$100 Ben, You Did It Again!

One of my favorite American historical personalities is Ben Franklin, born 1706 and died 1790.

Yes, Ben is known as a leader for liberty, a politician, an inventor, scientist, businessman, philanthropist and, generally, a genius in his day. He is also the only American founding father to sign all three documents related to the freeing of America from England. He was involved with the signing and drafting of the Declaration of Independence and the Constitution. He also negotiated the Treaty of Paris that officially ended the War of Independence. These documents brought the United States of America into being. Additionally, Ben was the publisher of the Poor Richard’s Almanac and as, a fellow publisher, I am in awe of the breath of his contributions.

Ben Franklin helped build the University of Pennsylvania, raised funds to build the nation’s first hospital, Pennsylvania Hospital, created the first lending library and fire company long before any government provided this for its citizens. He was the First Postmaster-General and the first Minister to France; he was against slavery as an institution and, as a scientist, proved at night with a kite and a key that lighting was electricity. After proving this, he invented the lightening rod to protect buildings as well as bifocal glasses and the Franklin Stove. His genius was centered on leveraging his contacts and connections in the areas of business, social, political, scientific and journalism into a huge network that paid him back tenfold. There are many lessons to learn from studying this man’s networking abilities.

 Unfortunately, for Ben, the generations today do not know him based on his amazing life. If you ask anyone off the street today, they will know him immediately as the guy pictured on the U.S. One-Hundred-Dollar bill. Those people will not be able to tell you much else about Mr. Ben Franklin. They will easily recognize him as a “Benji” or a “Benjamin” slang terms used for the $100 bill that he is pictured on. The slang was made famous by the 1997 song by Shawn Combs (Puff Daddy) “It’s all about the Benjamins” and the 2002 movie “All about the Benjamins”. This is where the trouble starts.

The U.S. Federal Reserve Bank released an interesting fact. At the end of 2017 the $100 has surpassed the $1 in terms of number of bills in circulation. There are over 12.5 billion $100 bills in the world. Since 2016 over 70% of those $100 bills have been located outside the United States shores. Just for fun let me give you a few $100 bill facts:

The lifespan of a $100 is about 15 years, the longest of any American banknote It costs the Federal Reserve Bank printing presses about fifteen cents to produce The U.S. $100 is the most counterfeited bank bill in the world 1 Million dollars in $100 notes weighs 10 kilos (22 pounds) and fits in a shopping bag

While these facts are interesting, they bear out a disturbing trend. The $100 bill serves as the de facto currency of all black-market transactions globally. That means that people involved with money laundering, terrorist financing, arms dealing, kidnapping, bribery, mercenaries, contract murders, gambling, drug money, sex slavery and many other illegal transactions choose the $100. The news isn’t all bad for the $100, according to CBS News: the $100 tested relatively cocaine free when compared to the smaller valued bills in circulation.

War Against Ben

The issue for law enforcement, which becomes the issue for banks, is the constant adding of regulation and requirements for compliance checking. This is needed to prevent the almost inevitable use of the $100 for illegal gains. Counterfeiting has kept pace to the point where even the banks cannot identify a fake note: not even the so-called Super Note is safe from forgery. This is like an arms race with each side matching its advances and changes to the printed banknote. There are now calls in political circles, and not just in the U.S., to eliminate the $100. The idea is that this will make it harder to move the amount of cash that illegal operations generate. This should be a real concern for many people. It is a way for the government to force people to turn in their saved cash for new bills. This is also presenting the U.S. government with a tax revenue opportunity. People who are using the $100 banknote to avoid paying tax will see no sense in hiding that which no longer has value.

Cash, Criminals Best Friend

The compliance issue for the banks is huge and is a function that – for them - provides no revenue only expense. We have seen the banks become greedy for fee revenue. Fees are earned without using the bank’s capital. This indirect income can be used to offset the cost of compliance. RegTech and compliance checking companies have boomed based on this constant flow of regulations that the banks must adhere to. KYC and KYCC are the acronyms that run the banks now in a vain attempt to reduce the criminal use of money. In years past people would brag that “Cash is King”. Try taking a large amount of cash into the bank today. You will be lucky not to end up in jail or, at least, wasting a massive amount of time answering very intrusive questions.

