The Top Line

• With unemployment still elevated, Republicans continue to work to bring aid to struggling workers and small businesses, but Speaker Pelosi continues to obstruct their efforts to help hurting Americans.

• As COVID-19 reshapes how we work, eat, and shop, it has also shifted the way we pay for our everyday activities, with considerable benefits for the previously marginalized.

• As digitization continues in nearly every industry and mode of human interaction, central banks across the globe are adapting money to the changing landscape.

• The future of farming.

How Much Is Enough?

Source: Bureau of Labor Statistics

Unemployment remains above 11% in New York, California, and Illinois and elevated in every other state (see above). As Americans suffer, Speaker Pelosi rejects every opportunity to provide them much needed relief.

• Speaker Pelosi’s first attempt at a package, the $3.4 trillion Heroes Act was an unrealistic progressive wish list that was “dead on arrival” according to members of her own party; 14 Democrats voted against it.
• Her latest attempt, Heroes 2.0, conceded that $3.4 trillion was irrational, but still offered a monumental $2.2 trillion in spending, over 10% of U.S. GDP. This time, 18 Democrats voted against the bill, urging their leadership to actually seek a compromise.
• Meanwhile, Republicans working in good faith moved from $1.3 trillion to $1.6 trillion and then to $1.8 trillion, bridging two-thirds of the remaining distance between the parties. Speaker Pelosi made clear that what she meant by compromise was actually capitulation, saying no to every dollar amount offered.
• And once again, moderate Democrats and even some progressives questioned the stalling tactic, noting that aid for the American people can’t wait and that the deal should be taken. Speaker Pelosi brushed off her Members’ concerns, adamant that her deal must be the one accepted.

Pay It Forward

Source: The Economist

COVID-19 and its economic effects have shifted how we work, shop, and interact, in many cases accelerating trends that were already underway.

• Among these, is how we pay for goods and services. Before the pandemic, the share of payments processed by fintechs and payment firms was steadily increasing with a dramatic acceleration this year with lockdowns and social distancing.
• In 2010, traditional banks held 96% of the market value of firms that regularly processed payments. In January 2020, that had decreased to 81%. Now, it’s only 72%. COVID-19 compressed shifts that took nearly a decade into 10 months.
• Though their activities overlap, payment firms – nowadays via mobile wallets – are more specialized towards facilitating payments. In contrast, fintechs facilitate payments, provide deposit and investment banking, and overall seek to offer the same services as established financial firms.
• As fintechs and payment firms continue to increase their market share, they increase options for users in the realm of financial services and compete with more established firms. Competition in the marketplace necessitates competing on cost, lowering fees charged to merchants and thus lowering prices for consumers.
• Fintechs and payment firms also create a readily adoptable entry point into the financial system for the unbanked and underbanked. No longer needing a local bank branch allows people in the developed and developing world to access payment systems, deposit accounts, and credit vehicles by downloading an app.

Myth vs. Fact

MYTH: Bitcoin and cryptocurrencies are nothing more than bubble assets, the 21^st Century version of the Dutch Tulip Mania. Cryptocurrencies get a lot of press, rise in prices as enthusiasm builds, but after there’s a realization that the prices are overinflated, the bubble bursts and the price recedes.

FACT: While this may have been true of cryptocurrencies in their early years, in the past few years proliferation of different cryptocurrencies and greater adoption by a wider range of users has begun to mitigate volatility relative to past price changes. The better comparison to the Dutch Tulip Mania—which is itself a bit of a myth regarding its effects on the 17th Century Dutch economy —would be the early years of Bitcoin, when it was a narrowly traded asset and thus more prone to price volatility. When there is a small group of individuals trading an asset, especially ones who are within the same cohort, price rises more easily lead to irrationally exuberant buying, while price falls more easily lead to unmitigated panic selling. Increasing the number of individuals in a market increases the availability of buyers willing to support prices and the amount of funds available to do so.

Pay It Digitally

Total Market Capitalization, All Cryptocurrencies

Source: coinmarketcap.com

As payment systems and how we access financial resources changes, so too do the very currencies that those transactions are denominated in.

• Cryptocurrencies, like Bitcoin, have been in the news for years now. But it’s only in the last few years that the value of cryptocurrencies has burgeoned. Though unstable pricing behavior spiked in early 2018, since then, total value of cryptocurrencies outstanding has stabilized and begun exhibiting more stable growth (see above).
• Central banks have absorbed the lesson that cryptocurrencies are here to stay and have themselves begun the process of creating central bank digital currencies (CBDC) to supplement traditional hard currency.
• The Federal Reserve is in the midst of experimenting with its own Digital Dollar in conjunction with academia and the private sector while the European Central Bank (ECB) recently released a comprehensive report on the potential for a Digital Euro.
• Both the Fed and ECB are moving with care, assessing the implications for CBDCs on monetary policy, financial stability, and individual privacy. China meanwhile, with no concerns for individual privacy and seeing a Digital Renminbi as another means to press adoption of its currency in international markets.
• China has implemented widespread public trials in some of its cities, opening upwards of 100,000 digital wallets for residents and firms in these test-areas, but only processing $162 million in transactions over the four-month trial period, likely less than two-tenths of one percent of the GDP of these locations.
• Knowledgeable of the potential that digital assets bring to the economy as a whole, bipartisan Members of Congress have introduced legislation to better define the legal architecture of the blockchain infrastructure that enables digital currency usage.

Disruption of the Week

Source: EIT Food

Vertical Farming does more with less but is still costly and relatively energy inefficient. As cities and populations grow, overcoming these obstacles may help us tackle our future food needs.

• Vertical farming comes in a variety of shapes and sizes but generally refers to the practice of growing crops in vertically stacked layers, often in a controlled environment using a high degree of technology to sustain plant growth.
• In “growing up” (or “down”, a practice UK researchers have been developing using abandoned coal mines) instead of “growing out”, vertical farming provides major advantages in land use efficiency, crop sustainability, and more direct distribution chains when compared to today’s standard food production practices.
• However, the practice is not without its disadvantages including energy costs up to 14x more than what is needed for greenhouse production and a dependency on potentially unreliable climate control technology to create good growing conditions.
• While the practice of vertical farming is still growing, if we want to address the growing problem of food scarcity, we should not discount this new type of urban farming and its potential benefits for sustainable agriculture.

Further Reading

• As recovery from the economic effects of COVID-19 continues, there is evidence of a divergence in resumption of economic activity between city-cores and surrounding districts. Implications for the future balance of concentrations of economic activity within cities and outside of them are likely. Financial Times

Infographics