By Daniel Hunter
Thirty financial directors gathered at ACCA’s headquarters in London earlier this week for an International Trade breakfast briefing, sponsored by freemarketFX.
Alex Hunn, CEO of freemarketFX opened up the mornings presentations — explaining how their innovative peer-to-peer currency exchange facilitates the efficient matching of the currency needs of companies, charities and High Net Worths. After extensive research on 102 companies, freemarketFX found that 84% think the trend towards tech and peer-to-peer models will benefit customers. This includes FX, crowdfunding, invoice discounting and lending.
He then proceeded to discuss how people tend to unconsciously accept the status-quo within FX (i.e. an average 0.8% charge transactions) — when they could explore the revolution in currency exchange — where freemarketFX can offer a 0.2% charge.
So, with no change to your existing bank relationships freemarketFX’s fintech solution can deliver immediate benefit and enhance EBIT (Earnings Before Interest and Taxes).
Alex then introduced Michael Baxter, the author of three books, covering the economy, behavioural economies and disruptive technology.
Michael began by discussing the chain of events that unravelled after the US Federal Reserve began increasing interest rates in 1994. Largely thanks to the US Calvary coming to the rescue in the form of Alan Greenspan and the IMF (International Monetary Fund), the west avoided the full force of the after-effects. (He entertained the crowd by playing the Calvary march on his phone). Economies in Asia and Russia were not so lucky, however, and maybe the seeds for the crisis of 2008 were thereby sown.
He then went on to suggest history repeated itself after the Federal Reserve increased interest rates between 2004 and 2006, more directly leading to the 2008 crash.
Are US interest rates going to increase anytime soon?
US inflation was minus 0.2% in April. However - core inflation was 1.8%, and the month on month rate of core US inflation was 0.3%. US unemployment is currently 5.4% and the Federal Reserve says that the equilibrium rate is 5.2%.
Michael explained that underlying forces are at work. The oil price has fallen and China is not exerting the kind of downward effect on prices that it used to exhibit. Also, between 1900 and 1980, growth in money supply and inflation had a near perfect correlation, after allowing for growth in GDP. Since 1980 growth in the money supply has outstripped inflation, suggesting we are due a period of rising prices, or a contraction in the money supply, which may prompt a crash in asset prices or sovereign debt default.
Demographics around the world are changing, many countries are seeing a fertility rate that is below the replacement rate of 2.1. According to Andrew Wilson Goldman Sachs Asset Management, “There is too much debt...as demographic changes require new ways of thinking.”
Moving onto emerging markets, Michael detailed how during the 10 years before previous banking crises, private sector debt to GDP had increased by an average of 40%. Over the last decade, private sector debt to GDP has risen by 70% in China, 50% in Turkey, 45% in Korea and Brazil and just over 30% in Russia.
Since 2013, India’s current account deficit has fallen from 5% to 1% of GDP. Indonesia’s current account looks less favourable, and the rupiah could be vulnerable if the Federal Reserve hikes rates.
The countries with the projected biggest current account deficits by end of decade, in ascending order, are: UK, Australia, Colombia, Poland, South Africa, New Zealand and Turkey.
Michael ended asking ‘is it really that bad?’ He suggested that those who predict gloom maybe overlooking the impact of technology.
He said that “next time — things might be different”.
This breakfast briefing forms one of a series of events.
To register your interest, please email firstname.lastname@example.org.
For more information on freemarketFX — please contact Alex Hunn on email@example.com.