the use of data and your rights. You also agree to our Terms of Service.

5 Money Tactics for Military Deployments

While serving in the U.S. Marine Corps, Erik Goodge was severely wounded during a deployment to Afghanistan. After returning home, the veteran became passionate about finances as he navigated his post-military life and benefits.

At the time of his service, however, he didn’t know nearly as much about personal finance. He believes many young troops don’t know their financial options, either.

“It’s not a priority on the radar of a lot of service members,” Goodge says.

Here are five important money lessons all deployers — and their dependents — should know, as told by financial advisers and veterans.

1. PLAN BEFORE YOU LEAVE

While overseas or in a combat zone, service members don’t have much time to focus on finances, says Jim Ludwick, certified financial planner and founder of MainStreet Financial Planning Inc.

“Money really should take a backseat at that point, and so the pre-deployment preparation, whether the military person is single or married, is really important,” he says.

Ludwick, who retired from the Air Force, says arrangements should be made beforehand. Consider giving someone power of attorney over your finances. Automate payments such as your car insurance or mortgage before you leave and ask that person to monitor them so you don’t fall behind.

2. MAXIMIZE SAVINGS

Deployments usually equate to more income, according to Goodge, who is president of uVest Advisory Group LLC in Indiana.

“Sometimes, depending on where the deployment is, there’s extra incentive pay that comes along with that deployment,” he says. “There’s family separation pay. There could be hardship duty pay, hazardous duty pay, imminent danger pay. And that stuff generally is tax-free if it’s overseas.”

To maximize this extra income, take advantage of savings options, such as the Department of Defense Savings Deposit Program, Goodge recommends.

Members of the uniformed services who are serving in eligible combat zones can deposit a total of $10,000 during each deployment and earn up to 10% interest annually. Interest continues to accrue for 90 days once you’ve returned. Military finance offices can help set up such accounts.

Another way to save money? Don’t let increased income cause increased spending.

“An easy rule of thumb that I’ve always told people is really try to keep your expenses to your pre-deployment levels,” Goodge says.

You may be able to decrease your monthly spending, according to Ashley Dixon, CFP, associate planner at Gen Y Planning. If you have a spouse or children, your family will likely spend less on necessities like food while you’re away, so put that money toward paying down debts more aggressively, she suggests.

3. MANAGE EXPECTATIONS

Deployments will bring new costs. Get on the same page with your spouse and dependents about everything from care packages to international cell phone usage, advises Lacey Langford, an accredited financial counselor and Air Force veteran.

Ask questions so you don’t overbuy. How many tubes of toothpaste will you really need for six months? How many minutes are you willing to go over plan on your cell phone bill?

And what about your loved ones? Your family separation allowance could go toward things like lawn care or home cleaning to save them time, notes Arnie Cabiles, CFP, owner of Achievable Wealth LLC.

4. SEEK DISCOUNTS

Throughout your service, ask for a military discount on food and travel, for example. Your spouse and family may be able to get these discounts while you’re away, Ludwick says.

See if there are any payments you can reduce or cancel during a deployment, recommends Dixon. Your auto insurance company may lower your premium if your vehicle is stored, or if there is one less driver.

Similarly, cancel subscriptions and memberships you won’t need while you’re away. Your deployment orders may help release you from some contracts, Dixon says.

5. AVOID THE ‘I DESERVE IT’ TRAP

Effective money management extends after the deployment.

“The service member is deployed to a foreign country in most likely bad conditions for a very long time, and they have given up a lot for a year,” Langford says. “So they feel like they deserve to get a brand-new truck when they get back to the States.”

Langford says spouses who are left at home for a year may also earmark money for things they want. After a deployment of controlled spending, purchases can suddenly go through the roof.

To prevent this, plan the splurges you can afford to make when you get home.

“You deserve a lot of things, but you don’t deserve to cause yourself financial stress down the road,” Langford says.

