Finance

The legal system that operates in the United Arab Emirates (uae)—like that in many countries across the Gulf—is a blend of French civil and Islamic Sharia law. But this summer Dubai announced that it was exploring the introduction of English common law to 26 free-trade zones. These are jurisdictions that are exempt from local taxes and customs duties, and have their own independent legal systems and courts. The region is increasingly dotted by such common-law islands, reflecting the belief that the Anglosphere’s legal tradition is better for business.Such an idea can be traced back to Friedrich Hayek. Fifty years ago this month, the Nobel-prize-winning economist and philosopher published the first volume of his magnum opus, “Law, Legislation and Liberty”. In it, he argued that the common-law approach is more amenable to freedom than its civil-law counterpart. Later, in the 1990s, Hayek’s ideas inspired the “legal-origins theory”, which made both an empirical and theoretical case that common law is better for the economy. The theory has been as influential as it has been controversial, leading to sweeping reforms in civil-law countries around the world.image: The EconomistThe common-law tradition emerged in England. Under its strictures, the judiciary is bound by precedent: principles established by judges in previous cases are binding for future ones. This establishes case law on an equal footing with legislation. In contrast, the civil-law tradition traces back to the Code Napoléon, a legal system that was set up in France under Napoleon Bonaparte, which restricted both the independence and the discretion of the judiciary, subordinating it to the legislature.England’s approach was transplanted across the globe by the British empire and underpins the legal systems of 80 or so countries, including America. The Code Napoléon was transplanted across Europe by French occupations during the Napoleonic Wars and was introduced around the world by the French empire. China, Japan, South Korea and Taiwan all based their modern legal systems on Germany’s approach, which is also based on civil law. In total, civil-law traditions underpin the legal systems of about 150 countries today, including around 30 mixed systems.Hayek argued that common law is a better basis for a legal system than civil law for similar reasons that markets are a better foundation for an economy than central planning. A decentralised judiciary has access to “local knowledge”—the subtleties and idiosyncrasies of actual legal cases—that a centralised legislature does not. This is analogous to the way in which the butcher, the brewer and the baker are better placed to know what goods to produce, in what quantities and at what market price than a collection of well-meaning bureaucrats. A legal system based on judicial precedent allows judges to adapt the body of law to real-world circumstances.Common senseThe arguments put forward by Hayek mostly concerned the law’s ability to protect individual liberty, but they apply to its ability to promote economic growth, too. Twenty-five years ago, in a landmark study in the Journal of Political Economy, Andrei Shleifer, Rafael La Porta and Florencio Lopez-de-Silanes, then at Harvard University, as well as Robert Vishny of the University of Chicago, used data from 49 countries to show that investors’ rights are better protected in common-law countries. The paper gave credence to Hayek’s ideas and set off a flurry of research into the relationship between legal origins and the economy.In three subsequent papers, Simeon Djankov, a World Bank economist, working with Messrs Shleifer, La Porta and Lopez-de-Silanes, used data from more than 100 countries to tease out the impact of legal origins on the regulation of startups, the stringency of labour protections and the efficiency of contract enforcement. “What we found is that regulation was consistently less onerous and contract enforcement consistently more efficient in common-law jurisdictions,” says Mr Shleifer. The difference was sharpest in the barriers facing entrepreneurs. The number of forms to fill out and business days needed to process an application, and the cost of administrative fees, were all higher under civil-law jurisdictions. In 2001 Paul Mahoney of the University of Virginia analysed data from across the world and found that, in the three decades to 1992, gdp per person had grown 0.7 percentage points a year slower in civil-law countries than in their common-law counterparts.These findings were influential, particularly at multilateral institutions. The World Bank’s Ease of Doing Business Index was shaped by the legal-origins theory. Indeed, Mr Djankov jointly founded and ran the initiative from 2003. In the decade and a half to 2020, more than 400 studies using data from the index were published. Leaders including France’s Emmanuel Macron, Germany’s Angela Merkel and Japan’s Abe Shinzo made rising up the rankings a goal. The result was a wave of reform in civil-law countries, which tended to rank lower. As Mr Djankov notes, there was “a dramatic international convergence in rules and regulation to the common-law standard”.Has this produced a surge in economic growth? Perhaps not. More recent studies have splashed cold water on the legal-origins theory, says Holger Spamann of Harvard University. Ones that control for a wider array of confounding factors have found that a country’s legal tradition does have an effect on its economic prospects, but one that is not nearly as strong as the original studies implied. Moreover, some economists argue that legal traditions act as a proxy, indirectly capturing the impact of entirely different inheritances, such as those relating to colonial legacies or cultural attitudes. Under this reading, moving from a civil-law approach to a common-law one is unlikely to be worth the significant hassle for places like Dubai.Yet such a switch may nevertheless have been worth it in an earlier era, albeit for the wrong reasons. Before it was discontinued in 2021, when World Bank staff were alleged to have fiddled data partly in response to pressure from China, the Ease of Doing Business Index made civil-law countries seem like a less attractive destination for foreign investors. For a time, then, the legal-origins theory may have become self-fulfilling—leading to faster economic growth simply because it was supposed to lead to faster economic growth. