Middle-income trap, brain drain and high public service spending among Malaysia’s risks
Cheah(pic) thinks the local stock market could
go up by between 5% to 10% this year while the ringgit, which has
mostly been on an uptrend in recent times, is “still down quite a lot”,
against the US dollar.
Middle-income trap, brain drain and high public service spending among Malaysia’s risks
KUALA LUMPUR: A renowned global investor has called for structural reforms in Malaysia, saying that the country faces “very real” structural issues.
Penang-born Datuk Seri Cheah Cheng Hye (pic) who left Malaysia decades ago counts the middle-income trap, brain drain and high public service spending as current risks to the country.
Based in Hong Kong as the chairman and co-chief investment officer of fund and asset management group Value Partners Group for over two decades now, Cheah who helps manage over US$16bil in funds, however concedes that Malaysia remains a country with huge potential and opportunities.
“I don’t think we should underestimate the importance and attractiveness of Malaysia but what I am saying is that if we don’t want to be stuck forever (being) a so-called middle-income country, we need structural reforms,” he told StarBiz in a recent interview.
“Or maybe... we do want to be stuck because it is a comfortable position and because then, we can make a lot of compromises.”
“ (If that’s the case), we should be frank and say it, don’t pretend that we want to be an advanced country because that requires certain sacrifices.”
“The reality is that we are getting less and less competitive, we ranked number 23 in the latest Global Competitiveness report ,behind France and Australia which are developed countries. (Number 23) is not good enough for a developing country,” said Cheah, who recently made it to the top 40 richest Malaysians list.
Emphasising the issue of brain drain, Cheah, a former financial journalist and equities analyst said Malaysia could perhaps emulate India in this area where the concept of an Indian national overseas card has been introduced.
“I am told there are more than one million Malaysians overseas – (people like) entrepreneurs, these are exactly the type of people we want to stay here but they are not.
“We could introduce a new type of card called the Malaysian national overseas card for Malaysians who have chosen to leave the country and become citizens elsewhere.”
This card will give these Malaysian-born individuals no voting rights but will allow them to come back to work and invest here like everyone else, he said.
Cheah said this could help re-attract talent and there will be no political price to pay, because these people cannot vote here nor transfer this card to their children who would likely be foreigners.
“Some may actually come back, because it is not always greener on the other side... but you must make it easy enough (for them to come back).”
Cheah also pointed out that the amount Malaysia spends on public service is “very high” by any standards.
“Quoting from memory, about 30% of government spending is on civil service salaries and 16.5% of all employment in this country comprise civil servant jobs.
“No matter how you explain it, this is abnormally high ; something that I have learnt from my stay in Hong Kong is, keep the government as small as possible.”
He said although the civil service segment here appears to be bloated, it would be “unrealistic” to fire civil servants.
“Instead, maybe we can consider freezing and redeploying resources.
“Like any corporation, if you have too high a headcount, you freeze hiring and you redeploy people to where they are needed,” Cheah said.
Separately, Cheah, whose investments are mostly China-centric believes that Myanmar could be the next big thing.
“Nowadays, I like Myanmar because it is still cheap.
“It has about 55 million people but its gross domestic product (GDP) is only about US$65bil, Malaysia’s GDP is probably about US$320bil.
“Myanmar has enormous potential, at last they are emerging , gradually reconnecting with the world, they have (a lot of ) raw materials and are in a good position as one of the significant Belt and Road countries, China will go out of its way to invest there.”
Cheah said he would like to set up a Myanmar fund to invest in the country and is in the process of studying this possibility.
Among markets in Asia, Malaysia to Cheah, is “moderately attractive”.
He said consumer sentiment here was finally improving after it took a beating largely due to the implementation of the Goods and Services Tax (GST) back in 2015 plus there are some “interesting corporate restructuring taking place.”
Also, it is General Election year which going by history, tends to send the market higher, he said.
