A group representing about 20,000 investors in Helbiz Inc has filed a motion seeking a temporary restraining order and preliminary injunction against the company.
Investors want a motion granted to stop the company from destroying smart contracts that supports Helbiz Inc.’s ERC20, a token also known as Helbizcoin (HBZ). The application was filed on 6 July 2020.
According to a motion filed at United States District Court Southern District of New York, the plaintiff, Ryan Barron, and other investors accuse the defendant, Salvatore Palella of fraud. Palella is the “main owner” of Helbiz Inc.
Investors state that there are three main issues of why the court needs to grant the motion.
First, the investors’ counsel argues it is “tortuous” to destroy the computer code that allows the coins to exist. Helbiz Inc “sold these coins and transferred ownership to them (investors)” and it would be a “trespass to and conversion of personal property” (at a minimum) to destroy their functionality.
Secondly, investors say the threatened destruction of personal property is a well-established basis for an injunction, and particularly so here because the contract, “once destroyed, can never be restored.”
Investors allege that the ERC20 token, which has seen its value drop by 99%, was part of an elaborate pump and dump scheme orchestrated by Palella and Helbiz Inc.
It is on the third issue that investors say they expect the Palella to mount a challenge.
In their motion, investors argue that by filing an opposing motion to an earlier filing suggests Palella’s willingness to defend himself. Investors had approached the court for a letter seeking expedited discovery of the defendants’ control over the coin.
Palella’s opposition also supports investors’ claims that the defendant is trying to distance himself from Helbiz Inc so that he avoids liability.
Court records also show Palella arguing that “non-party HBZ Systems PTE LTD (‘HBZ Systems’) [is] the company that controls the computer code for the smart contracts at issue.”
Palella further argues that “HBZ Systems is a Singaporean company that is beyond this Court’s jurisdiction.”
Concluding its opposition to the plaintiff’s filing, the Pallela’s counsel states that the initial coin offering (ICO) for HelbizCoin “raised only 1,804.45 ethereum, which is the equivalent of approximately $1.56 million.”
This last statement by Pallela’s counsel suggests he is trying to insinuate to the court that this is an unimportant case.
Still, investors point to the existence of an interview Palella had with an online cryptocurrency news magazine. Investors say Palella’s statements in that interview shows that he controls the coin and not some third party.
In 2017, during the ICO boom, Palella began promoting Helbizcoin (HBZ) and its associated blockchain platform as a peer-to-peer solution to reinvent the ride-sharing economy.
Capitalizing on the frenzy over crowd-sharing businesses and crypto, Palella raised nearly $40 million from small investors reports quote him saying at the time. Investors believe their case has strong merits and an injunction must be granted.
Do you think winning the court injunction will improve the chances of investors recovering their funds? Tell us what you think in the comments section below.
Zimbabwe’s deteriorating economic situation is forcing authorities to sign off on some desperate and controversial decisions. Some of such decisions include the abrupt suspension mobile money as well as the recent designation of Zimswitch as a national payment switch.
Reserve Bank of Zimbabwe Suspends Mobile Money Service
Owned by banks, Zimswitch is the current payments switch to the same financial institutions. This designation has been made to, ostensibly, enable interoperability between financial services providers.
In a notice to the public Thursday, the Reserve Bank of Zimbabwe (RBZ) says all financial services providers including mobile money operators (MMO) must connect to this national payment switch.
The country’s largest MMO, Ecocash appears to be the target of this move by RBZ. Over the years, Ecocash has routinely been accused of frustrating efforts to enable interoperability between MMOs among a slew of charges.
Fighting Mobile Money Monopoly
Ecocash’s critics say the MMO does this to preserve its monopoly, a status it gained after investing heavily in building its infrastructure. Ecocash inevitably became the most dominant MMO, a fact confirmed by findings of a survey conducted by the local telecoms regulator. According to the findings, Ecocash accounts for more than 94% of all mobile money payments.