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Doctors are famously reluctant to hang up their stethoscopes. But a time comes in the career of every medic when their skills fade, and a gentle push is the best thing for them—and their patients. The same applies for the metaphorical physicians of the financial world, whose ability to diagnose the market’s health changes over time. Now the end may be nigh for the most illustrious of all such physicians: Dr Copper.Copper, a metal crucial to the construction of all manner of fittings, pipes and wires, has earned its nickname on Wall Street owing to its role as a bellwether for the health of global industry. A surge in copper prices is taken as an early sign of an economic upswing; a big drop is a portent of recession, or at the very least a manufacturing downturn.So what is going on at the moment? Manufacturing looks peaky. Global industrial output is up by just 0.5% year on year, well below the average of 2.6% over the past two decades, and the rich world is in an industrial recession. A wobble of a similar scale in 2015 sent copper prices plunging by about a quarter. Yet so far this year they are down by only 6%. Futures maturing in 2025 are flat, and those maturing in 2026 are up a bit.The breakdown in the usual rules of thumb is most striking in China, which consumes over half of the world’s annual copper supply. Its stricken housing market might have led you to think the metal was doomed. After all, investment in property, once a key driver of copper demand, is down by 9% year on year. Curiously, though, Chinese demand for the metal is up by around 10% this year.The explanation for this lies in the radical shifts that are under way in the energy system. China will install around 150 gigawatts (gw) of copper-intensive solar-energy capacity this year, according to Goldman Sachs, a bank, almost double the amount it installed last year. And methods for storing energy require the metal, too. Pumped-storage hydropower is one example. This involves moving water from one reservoir to another, either to hoard excess energy from wind and solar power or to release it. China already has 30% of the world’s hydropower-storage capacity, at 50gw. Another 89gw of capacity is being built, which will require vast amounts of copper.Other countries are also spending big on the green transition, and putting in place legislation that will increase appetite for the metal. s&p Global, a financial-data firm, suggests that demand for refined copper will almost double by 2035, to 49m tonnes. Batteries, energy transmission, solar cells, transport—all need the metal. An electric car contains over 50 kilograms of the stuff, more than twice the amount used in a conventional vehicle. Across the world new rules, intended to reduce emissions, will steer consumers towards electric vehicles and away from their copper-light predecessors. In Europe sales of new petrol-powered cars will be banned from 2035.The squeeze on supplies will therefore be historic, meaning that sky-high copper prices will no longer be indicative of optimism on the part of industrial machinery-makers, construction firms, electronics manufacturers and the like. Instead, rising demand for copper will increasingly reflect a desire among politicians for more environmentally friendly energy, and sometimes also a reduced dependence on imports.In normal times, building an electrical network from scratch would at least be a signal of greater economic activity to come. However, the energy transition is intended to replace existing activity, rather than add to it. In the case of energy infrastructure, China’s new solar investment this year can generate 150 gigawatt-hours of energy when working at full pelt, which is equivalent to almost 90,000 barrels of oil per hour. That is energy which China now does not need to purchase from overseas producers. The result may well be good for the planet, but it will not have much effect on aggregate economic activity.With so much of the growth in demand for copper locked in, and proceeding in large part according to legal diktat, the metal’s price will over time say less and less about the state of the global economy, and more and more about the state of the energy transition. Copper prices will still be worth watching, then, albeit for different reasons. Investors wanting a hint about the state of the global economy will be replaced by policymakers wanting a sense of how their green policies are faring. Dr Copper’s retirement may be a sad moment, but it is not the end of the story. ■Read more from Buttonwood, our columnist on financial markets: Investors should treat analysis of bond yields with caution (Oct 12th)Why investors cannot escape China exposure (Oct 5th)Investors’ enthusiasm for Japanese stocks has gone overboard (Sep 28th)Also: How the Buttonwood column got its name More