“I think there are good arguments why the Malaysian market is good this year but the arguments are not strong enough to result in a very strong market - and there’s also a global environment that’s not as good as last year.”
“I think the US administration is now focusing on globalisation and world trade and it seems to be moving in the direction of conflict with China over trade.
“If there is a China-US trade war, Malaysia will suffer collateral damage because we are a medium-sized player in a global supply chain, so it will be very disruptive,” Cheah said.
Upside for the Malaysian market could also be limited this year, he said, because its current valuation is relatively high at over 16 times price to earnings.
Cheah thinks the local stock market could go up by between 5% to 10% this year while the ringgit, which has mostly been on an uptrend in recent times, is “still down quite a lot”, against the US dollar.
The local unit appreciated by 8.6% against the dollar last year after losing some 4.5%, a year earlier.
At last look, it was traded at 3.9395 against the greenback.
NEW Year always come with new resolutions. Finance is an important aspect of most people’s checklists when it comes to planning new goals.
While it is good to set new financial targets, it is also vital to re-look at our debt portfolio to ascertain if it is at a healthy state.
At a national level, our country also has its financial targets matched against its debt portfolio.
According to the latest Risk Developments and Assessment of Financial Stability 2016 Report by Bank Negara, the country’s household debt was at RM1.086 trillion or 88.4% of gross domestic product (GDP) as at end 2016.
Residential housing loan accounted for 50.3% (RM546.3bil) of total household debts, motor vehicles at 14.6%, personal financing at 14.9%, non-residential loan was 7.4%, securities at 5.7%, followed by credit cards at 3.5% and other items at 3.6%.
Evidently, residential housing loan is the highest among all types of household debt. However, a McKinsey Global Institute Report on “Debt and (Not Much) Deleveraging” in 2015 highlighted that in advanced countries, mortgage or housing loan comprises 74% of total household debt on average.
As a country that aspires to be a developed nation, a housing loan ratio of 50.3% to total household debt would be considered low, compared to 74% for the advanced countries. In other words, we are spending too much on items that depreciate in value immediately – such as car loans, credit card loans and personal loans – compared to assets that appreciate in value in the long run, such as houses.
Advanced economies, which are usually consumer nations, have only 26% debts on non-housing loan as compared to ours at 49.7%.
In order to adopt the household debt ratio of advanced economies, our housing loan of RM546.3bil should be at 74% of total household debt. This means that if we were to keep our housing loan of RM546.3bil constant, our total household debt should be reduced from the current RM1.086 trillion to a more manageable RM738bil. This would require other non-housing loans (car loans, credit card loans and personal loans etc) to reduce from 49.7% of total household debt to only 26%. To achieve this ratio, the non-housing loan debt must collapse from the current RM539.7bil to only RM192bil.
Reducing total household debt from the current RM1.086 trillion to a more manageable RM738bil would also have the added benefit of reducing our total household debt-to-GDP ratio from the high 88.4% to only 60%, making us one of the top countries globally for financial health.
Malaysia’s household debt at present ranked as one of the highest in Asia. Based on the same 2015 McKinsey Report, our household debt-to-income ratio was 146% in 2014 (the ratio of other developing countries was about 42%) compared to the average of 110% in advanced economies.
Adjusting the debt ratio by reducing car loans, personal loans and credit card loans will make our nation stay financially healthy.
Car values depreciate at about 10% to 20% per year based on insurance calculations, accounting standards and actual market prices. Assets financed by personal and credit card loans typically depreciate immediately and aggressively.
The easy access to credit cards and personal loan facilities tend to encourage people to spend excessively, especially when there is no maximum credit limit imposed on credit cards for those earning more than RM36,000 per year.
If we maximised the credit limit given without considering our financial ability, we will need a long time to repay due to the high interest rates, which ranged from 15% to 18% per annum.
Based on a report in The Star recently, Malaysia’s youth are seeing a worrying trend with those aged between 25 and 44 forming the biggest group classified as bankrupt.