Bank tellers are now trained on profiling people that bring cash in. I was at a bank training session a few years ago and the trainer brought in a bag of money that was scented like marijuana so that the bank employees could identify a potential drug dealer or smuggler. Even if they do not say anything to you, the bank can fill out a SAR (suspicious activity report) on you and even put a block on any accounts with your name, be it business, personal, or retirement-related.

Benji’s, Or Gold

Over the course of human history, there have been relatively few stores of value as stable as the U.S. dollar has been over the past 100 years. The currency is backed by the U.S. Federal Reserve with the $19 trillion economy it represents, and with over $5 trillion held as reserve assets by foreign central banks. This relative strength means that when you have a dollar in your pocket, you can be confident in its value. Except, that is, when the bill you have isn’t actually a dollar, but counterfeit - or maybe in future eliminated from use - like the $100 – may be.

In other words, the haven of dollars is not so safe. If we look closely through history the most secure store of value has always been Gold.

Interestingly, during 2018, central banks bought more gold, a record amount, than any year before. This reversed a trend of central banks buying less gold each year for the last decade. Together with this there has been less gold mined each year since 2013. There has not been a new goldfield with over 5-million-ounces found since 2014. Each year before 2014 there have been several finds in the 10-million to 50-million-ounce range - but not in the last five years. The price of a kilo of gold has increased since last year from $39,000 to $42,000.

In short, the gold demand is up, and the supply is shrinking – which, according to the rules of supply and demand, means increasing value. All of this tells me that now is the time to consider an investment in gold.

The times are changing and many of the new trends are represented by Benjamin Franklin, the $100 man.

I have added here some of my favorite famous sayings from Ben for added perspective:

"Early to bed and early to rise, makes a man healthy, wealthy, and wise."

"Halfwits talk much but say little."

"God helps those who help themselves."

"One today is worth two tomorrows."

"Three may keep a secret, if two of them are dead."

"A penny saved is a penny earned."

 

 

First unveiled last year, IBM Blockchain World Wire provide banks with a means to simultaneously clear and settle near real-time payments transactions across borders.

Big Blue claims it is the first blockchain network of its kind to integrate payment messaging, clearing and settlement on a single unified network, while allowing participants to dynamically choose from a variety of digital assets for settlement.

Taking on Swift and Ripple's xRapid payments rail, World Wire uses the Stellar protocol to make money transfers point-to-point, cutting the need for conventional correspondent banking. Settlement time can be reduced to seconds by transmitting monetary value in the form of digital assets - stable coins.

Marie Wieck, GM, IBM Blockchain, says: "By creating a network where financial institutions support multiple digital assets, we expect to spur innovation and improve financial inclusion worldwide."

Currently, the network supports settlement in Stellar Lumens and a US dollar stable coin. It has already enabled payment locations in 72 countries, with 47 currencies and 44 banking endpoints.

Now, IBM says that it has signed letters of intent from six international banks ready to issue their own stable coins, subject to regulatory approval. The banks include Banco Bradesco, Bank Busan, and Rizal Commercial Banking Corporation, adding Euro, Indonesian Rupiah, Philippine Peso, Korean Won and Brazilian Real coins.

Manny Narcisco, first SVP, RCBC, says: "We're focused on innovation that adds value for our customers, and World Wire presents a tremendous opportunity to transform and enhance our payment infrastructure."

The free electronic register lets anyone see the identity of authorised payment and electronic money institutions, as well as the country of establishment of these providers and the services they provide and information on passporting - the services provided in host member states.

Adam Farkas, executive director, EBA, says: "The EBA has worked hard to provide a freely accessible and reliable source of key information for market participants across the single market that will facilitate the roll out of PSD2, support the provision of the newly regulated payments services and improve transparency for consumers in the EU".

