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Is the 'Index of Will' right to rank #VladimirPutin as number one?

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As false information and ill-informed opinions abound, politicians increasingly resort to techniques that are sometimes referred to as populist ones, and have now come to be called the “art of listening to one's electors”. Someone across the pond has used it to make an unexpected political career and someone on this side has had to deal with mass protests when the gap between the promises made and the real policy became too dramatic. It is easy to make promises, as we all know, yet, the highest appreciation is not to utter words, but to live by them, as John F. Kennedy once said, writes James Wilson.

President Donald Trump of the United States recently addressed the U.S. senators and congressmen, and on Wednesday 20 February Russian President Vladimir Putin also spoke to the Russian parliament. To gauge their performance analysts have come up with a consolidated index of how well international leaders of  deliver on their pledges. The UK chose not to be taken into consideration, and the political will criteria can hardly be applied in this connection.

We thought about calling this research 'The Kennedy Index' but to avoid any negative connotations we decided to call it the 'Index of Exercising Political Will'.

With this objective, we have developed the research formula and its variables as described below.

I.W. (Index of Will), our index of politicians' delivering on their political pledges and implementing their intentions is calculated according to the following formula:

IW = (SE + NS +FP):3,

where -

SE (Social and Economic Policy) stands for the politicians' performance in implementing social and economic development programmes;

NS (National Security) stands for the politicians' performance in implementing national security and defence programmes;

FP (Foreign Policy) represents the politicians' performance in foreign policy and enhancing their countries' authority on the international arena.

Each of the variables is given a score from 1 to 10 for each political leader based on how the analysts assess his or her performance in delivering on their pledges. Any politicians that score less than 5 points are considered to have failed to fully implement their political programmes in the given area.

The sums of the points for the three variables (SE, NS, FP) for five selected political leaders, were used as integral indices that were subsequently compared to produce an overall rating as follows: -

1) “I.W.” (Putin) = (4+10+8):3 = 7.33

2) “I.W.” (Trump) = (8+7+6):3 = 7

3) “I.W.” (Xi Jinping) = (6+7+7):3 = 6.66

4) “I.W.” (Merkel) = (6+6+6):3 = 6.00

5) “I.W.” (Macron) = (3+5+5):3 = 4.33

Let us examine the results in greater detail in order to follow the logic of the analysts’ assessments. Vladimir Putin's annual address to the Parliament of Russia took place most recently. Such statements by the Russian leader tend to always stand out in terms of the quality of the data presented and variety of topics discussed. The Russian president is reported to prepare the data meticulously and over a long period of time, drawing on expertise in a wide range of subjects from the current economic situation to the planning of the future. Putin tends to opt for socially-oriented and conservative rhetoric. For many years he has consistently paid close attention to supporting traditional values, preserving the culture of all Russian people, strengthening family, and showing care for elderly people. In his annual addresses he has also always discussed the issues of social improvements for youth and future tasks.

The Russian President has also paid attention to economic development. Despite the sanctions imposed against Russia, most of the tasks and economic targets set by the President in such addresses are achieved, or at least the work on them is under way. To cite one example, the 2016 target of reaching a deficit-free budget was on the whole met by 2019. At the same time, this achievement and the performance indicators for the social sphere have been seriously affected by general economic performance. Pledges to retain a single level of tax burden up to the 2020s were not respected. The launch of the most unpopular reform to raise the retirement age affected both the indices of social and economic well-being of citizens and the general rating of the Russian leadership, including Vladimir Putin himself. All of these factors brought the social and economic component of the index to as low as four.

On the other hand, it should be acknowledged that Russia's leader has succeeded in implementing the military reforms he promised and strengthening the country's international position. The effectiveness of Russian troops in Syria in the fight against international terrorism has demonstrated that Putin's security and foreign policy pledges have been fulfilled. Yet, Russia's rising power and its attempts to influence Western countries' political affairs were rewarded with new sanctions, mistrust, and sometimes even fuelled fears of its possible revanchist plans. Putin therefore scored ten out of ten possible points for his National Security and only eight points for his Foreign Policy.