Inevitably, Ecocash’s dominant position has long been a source of tension with regulators and now government. Yet despite the threats and directives, Ecocash has steadfastly refused to be cowed into relinquishing its dominant position.
However, the country’s accelerated economic decline, as well as the hyperinflation environment, is reportedly creating tension and paranoia in corridors of power. Some commentators point the surprising decision to suspend mobile money transactions as an example of this paranoia.
As expected, Ecocash dared the government by refusing to abide by the suspension order. Ecocash argued that the government official making announcement erred as he did not consult with the RBZ before going public. The shortlived stand-off ended when the RBZ finally issued a statement wherein it regurgitates the government position.
Ecocash: Zimbabwe’s Economic Bogeyman
Now both government and RBZ sing from the same hymn book when it comes Ecocash. They accuse Ecocash of fueling activities on the “illegal” foreign currency black market. Ecocash is also accused of running a Ponzi scheme. Somehow, Ecocash has become Zimbabwe economy’s bogeyman.
The designation of Zimswitch as the payments switch for all financial services providers appears to show a determination by authorities to check Ecocash’s influence. By gaining indirect control of the popular MMO, authorities hope they will also be able to rein on influential foreign currency dealers.
Ultimately, killing the black market for foreign currency appears to be the objective. However, it is doubtful if this objective can be realised through the use of such heavy-handed tactics.
Ecocash may be out of legal options to fight back this time but that may not be the case for shadowy foreign currency dealers. Dealers and now ordinary citizens seem to have found another option that does not include Ecocash. This option is bitcoin.
Faced with stringent foreign exchange regulations some Zimbabweans are switching to bitcoin when making payments across borders. Bitcoin is faster and not subject to normal regulations.
The Growing Use of Bitcoin
Still, others now prefer storing their funds in the form of bitcoin because they have absolute control. The government cannot control or suspend cryptocurrency as it has done with Ecocash. Bitcoin is also immune to local inflation which, according to John Hopkins Economics professor, Steve Hanke, now exceeds 1000% per annum.
Some foreign nationals are now also using bitcoin when remitting funds back to their home countries. Finally, joining this crypto community is the much-maligned foreign currency traders. Traders are tapping into the growing demand for bitcoin.
In 2018, perhaps sensing a threat posed by cryptocurrencies, the RBZ directed banks to end support for all cryptocurrency-related businesses. This directive resulted in the shut down of Golix, a cryptocurrency exchange. Yet, in spite of all this, bitcoin trading and its use as means of payment continues to grow.
Traders and buyers of bitcoin now use social media messaging apps and other channels to initiate transactions.
Unfortunately for the government and RBZ, they are not positioned to determine the exact level of bitcoin trading or penetration. This is partly due to the directive against the only formal institutions that can generate such data. The order that outlaws cryptocurrency exchanges remain in force. Furthermore, the peer to peer nature and anonymity of transactions means authorities will never know the true volumes of transactions.
Social Media Messaging Apps as Cryptocurrency Exchange Platforms
Nevertheless, there is still a way one can gain some insights into this trade. A simple perusal of posts or adverts found in many cryptos related social media chat groups can provide clues.
In some of the posts seen by this writer, sellers offer amounts often not exceeding $100. With the restrictions and suspension of certain mobile money services, trades are now mainly settled in hard currency.
From the adverts, it customary for sellers of bitcoin to charge a premium ranging from 5% to 10%, in addition to the agreed price. In the meantime, many buyers are looking for bitcoin that exceeds $100.
Looking at a few media channels one trader stands out. The trader, who we shall not name, normally posts advertisements every morning. In the advertisements, she set terms and conditions, usually the minimum bitcoin (BTC) they are selling and their premium rate.
Speaking to this writer, the trader says business has been booming of late. She claims to now sell bitcoin worth $50,000 each day. She attributes this growing uncertainty and control of the economy by the government.