The top four reasons for bankruptcy were car loans (26.63%), personal loans (25.48%), housing loans (16.87%) and business loans (10.24%).
It is time for the Government to introduce more drastic cooling-off measures for non-housing loans in order to curb debt that is not backed by assets. This will protect the rakyat from further impoverishment that they are voicing and feeling today.
As we kick start the new year, it is good to relook into our debt portfolio. When we are able to identify where we make up most of our debts, and start to reallocate our financial resources more effectively, we will be heading towards a sound and healthier financial status as a nation.
By Alan Tong - Food for thought
Datuk Alan Tong has over 50 years of experience in property development. He was the world president of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please e-mail feedback@fiabci-asiapacific.com.
No intrinsic value: Unlike enterprises, bitcoin has no business, no intrinsic value, no cash flows and no balance sheet. — AFP
I JUST returned from a meeting of the Asian Shadow Financial Regulatory Committee in Bangkok.
The group comprises Asian academic experts on economics and finance. Their role is to monitor the state of the world economy and the workings of its financial markets in the light of existing and prospective policies; and draw lessons and give advice on vital public policy issues of current interest to regulators and market practitioners to make the world a better place.
The group comprises 23 professors from 14 countries, coming from a diverse group of universities and think-tanks, including the universities of Sydney and Monash, and of Fudan, Hong Kong and Sun-Yat-Sen in China, Universitas Indonesia, universities of Tokyo and Hitotsubashi, Yonsei and Korea universities, Sunway University, Massey University in New Zealand, University of the Philippines, Singapore Management University, National Taiwan University, Chulalongkorn University and NIDA Business School, University of Hawaii and University of California at Davis, University of Vietnam, and Tilburg University in the Netherlands.
They examined key issues surrounding the theme: “Cryptocurrencies: Quo Vadis?” focusing on the role and activities of the flavour of the month, bitcoin. At the end of it all, they issued the following statement:
“Cryptocurrencies in general, and bitcoin, in particular, have been receiving considerable press of late, driven mainly by wide swings in value in the cryptocurrency exchanges. There are now in excess of 2,500 products considered to be cryptocurrencies and in the last three weeks alone their combined market value has plummeted from US$830bil to US$545bil as of today, of which US$215bil is attributed to bitcoin and bitcoin cash.
To keep this in perspective, however, Apple Inc has a market value of US$880bil as of today. Market value measures the equity value of a business – or what investors are willing to pay for its future profits. Unlike enterprises, however, bitcoin has no business, no intrinsic value, no cash flows, no profit and loss statement, and no balance sheet. It is a speculative instrument.
Cryptocurrencies, including bitcoin, are not considered currency today because they are not a universal means of payment, nor a stable store of value, nor a reliable unit of account. Buyers purchase on the basis that these cryptocurrencies would rise in value. While market value has been the main focus of the current interest, the more important issues are around the role of cryptocurrencies both as financial assets, and the role they can play in transaction settlements, and their implications, if any, on financial stability.
While there is much interest in cryptocurrencies, especially bitcoin, the volume of transactions remains very small currently. For example, total US dollars (cash) in circulation amount to US$1.6 trillion as of today. M3 (broad money) is valued by the Federal Reserve at US$14 trillion. Total US economy assets in 2016 were valued at US$220 trillion. So why the fascination with cryptocurrencies? Supporters of Bitcoin claim it to be a superior store of value to fiat money issued by central banks because its supply is limited by design and therefore cannot be debased. In addition, the technology behind bitcoin, called the Blockchain, provides anonymity to its players. That is why it is a favourite with money launderers, tax evaders, terrorists, drug smuggler, hackers, and anyone who wants to evade the rule of law. Many people who use cryptocurrencies assert that they pay minimal transaction costs mainly because it avoids the cost of financial intermediation.
Still, there is large potential for capital gains because of the wide volatility of its price movement. This is the main driving force behind the popularity of cryptocurrencies like bitcoin. However, there are high risks involved including extreme volatility and opaque, unregulated exchanges that are prone to cyberattacks.