“The luke skywalker and the Darth Vader of crypto.” That is how Michael Lewis, author of “Going Infinite”, a recent book about the rise and fall of Sam Bankman-Fried, founder of ftx, a now-bankrupt crypto exchange, is supposed to have described the intense rivalry between his subject and Changpeng Zhao (pictured), the boss of Binance, a rival firm.Until Mr Bankman-Fried’s exchange collapsed with an $8bn hole in its balance-sheet, the analogy seemed apt. The two men controlled the two largest crypto exchanges in the world. Both were known by acronyms: “sbf” and “cz”. Young, talented and seemingly in favour of playing nice with regulators, sbf was something of a wunderkind, and cz was his shadowy foil. Keen to avoid being pinned down by national laws, his exchange was based “nowhere”. Binance had long been under investigation for possible money-laundering and criminal-sanctions violations by America’s justice department. cz had invested in ftx before the two turned on each other. Then sbf publicly goaded cz about his legal problems, and a tweet by cz probably helped set off the run on ftx.image: The EconomistNow, with ftx out of the picture and sbf on trial, charged with various kinds of fraud, which he denies, cz looks a lot like the last man standing in crypto. Binance utterly dominates crypto trading (see chart). A whopping 40-50% of it by volume takes place on the platform. The big question, which cz discussed in an interview with The Economist in Bahrain on October 11th, is how Binance will now evolve.For as long as crypto exchanges have existed, financial laws have been ill-suited to them. Given the nature of the assets that are traded, they are in effect hybrids of exchanges, brokers and settlement firms. If crypto exchanges were largely unregulated that was at least partly because few laws had been written to govern them.But, in the wake of ftx’s collapse, the situation is starting to change. Legislators and regulators around the world are rushing to pen new laws or crack down on the industry. This has two big implications for exchanges. First, regulators want to make sure that they are not mishandling or improperly using customer funds, as ftx did. Second, they want to ensure that exchanges are not facilitating financial crimes.cz insists that customers can trust his exchange. “There are so many ways” Binance is structured differently to ftx, he says. The firm has met heavy redemption requests from clients, including in choppy markets. He points out that the Securities and Exchange Commission (sec), America’s financial regulator, spent a long time investigating Binance for this kind of misconduct. The regulator could provide “zero evidence” that Binance was commingling user funds, says cz, “which actually helps us to prove that we don’t do it.” Other complaints by the sec, including that the company issued securities without a licence, are still to be heard in court.Yet it is the second requirement that might turn out to be trickier for Binance. In December Reuters, a news service, reported that prosecutors at America’s justice department were split on whether or not to charge the firm with money-laundering or sanctions violations. According to Bloomberg, another news service, Binance withdrew its application to become a licensed exchange in Singapore in 2021, where it was based at the time, in part owing to its inability to comply with strict anti-money laundering rules. The sec quotes evidence from a former employee, who admitted that the company thought it was an “unlicensed securities exchange” and “did not want to be regulated, ever”.cz dismisses this as “private chat by an ex-employee”, and adds it “was not the right thing by far”. He notes that Binance is “the most licensed crypto firm in the world”, with permission to operate in 18 countries across Asia, Europe and the Middle East (its American arm operates in 44 states). Binance now appears to be playing nice with various authorities. A spokesperson confirms that in recent days it has frozen “the small number of accounts” soliciting donations in support of Hamas, to comply with international sanctions laws.The test for the firm now will be in Europe. America is cracking down on crypto, and is unlikely to pass new laws soon. By contrast, European legislators have written a “Markets in Crypto-Assets” or “mica” framework, which entered into force in June. Exchanges can keep operating under existing licences until 2026, unless refused under mica, which will require strong policies against money-laundering and terrorist financing. cz says that, in addition to such policies, a full licence means that authorities look at “your wallet infrastructure, your security, your customer support policies, your refund policy. They look at your whole business.”A crypto exchange can no longer argue that it cannot comply with national rules because they do not exist. Failing to meet Europe’s standards would reveal that Binance does not want, or is unable, to follow even clear laws. In “Star Wars”, Yoda warns Luke Skywalker that it is easier to amass or wield power by turning to the Dark Side. It is harder to operate in the light. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

