Economy

Crypto is like the ‘World of Warcraft’ economy and legitimizing it with regulations would hurt the financial system, says economist

Published

2 years ago

December 25, 2022

In the wake the FTX collapse, calls to regulate crypto have increased among U.S. lawmakers. But doing so would confer legitimacy to the crypto industry, a prominent economist argued this week, and that in turn could lead to more widespread economic damage.

Stephen Cecchetti, an economist and professor at Brandeis International Business School, pointed to the economy within World of Warcraft, an online video game with millions of players.

“The strongest argument, I think, against regulation is about conferring legitimacy,” he said at a crypto debate hosted by the Brookings Institution.

“I think of a lot of this stuff as being like a video game, and so if I look at an analog, the World of Warcraft has 120 million players, and it has an economy inside of it,” he continued. “Fortunately, no federal financial regulator has responsibility for overseeing the World of Warcraft. And while there’s money involved, I don’t think any of us would call on them to supervise online massive multiplayer games. Like the World of Warcraft, crypto, in my view, does nothing to support the real economy, so legitimizing it is simply going to drain creative resources from productive activities.”

Crypto regulations

Creating regulations specifically for crypto, he argued, would affect how banks approach the sector.

“Legitimizing crypto is going to encourage banks to purchase crypto assets directly and to lend against them as collateral,” he said. “Imagine where we would be if leveraged financial intermediaries had been holding crypto in November of 2021 before the plunge in value.”

Cryptocurrencies have fallen dramatically in value since late last year. Bitcoin, the largest cryptocurrency, has shed more than 60% of its value this year.

If “virtually all of the transactions in the crypto world remain inside of the crypto world without links to the real economy,” Cecchetti said, then it “would be as if this stuff was going on on Mars, and it would leave the traditional financial system unaffected. That should be our goal.”

As for the misbehavior in the industry—the “defining feature of the crypto world,” in his view—prosecutors can address it by “enforcing existing laws aggressively, and, where appropriate, going after the celebrities that are promoting this stuff,” he said.

FTX founder Sam Bankman-Fried has been charged with eight criminal counts, including two counts of wire fraud and six counts of conspiracy related to securities and commodities fraud, money laundering, and violations of campaign finance laws.

‘Let crypto burn’

Calls for greater regulation have gained steam in recent weeks following FTX’s epic collapse.

Last weekend, Sen. Sherrod Brown, chair of the Senate banking committee, called for more regulation, and left open the possibility of banning crypto, though he acknowledged it would be “very difficult because it will go offshore and who knows how that will work.”

In a statement following the arrest of Bankman-Fried in the Bahamas, Brown said, “Things that look and behave like securities, commodities, or banking products need to be regulated and supervised by the responsible agencies who serve consumers…Crypto doesn’t get a free pass because it’s bright and shiny.”

Cecchetti believes a good approach would be to “let crypto burn,” as he and Kim Schoenholtz, a professor at NYU’s Stern School of Business, wrote in a recent Financial Times column.

“In the aftermath of the collapse of FTX, authorities should resist the urge to create a parallel legal and regulatory framework for the crypto industry,” they wrote. “It is far better to do nothing, and just let crypto burn.”

Actively intervening, they added, would “provide an official seal of approval to a system that currently poses no threat to financial stability and would lead to calls for public bailouts when crypto inevitably erupts again.”

This story was originally featured on Fortune.com

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Economy

Minimum wage to hire higher-paid temporary foreign workers set to increase

Published

2 days ago

October 21, 2024

Anne Joseph

OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

This report by The Canadian Press was first published Oct. 21, 2024.

— With files from Nojoud Al Mallees

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

Published

6 days ago

October 17, 2024

Anne Joseph

OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

Published

7 days ago

October 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

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