1 00:00:00,240 --> 00:00:04,360 Speaker 1: Money is not about technology. Money is essentially what we 2 00:00:04,480 --> 00:00:08,799 Speaker 1: have in our heads, the common understanding of what money is, 3 00:00:08,880 --> 00:00:11,360 Speaker 1: as long as we agree on what it is, and 4 00:00:11,440 --> 00:00:20,800 Speaker 1: that requires some kind of illegal framework. Hello and welcome 5 00:00:20,800 --> 00:00:23,759 Speaker 1: to Stephanomics, the podcast that brings the global economy to you, 6 00:00:24,120 --> 00:00:27,560 Speaker 1: and this week we're glimpsing the future of money, a 7 00:00:27,720 --> 00:00:31,280 Speaker 1: digital crypto future that in some ways it is already here. 8 00:00:31,800 --> 00:00:35,200 Speaker 1: Bitcoins the digital currency everyone's heard of. It's been around 9 00:00:35,200 --> 00:00:38,000 Speaker 1: since two thousand and nine, but there are now eight 10 00:00:38,040 --> 00:00:42,400 Speaker 1: thousand other cryptocurrencies out there are competing for your business. 11 00:00:43,120 --> 00:00:46,840 Speaker 1: That explosion in crypto more than fifteen trillion dollars worth 12 00:00:46,840 --> 00:00:50,800 Speaker 1: of transactions last year alone. Maybe based on twenty one 13 00:00:50,920 --> 00:00:54,600 Speaker 1: century innovations like the blockchain, but it feels a lot 14 00:00:54,680 --> 00:01:01,480 Speaker 1: like the nineteenth century wild West, exciting, uncharted territory, also lawless, 15 00:01:01,480 --> 00:01:04,759 Speaker 1: full of snakes. If you don't trust banks or governments, 16 00:01:05,160 --> 00:01:09,679 Speaker 1: it all sounds great. Central banks and regulators naturally have 17 00:01:09,760 --> 00:01:12,640 Speaker 1: a rather different response. They want to bring order to 18 00:01:12,680 --> 00:01:15,679 Speaker 1: the chaos, and they also, many of them, want to 19 00:01:15,680 --> 00:01:18,959 Speaker 1: compete with digital currencies of their own. At last count, 20 00:01:19,280 --> 00:01:22,080 Speaker 1: more than a hundred central banks had either introduced a 21 00:01:22,160 --> 00:01:25,000 Speaker 1: central bank digital currency or had plans to do it. 22 00:01:25,560 --> 00:01:28,639 Speaker 1: I got to chair a fascinating discussion of the future 23 00:01:28,680 --> 00:01:31,240 Speaker 1: of money and central banks at a conference the other 24 00:01:31,319 --> 00:01:34,760 Speaker 1: day organized by the Bank of International Settlements, the Central 25 00:01:34,760 --> 00:01:37,400 Speaker 1: Bank of Central Bankers. We had the governor of the 26 00:01:37,440 --> 00:01:39,800 Speaker 1: first central bank to pilot its own digital cash, the 27 00:01:39,840 --> 00:01:42,920 Speaker 1: Swedish ricks Bank, the chief executive of one of Europe's 28 00:01:42,959 --> 00:01:47,160 Speaker 1: biggest banks, and a Yale University professor who's the academic 29 00:01:47,200 --> 00:01:49,600 Speaker 1: authority in this area. So if you if you want 30 00:01:49,600 --> 00:01:52,280 Speaker 1: to actually understand what a central bank digital currency is 31 00:01:52,320 --> 00:01:55,000 Speaker 1: and why on Earth we might want them, I urge 32 00:01:55,040 --> 00:01:58,080 Speaker 1: you to carry on listening. But before we talk about 33 00:01:58,080 --> 00:02:00,600 Speaker 1: the theory, a taste of what a i'fe lived in 34 00:02:00,680 --> 00:02:05,040 Speaker 1: crypto might be like in