In less than a fortnight, some 3,500 Gazans have been killed, 12,000 injured and more than a million displaced—on whose behalf America and the un are attempting to open a passage into Egypt. Entire neighbourhoods in the strip have been bombed to dust. Cut off from food, water and medical supplies, the un warned on October 16th that Gaza’s 2.3m people were on “the verge of an abyss”. Since Israel’s strikes began, war has drained nearly every source of economic life from the territory.For the better part of two decades, Gaza has relied on support from international donors for its financial survival. On October 18th Binyamin Netanyahu, Israel’s prime minister, said that his country would allow a modest amount of food and medicine across Egypt’s border into the territory, which would be the first supplies let in since Hamas launched its brutal attack against Israel on October 7th. Israel’s allies, including America, are pushing for more to be admitted. Yet at the same time, Israel wants to suffocate Hamas by any means possible, which requires using economic as well as military weapons.Averting a humanitarian catastrophe is made all the more difficult by the miserable pre-war state of the Palestinian economy. Israel, Gaza and the West Bank share a single market, governed by a deal that the un brokered in 1994. The idea behind the agreement was that Palestinians would work in Israel and that Israeli capital would flood into Gaza and the West Bank, where rich returns were waiting. In reality, Israeli restrictions remained in place and the Palestinian economy still depends on handouts. On the eve of the war, the average Israeli was 15 times richer than the average Palestinian. Only a third of West Bankers have access to a sewage system; some 10% manage without a water supply. West Bankers have been allowed to work in low-skilled jobs in Israel, but have been subject to tight restrictions on their movement.In Gaza, things have been even worse. Growth in gdp per person in the West Bank averaged 2.8% a year from 2007 to 2022. The average Gazan became poorer during the same period, with the local economy shrinking by 2.5% a year. The territory has operated under a near total blockade from Israel since Hamas took power in 2007. Until recently, it was supplied with electricity by Israel, but received only a third of the amount it sought. Each of the three wars fought between the two sides—in 2008, 2014 and 2021—cost Gaza the equivalent of at least a year of gdp.image: The EconomistIf there is nothing for an economy to generate, it is not just growth that suffers. Unemployment is rife. More than half of the Gazan adult population were living below the imf’s poverty line in 2021. There are few ways to make money. One way used to be dealing imports and exports through tunnels under Gaza’s southern border, but Egypt cleared out most after a bust-up with Hamas in 2014. Another way is to rebuild what war destroys. One of Gaza’s main businesses is construction, which grew by 20% last year. It will presumably grow by more once this round of war ends.Others cobble together incomes from a range of outside sources. Some 70,000 Gazans remain on the payroll of the Palestinian Authority (PA), even though its officials who run the West Bank were kicked out of Gaza by Hamas in 2007, and none of them actually goes to work. Qatar deposits cash—some $10m a month—into the bank accounts of thousands more locals. The PA pays Gaza’s electricity bills, which Israel subtracts from the tax it collects on behalf of the PA in the West Bank. The un educates 300,000 Gazan children; a network of hospitals it runs with charities provides the territory with basic health care.The strip’s assetsAnother organisation on which Gazans depend is Hamas, whose administrative branch runs the strip’s government. Since it took power, Hamas has expanded the public payroll from roughly 20,000 to 50,000 civil servants. Last year its spending contributed 0.8% to gdp growth, compared with 0.3% from all household and business spending. As charities run so many of the strip’s schools and hospitals, and the PA keeps the lights on, Hamas is able to spend lavishly elsewhere.image: The EconomistIt finances its spending with an adroit tax system. Though Gaza gets no imports from Israel, it does get them from Egypt, from which trade had recently increased, and the West Bank. Hamas taxes food and fuel crossing the Egyptian border; picks up 16.5% of the value of products from baby food to jeans; charges three shekels ($0.75) per kilo of fish caught by fishermen; and levies income tax. Altogether economists reckon that Hamas may take in somewhere in the region of 1.5bn shekels a year.Other sources of finance are already in Israel’s sights. Gaza’s various Islamist groups receive maybe $100m a year from Iran, according to America’s best guess. Hamas also receives individual donations from the Gulf and the West, some of which are furtively transferred across borders using cryptocurrencies. Israel and its allies have already come down hard on these sources of finance where possible, freezing accounts in Istanbul and London.Will aid to Gaza end up strengthening the position of Hamas? In the past, Israel has been wary of multilateral organisations working in the strip. Other governments have found that links between charities and Hamas are rare, however. In Gaza, few believe rumours that Hamas taxes aid. So grim is the situation that “a few bits of fuel getting lost is worth it”, argues the boss of a think-tank in Gaza.Israeli policymakers also face dilemmas in the West Bank. Just a few thousand Gazans work in Israel; in contrast, a quarter of the West Bank’s labour force works over the border or in Jewish settlements. Israel does allow exports and imports through the West Bank—the duties on which make up around two-thirds of the PA’s budget. These taxes are collected by Israel and occasionally held up for months at a time before being transferred. Some Israeli officials reportedly want to cut such payments, either to redirect money towards Gazan reconstruction or in the hopes of stopping payments to Gazan families. Other Israeli officials insist that the PA needs more, not less, funding in order to keep a fragile peace.In some ways, the choices facing Israeli politicians are exaggerated versions of ones that they have faced in the past. When Israel wanted to contain Hamas, it made no sense to help the group collect taxes. Now that Israel wants to destroy Hamas, it makes no sense in military terms to allow supplies into Gaza. Yet if it restricts the flow of supplies even more harshly, a humanitarian disaster will ensue. On October 17th Gaza’s health ministry begged for generators. Without them, it said, hospitals were about to shut down. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Anti-monopoly cases have been known to reshape corporate America. In 1984 at&t’s telephone network was found to have excluded competing firms. The company was controversially broken up in a move that ultimately led to a boom in innovation among its rivals. Meanwhile, a case against Microsoft in 1998 may have kept the door open for Google’s subsequent rise. Microsoft had bundled together its Internet Explorer browser with its Windows operating system, and made other browsers more difficult to install. Some business historians think the case, by stopping this practice, made life easier for new browsers. It may also have distracted Microsoft from developing its own search engine.Today, two big cases could redefine the limits of monopolies in the internet age. On September 12th America’s Department of Justice (doj) began its court battle against Google over the firm’s deals to obtain default status on phones and browsers. On September 26th the Federal Trade Commission (ftc), chaired by Lina Khan, sued Amazon for allegedly penalising third-party sellers that offered lower prices on other sites, among other harmful practices. In both cases, the government thinks the tech giants are so dominant that their attempts to preserve market power are suspect. This raises a question: what counts as anticompetitive?Historically, practices that might be ignored for a startup have not been tolerated in a dominant firm. John Rockefeller’s Standard Oil was broken up in 1911, in part for striking deals with railroads that made it impossible for other oil firms to compete. Antitrust historians still debate the extent to which these deals were abusive—after all, Standard Oil benefited from economies of scale and bulk orders commonly receive discounts. But its size and bargaining power led to scrutiny. Before the firm’s break-up, it had cornered 90% of oil refineries. Microsoft’s bundling was found to be problematic because it had over 90% of the market for operating systems on personal computers. In both cases, the courts believed that dominant firms had made life too difficult for newcomers.Today’s cases have echoes of those past. Start with Google. It pays more than $10bn to Apple and other companies to be the default search engine on their platforms. The doj argues this creates a barrier to entry for competitors. Because having lots of data lets a search engine show users more tailored advertisements, a dominant search engine has a larger expected ad revenue from an extra user. The twist is that if a smaller competitor happened to grow, it would be willing to pay more for additional users, thus bidding up how much Google would have to pay—and explaining why Google may be willing to pay large sums to prevent rivals from gaining a foothold. Yet it is easier to use a different search engine on an iPhone than it was to download a new browser on Windows. And Microsoft’s dominance in operating systems seems to have been greater than Google’s is in search. So the case is not airtight.The case against Amazon is stronger. Luigi Zingales of the University of Chicago thinks that if the alleged facts are found to hold, the ftc should win. Sellers complain that Amazon penalises them for offering cheaper prices on other platforms by downranking products or removing them from the “Buy Box”, which allows instant purchases. Antitrust scholars call practices that force sellers to behave similarly across platforms “most-favoured-nation” (mfn) treatment, and they have come under growing scrutiny. In the past Amazon has had explicit mfn contracts with sellers.The problem, according to the ftc, is that Amazon has raised the cost of doing business on its platform. It charges sellers a fee for selling, one for using its logistics services and more for advertising. Sellers say that it is next to impossible to qualify for the Buy Box without paying for logistics, and that buying ads has become a must because search results are increasingly cluttered with them. Although the exact figures are redacted, regulators allege that Amazon now collects a larger share of sales on its marketplace as fees than it did a decade ago. In a competitive market, Amazon’s cost hikes and restrictions on pricing more cheaply elsewhere would cause sellers to leave the platform. And in fact, some large retailers, like Nike, have done so. But Amazon’s market share in e-commerce has grown (it currently stands at 40-50% in America), suggesting most sellers feel that the platform is too important to quit.Amazon denies all this. As with Google, there is a chance that the case becomes a debate about how dominant the firm really is (Amazon argues that it is dwarfed by the multitude of brick-and-mortar stores). American retail is efficient and broadly consumer-friendly—hardly the sign of an industry in need of repair. Amazon also says that if a seller can offer a lower price on another platform, it should do so on its site, too. One can imagine a seller thinking that Amazon Prime customers are rich and price insensitive, and therefore charging more on Amazon than other platforms.Ready for a remedyBut if that is the case, Amazon has plenty of options available, says Fiona Scott Morton, formerly of the doj. Imagine, for example, that Amazon thinks that the seller of a particular item is charging too much. It is free to prioritise other sellers of that item in its search results. If it cannot find any on its platform, it can recruit one from outside. If it still cannot find one, then perhaps Amazon is simply an expensive platform on which to do business.In this final case, a possible solution is a so-called behavioural remedy, in which Amazon is made to stop penalising sellers that offer lower prices elsewhere. In Europe, where Amazon has also faced scrutiny, the company has made several concessions, including treating all sellers the same when granting access to the much sought-after Buy Box. Ms Khan of the ftc has said she does not like remedies that only target the behaviour of companies, since they are at best short-term fixes when set against more drastic measures, like breaking them up. Sometimes, however, nothing more is needed than a slap on the wrist. ■Read more from Free exchange, our column on economics:To beat populists, sensible policymakers must up their game (Oct 12th)To understand America’s job market, look beyond unemployed workers (Oct 5th)Why the state should not promote marriage (Sep 28th)For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Cryptocurrency exchange Coinbase has chosen Ireland as its main operational and regulatory hub in the European Union, the company told CNBC exclusively.
Coinbase has had an office in Dublin since 2018. The company employs about 100 people in Ireland.
If and when it is approved, Coinbase will have a universal “MiCA license” in Ireland, which it can then use to “passport” its services into Germany, France, Italy, the Netherlands and other EU countries.
Coinbase is banking on growth in the European Union, a continent with a total population of 450 million, and other international hubs, as it faces regulatory pressure back home.