Surprisingly, Donald Trump's situation is not as bad as it might seem. His pledge to withdraw U.S. troops from Syria and Afghanistan made in his recent address to Congress, is only a part of a huge set of his promises. Trump did begin the process of withdrawing from the Paris climate agreement, pulled out of trade negotiations on the Trans-Pacific Partnership, quit the Iran nuclear deal, and imposed tariffs on a range of imported Chinese goods. The U.S. economy grows at a steady pace, the unemployment rate is low, and the number of jobs created inspires grudging respect. Yet, many of his solemn pledges concerning a strategically important foreign agenda, key global issues and the domestic agenda remain unfulfilled.

Trump constantly criticizes the impressive trade surplus of the US’s key trade partners, particularly Germany. He also complains that the euro is cheap. He consistently calls on NATO member states to lift military spending to 2% of GDP threatening to withdraw from the North Atlantic Treaty. He attempts to halt the infrastructural Nord Stream 2 project, virtually blackmailing European countries by the possibility of an increase in export tariffs. However, all these promises and threats have remained mere words.

The wall along the border with Mexico will be built, as the U.S. President declared in his Address to the Nation. However, it has turned out to be virtually impossible to fulfil this pledge with the House of Representatives blocking the President's major legislative initiatives. His hard line does not show a clear way forward to deliver soon this promise.

As for National Security, the US is developing a new missile defence system and is prepared to consider re-negotiating the INF Treaty. Trump gives assurances that Iran will never have nuclear weapons, and the Venezuelan people will be supported in their noble quest for freedom. Certain points do not look realistic enough. As a result, Trump gets eight for his remarkable progress in the economy, while the failure to build the wall and the ongoing domestic political battles prevent him from scoring more than seven points for National Security. The U.S. President receives six points for his controversial foreign policy that, for all its pursuit of national interests, undermines the well-established logic of strategic stability and global security.

A landmark report given by President Xi Jinping at the 19th National Congress of the Chinese Communist Party in 2017 also provided a broad strategic vision and ambitious goals.

Since then, the Chinese leadership has consistently worked to achieve foreign policy and security objectives set by Mr Xi. The key priority determined by the Chinese leader is to develop innovation in the defence industry. So, there has been growth in high-tech defence manufacturing in China, including on the basis of their own technology. The report focused particularly on enhancing the well-being of Chinese people. In this context, it is especially important to address social inequality, which appears to be a major challenge for Xi. Moreover, the shadow economy is still thriving in China. And the ongoing trade war with the United States has already affected China's economic development - Chinese manufacturers find it increasingly difficult to access the US market and are experiencing serious shortfalls in income. Overall, this situation has an adverse impact on investor sentiment towards the Chinese market.

Given all these factors, China's leader gets six points, which is above average, for Social and Economic Policy and seven for both National Security and Foreign Policy.

In Europe, nothing ever changes when it comes to keeping promises. Over the last two decades, Germany has been the engine of the EU's economy. In 2018, when major EU's economies (France and Italy) were stagnating, Germany's economy saw 2.5 percent growth. At the same time, Germany is facing a massive influx of immigrants, which creates divisions within society. Far-right political forces (such as “Alternative for Germany”) that campaign for tightening immigration policy make have made gains across the country, especially in the eastern federal lands, which formerly were part of the German Democratic Republic. As a result, Merkel gets six points for Social and Economic Policy.

Still, as illustrated by the 2017-2018 events, German security services are much more efficient than their French colleagues, Germany having seen no major terrorist attacks over time. It should be noted, however, that its defence expenditures remain below 1.5 per cent of GDP. In its foreign policy during 2017-2018, Berlin succeeded in presenting itself as an acknowledged leader of the European Union. In its bilateral relations with Russia, Berlin also managed to show a certain degree of independence. Merkel gets an average of six points ascribed by experts for her overall efforts in foreign policy.

Because of his fixed course towards radical liberal economic reforms, Emmanuel Macron is currently the least popular President of the Fifth Republic. On December 10, 2018, following a series of mass 'yellow vest' protests that swept across France at the end of 2018, Macron was forced to announce a social and economic emergency. These developments had been provoked, to a considerable extent, by the lack of coherence in the French leader's statements and actions alike.