practice. Last year, Al Salvador 35 00:02:05,400 --> 00:02:08,320 Speaker 1: became the first country in the world to make bitcoin 36 00:02:08,639 --> 00:02:13,480 Speaker 1: legal tender. So Bloomberg Central America based reporter Michael McDonald 37 00:02:13,840 --> 00:02:16,360 Speaker 1: through his digital wallet in the suitcase and went to 38 00:02:16,400 --> 00:02:35,080 Speaker 1: put that to the taste up for me. It's not 39 00:02:35,200 --> 00:02:38,000 Speaker 1: for me, you know why, because those of us who 40 00:02:38,040 --> 00:02:40,600 Speaker 1: don't know how to read, we're going to lose money. 41 00:02:41,600 --> 00:02:44,840 Speaker 1: That was Maria or Billina, who runs a ribbed restaurant 42 00:02:44,919 --> 00:02:48,560 Speaker 1: in the town of Conchagua, El Salvador, or Billina, is 43 00:02:48,560 --> 00:02:51,160 Speaker 1: in her late seventies and stands over a pile of meat, 44 00:02:51,240 --> 00:02:53,919 Speaker 1: waving a butcher's knife as she prepares the day's cuts 45 00:02:53,919 --> 00:02:57,280 Speaker 1: of beef. She says the learning curve is too steep 46 00:02:57,560 --> 00:03:03,080 Speaker 1: and swears she'll never accept cryptocurrency as pay men. I 47 00:03:03,120 --> 00:03:06,600 Speaker 1: appreciate the visit, but for me, no bitcoin. The government 48 00:03:06,639 --> 00:03:10,440 Speaker 1: made a mistake with that. Unfortunately they have add advisors. 49 00:03:11,760 --> 00:03:15,600 Speaker 1: That she's so downbeat on bitcoin is telling because Conchagua 50 00:03:15,760 --> 00:03:18,560 Speaker 1: happens to be where the Salvadoran government plans to build 51 00:03:18,680 --> 00:03:23,040 Speaker 1: Bitcoin City, a city free of income and capital gains taxes, 52 00:03:23,480 --> 00:03:27,040 Speaker 1: and where a nearby volcano will provide electricity for bitcoin minds. 53 00:03:31,440 --> 00:03:34,720 Speaker 1: In September of last year, Al Salvador became the first 54 00:03:34,840 --> 00:03:38,320 Speaker 1: country in the world to make bitcoin legal tender, so 55 00:03:38,360 --> 00:03:41,000 Speaker 1: the digital currency can be used as an official means 56 00:03:41,040 --> 00:03:44,760 Speaker 1: of payment for goods and services. It is the biggest 57 00:03:44,800 --> 00:03:47,880 Speaker 1: test for bitcoin in its twelve year history, and the 58 00:03:47,880 --> 00:03:51,160 Speaker 1: crypto world has watched closely to see how it all unfolds. 59 00:03:54,280 --> 00:03:59,000 Speaker 1: It's now February and I am here to test the system. 60 00:03:59,040 --> 00:04:00,880 Speaker 1: I jumped in my rent to car for a road 61 00:04:00,920 --> 00:04:03,280 Speaker 1: trip around the country to see how feasible it is 62 00:04:03,320 --> 00:04:06,320 Speaker 1: to pay for things like meals, hotels, and even a 63 00:04:06,360 --> 00:04:10,360 Speaker 1: game of pool using bitcoin. But things don't always go 64 00:04:10,440 --> 00:04:19,880 Speaker 1: as smoothly as hoped. Infection wasn't completed right now, it's 65 00:04:21,040 --> 00:04:23,160 Speaker 1: and then when they see that the transpection was committed, 66 00:04:24,040 --> 00:04:29,320 Speaker 1: that's what happened. That's Natalia Abu lates she manages a 67 00:04:29,360 --> 00:04:33,039 Speaker 1: local Asian fusion restaurant called Bruto, which opened last year 68 00:04:33,240 --> 00:04:38,600 Speaker 1: and accepts bitcoin. My bitcoin transaction isn't