Chesnot | Getty Images News | Getty Images

Cryptocurrency exchange Coinbase has chosen Ireland as its main operational and regulatory hub in the European Union, the company told CNBC in an exclusive interview.
Coinbase submitted its application for a license under the EU’s new Markets in Crypto-Assets (MiCA) regulation, which is set to come into force by December 2024, with the Central Bank of Ireland.

Coinbase has had an office in Dublin since 2018. The company employs about 100 people in Ireland.
If and when it is approved, Coinbase will have a universal “MiCA license” in Ireland, which it can then use to “passport” its services into Germany, France, Italy, the Netherlands and other EU countries.
That makes it easier for Coinbase to launch new products in those markets without having to apply for individual licenses in each country. Coinbase says it’s confident it will be able to win this license.
The company is planning to be operational with its MiCA license from “day one,” Nana Murugesan, Coinbase’s vice president of international, told CNBC in an interview earlier this week.

What is MiCA?

MiCA is the EU’s attempt at introducing a pan-European regulatory framework for crypto companies. It seeks to introduce protections for investors buying and selling crypto assets, like bitcoin and ethereum.

The rules will allow crypto companies to use one license in one country to operate across all 27 EU member states.
The regulation imposes a number of requirements on crypto firms, particularly exchanges, including the requirement that they don’t commingle client funds with their own assets.
“As soon as MiCA was passed into law, and even before that, we’ve been considering a number of member states,” Murugesan said. “It was a long decision making process and we’ve been very impressed with the engagement from Ireland throughout.”
“It was really important for us to choose a member state that is not only a sophisticated regulator with significant experience in regulating financial services, but also recognises the importance of a globally integrated business model, the way we are structured as a company, and also the potential of this innovative new technology.”
Currently, Coinbase has an electronic money institution license and virtual asset service provider registration in Ireland; a crypto license in Germany; and national registrations in other EU member states including Italy, the Netherlands and Spain.

U.S. lawsuit

The company, which is headquartered in San Francisco, is one of the largest crypto trading venues globally.

The expansion move comes at a difficult time for the crypto industry. Crypto companies have been seeing their volumes decline, while fundraising has slowed, as macroeconomic conditions have gotten tougher and regulatory scrutiny has mounted.
Coinbase is banking on growth in the European Union, a continent with a total population of 450 million, and other international hubs, as it faces regulatory pressure back home — not least from the U.S. Securities and Exchange Commission, which accuses the company of operating an illegal securities venue.
Coinbase disputes the SEC’s claims, and is fighting the case. However, its aim is for there to be formal crypto legislation, rather than constant litigation in the courts.
Paul Grewal, Coinbase’s chief legal officer, said that progress has been “slower” than he’d like when it comes to achieving crypto regulation in the U.S. But he’s hopeful for more regulatory clarity in the future.
“We’re now seeing in court cases real questions being asked about the U.S. approach to crypto regulation and in particular securities regulation,” he said. “Judge after judge is asking serious questions about the SEC’s interpretation of our US securities laws and, frankly, challenging some fundamental points that the SEC has pressed on whether tokens are securities at all.”
“MiCA, on the other hand, I think offers … a more substantial and serious approach to crypto regulation in that it isn’t caught up with the jurisdictional fights the turf battles that we have the United States over whether particular transactions or securities transactions or commodities transactions. Instead, the focus is on keeping consumers and investors safe.”
As a market for crypto, digital asset usage is less prevalent than it is in the U.S. According to Chainalysis data, Central, Northern, and Western Europe is the second-biggest crypto economy in the world, behind only North America. However, Coinbase expects lots of growth in the region.
“In recent quarters, Coinbase has earned as much as 15%, or even 20%, of top line revenue from across Europe,” Grewal told CNBC’s Arjun Kharpal — the firm reported $808.3 million of sales globally in the second quarter of 2023, according to its latest earnings report.
“But for us, we’re going to approach the opportunity in a responsible, measured way, we’re going to let our customers drive our investments and drive our focus on what opportunities to pursue. It’s an exciting future.”
Coinbase has also decided to make Germany its regional “talent hub,” and will look to ramp up its hiring in that market to localize and tailor its product specifically for Germany.
“We are very grateful to Germany for all the support they have provided,” Murugesan told CNBC. “Our German operation has grown from strength to strength and more than doubled in headcount.”