France remains highly vulnerable as far as national security challenges are concerned: the country's security forces have learnt little from the 2017-2018 terrorist attacks. Things are just as volatile in French foreign policy: tasks in the above areas set out in the president's addresses have remained incomplete over the last two years. For extremely high social and economic tensions within the country, Macron is only ascribed three points. Terrorist attacks and pending refugee problems take five points off the French president. Notwithstanding Macron's regular initiatives in foreign policy, none of these have been fully and successfully implemented; hence, no changes in France's international standing. Five points for that.

It should be noted in conclusion that while different political analysts offered us all sorts of assessments, the common logic persisted. One important message should be conveyed: even as populism is gaining ground in the political arena, President Lincoln's words are still relevant, "You can fool all the people some of the time, and some of the people all the time, but you can’t fool all the people all of the time…"

A wise politician today would be well advised to be mindful of the words of both Kennedy and Lincoln.

Business

Has the shine worn off activist investment?

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A few recent cases suggest that the tide may finally be turning on activist investment, which until recently seemed as if it was becoming an entrenched part of the business world. Although the value of activist investor-held assets may have been climbing in recent years (in the UK, this figure grew 43% between 2017 and 2019 to reach $5.8 billion), the number of campaigns fell by 30% in the year leading up to September 2020. Of course, that drop-off can partly be explained by the fallout from the ongoing coronavirus pandemic, but the fact that more and more plays appear to be falling on deaf ears could signal a bleaker long-term outlook for activist agitators going forwards.

The latest case in point comes from England, where wealth management fund St James’s Place (SJP) were the subject of an attempted activist intervention on the part of PrimeStone Capital last month. After purchasing a 1.2% stake in the company, the fund sent an open letter to the SJP board of directors challenging their recent track record and calling for targeted improvements. However, the lack of incision or originality in the PrimeStone manifesto meant that it was brushed off with relative ease by SJP, with little impact being felt on its share price. The underwhelming nature and outcome of the campaign is indicative of a growing trend in recent years – and one that could be set to become more pronounced in a post-Covid-19 society.

PrimeStone unable to inspire

The PrimeStone play took the traditional form favoured by activist investors; after acquiring a minority stake in SJP, the fund tried to flex its muscles by highlighting the perceived shortcomings of the current board in an 11-page missive. Among other issues, the letter identified the company’s bloated corporate structure (over 120 head of department on the payroll), flagging Asian interests and tumbling share price (stocks have fallen 7% since 2016). They also identified a “high-cost culture” in SJP’s backroom and made unfavorable comparisons with other prosperous platform businesses like AJ Bell and Integrafin.

While some of the criticisms had elements of validity, none of them were especially novel—and they didn’t paint a complete picture. In fact, several third parties have come to the defence of SJP’s board, pointing out that equating the company’s downturn with the rise of interests such as AJ Bell is unfair and overly simplistic, and that when set against more reasonable touchstones such as Brewin Dolphin or Rathbones, SJP holds its own remarkably well.

PrimeStone’s admonishments over SJP’s high spending may hold some water, but they fail to recognize that much of that outlay was unavoidable, since the firm was forced to comply with regulatory changes and succumb to revenue headwinds beyond its control. Its impressive performance against its competitors confirms that the company has been dealing with sector-wide issues exacerbated by the pandemic, something which PrimeStone singularly failed to fully acknowledge or address.

Momentous vote imminent for URW

It’s a similar story across the Channel, where French billionaire Xavier Niel & businessman Léon Bressler have collected a 5% stake in international shopping mall operator Unibail-Rodamco-Westfield (URW) and are adopting Anglo-Saxon activist investor tactics to try and secure URW board seats for themselves and push URW into a risky strategy to drive up its share price in the short term.

It’s clear that, like most companies in the retail sector, URW needs a fresh strategy to help weather the pandemic-induced recession, particularly given its relatively high level of debt (more than €27 billion). To that end, URW’s board of directors are hopeful of launching project RESET, which targets a capital raise of €3.5 billion in order to maintain the company’s good investment-grade credit rating and ensure continued access to all important credit markets, while gradually deleveraging the shopping mall business.