Zimbabwe’s growing bitcoin trading activities suggest authorities may be losing the battle to win confidence and trust. It seems as conditions get worse more will seek to understand this newly found escape route.
Do you think more Zimbabweans will switch to bitcoin as the economic situation gets worse? Let us know in the comments section below
As money developed and people opted to place it in secured storage, banks started issuing banknotes which represented a client’s deposit at the bank and the promise to redeem each note for the amount of gold it represented at a 100% reserve rate.
Market exchange rates of the coins were defined by their metal content. The market exchange rate of the notes was defined by the default risk of the issuer (risk-adjusted demand). These notes began to circulate more and more. They still represented the gold, and people still redeemed them for gold, but banks noticed that some gold always remained in the vaults. The bankers started loaning out some of the “dormant gold? for their own profit and at the risk of their depositors, thereby creating more claims (banknotes) than they had gold in their vaults. This meant a less than 100% reserve rate (which the State did not stop and in fact even sanctioned, encouraged and institutionalized as this meant that the State could borrow more money in the shadows of finance, beyond the comprehension of most of the citizenry).
The State constantly needs more money for wars, corruption, and vote-buying and ultimately enforces Legal Tender laws. The State takes over the reserve banks (taking control of the gold present in them and the dictating of reserve rates) and declares a single legal tender which replaces all other notes (others become forbidden), issued by the central bank. The notes still represent the fractionally reserved gold, and people can still redeem them for gold (as long as not too many people do so at once). However, as the notes themselves (as opposed to the metal coins) become legal tender and usage becomes enforced by the State, they are less often redeemed.
Fractional reserve banking becomes institutionalized at a less than 100% reserve rate. Market exchange rate of the notes no longer defined by default risk of the issuer (now the State) but by the mere dictate of the State, where every citizen is forced to accept the note, regardless of metal content underlying it (thereby negating the default risk of single banks, but also masking the systemic risk which remains the same!), at least within the same monetary union. Exchange rates still play between different LT’s but gold is indirectly “removed? from the market and the legal tender notes become the center of the monetary system.
Now, as people got used to the legal tender notes and were no longer frequently redeeming them for gold, the State – over time – started to reduce the amount of gold for which they could be traded in at the central bank. This went largely unnoticed by the general public, which came to view the notes themselves as money (secure in the belief that because it was regulated, the State was looking after their best interests). This opened the door for the State to gradually print more and more notes at lower and lower underlying gold amounts, on top of those notes that were already being created out of nothing through fractional reserve banking, as these could not be refused by citizens under legal tender law which forcefully monopolizes the issuing of currency.
Though gold and silver have been freely used as money for millennia (with the first gold coins originating around 550 BC in modern Turkey), over time States have instituted several forms of formal “gold standards? (which de jure tied the standard economic unit of account to a fixed amount of gold and / or silver).
Though similar local endeavours (with similar outcomes) had been undertaken since the introduction of gold coinage, in modern times, “England adopted a de facto gold standard in 1717 […] and formally adopted the gold standard in 1819. The United States, though formally on a bimetallic (gold and silver) standard, switched to gold de facto in 1834 and de jure in 1900 when Congress passed the Gold Standard Act. In 1834, the United States fixed the price of gold at $20.67 per ounce, where it remained until 1933. Other major countries joined the gold standard in the 1870s. The period from 1880 to 1914 is known as the classical gold standard. During that time, the majority of countries adhered (in varying degrees) to gold. It was also a period of unprecedented economic growth with relatively free trade in goods, labor, and capital? (Bordo, 2002). Deflation was rampant as economic growth outpaced gold production, and this was key to the successful economic climate.
The different currencies like the mark, pound or dollar, were at the time just different terms for certain weights of gold. Exchange rates were “fixed? as everyone was using the same money, namely gold. Consequently, international trade and cooperation increased during this period. The classical gold standard was however a fractional gold standard (i.e. allowing fractional reserve banking and masking it behind State sanctioning) and, consequently, inherently dangerously unstable.