___

This article was written by Courtney Jespersen of NerdWallet from The Associated Press and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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California needs a big pot of money for wildfires. But how big? And who pays?

In a test of his ability to steer the state away from crisis, the governor convened a team this year to map out a solution. Newsom hired O’Melveny Myers, a Los Angeles law firm, and Guggenheim Securities, a New York financial services advisory firm, to help his top advisors, at a cost of $6 million over six months.

Prudent Portfolio: How to Manage Money When You Come Into Money

By Kevin Peters

Kevin Peters

It’s baseball season, and in an annual ritual as reliable as robins showing up on the front lawn, baseball players – veterans and rookies alike – hope to show off their skills.

There are 466 Major League players with a base salary of $1 million or more. The highest annual base salary this year is $38.3 million, going to pitcher Stephen Strasburg of the Washington Nationals. The Philadelphia Phillies signed outfielder Bryce Harper to a 13-year contract that will pay him $330 million!

The veterans, for the most part, may be accustomed to their upscale lifestyle, but for those whose careers are just beginning, there will be a lot of money in their pockets, more than they could have imagined.

Some analysts compare young pro athletes to young lottery winners, who suddenly come into a huge amount of money with little or no idea how to invest wisely or prepare a solid foundation for future fiscal security.

For those not in the MLB or who have not won the lottery, similarly-sized windfalls are still possible. Consider the individual who is selling a long-established business or a house, or receiving a sizable inheritance, or the savvy investor that has identified a “unicorn” and benefited from the skyrocketing stock price.

A new bundle of cash will present myriad opportunities, but like for rookie athletes, can come with tremendous pressure to be responsible in spending and investing, fund retirement and leave a legacy for the future.

Before doing anything, take into account that a windfall, like an athlete’s years on the field, and thus their salary, can be finite. Professional athletes may find themselves earning lots of money early in their careers. But that money can disappear just as quickly as it is earned, if recipients are cavalier with their spending habits and ignore the lessons that foster intelligent investing.

First, plan for the future. Save for retirement. To have a better chance of financial success, be cognizant of the basics of personal finance – basics that I believe are often ignored when emotions overtake rationality.

Sadly, many pro athletes will be bankrupt or under financial stress within five years of entering retirement. So begin to think ahead as soon as you come into a lump sum.

Place funds into retirement accounts that are tax deferred, such as an IRA or 401(k), which can address two long-term issues at the same time: saving money and helping to reduce taxes.

By starting a retirement account early, along with accounts such as trusts for expenses like college for children, investors can build on decades of growth that may result in sizable assets when they are needed.

Plan for the unexpected. Consider how often an athlete’s career is cut short by injuries. Are you prepared for a health scare or another unforeseen expense? Be sure to start building an emergency fund that can be leveraged for the unexpected.

Create a budget to stay organized and on track and try to avoid overspending and impulse purchases. This is a good way to ensure you are not spending outside of your means or spending too heavily in one sector.

For all of us, including those with a formidable throwing arm or the ability to making leaping one-handed catches, there are lessons to be learned when it comes to acquiring sudden wealth.

If we take the time to be mindful of the basics of investing, obtain solid advice from experts in financial planning and tend to our finances with the same attention that athletes give to physical fitness, we can avoid the pitfalls and make our personal finances a lifetime success story.

Kevin Peters is a financial adviser with the Wealth Management Division of Morgan Stanley in Purchase. He can be reached at 914-225-6680.

The information contained in this column is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice.   The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney, LLC, member SIPC.

Wells Fargo dropped from Philadelphia’s lawsuit against large investment banks

The city has filed a series of complaints against the bank in recent years, and the bank has substantially reduced its employment in Center City. Formerly a financial center, Philadelphia no longer has a large concentration of commercial banking jobs compared to its population — in contrast with the nearby Wilmington, Del. area, which is home to one of the largest banking and financial employment centers in the country, according to a study released by the Delaware state economic development office last week.