EU-first approach to products

Coinbase may even look to launch new products in Europe first before rolling them out in the U.S., Murugesan said.
The EU will be a “testbed” for Coinbase to think about “utilitarian” functions of crypto that people need in their daily lives, such as payments and transacting rather than trading, he told CNBC.
“With MiCA and the clarity that it offers, it allows us to innovate,” he added. “And hopefully, we’ll see some of those daily use cases roll out in EU first.” 
Daniel Seifert, vice president of EMEA for Coinbase, said the company is also looking to launch integrations with other payment providers to make it easier for users to access digital tokens through Coinbase.
“There’s lots of exciting plans for the region that we’re going to see in the coming weeks and months,” Seifert said.
— CNBC’s Arjun Kharpal contributed to this report More

Federal Reserve Chair Jerome Powell is set to deliver what could be a key policy address Thursday afternoon in New York.
“Higher for longer” on rates has become an unofficial mantra in recent days, and Powell is expected to join the chorus.
Markets largely expect the Fed to stay on hold with rates, but they will be looking to Powell for confirmation and clarification.

U.S. Federal Reserve Chair Jerome Powell holds a press conference after the release of the Fed policy decision to leave interest rates unchanged, at the Federal Reserve in Washington, D.C., on Sept. 20, 2023.
Evelyn Hockstein | Reuters

Federal Reserve Chair Jerome Powell is set to deliver what could be a key policy address Thursday, in which he will be tasked with convincing markets the central bank is committed to keep hammering away at inflation, but perhaps now needs a little less force.
The top monetary policymaker will speak at noon ET to the Economic Club of New York at a critical time for the U.S. economy.

Inflation numbers have been improving lately, but Treasury yields have been surging, sending conflicting messages about where monetary policy might be headed. Markets largely expect the Fed to stay on hold with rates, but they will be looking to Powell for confirmation and clarification on how officials view both current conditions and longer-term trends.
“Powell is always tacking back to whatever helps feed the narrative that they need to stay vigilant, and for understandable reasons,” said Luke Tilley, chief economist at Wilmington Trust. “I just expect him to keep talking about the strength of the economy and the surprising strength of the consumer in the third quarter as a risk for inflation. That is enough ammunition to keep talking about staying vigilant.”
Essentially, Tilley expects the Powell message to break into three parts: The Fed needed to get rates high quickly, which it did; that it had to find a peak level, which is part of the current debate; and that it needs to figure out how long rates need to stay this high to get inflation back to its 2% target.
“Really, their ultimate goal is to keep financial conditions tight so inflation comes down,” he said. “He’s going to use that framework, even if he’s dovish about Nov. 1 (the next Fed rate decision) or December to shift the hawkishness to that third question of how long to keep them this high.”

“Higher for longer” has become an unofficial mantra in recent days, with Philadelphia Fed President Patrick Harker earlier this week mentioning the term specifically for how he feels about policy.