Authorities and regulators worry about bitcoin because they fear it is a bubble. In the event of a bust, investors in bitcoin – they are many, spread over various continents and countries – will be hurt; and they exert pressure on governments to regulate this business in order to protect investors.
In addition, they worry about the impact – in the event that cryptocurrency trading becomes a significant element in maintaining financial stability – in terms of the impact on the transmission of monetary policy and on its effects on the banking system, and most of all, on systemic risk, if any.
Authorities have responded in different way. In South Korea, new regulations today require banks and exchanges to identify who their customers are, imposing greater transparency in the conduct of the cryptocurrency business. On the other hand, Japanese authorities are more liberal. They only require the registration of companies engaged in this business at this time.
Many other authorities, including those in the US, are adopting a wait-and-see attitude while studying the issues, recognising that there may be a role for them to introduce some regulatory measures in the event that the volume and price volatility of cryptocurrency transactions become more and more significant.
In the meantime, government and tax authorities feel uneasy about the impact on revenue collection. Other regulators are worried about crowdfunding through ICOs (initial coin offers). Authorities in a number of countries, including the US, have introduced measures to regulate the issue of new ICOs to ensure that investors are provided with the necessary information before making such investments.
At the same time, central banks in many countries are looking into the desirability and possibility of issuing their own digital currencies, including to counter privately-issued cryptocurrencies.
Recommendations:
1. Bitcoin came into prominence because of an apparent lack of confidence in fiat currency. It is imperative that governments and central banks continue to give priority to (i) protecting the integrity of their currencies; (ii) designing policies to contain inflation to prevent it from debasing the currency; and (iii) strengthening their mandate to promote financial stability over financial development, if needed (including ensure fintech development does not undermine confidence). Also, in cases where authorities do not have the power to regulate the cryptocurrency business, they should actively seek such authority where appropriate.
2. Monetary authorities should be open to creating digital currencies rather than confining their money supply to notes, coins and deposits. But they should do so in a transparent manner and only after careful consultation and study.
3. It is the role of government to warn their citizens and investors about the high risk involved, and ensure transparency in bitcoin activity, and not to unduly introduce more and more regulations that will stifle innovative initiatives. Blockchain technology, for example, does have other useful applications apart from the issue of its use in the creation of digital currency.
Investor protection
As we see today, bitcoin and the other cryptocurrencies are not currencies. Mostly, they reflect speculative activity. Hence, investing and transacting in them involve high risks. It is imperative that investors realise this and approach investing in cryptocurrencies with great caution and with as much information as is available to help them manage these risks.
Investors must fully understand that cryptocurrency prices need not necessarily always rise, particularly because they have no intrinsic value, they could just as easily fall. So investors beware: Caveat emptor.” Update
The following developments are noteworthy:
> Columbia’s Prof N. Roubini (Dr Doom) claims bitcoin is not a currency. Few price anything in bitcoin. Not many retailers accept it (even bitcoin conferences don’t accept it as payment). And it’s a poor store of value because its price can fluctuate 20%-30% a day. Worse, he labelled it “the mother of all bubbles” because its claim of a steady-state supply is “fraudulent”.
It has already created thee similar currencies: Bitcoin Cash, Litecoin and Bitcoin Gold. Together with the hundreds of such other currencies invented daily, this creation of money supply is debasing the currency at a much faster pace than any major central banks ever did. Furthermore, bitcoin’s claimed advantage is also its Achilles’s heel – for, even if it actually did have a steady supply of 21 million units, it is not a viable currency because the supply won’t track potential nominal GDP growth; hence, prices will become deflationary – the kind of phenomenon that economist Irving Fisher believed caused the Great Depression.
Indeed, the head of the European Central Bank had since declared to the European Parliament that cryptocurrencies are unregulated and “very risky assets. Their price is entirely speculative”. That’s not what we want or need. It’s a pity the FOMO (fear of missing out) of many retail investors will end them in a wild goose ride!
