Tuesday, 6 April 2021



These points are about private ‘digital currencies’ like Bitcoin, not about central bank e-currencies, on which I will write another time. In what follows, the term ‘Bitcoin’ is used to refer also to other types of cryptocurrency.

Bitcoin’s growth from just being a tech curiosity was driven by popular discontent with banks and banking systems, mainly in the US after 2008.[1]



Supply & Demand

One aspect is a digital ‘coin’, whose supply is generated by a computer algorithm that is progressively more difficult to solve and which supposedly reaches an absolute limit. (Supporters hope computing technology does not catch up too quickly!)

Demand for this coin could drop to zero, but instead has been boosted by a prolonged period of extremely low, even zero-negative, interest rates and erratic stock markets and commodity prices. These made other outlets for surplus investor funds look less attractive, and have led to a big jump in speculative interest.

The market for Bitcoin and published prices are now run through relatively new exchanges, some of which have been hacked with the loss of coin accounts of users. Financial companies have also moved into offering Bitcoin-related funds to their clients, as another way to collect management fees.


Another important aspect of Bitcoin is the ‘blockchain’ transfer mechanism for shifting ownership of the coins. This is a form of Internet-based system, running outside of the private banking system of any country. This has also been an attraction, especially for those annoyed with bank charges. But central banks, and others, are now copying blockchain systems for the secure transfer of information and titles of ownership. Official e-currencies will also be a challenge to Bitcoin.

Even students of idiotic populism are bemused that some people have placed trust both in an algorithm and in a transfer mechanism they do not understand, and over which they have no means of redress or protection (like deposit insurance) if anything goes wrong.

A small number of sellers of goods and services have begun to accept payment in Bitcoin, largely as a marketing and PR exercise. But the Bitcoin amount to pay still depends upon its price versus the currency in which the goods and services are priced. No wages or salaries are paid in Bitcoin; neither can any taxes be paid in Bitcoin.

Price risk

The sharp trend higher in Bitcoin prices since October 2020 has continued to fuel demand, despite the dramatic volatility. ‘Buy on dips!’ is the speculative mantra for now. But a strongly rising trend means that nobody would be foolish enough to borrow Bitcoin and make it a long-term liability. This will certainly limit any wider use of Bitcoin in the economy, though it would add to its attraction as a speculative asset. If Bitcoin prices fall, that could easily prompt an extreme depreciation, given the nature of the demand for it so far. Even a flattening out of Bitcoin prices would risk an abrupt reversal; especially if/when global interest rates begin to rise.


Tony Norfield, 6 April 2021

[1] In my previous article about Bitcoin here, I underestimated how far low interest rates and speculative mania would boost its price, but the key points I made there remain valid.

Wednesday, 20 January 2021

The UK’s Singapore-on-Thames Delusion

I will not spend much time on this topic because it is so ridiculous. But the notion that the UK can become a ‘Singapore-on-Thames’ seems to underlie some Brexit fantasies. Do these have any foundation?

First, here are some basic facts. The UK’s GDP is roughly 8 times bigger than Singapore’s; its population is more than 10 times bigger. Singapore used to be a British colony, and developed from being a key Asian trading hub for the East India Company. The UK is a declining imperialist power. It once had a go-between role for the US in Europe, and still remains a major backer of imperial oppression around the world, but now has its pretensions at diplomatic expertise seen as very irritating.

Singapore sling

In the field of finance, the UK was already a multiple of Singapore’s weight in the world economy before it finally left the European Union: 6 times bigger in international banking, 5 times bigger in FX trading and 30 times bigger in financial derivatives turnover. Whereas Singapore has a regional niche in global finance, the UK has been a leading global player.

It will be difficult, not to say impossible, to further extend the UK’s financial position outside the EU. Any belief that messing up links with the major trading bloc in Europe is a good economic decision – while remaining outside USMCA, RCEP and other trading blocs – would also need to undergo a sanity check.

Some reports have suggested that City of London financial companies contributed a great deal to the Vote Leave campaign in the 2016 UK Brexit referendum. Quite likely some did, though these seem mainly to have been hedge funds and so-called venture capitalists. By contrast, the overwhelming majority of City business, from banks, to life insurance companies, to pension funds and other asset managers, to legal and accounting firms, were clearly pro-Remain.

All City business has benefited from the existing UK tax laws developed over decades. But the hedge funds and so on would have been far less dependent upon EU-related business relationships, or will have dealt more directly with ‘offshore’ centres and Switzerland. That will account for the divided opinion. In the broader corporate arena, with one or two exceptions, businesses were pro-Remain, with only a section of small businesses being pro-Leave. Nevertheless, big companies did little to voice that opinion before the 2016 vote because they did not want to annoy half of their customers.

The end result was that, for reasons explained elsewhere on this blog (see here and here), despite capitalist opinion being greatly against it, the British working class helped enable Brexit, by 52% versus 48% in 2016. A more up-to-date measure of that political outlook can be seen in maps showing the large December 2019 Conservative election majority vote in England.

Where does this leave Singapore-on-Thames?

Singapore has exports that are some 90% bigger than its GDP, whereas UK exports are ‘only’ around 30% of GDP. So, onwards and upwards to Singapore-on-Thames? As you might expect, there are a few problems with this perspective.

Singapore is a small country and an entrepôt centre, with lots of re-exports. This produces a total exports number that is much higher than GDP because it is not based on the value-added measure that goes into a GDP calculation. In theory, the UK could also become an entrepôt centre, but the economic benefits of such a move are very limited.

More than that, any such move implies enforcing a low labour cost economic strategy. Evidently, that implies cutting labour costs. This is at the heart of capitalist economics, and has been explicitly embraced by Conservative pundits.

To use the UK political cliché, the EU would also be very clear in protesting against this kind of policy for being in breach of the ‘level playing field’ of fair competition between the UK and the EU post-Brexit. The EU was once grateful to the UK for proposing policies to cut labour costs, but now that is seen both as destabilising an already shaky EU economic system and as an unwelcome, aggressive trade policy from an ex-member of the club.

One could imagine some benefits of a Singapore-on-Thames – for example, free wifi and a good transport system, like in the real Singapore. But stupidity is its own reward, and the reality is going to be much harsher.

Tony Norfield, 20 January 2021