When can kids learn to manage money? She learned at age 9 and now she’s teaching her own daughter

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I imagine my dad had this feeling when he came up with his plan to teach my younger brother and me — I was 9 — about the power of saving money, and of compound interest: The First National Bank of Dave. As he wrote in an Atlantic article and then in a book, he set up accounts for us in Quicken, and paid 5 percent interest a month. “I wanted my kids’ deposits to grow at a pace that would hold their attention,” he wrote in The First National Bank of Dad: A Foolproof Method for Teaching Your Kids the Value of Money
. He “deposited” our allowance the first day of each month, and we could make withdrawals by asking for the cash. He printed statements for us from Quicken, and we could use his computer to check in on how our money was doing whenever we wanted.

It worked — after all, compounding meant the annual interest rate was more than 70 percent (he eventually had to roll the monthly interest rate back to 3 percent). He also wanted us to think of our money as our own. The hope was that my brother and I would quickly learn that purchases like the mouse ears probably aren’t worth it, that money you spend on junk is money you won’t have for something you’d get a lot more enjoyment from.

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As I got older, The Bank of Dave expanded. My allowance came to include money for school clothes (never enough, in my view). I got a checking account at an actual bank so that I could withdraw cash on my own, with my dad transferring the allowance in directly. By the time I was in high school, we’d largely switched to a system where I knew enough — and had a sufficient balance in my checking account — that I was paying for things like textbooks and gas to drive to school; I submitted receipts and my parents paid me back. I did push the limits sometimes. At one point I had a Mobil Speedpass to get gas that was hooked straight into my parents’ checking account, and I occasionally bought not just gas but snacks for my friends until my dad noticed and told me to cut it out. But overall, while I engaged in a fair bit of stereotypical teenage bad behavior, I had no incentive to be dumb with money, and I wasn’t. So did my dad’s system work?

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Owen at 6 with her parents and her younger brother. (From laura hazard owen)

I think so. I’m 35 now, married with two little kids, and I manage our family’s money. My husband and I bought a house two years ago and paid off his law school loans this year, about two years early. We have an emergency fund and retirement accounts. I don’t think it would be possible without the financial education I received as a child.

My financial savvy was helped by growing up in a solidly upper-middle-class household and the fact that my parents paid for my college education in full. Most people don’t have that advantage, including my husband and, likely, our kids — a four-year private college education is projected to cost around $580,000 down the road for anyone born today; while my husband and I are also in the upper-middle class income-wise (because he’s an attorney and works a lot of hours), and we have 529s for our kids, it’s impossible to see how we save an extra million dollars.

At some point, we are going to have to figure out how to talk with our kids, Alice and Hugh, about how sexism and racism affect personal finance. But pretty much any parent can apply the basic lessons of the Bank of Dave, using just a few dollars a week. When Alice graduates from kindergarten this month, we are going to start giving her an allowance of $3 a week, which will increase over time. (Here’s how I calculate this: When we go to Target, and one of the kids asks for some silly trinket or candy, I want to be able to say “If you want it, you can buy it with your own money,” and have that actually be possible.)

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We’ll use an app for this instead of Quicken, probably RoosterMoney. My kids won’t have to “do anything” to get their allowance; they won’t be paid for doing normal household chores like cleaning up their toys. They will have the opportunity to earn extra money, though, by doing extra jobs. And we’ll pay them a hefty interest rate to help encourage the notion that saving is worth it. My dad maintains, and I agree, that giving kids real control of their resources — not using savings as a form of behavior control — is key. We won’t force them to put aside some of their allowance for charity, but their dad and I will talk to them about the causes we donate to and why — and we’ll match their donations. We won’t take gift checks away before they ever see them. The kids will inevitably make mistakes and stupid financial decisions (as a teen driver I had a penchant for getting into fender-benders. My parents paid for the first couple, but after that it was on me). But they’ll make them in a safe, low-stakes environment.