> Over its nine-year history, bitcoin has had five-peak-to-trough falls of more than 70% each. The recent decline offers a dose of reality to new investors – bitcoin dropped to a low US$7,850 on Feb 2 for the first time since November 2017 – crashing 60% from the high of nearly US$20,000 in mid-December. Sentiment has shifted dramatically this year.
On Feb 5, it fell another 4% to US$7,524. Also, the fledging market has taken a number of blows: Facebook has since banned advertisements on it (for being misleading); US Securities and Exchange Commission has accused some latest ICOs as “outright scams”; US and UK largest banks have put up “road-blocks” to financing bitcoins; and the recent Japanese hack theft of 523 million crypto-XEM (worth US$500mil) brought back memories of Mt Gox, which collapsed after a similar hack in 2014.
> Arbitrage traders (buying where it’s cheap and reselling where it is dear) have been active – taking advantage of price differentials in multiple places and different times. They call it “capturing the arb”. Hedge funds, high frequency traders and even amateur enthusiasts are giving it a shot. Price divergences can be due to glitches or network traffic jams. In South Korea, exchanges quote abnormally wide prices reflecting high investors’ demand for bitcoin in the face of strict capital controls – giving rise to a “Kimchi premium” (of as high as 50% above US price; now down to 5% as price disparities are swiftly traded away).
> Concern over cryptocurrency activity is spreading beyond China, Japan, South Korea and India. This prompted the governor of the Bank of England, who also chairs the Global Financial Stability Board, to voice his unease over the anonymity embedded in blockchain technology underlying their use, especially for illicit activity (including money laundering). He disclosed that it would be on the agenda at the next G20 meeting. Tax authorities have also expressed concern over the under-reporting of capital gains tax.
> Bitcoin futures trading on Chicago’s CME and CBoE exchanges have been slow to catch fire – at the pace of a “slow walk”.
What then, are we to do
Reality check: Bitcoin is proving that cryptocurrencies can erase wealth as fast as they create it. In January 2018 alone, it wiped off US$45bil from its US$200bil in market value generated in all of 2017 – the biggest one-month loss in US dollar terms in its short history. Since then, more value is being lost. For most economists and finance experts, they don’t represent an investable asset – there are liquidity issues, safety issues, exchange issues; most of all, they have no intrinsic value.
Can’t realistically put a fix on their fair value. They are for speculators who are prepared to lose everything. Of course, its something else for those who use them for illicit activity (home to criminals and terrorists), including money laundering. Anonymity means you are potentially closing a chain, while at somewhere along it had some illicit activity that cannot see the light of day.
Fair enough, these concern regulators. But we shouldn’t lose sight of the huge range of opportunities presented by the underlying technology – a view shared by many in relation to raising the efficiency of payment systems. Regulators are right to want to regulate crypto but also, continue to encourage innovation on blockchain. As I see it, so far in 2018, bitcoin has been a total dud. The list of factors driving its decline is growing, especially rising regulatory clampdown occurring around the world.
So, the cryptocurrency market has fallen on tougher times. For sure, Bitcoin has been highly profitable for many investors. Indeed, there continues to be strong interest among millennials.
Bottom line: the year so far has been terrible for bitcoin. But the fundamental positive story for crypto appears to remain intact. Protecting consumers should make it harder for charlatans to sell digital dust. There is a point where it goes from “buying on the dip” to “catching a falling knife”. Only time will tell. So, beware!
NB: Following global regulatory crackdown, bitcoin’s price has on Feb 6 fallen to a low of US$5,947, wiping out over US$200bil so far this year. Bitcoin’s market cap is now US$109bil, about one-third of the total crypto market (that’s down from 85% this time last year). The Bank for International Settlements (banker to central banks) has now condemned bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster” (refers to huge amounts of electricity used to create it) and warns it can even become a “threat to financial stability”.