Over the next year, these 22 payments industry leaders and subject matter specialists will work collaboratively with Federal Reserve leaders to formulate recommendations for improving the quality and consistency of automated clearing house (ACH), wire, and check fraud data. Although noncash payments fraud remains a very small fraction of total payments value, it is a large number in absolute terms--approximately $8.3 billion in 2015. This, combined with the growth of real-time payments, underscores the need to better understand payment confidentiality, integrity, and security threats.

"The Fraud Definitions Work Group is another step in the Federal Reserve's efforts to promote the safety, security, and integrity of the U.S. payment system through collaboration with the payments industry," said David Sapenaro, Federal Reserve System payments strategy director and chief operating officer at the Federal Reserve Bank of St. Louis.

"Understanding payments fraud trends can help us mitigate fraud risk," said Ken Montgomery, Federal Reserve System payments security strategy leader and chief operating officer at the Federal Reserve Bank of Boston. "However, there often are inconsistencies in the classification and reporting of payments fraud data from study to study and a significant lag between the time that fraud occurs and when it's reported. In addition, fraudsters continually adapt their attacks as the use of ACH, wire, and checks for innovative faster payments evolves."

In January, the Federal Reserve outlined the expertise needed to serve on the work group and asked payments experts to submit "expressions of interest." The Federal Reserve selected work group participants from these submissions and appointed some additional Federal Reserve and industry participants to ensure diversity of thought and strong expertise across the many needed disciplines.

The Fraud Definitions Work Group seeks to build a recommended payments fraud classification model that includes detailed definitions and/or categories to help the industry better understand key data points and address ACH, wire, and check payments fraud. Work will begin later this month to examine existing payments fraud definitions and areas where new or changed definitions could be helpful. The work group also will create a roadmap to encourage broad industry adoption of this classification model to improve the consistency and timeliness of available payments fraud data.

Members of the Fraud Definitions Work Group are:

Ken Montgomery, Fraud Definitions Work Group sponsor, Federal Reserve System payments security strategy leader, and chief operating officer at the Federal Reserve Bank of Boston
Jim Cunha, Fraud Definitions Work Group chair and senior vice president of treasury and financial services, Federal Reserve Bank of Boston.
Gasan Awad, vice president, fraud and anti-money laundering product management, Fiserv
Dondi Black, vice president, senior enterprise fraud strategist, FIS
Jamey Boone, vice president, fraud risk management, Early Warning Services
Nell Campbell-Drake, vice president, Retail Product Office, Federal Reserve Bank of Atlanta
Natalie Diana, senior counsel, Bureau of the Fiscal Service, Department of the Treasury
Carlos Fuentes, vice president of strategy and architecture, Wholesale Product Office, Federal Reserve Bank of New York
Adriana Guaderrama, vice president, ACH product manager, First Century Bank
Chris Guard, vice president, e-services compliance and fraud, State Employees' Credit Union of North Carolina
Cheryl Gurz, vice president, Citizens Bank
Michael Herd, senior vice president, ACH network administration, NACHA
Rakesh Korpal, executive director, JPMorgan Chase
Lee Kyriacou, vice president, real-time payments, The Clearing House
Danny Luong, director, fraud technology, PwC
Roy Olsen, executive vice president EVP/Cashier & Human Resources Director, American National Bank & Trust
Carla Palma, senior director, global treasury operations, PepsiCo
Al Pascual, senior vice president, research and head of fraud and security, Javelin Strategy & Research
Rene Perez, director, product management, Jack Henry
Kim Plaugher, assistant vice president, funds services, Navy Federal Credit Union
Sergio Rodriguera, manager, government fintech, SAS
Kathy Stokes, director, fraud prevention programs, AARP
Eric Tran-Le, vice president, product management, Guardian Analytics

The Federal Reserve also has established the Fraud Definitions Community Interest Group for individuals who are interested in providing input and following the efforts of the work group. Visit FedPaymentsImprovement.org to sign up for this community interest group and to learn more about how to contribute to the fraud definitions work.