Authored by Tom Luongo via Gold, Goats, & Guns blog,
For months now Russia has been moving into the blockchain space in a serious way. I’ve talked about these moves in previous articles (here, here and yes, even here)
But, the latest news is one that should have every one stand up and take notice.
Russian Mobile phone operator, Megafon, issued RUB500 million in zero-coupon blockchain-based bonds recently.This was purely a proof of concept issuance.
But, it speaks to the bigger picture of bypassing traditional book runners, i.e. the major banks, for selling securities to investors. No longer does Goldman Sachs, Standard Charted, HSBC and Deutsche Bank have a stranglehold on how capital is raised for emerging markets.
Moreover, it will prove just how much of an advantage the blockchain has over these older and much more expensive business models.
This reduces the cost of a bond issuance to practically nothing, beyond the needed legal work.
These bonds can and will be sold without the need for the middle man to take a huge cut.
The blockchain is changing everything.
This news also puts paid the news from a couple of months back that the National Settlement Depository is moving, via theWAVES platform, to token-ize as much of the Russian economy as it can. This is your first example of their integrating with the Moscow Exchange to trade securities via the blockchain.
This drives another comparative advantage for companies looking to raise capital, listing fees and access to market makers, which are also being squeezed out of the market.
The term is disintermediation.
Get to know it and embrace how it will drive out old transmission loss out of finance and other sectors of the economy.
And now this is why all of this is so important. As I said when we first heard of this plan back in August:
The better plan is to loosen central bank policy, issue some ruble-denominated debt (or yuan) while building up the crypto infrastructure to absorb those capital flows without creating dislocations within the ruble market.
This creates a more natural and organic flow of capital into the country without it causing social upheaval. Like the announcement of Russian Miner Coin, this move by the NSD is just another building block in the foundation of a more resilient Russian financial system to better coordinate the flow of capital and smooth the development of the chain of production.
This, in turn, limits the effects of U.S. sanctions. Once the market comes to the conclusion that Russia treats capital better than the U.S. does, the current trickle will become a torrent. And Russia has to be ready to handle this.
These are the reasons why the U.S. is so angry with Putin and Russia. They are building infrastructure which attacks the foundations of U.S. financial and geopolitical power. And they are doing it the Russian way, by deploying capital like a scalpel, not a sledgehammer.
This is the kind of news that sits below the headlines but has enormous long-term effects. If this test is successful then expect larger issues in the near future, allowing Russia to prove to the market that the rules have changed and it is capable of providing investors with security along with the potential for great returns on their money.
That’s the key, folks… confidence. Russia and China are working to increase investor confidence while the U.S. and EU are punishing investors because it is a privilege to use the dollar and/or the euro.
Capital flows to where it is treated best. ALWAYS.