By Lin See-yan - what are we to do?
Former banker Tan Sri Lin See-Yan is the author of The Global Economy in Turbulent Times (Wiley, 2015) and Turbulence in Trying Times (Pearson, 2017). Feedback is most welcome.
Delegations from the DPRK and the ROK march under the Korean unification
flag during the Parade of Nations at the opening ceremony. /VCG Photo
The 2018 Winter Olympics in Pyeongchang began with a rare display of unity from South Korea and North Korea. Olympic athletes from both nations marched together during the Opening Ceremony in South Korea.
“United in our diversity, we are stronger than all the forces that want to divide us,” International Olympic Committee President Thomas Bach said Friday during the ceremony.
The unified flag of Korea was jointly carried into Pyeongchang Stadium by South Korean bobsledder Won Yun-jong and North Korean ice hockey player Hwang Chung-gum. The united contingent of athletes was the last to walk in the parade of nations.
Top DPRK leader invites S.Korean president to visit Pyongyang
Kim Jong Un, top leader of the Democratic People's Republic of Korea (DPRK), invited South Korean President Moon Jae-in to visit the DPRK at Moon's convenient time, the presidential Blue House said Saturday.
Kim Eui-kyeom, spokesman for President Moon, told a televised press briefing that Kim Yo Jong, the younger sister of the DPRK leader, delivered a letter of Kim Jong Un to Moon showing Kim's willingness to improve inter-Korean relations.
The younger Kim delivered the DPRK leader's message, saying the DPRK leader is willing to meet President Moon at an earliest possible date.
The invitation was made during an informal meeting between Moon and the DPRK's Olympic delegation, including the younger Kim who serves as the first vice director of the Central Committee of the ruling Workers' Party of Korea.
In response, Moon said, "Let's create conditions going forward and make it."
The DPRK delegation was led by Kim Yong Nam, president of the Presidium of the Supreme People's Assembly. Two other senior delegates attending the meeting were Choe Hwi, chairman of the National Sports Guidance Committee, and Ri Son Gwon, chairman of the Committee for the Peaceful Reunification of the Fatherland.
The meeting and luncheon, not disclosed to the media, lasted for about three hours at the presidential complex.
It marked the first time in eight and a half years that a ranking DPRK delegation visited South Korea's presidential complex.
In August 2009, the DPRK sent a high-ranking condolence delegation to bid farewell to late South Korean President Kim Dae-jung who held the first inter-Korean summit with late DPRK leader Kim Jong Il, father of the current leader.
The meeting between President Moon and the DPRK delegates was held informally, not made open to the media.
Attending the informal meeting from the South Korean side are the spy agency chief, the unification minister, the presidential chief of staff and the top presidential security advisor.
The DPRK delegates are scheduled to return back to their homeland on Sunday. - Global Times
According to Wikipedia, a blockchain,[1][2][3] originally block chain,[4][5] is a continuously growing list of records, called blocks, which are linked and secured using cryptography.[1][6]
Each block typically contains a cryptographic hash of the previous block,[6] a timestamp and transaction data.[7] By design, a blockchain is inherently resistant to modification of the data. It is "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way".[8]
For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer
network collectively adhering to a protocol for validating new blocks.
Once recorded, the data in any given block cannot be altered
retroactively without the alteration of all subsequent blocks, which
requires collusion of the network majority.
Blockchain technology can be integrated into multiple areas. The primary
use of blockchains today is as a distributed ledger for cryptocurrencies, most notably bitcoin.[65]
Each of the Big Four accounting firms is testing blockchain technologies in various formats. Ernst & Young has provided cryptocurrency wallets to all (Swiss) employees,[79] has installed a bitcoin ATM in their office in Switzerland, and accepts bitcoin as payment for all its consulting services.[80]
Marcel Stalder, CEO of Ernst & Young Switzerland, stated, "We don't
only want to talk about digitalization, but also actively drive this
process together with our employees and our clients. It is important to
us that everybody gets on board and prepares themselves for the
revolution set to take place in the business world through blockchains,
[to] smart contracts and digital currencies."[80] PwC, Deloitte, and KPMG have taken a different path from Ernst & Young and are all testing private blockchains.[80]
Why enterprises should care about blockchain
If you are in business or government or interact with businesses or government (that should be all of you), blockchain technologies will impact you in a profound way.
