UK Bank Reserves
An excellent Daily Telegraph piece this week by economist Dr Gerard Lyons that made a number of telling points that both BoE Governor Bailey and Chancellor Reeves would do well to read and afterwards to act differently. Just one of those points concerns the Bank of England paying banks bank rate on the reserves that they place with the BoE. The Bank of England’s wholly unconvincing argument is that removing that (generous) interest payment would cause financial instability. If only it knew. Not just anecdotal but real evidence is that the banks actively bolster the reserves that they place with the BoE simply because of the attractive interest rate offered on those reserves. As for the anecdotal, one bank CEO in an unguarded moment at a cocktail party when asked how he could justify the overly high reserves his bank had at the BoE, he replied to me that he could not find an alternative home for those funds that offered a risk free interest rate of such magnitude and at the same time reduced the overall risk that his bank was taking. As a last and telling point about finding money down the back of the sofa for the Chancellor, the removal of the payment of interest on bank reserves other than for the regulatory amount of capital required is estimated to be a saving to the Treasury of GBP 20 billion per annum. That would encourage banks to inject much needed investment into the UK economy which would in turn generate Chancellor Reeves’ elusive (to her) economic growth and obviate the need for many of the mooted increases in taxation. So an easy win win.
GBP/USD 1.3095.
Geothermal
It may come as a surprise but Texas USA is establishing itself along with Indonesia at the forefront of the global geothermal energy drive despite being better known for its offshore oil and onshore fracking industries. Texas has the drilling technology from fracking, the ability to go deep to the hottest seams of heat, the legal framework since surface ownership automatically confers the rights to the ground below and lastly the ability to store that energy output led by SAGE Geosystems which is backed by Meta. Moreover, Texas has the demand with those vast server farms supporting the AI industry. Servo is a $1.4 billion start up backed by Google has the technology to go very deep as does Mazama which provides the equipment to the industry.
EUR/USD 1.1535.