Niel and Bressler, however, want to forego the €3.5bn capital increase in favour of selling off the firm’s US portfolio—a collection of prestigious shopping centres which have by and large proven resistant to the changing retail environment—to pay down debt. The activist investors’ plan is being opposed by a number of third party advisory firms such as Proxinvest and Glass Lewis, with the latter calling it “an excessively risky gambit”. Given that credit rating agency Moody’s have predicted an 18-month slump in rental income that is likely to hit shopping centres – and have even gone as far as to warn that failure to implement the capital raise underpinning RESET could result in a downgrading of URW’s rating – it seems likely that Niel and Bressler’s ambitions will be rebuffed at the November 10th shareholder meeting, in the same way that PrimeStone’s have been.

Long-term growth over short-term gains

Elsewhere, Twitter CEO Jack Dorsey appears to have also overcome an attempt by high-profile activist investor Elliott Management to oust him from his role. Although a recent committee meeting did cede to some of Elliott’s demands, such as reducing board terms from three years to one, it chose to declare its allegiance to a chief executive who had overseen total shareholder returns of 19% prior to Elliott’s involvement with the social media behemoth earlier this year.

Alongside the atypically uninspiring campaigns conducted elsewhere in the market, and the retrogression of the sector as a whole, could it be that activist investors are losing their clout? For a long time, they have drawn attention to their ventures through flashy antics and bold prognoses, but it seems that companies and shareholders alike are catching on to the fact that behind their bluster, their approaches often contain fatal flaws. Namely, a focus on short-term inflation of the share price to the detriment of long-term stability is being exposed as the irresponsible gamble that it is – and in a shaky post-Covid economy, judicious prudence is likely to be prized above immediate profit with increasing regularity.

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coronavirus

Russia has launched a propaganda campaign to smear the coronavirus vaccine being developed by Oxford University scientists

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The Kremlin is accused of spreading fear about the serum, claiming it will turn people into monkeys. The Russians base the suggestion on the fact the vaccine is using a chimpanzee virus. The Russians have disseminated pictures and memes of Prime Minister Boris Johnson looking like “a yeti”. It’s captioned: “I like my bigfoot vaccine”.

And other shows a “monkey” scientist holding a syringe and working on the treatment.

The monkey is wearing an AstraZeneca lab coat.

The pharmaceutical giant is at the forefront of developing a vaccine.

Last month the London Globe and the EU Reporter carried stories about the Russian campaign.

Both publications have since removed two articles from their online sites.

Publisher Colin Stevens said:

“We were given the story by a freelance journalist in Brussels.

“However, after an investigation by The Times we now know the story has no basis.

“When I heard the stories were false, they were taken down straightaway.

“Sadly, we have been the unwilling victims of a Russian campaign to discredit the excellent work being done by Oxford University scientists.

“Even the very best get caught out now and again. Indeed even the Times was fooled into publishing the fake "Hitler Diaries" some years ago.”

AstraZeneca's chief executive Pascal Soriot condemned attempts to undermine their work.

He said: “Scientists at AstraZeneca and at many other companies and institutions around the world are working tirelessly to develop a vaccine and therapeutic treatments to defeat this virus.

“But it is independent experts and regulatory agencies across the world that ultimately decide if a vaccine is safe and effective before it is approved for use.

“Misinformation is a clear risk to public health.

“This is especially true during the current pandemic which continues to claim tens of thousands of lives, significantly disrupt the way we live and damage the economy.”

Professor Pollard, who is professor of Paediatric Infection and Immunity at the University of Oxford, told BBC Radio Four's Today programme:

“The type vaccine we have is very very similar to a number of other vaccines, including the Russian vaccine, all of which use the common cold virus from humans or from chimpanzees.

“To our bodies, the viruses look the same.

“We don't actually have any chimpanzees involved at all in the process of making the vaccine, because it is all about the virus, rather than animals it might more commonly

Meanwhile, Doctor Hilary Jones told Good Morning Britain the attempts at disinformation were “utterly ridiculous and shameful”.

He added:

“Oxford have a fantastic reputation; they are doing this thoroughly and are looking at thousands of people from all different groups and ages.

“They are doing this safely and effectively and for the Russians to try to besmirch what they are trying to do because parts of the vaccine comes from chimpanzee material is utterly ridiculous and shameful.

“I would put my money on Oxford every time.”

A Russian Embassy spokesman in London said: “The suggestion that the Russian state may conduct any kind of propaganda against the AstraZeneca vaccine is itself an example of disinformation.