Banks did not hold one hundred percent reserves – their deposits and notes were not 100% backed by physical gold in their vaults. They (and their depositors) were always confronted with the threat of losing reserves to bad loans and being unable to redeem deposits during bank runs.
Gold did still put a natural limit on how much money could be spent by the State (at some point the State’s gold could run out). But as war is one of the State’s most costly endeavors, “it is no coincidence that the century of total war coincided with the century of central banking? (Paul, 2009). The gold standard broke down during World War I (barring people from converting their banknotes into gold, until the gold standard was again briefly reinstated from 1925 to 1933).
“In 1933, President Franklin D. Roosevelt nationalized gold owned by private [US] citizens and abrogated contracts in which payment was specified in gold. Between 1946 and 1971, countries operated under the Bretton Woods system. Under this further modification of the gold standard, most countries settled their international balances in U.S. dollars, but the U.S. government promised to redeem other central banks’ holdings of dollars for gold at a fixed rate of thirty-five dollars per ounce. Persistent U.S. balance-of-payments deficits steadily reduced U.S. gold reserves, however, reducing confidence in the ability of the United States to redeem its currency in gold,?” in effect threatening to trigger an international bank run. “Finally, on August 15, 1971, President Richard M. Nixon announced that the United States would no longer redeem currency for gold,? thus robbing the entire world of their reserves. “This was the final step in abandoning the [modern] gold standard? (Bordo, 2002).
In other words, from the start of the gold standard, the amount of gold in which the standard unit of account represented was constantly scaled down (debased), just as it had always been in similar systems before. In 1971, the central bank notes became “unbacked? by any commodity whatsoever and now only had value because the State said so. Crucially, what actually happened was a theft of the underlying gold.
The banknotes thus became what is known as fiat money. Fiat money (all of the world’s current official currencies, including EUR, USD, GBP, CHF, JPY, CNY, BRL, RUB, INR, etc.) is not linked to commodities in any way. It is paper, base metal coins, and digital entries in a computer system. The only thing supporting it is the propaganda, the coercive apparatus of the State, and the rampant economic illiteracy of the general public.
Now, States were no longer constricted by any limitation due to an underlying backing in gold or other commodities. Gold no longer enforced discipline on politicians and States could start printing money as they saw fit, for all intents and purposes in unlimited amounts. Interest rates (the price of money) were then no longer determined by the markets, but dictated by the State as it sees fit.
In essence, the underlying “commodity? of a national fiat currency became the coercively subjugated current and future population which it supposedly represents.
So, if there is no commodity (except human slave labor and coercive State control) backing today’s fiat currencies, how do central (national) banks create them? There is much to be said for the sentiment that “it is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning?.
The mechanic is so simple that it is hard to believe, and yet, it is what it is.
As we have seen throughout this book, the State is in constant need of currency to make up for its corruption and wasteful inefficiencies. In order to cover its continuous shortfalls, the State gives out “bonds,?” financial instruments which are basically debt certificates. When you buy a bond, you pay for example 100 Units for it. In return, the bond originator promises to pay you back the 100 Units in a few years’ time, plus interest at specified intervals in between. When the State emits bonds, they get bought by the banks (who are at present all coercively tied into the national bank systems of the countries in which they operate). The bond is a liability for the State (as it represents a debt), but for the bank, it is an asset (as it represents a claim). In order to get fiat currency themselves, the banks in turn “sell,?” these bonds to the national (central) reserve banks, in return for fiat currency (in the form of cash banknotes, or today in the form of digital figures on a reserve account).
But how does the national central bank get the fiat currency to buy those bonds and bring the fiat currency into circulation? Consider the following words from an instructional booklet published by the US national bank, the Federal Reserve, aptly titled “Putting It Simply?: “when you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money? (FRBB, 1984).
