In today’s Exponential Investor

  • Who’s got bags of cash?
  • Turkey at Christmas time
  • Crypto looking cheap

What is the job of a bank?

To many people the job of the bank is to keep our money locked away securely, and protect against any form of financial crime (i.e. fraud) that could take it from us.

But what happens when the bank is the criminal?

Step forward, NatWest (LSE: NWG).

The company has been involved in a money laundering scandal. There’s nothing unusual there… loads of banks are embroiled in money laundering scandals (HSBC is another to wear that crown).

What sets NatWest apart is it is the first bank to be criminally prosecuted in Britain for an offence of this kind. So yes, NatWest (the corporation) is a criminal.

And banks are supposed to be trustworthy… right?

Between 2012 and 2016, a whopping £365 million was deposited into 50 Natwest branches across the UK, by Bradford-based jeweler Fowler Oldfield.

Incredibly, £264 million of the deposits were in cash.

In fact, one cash deposit of £700,000 accepted by NatWest’s Walsall branch arrived in several over-filled bin bags, after being hauled through a shopping centre.

After the National Crime Agency (NCA) investigated, NatWest failed to comply with its request of further information on the transaction. In addition, NatWest recorded many of the direct cash deposits as cheque deposits on its system as a means of covering up this, quite literally, dirty money.

Its prosecution and hefty fine of £265 million is hardly a surprise.

The importance of this case cannot be understated.

NatWest is a predominately government-owned bank. Even if it were not, it would be supposedly a trusted institution.

Cases like this highlight the times in which criminal activity is caught. Now consider all the very well-hidden criminal activity that goes completely unchecked and never uncovered.

This isn’t some random one-off occurrence either, or decades the banking system has flaunted the law and often got away with activity like this. Setting an example of NatWest is one thing, but the real pain point for them and the whole traditional financial system is just around the corner…

Banks like this can only trade on “trust” while trust exists. But if trust is gone and there is a better, trustless, self-responsible way to bank and operation in a global financial system… then what is the point of a traditional bank at all?

There’s only one way out

Again we ask, what is the job of a bank?

Ok, we established security and safety. What else? To give you some return on your cash? To provide you with credit to buy things today to pay off tomorrow?

What else? Payment cards to spend your money day-to-day?

What else? Anything? No, not really.

What if you could get 5% interest on your cash instead of 0.05%?

What if you could borrow as much or as little as you want without going to the bank and without going through hours of forms and credit checks via third-party data hoarders, with flakey data security?

What if you could get payments cards to spend your cash anywhere you can now, but without the bank peering over your shoulder always checking on what and where you spend?

What if you could operate in the global financial system not only with security and safety, but without having to ever deal with a bank again?

Where the only trust needed is with yourself.

Would that be of interest to you?

It should be. Instead of centralised banking cartels soaking up your wealth and value from you, there is an alternative. You should be the one who benefits, receives the reward, gets the better deal and better return. The traditional banking system should get little, while you should get the spoils from your connection to global finance.

That is a revolution, and that is the very essence of the decentralised finance (DeFi) revolution that is gripping the global markets right now.

There are platforms like Compund Finance, YouHodler, BlockFi and others that offer deposit rewards on cryptocurrency holdings and stablecoins with numbers as “low” as 4% and as high as 9.5%, 12% and even as high as 16%.

If you want to get a loan you can use similar platforms, like Compound or BlockFi. Even exchanges like Binance and offer lending for crypto (and on occasion without collateral).

If you want payment cards to spend funds, Coinbase, Binance, BlockFi, and Wirex all offer debit cards that allow you to spend your crypto holdings.

If you want to get even more ingrained with DeFi, you can even provide liquidity, collateral or deposits in order to participate in lending pools, borrowing pools and market-making pools. You can invest in complex DeFi strategies to “yield farm” that allows you to compound returns (albeit with extremely high risk too).

The point is you can use the growing DeFi world to function as you would now but with the benefit of a system build for you not for the corrupt, concentrated traditional finance (TradFi) system.

Even if you’re still skeptical about it, test it, try it out, see what we’re on about. Loosening ties to the TradFi system and discovering the DeFi system might be the smartest move you ever make.

The biggest turkey of them all

Finally, just to reinforce how corrupt the TradFi system is, let’s turn our attention to Turkey.

Policy-makers here are breaking the most basic, fundamental laws of economics leading to the demise of the country’s economy.

Normally, when inflation is surging, policy-makers respond by raising interest rates.

This is to put the brakes on the economy. The aim to provide monetary stability incentivising saving, makes borrowing more expensive, and slowing growth. This is logical, because economic expansion is typically fuelled by an expansion in credit.

However, Turkish President Recep Tayyip Erdoğan is doing the complete opposite.

Turkey’s annual inflation rate was 21.31% in November 2021.

A 100 ₺ (Lira) trip to the shops this time last year would now cost you 121.31 ₺.

Instead of raising rates to combat this alarming price growth, Erdogan has been lowering the bank rate, with the current rate at 15%. He is expected to lower it to 14% at the time of writing. Worryingly, he believes that doing so will “curb inflation”.

Effectively, Erdogan is encouraging the injection more money into the economy, even when inflation is already out of control.

It’s not surprising to here that the value of Turkey’s sovereign currency, the lira, is at a new low, having  shed half of its value in a year.

Erdoğan believes it will make exports more competitive exports because Turkish goods will become cheaper relative to other countries’ goods. With the lira plummeting, other countries can hand over less of their currency for a given amount of lira.

What it’s doing is driving the people of Turkey into poverty at a rapid rate. Wealth erodes minute by minute, with the cost-of-living skyrocketing and the people suffering.

Turkey is not the only country in the midst of an economic crisis. But it shows us why those who are supposedly in control and we’re supposed to trust in reality have absolutely no idea what they’re doing…

… and they want you to trust them?

Until next time,

Sam Volkering
Editor, Exponential Investor

Elliott Playle
Junior Analyst, Exponential Investor