People much smarter than me who have studied blockchain deeply say this is like the internet before Marc Andreessen co-invented the browser. Then, we had no idea that the world would change as radically as it has. The world will change radically again, and no one can predict how.
However, let’s take a glimpse into the future at what people are working on now, so you get just an inkling of what’s possible.
IBM is putting a lot of wood behind the blockchain arrow and aggressively going after business. One example is a project with Walmart to track food shipments. Let’s use the example of mangos. Why is this important and how does the blockchain fit in?
This food-tracking application is important because Walmart wants to have all the information it can about the mangos it’s buying. Armed with this information, Walmart can do many valuable things:
Verification: Verify that the mangos that claim to be organic are actually organic (ensures quality)
Tracking: Track the mangos as they travel from the farm to the store, so they know where they are and when they will arrive (reduces cost)
Ensure quality: Ensure that if they need to be refrigerated within 40 and 50 degrees to ensure freshness, that they were refrigerated correctly during shipment (ensures quality
Recall management: Know exactly which mangos should be taken off the shelves if there’s a problem with the food (both ensures quality and reduces cost)
Automation: Reduce human interaction required between the farmer, distributors, brokers and the buyer (reduce cost)
But where does the blockchain fit in? Here’s how a blockchain-enabled mango-buying transaction works better than a process without the blockchain.
VERIFICATION
It turns out that people eat more food that has been labeled "organic" than is farmed. That's because there is fraud in some claims as to whether or not something is organic and those things can make their way into shipments unbeknownst to the buyer. Now, the mangos get labeled at the source, by a trusted entity that deems them organic. That information is then recorded on the blockchain, and that information cannot be changed. The "proof of organic" is now locked in and Walmart now fully trusts its mangos are organic. That makes it very difficult to fraudulently sell you mangos that are not organic.
TRACKING
Walmart is great at removing costs from their supply chain - maybe the best in the world. Now, they can build in a delivery price guarantee into the system, without human intervention. It works like this. Using a smart contract (code that represents an agreement) Walmart can say they will pay a certain amount for mangos that show up on the shipping dock within a specific shipment window. And, they can do that without having to create paperwork representing a different price for a late shipment. The payment to the late shipper gets changed automatically, based on the code in the smart contract.
ENSURE QUALITY
If the refrigerator truck in which the mangos are being shipped has a malfunction, the mangos could go bad. The shipper might not realize there's a problem, and Walmart might not realize there's a problem, but the consumer will be very unhappy. If the transportation company has thermometers on their truck continually report the temperature of the truck during transport, then Walmart will know that the mangos are fresh when they arrive, ensuring high quality. And, this is done automatically on the blockchain due to a trusted source of information (the thermometers) communicating with the smart contract that has set the temperature parameters.
RECALL MANAGEMENT
Sometimes mangos need to be recalled for one reason or another. Without the blockchain, Walmart might have to remove many thousands of mangos to ensure no customer gets a bad one. With the blockchain, Walmart now knows exactly what mangos need to be taken off the shelf. This ensures the bad mangos are removed. Yes, other technologies exist today that can do something similar as it’s related to tracking mangos. However, what the blockchain does is provide a higher level of confidence that fraud did not occur at some point along the way to protect the entity that enabled bad mangos to happen in the first place.
AUTOMATION
Today, a lot of intermediate transactions can exist in a transportation process. For example, transactions between the farmer and the broker; between the broker and the shipper; between the shipper and Walmart. These transactions usually require people to approve or deny some aspect of the movement of products. Through smart contracts, a lot of these approvals can be automated and sped up by removing people from the equation. This both reduces costs and speeds up the process.