Harker was one of several Fed officials, including governors Philip Jefferson, who spoke earlier this month, and Christopher Waller, who spoke Wednesday, to advocate holding off on rate hikes at least in the immediate future while they weigh the effects of incoming data. Waller said the Fed can “wait, watch and see” before it moves on rates.
Powell is expected to join the chorus Thursday, even if his message is filled with caveats about not becoming complacent in the fight against inflation.
“Powell has to present himself to investors as the dispassionate neutral leader and allow [others] to be more aggressive,” said Jeffrey Roach, chief economist for LPL Financial. “They’re not going to declare victory, and that is one reason why Powell is going to continue to talk somewhat hawkish.”
To that point, New York Fed President John Williams on Wednesday moved some of the way there, when he repeated another familiar mantra, that the Fed will have to keep the “restrictive stance of policy in place for some time” to deal with inflation, according to a Reuters report.
Similar to the other speakers, Powell likely will reiterate a data-dependent focus for the Fed after a much more aggressive path in which it has raised its benchmark borrowing rate 11 times for a total of 5.25 percentage points, its highest level in 22 years. The Fed opted not to hike in September.
He also, though, will be looked to for some guidance as to how he feels about rising yields, in light of the 10-year Treasury having inched closer to 5%, its highest point in 16 years.
The chair “will stick to the message … that the data has been coming in stronger than expected, but there has also been a big move in yields, which has tightened financial conditions, so no urgency for a policy response in November and the Fed can adopt a wait-and-see approach,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a client note.
Guha said that a Fed on hold now will only be a “down payment” on “extra cuts” in rates for 2024 as inflation and economic growth both weaken.Don’t miss these CNBC PRO stories: More

China’s emergence from its covid-19 controls was meant to be the biggest economic event of the year. Instead, the reopening has turned into one of the biggest disappointments. In a recent survey by Bank of America, fund managers in Asia expressed their “fatigue and frustration” with China’s weak growth and the lack of a concerted government response.On the face of it, economic data released on October 18th should cheer them up. The figures showed that China’s economy grew by 4.9% in the third quarter, compared with a year earlier—faster than expected. And its growth compared with the previous quarter was stronger still: 5.3% at an annualised rate. The economy should now have little trouble meeting the government’s growth target of “around 5%” for this year. ubs, a bank, raised its forecast for 2023 from 4.8% to 5.2%.The source of the growth was also encouraging. Consumption contributed almost 95% of it, noted Sheng Laiyun of China’s National Bureau of Statistics. There are signs that the country’s beleaguered households may be coming out of their shells. Demand for longer-term loans is growing; the saving rate, adjusted for the season, fell below 30% of disposable income for the first time since the pandemic, according to Yi Xiong of Deutsche Bank.One reason may be improvements in the job market. Urban unemployment fell to 5% in September from 5.2% in the previous month and the average workweek lengthened. Household debt burdens have also eased a little. China’s authorities have urged banks to cut the interest rate on outstanding mortgages in line with the lower rates available for new ones. On October 13th the central bank said that the interest rate on existing mortgages, worth 21.7trn yuan ($3trn), had been lowered by 0.73 percentage points, which should free up over 100bn yuan of spending power a year.But the good news for households was not matched by good news for houses. The property market remains dangerously weak. The amount of residential floorspace sold by property developers in September was 21% below that sold last year. Increasingly, China’s developers must actually finish buildings before they can sell them. Completed buildings accounted for almost a quarter of sales in September, compared with less than 13% in 2021.image: The EconomistThe threat of deflation lingers, too. China’s annual nominal growth, which includes inflation, was 3.5% in the third quarter, lower than the real, inflation-adjusted figure. This suggests that the prices of goods and services fell by almost 1.4%, the second drop in a row (see chart 1), resulting in China’s worst deflationary spell since 2009.Thus fatigue and frustration should not give way to complacency. At the imf’s annual meeting, Pierre-Olivier Gourinchas, the fund’s chief economist, called for “forceful action” from China’s government to restructure struggling property developers, contain financial dangers and redeploy fiscal measures to help households.The government has taken some steps. It has allowed a growing number of local governments to issue “refinancing bonds”, which will help clear late payments to suppliers and replace the more expensive debt owed by local-government financing vehicles. The authorities seem keen to prevent one of these vehicles defaulting.But preserving financial stability is not the same as reviving growth. The government’s efforts to stimulate demand have so far been both piecemeal and grudging. Its fear of doing too much seems to outweigh its fear of doing too little. With the official growth target in sight, the government may now be tempted to wait and see how the recovery evolves before pursuing further stimulus. In the face of a hostile America and turbulent geopolitics, it appears keen to keep its fiscal powder dry.image: The EconomistStill, it is hard to see how deflation strengthens China’s position. The imf now thinks that China’s prices, as measured by its gdp deflator, will fall this year compared with last. Combined with the yuan’s weakness, gdp could shrink in dollar terms. Indeed, China’s economy will gain little ground on America’s in the next five years, according to the fund (see chart 2).The contrast with the imf’s April forecast is stark. In the space of six months, the fund has shorn off more than $15trn, in today’s dollars, from China’s cumulative gdp for the years from 2023 to 2028. Few economies can match China’s scale. And that includes the scale of its disappointments. ■ More