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“I think stores are mean, Mom,” Alice said to me recently. We were walking home after school and the kids were eating Popsicles I’d just bought them from the bodega at the corner. “You buy something and they take your money and never give it back! It’s the same thing robbers do!” I started to launch into a momsplaining discussion of why this wasn’t really accurate. Then I stopped. All I need to do is start giving her $3 a week, and she’ll start figuring it out on her own.


Laura Hazard Owen is deputy editor at the Nieman Journalism Lab. Send comments to magazine@globe.com. Get the best of the magazine’s award-winning stories and features right in your e-mail inbox every Sunday. Sign up here.

These tips will help you max out your retirement contributions this year

Tariffs hurt the economy, but China must be held accountable:…

Union Pacific CEO Lance Fritz tells Jim Cramer that he is optimistic about trade relations with China, Mexico, Japan, and the EU.

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WorldRemit enables remittance receivers to manage their money on their phones

Leading online money transfer service WorldRemit (https://www.WorldRemit.com/en) is introducing new app features to make it easier for remittance recipients in several countries, including Cameroon, to manage funds sent from loved ones overseas.

Remittance receivers in several countries, including Cameroon, can now create and access a remote WorldRemit account to:

  • Receive money instantly to their phones from over 50 countries worldwide in multiple currencies including USD and XAF.
  • Store their funds in the app in multiple currencies including USD and XAF.
  • Withdraw their money at any time using WorldRemit’s wide variety of convenient pay-out options, including cash pickup at over 1,500 locations, bank transfer and mobile money transfer.
  • Send money to other WorldRemit customers living in the same country who have the new app feature.
  • Request money from friends and family abroad by building a transfer (including amount and currency) in the WorldRemit app and sharing the request with their sender via Whatsapp, SMS or email. Senders can then easily approve and deliver the transfer in seconds.

The new app features are completely free of charge and give WorldRemit money transfer recipients full control over when and how to withdraw their remittances.

Approximately 65% of adults in Cameroon remain (https://bit.ly/31GBxVF) unbanked, and customers do not need a bank account to access the full range of services available remotely for money transfer receivers through the WorldRemit app.

WorldRemit first launched its online money transfer service to Cameroon in 2012, and transfers to the country have been growing by over 90% year-over-year. Using the WorldRemit app or website, the diaspora community can send money home in a few taps from their phone, without having to pay expensive fees at a money transfer agent.

Andrew Stewart, Managing Director for Middle East and Africa at WorldRemit, said: “Cameroon is one of our top ten remittance receiving countries globally, so we are delighted to make it even easier for money transfer recipients in the country to manage their funds.

“Previously, only senders of WorldRemit transfers could select whether their money was received by bank deposit, collection as cash or mobile money transfer. The new service gives receivers with or without a bank account full control over how they manage their remittances, enabling them to store funds in a remote account in multiple currencies, send money to other WorldRemit users in the same country, or withdraw their funds at any time via any of our convenient pay-out methods.”

For more information on how to send money to Cameroon, click here (https://bit.ly/2ZwbPB4)

Distributed by APO Group on behalf of WorldRemit.

Media Contact:

Jo Bancroft

jbancroft@worldremit.com

About WorldRemit:

WorldRemit is the leading digital money transfer service that makes sending money as easy as sending an instant message. We currently send from 50+ countries to 150 receiving destinations, leading the shift to online and mobile money transfers and improving speed and convenience for users. On the sending side WorldRemit is 100% digital. For those receiving money, the company offers a wide range of options including bank deposit, cash collection, mobile airtime top-up and mobile money. Backed by Accel, TCV and Leapfrog – early investors in Facebook, Netflix and Slack – WorldRemit’s headquarters are in London, UK with a global presence including offices in the United States, the Philippines, Australia, Canada, Singapore and Japan.

It’s easy to use – just open the app or visit the website and send money 24/7 – no more agents. Learn more at worldremit.com

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