“It is obviously aimed at discrediting Russia's efforts in combating the pandemic, including the good co-operation we have established with the UK in this field.”

 

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China

Could the digital Renminbi address China’s vulnerability to the global financial system?

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The international financial system is dominated by the US. Washington has often used its clout in the international financial system to further its economic and geopolitical interests through financial sanctions. As antagonism between the US and China moves beyond trade and technology, how the US-China rivalry will play out in the new stage of international finance is a matter of great concern to the world.

China has been working on a Central Bank Digital Currency (CBDC) since 2014, and is intensifying its efforts to internationalise the Renminbi.

On the surface it appears the CBDC will be for domestic use, but a CBDC will simplify cross border transactions. For a long time, the country has been dissatisfied with the U.S. Dollar’s (USD) ongoing role as the global reserve currency and is committed to extending its currency’s reach.

It even has an initiative to denominate international trade credit in Renminbi (RMB) rather than dollars. And the Belt and Road Initiative has seen China extend more than $1 trillion in foreign loans.

At a recent online global seminar organised by the Pangoal Institution China and the Centre for New Inclusive Asia Malaysia, experts from China, Russia, Europe and the US deliberated and disussed the issue.

One of the key speakers was Mr Ali Amirliravi, CEO and Founder of LGR Crypto Bank of Switzerland. and creator of the Silk Road Coin digital currency.

Mr Ali Amirliravi, CEO and Founder of LGR Crypto Bank

Mr Ali Amirliravi, CEO and Founder of LGR Crypto Bank

He addressed China’s vulnerability to the global financial system, and said:

“This is a very interesting question as there are a lot of factors to consider. To begin, I think it might be helpful to define China’s vulnerabilities specifically. We are speaking about international finance here (it’s a very complex and politically charged system) and since the second world war, the space has been more or less dominated by the interests of the US. We see this in the global dominance that the US dollar has held for the last 70 years. We see that in the steps that Washington has taken to ensure that the dollar acts as the global reserve currency - particularly in industries like the global oil trade. Up until quite recently, it was probably difficult to even imagine a global financial system that was not directly supported by the US dollar.

By virtue of this global reliance, the American political machine was given significant power to wield in international finance. The best evidence of this can probably be found in the history of crippling economic sanctions that the US has enacted against specific states - the impacts of which can be devastating. In a nutshell, it’s an asymmetrical power dynamic wherein the US has carved out a significant negotiating  advantage over other countries.

LGR Crypto Bank of Switzerland

LGR Crypto Bank of Switzerland

Put it this way: when the global economic system is built to fit the domestic currency of a specific state, it is easy to see how that state would be able to tailor certain policies and promote behaviours that would further their own geopolitical interests - this has been the American reality for the last few decades.

But things change. Technology advances, political relationships evolve, and international trade and money flows continue to expand and grow - now incorporating more people, countries and businesses than ever before. All of these factors (economic, political, technological, societal) work to shape the reality of the international order, and we are now at a place where a serious discussion about a replacement for the US dollar is warranted - that’s why I am excited to be here speaking about this issue today, it’s really time to have the conversation.

So, now that we have set the scene, let’s tackle the question: could the creation of a digital Renminbi address the vulnerability and asymmetry that China is dealing with in international finance? I really don’t think this is a simple yes or no answer here, in fact I think it is valuable to consider the question with a broad outlook on development over the next few years.

 

SHORT-TERM

Starting with the short term, let’s put the question like this: will the digital renminbi have significant impact internationally immediately following launch. The answer here I think is no, and there are a few reasons for that. First of all, let’s consider the intention of the issuer, the Chinese central bank. Reports show that the initial focus of the DRMB project is domestic, the Chinese government is looking to challenge private sector digital payment methods like AliPay etc., and getting the broader population used to the idea of Central Bank-issued digital currencies powering the majority of economic transactions in the country. To put it simply, the scope of the first stage of the DRMB launch is too small and domestically focused to directly impact the international system - there just won’t be enough DRMB in circulation globally.