The above paragraph is worth rereading for good measure. The central banks indeed create “money? ex nihilo.
When a central bank buys a bond, it puts the bond on its balance sheet as an asset, just like the regular banks did when they first acquired bonds from the State. On the liability side of its balance sheet, the central bank simply puts “reserves,?” of the banks from which it “purchased,?” the bonds. The banks in return get “reserves,?” (fiat currency) on their asset side, which in turn allows them to create multiple times more money through fractional reserve banking as we have seen earlier.
This has some direct implications (and many more indirect ones, as we will soon discover).
Firstly, the creation of fiat currency (i.e. without any commodity backing) is basically nothing more than an accounting entry by a central bank.
Secondly, we come to see that today, in the global system of fiat currencies, all money is debt, and debt is money – with human beings and their labor as collateral, held accountable for debts which they did not themselves agree to, to be extracted of their wealth at gunpoint through every imaginable kind of taxation guaranteed by the coercive apparatus of the State.
Thirdly, the fiat currency system is inherently unstable as more bonds will have to be created to pay the interest on the previous ones, and so on. At some point, only hyperinflation or debt default can follow, and as history shows, it is usually a combination of both. But by the time that happens, the fiat currency has been used by the parasitic classes of the State and its beneficiaries to rob others of their savings and their assets.
Which brings us to our fourth point:
When fiat currency is created, it robs every citizen (who is coercively forced to use the fiat currency in his daily transactions) of some of his or her savings and purchasing power.
Take the following example: Assume that there exists a market with only one egg which is for sale and only one unit of currency, which can be used to buy the egg (the currency would have no other uses as there are no other goods or services in this hypothetical situation). When the State (through issuing bonds – debt with the citizenry as collateral – directly or indirectly to its central bank) or the “private,?” banks of today (through fractional reserve banking) create currency out of nothing, an additional unit of currency is created and added into the system. However, this does not mean that there are now all of a sudden two eggs available for sale (compare this to a commodity-backed currency, where a banknote – or a gold or silver coin, etc. – represents a physical commodity of value). The result, in effect, is that there are now two units of fiat currency in existence, but still only one egg. In other words, all that happened is that the price of the egg simply doubled to two units of currency. This is what is called inflation.
But, and this is crucial, when we expand this situation to the whole of available goods and services, it is very hard (nigh impossible) for the population to estimate how much fiat currency is being created by central banks and by the State-sanctioned fractional reserve banking. As a result, those who are aware of the currency creation (and are the first to get their hands on it), namely the State, the banks and their accomplices, can buy goods and services at pre-inflation prices with this new fiat currency which was all of a sudden created out of nothing. Other people are not aware of the fact that the price of the egg just doubled (neither is the seller, and neither is the person who saved one unit of currency to be able to buy an egg when he pleases). As a result, all participants get tricked and robbed at the expense of the State and the banks. The sellers sell for less than the adjusted prices which will result after the sale, and the savers are robbed of their purchasing power just the same.
Through the system of buying and selling bonds, the central banks, at the direction of the State, can affect the price of these bonds (as they have unlimited funds to do so, at least as long as the public accepts the fiat currency as having value because the State says so). The price of the bond correlates with the interest it yields in comparison with the interest rates of new bonds being created. By buying and selling new and existing bonds, their interest rates (which serve as a basis for all interest rates across the system, being officially – though of course not really – “risk-free,?” due to State backing) can be manipulated by the central banks.
This brings us to the final part of this Chapter, where all of the above comes together to shed a light on one of the most destructive forces of the modern world, created by the Statist system of fiat currencies and fractional reserve banking: the “business cycle,?” (though, as we will see, actual “business,?” in a free market sense has nothing to do with it whatsoever).
What do you think about Christophe Cieters editorial called “Monopoly Money?” Let us know what you think about this subject in the comments section below.