TL;DR: First priority is anchoring expectations at our long-term perspective and our focus on stability: thus
- no rebases
- no random inflation
- a long(ish) 100-day horizon for Lockups. Interest Rate set to “indifference benchmark” avoids pressures up or down.
- The new trustee board signals vividly its commitment to ECO’s mission: long-run value generation + stability.
- We start a process of communicating to the Ecommunity how we believe to carefully foster that mission via our available actions.
- Don’t rock the boat economically in the first policy cycle.
- Only a lockup for 100 days at 5.6%, no other measures.
Why 100 days?
- We want to signal that we care about the long run; starting with a 30-day policy does not send that message. We should at least span one quarter; for psychological reasons 100 days is better still (visually, amounting to vesting until May 1st, and aligning us with end-of-month).
Why 5.6% = 3.2% + 2.4%?
The main purpose is to send 3 clear signals important at the outset:
- ECO is not USD-centric (or any other fiat)
- We do not pursue an agenda other than the long-term objective.
- Our actions are measured to what we know.
How does this proposal address these point?
- It avoids data from any one fiat currency. No USD interest rates, no Eurozone inflation rates! The 3.2% are thus the 3-month rate on the SDR basket.[*]
- We stay clear from pushing towards appreciation or depreciation so soon. Thus the 2.4% markup is a risk premium carefully chosen[**]. The point is to NOT provide incentives pushing moves into fiat/ECO at this point in time. Staying “passive” also addresses point
- , which implies to definitely avoid “courageous” measures right now: emphatically no rebase and also no random inflation in the 1st cycle!
Bottom Line: For the first cycle, our focus should be to build trust and reputation as a monetary policy trustee committee aiming for stability and long-term growth. So let’s not induce wealth transfers before we know what we are doing – and the Ecommunity knows that, too!
For the creative community: Here’s the motto starting 25:00 - Cryptocurrencies: Last Week Tonight with John Oliver (HBO) - YouTube
[*] Special Drawing Rights from the IMF, arguably the most prominent attempt at getting a basket not determined by any one fiat currency.
[**] Yes, we can debate “appropriate” extensively: I propose the 2.4% of BBB-rated corporate bonds in Emerging Markets. BBB b/c it’s investment grade; corporate b/c is more an enterprise than a state; bonds b/c clearly that’s the claim offered; and EM b/c the Economy is definitely such!
Data: ICE BofA BBB Emerging Markets Corporate Plus Index Option-Adjusted Spread (BAMLEM2BRRBBBCRPIOAS) | FRED | St. Louis Fed