Of course, this is only one example of an application that can transform an industry. Many, many other applications are being built to address very different use cases. I recommend you start to become educated on what is going on so you can get ahead of the curve.
By Glenn Gow is the Marketing Partner at Clear Ventures, a CEO Coach, Board Member and Advisor, and a Blockchain Strategist.
Is bitcoin a scam?
Is bitcoin a Ponzi scheme?
Is bitcoin one humongous scam or Ponzi scheme? Before I answer that question, let’s look at the four typical characteristics of a Ponzi scheme.
First of all, there must be a promoter for the scheme. It may be a single individual or a corporation.
The key point here is that there is a single party promoting (and thus benefiting from) the scheme. The second characteristic is the promised return.
To attract gullible investors the scheme will promise unrealistic sky-high returns. The saying “if it is too good to be true, it probably is” always applies in this scenario.
The third characteristic pertains to the investment’s liquidity, which simply means how easy it is to get out once you are in. The promoter will tend to discourage investors from cashing out using and will do so using one or more of these three approaches.
The stick approach is where the investor loses a portion of his investment if he withdraws early.
Conversely the carrot approach entices the investor to stay in by promising even higher returns the longer he keeps the funds invested.
Finally the “too-good-not-to-share” approach requires the investor to find a new investor to take over his investment. In short, he needs to look for new fools to buy him out.
Yes, the Ponzi scheme’s liquidity is at the mercy of the promoter’s whim and fancy.
Thus we come to the fourth characteristic. Ponzi schemes require a constant flow of new investors (read: new money) to fund the payout to early investors.
Before the promoter vanishes into thin air, a small number of EARLY investors DO actually get to cash out and enjoy the ridiculous returns. This is done intentionally by the promoter to “instill” confidence in the scheme as these early investors will help to bring in new investors.
Let’s apply these four characteristics to Bitcoin. The decentralised nature of bitcoin means that there is never a single party promoting bitcoin.
One may argue that there are plenty of people promoting the virtues of bitcoin.
However these are all unrelated parties, akin to different investment advisers promoting the virtues of gold as an investment.
What about returns?
Yes, bitcoin has provided spectacular profits to some investors in the past year.
However these profits were never promised in the first place. In fact people have lost money trading bitcoins, in spite its meteoric rise. This is due to the extreme volatility of the price.
Does bitcoin have sufficient liquidity that is, can you get out? All the recent headlines about regulators and banks freezing the accounts of crypto-related transactions have given the impression that it is hard-to-get-out once you are in.
However, nothing could be further from the truth. The decentralised nature means that there are so many alternatives for selling bitcoins, although not all are convenient.
Finally, are bitcoin investors who are late to the party effectively funding the early investors’ profits?
On that note, bitcoin may sound similar to a Ponzi scheme.
Then again the same can be said of investors who entered the markets at the peak of the dotCom bubble or the housing bubble.
This is a zero-sum game.
I would be remiss if I did not acknowledge the existence of numerous proven scams out there that uses or references Bitcoin.
To counter that point, note that these scams never actually put money into bitcoin, merely hitching a ride on the bitcoin bandwagon and hype.
Prior to the emergence of cryptocurrencies, Ponzi schemes already existed. These schemes claim to use special techniques to generate spectacular profits from various asset classes such as commodities or real estate. Do you hear anyone labelling real estate as a Ponzi?
That said, I must make the point clear that one can easily lose a fortune putting hard earned money into either bitcoins or a Ponzi scheme. Nevertheless, bitcoin is not a scam or Ponzi scheme, as outlined by the points above.
Source: The Star, by Chong Jin Yoong, CFA, is a financial markets trainer and consultant.
Readers can learn more about whole bitcoin and cryptocurrency saga at a talk organised by The Star on Feb 10 entitled “Bitcoin: Dive in or stay away?”