There is another point to consider in the short-term: voluntary acceptance. Even if stage one of the DRMB project did have an international focus and was committed to minting huge amounts of digital currency, international impact requires international use - meaning that other countries would have to voluntarily accept and support the project in the early stages. How likely is this to happen? Well it’s a bit of a mixed bag, we’ve seen a few agreements start to pop-up between China and some countries in Central Asia as well as South Korea and Russia, which outline future frameworks for DRMB acceptance and trade, however there isn’t too much in place yet. And that’s just it: before the DRMB can have international impact, there needs to be widespread international access and acceptance, and I don’t see that happening in the short-term.

 

MID-TERM

Let’s move to a mid-term analysis. So imagine that phase 1 of the DRMB is complete and we have individuals and corporations in China accepting, transacting and trading it. What will phase 2 look like? I think we will start to see China expanding the scope of the DRMB project and incorporating it into their international development and infrastructure projects. If we consider the scope of the Belt and Road Initiative and China’s commitments and focus on development and investment across central Asia, Europe and parts of Africa, it is clear that there are many opportunities to promote and incentivize use of the DRMB internationally.

A great example to consider is the group of countries that make up the Silk Road area (about 70 countries). China is participating in infrastructure projects here, but it is also promoting increased trade in the area - and that means a lot of money moving cross-border. This is actually an area that my company LGR Crypto Bank is focused on - our goal is to make cross-border payments and trade finance transparent, fast and secure - and in an area with over 70 different currencies and incredibly disparate compliance requirements, this is not always an easy task.

Here is precisely where I think the DRMB could add a lot of value - in clearing up the confusion and opacity that comes with cross-border money movement and complex trade finance transactions. I believe that one way the DRMB will be marketed to China’s trade and development partners is a way to bring transparency and speed in complicated transactions and international transfers. These are real problems, especially in the multi-commodity trade business, and they can cause serious delays and business interruptions- If the Chinese government can prove that adoption of the DRMB will address these issues, then I think we will see real eagerness in the market.

At LGR Crypto Bank, we are already researching, modelling and designing our own money movement and trade finance platforms to work in harmony with digital currencies, particularly our own Silk Road Coin and the Digital Renminbi - we are ready to offer customers the best in class finance options as soon as they are made available.

When it comes to the international stage, I think that China will use its BRI as a proving ground for the DRMB in real-world commerce. By doing this, they will start to develop a network of DRMB acceptance across the Silk Road Countries and will be able to point to successful infrastructure projects as proof of the success of the Digital Renminbi. If this phase is carried out properly, I think it will create a very good foundation of DRMB acceptance that can be built on and expanded globally. The next step would likely be Europe - this is something of a natural extension of the Silk Road Area, and also ties in to the reality of increased trade between the EU and China. It’s important to note that if we consider all of the domestic economies that make up the Euro block together, it is the largest importer/exporter in the world- it would be an incredible opportunity for China to bring international attention to the DRMB and prove its capabilities in the West.

 

Long-term

In the long-term, I do think that it is possible for the DRMB to gain high levels of international traction and achieve some level of global acceptance. Again, it will all depend on the success of the Chinese government in making the case for adoption throughout the earlier phases. The value propositions of central bank digital currencies are very clear (increased transaction speed, improved transparency, fewer middlemen, less delays, etc.), and China is certainly not the only one developing such an asset. Currently, however, China is a leader and if they can execute an expansion plan without too many issues along the way, this head-start could make it difficult for other state offerings to catch-up. Maybe not, though.

It could be that in the long-term, all states will have a sovereign digital currency - and this begs the question: in the age of digital currencies, is there still a need for a global reserve currency? I’m not sure. What would the value add be of a reserve currency when central bank digital currencies could be traded effortlessly with immediate settlement times? Maybe reserve currencies will simply become a relic of an outdated financial system.

Looking forward to the long-term, I can imagine 2 scenarios where the DRMB could alleviate China’s vulnerabilities in the international financial system:

  • The DRMB becomes the new world reserve currency
  • The notion of a world reserve currency becomes obsolete and the new economic order runs on state-backed digital currencies operating without a hierarchy.

Whatever happens, I do believe we are on the cusp of a major change in global finance. There is no doubt that digital currencies, specifically central bank digital currencies, will play a massive role in defining the new economic paradigm. I believe that China is making great moves in leading the pack on this, and I know that at LGR Crypto Bank we look forward to adopting the DRMB where we can to further optimize and expedite the money movement and trade finance solutions that we offer to our customers.

 

 

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