processing properly, so 69 00:04:38,640 --> 00:04:41,880 Speaker 1: I ended up paying with a credit card. In fact, 70 00:04:42,200 --> 00:04:45,480 Speaker 1: local businesses have reported lots of issues using bitcoin as 71 00:04:45,520 --> 00:04:49,000 Speaker 1: payment here, from slow internet speed and long delays in 72 00:04:49,080 --> 00:04:54,400 Speaker 1: transactions to volatile price swings in the digital currency mark. 73 00:04:54,440 --> 00:04:57,960 Speaker 1: The escoar at National Car Rental in San Salvador tells 74 00:04:57,960 --> 00:05:01,040 Speaker 1: me the company still needs to upgrade its technology before 75 00:05:01,040 --> 00:05:07,920 Speaker 1: accepting it. Right now, our bitcoin app is going through 76 00:05:07,920 --> 00:05:10,640 Speaker 1: some minor adjustments, so at the moment we are not 77 00:05:10,800 --> 00:05:13,400 Speaker 1: using it. It's easier to use a credit card because 78 00:05:13,440 --> 00:05:16,040 Speaker 1: it is easier to charge the deposit and it makes 79 00:05:16,040 --> 00:05:25,080 Speaker 1: refunding the deposit much easier, Yeah, Ricardo Casta, you know. 80 00:05:25,200 --> 00:05:28,680 Speaker 1: Salvador based economists for the Central American Institute for Fiscal 81 00:05:28,760 --> 00:05:32,640 Speaker 1: Studies said the nation's economy is largely made up of 82 00:05:32,720 --> 00:05:37,240 Speaker 1: small businesses, which has prevented widespread adoption of bitcoin as 83 00:05:37,279 --> 00:05:44,120 Speaker 1: legal tender. Large businesses, especially those in the formal sector, 84 00:05:44,640 --> 00:05:48,240 Speaker 1: high percentage of them are accepting bitcoin. In the case 85 00:05:48,279 --> 00:05:52,720 Speaker 1: of small business it's a much smaller percentage, especially considering 86 00:05:52,720 --> 00:05:57,120 Speaker 1: the characteristics of the Salvadoran market, which is largely informal. 87 00:05:57,640 --> 00:06:01,279 Speaker 1: About seven workers are in the informal sector. So for 88 00:06:01,320 --> 00:06:04,520 Speaker 1: those businesses, you might find a few that accept bitcoin, 89 00:06:04,839 --> 00:06:08,000 Speaker 1: but the vast majority don't. If you go to buy 90 00:06:08,080 --> 00:06:12,320 Speaker 1: your morning French baguette, they won't be accepting bitcoin. If 91 00:06:12,320 --> 00:06:14,919 Speaker 1: you go to a PUPUSA, you might find one that 92 00:06:14,960 --> 00:06:23,240 Speaker 1: accepts it, but the most are not accepting it. There 93 00:06:23,320 --> 00:06:26,400 Speaker 1: are a few daring entrepreneurs who say bitcoin has been 94 00:06:26,400 --> 00:06:31,240 Speaker 1: good for business. Oscar Attilio Lopez sells peanuts alongside the 95 00:06:31,320 --> 00:06:35,000 Speaker 1: highway near a town called Hikualisco, and he accepts bitcoin. 96 00:06:36,240 --> 00:06:39,279 Speaker 1: Standing outside his tin house with a dirt floor, he 97 00:06:39,279 --> 00:06:42,640 Speaker 1: said he even pays vendors in the cryptocurrency and has 98 00:06:42,680 --> 00:06:47,400 Speaker 1: made three hundred dollars speculating on price wings. I whip 99 00:06:47,400 --> 00:06:49,680 Speaker 1: out my phone and send him seven dollars worth a 100 00:06:49,720 --> 00:06:58,600 Speaker 1: bitcoin for two bags of nuts. No, wow, he got 101 00:06:58,600 --> 00:07:02,200 Speaker 1: my seven dollars immediately. Lopez tells me he made a 102 00:07:02,240 --> 00:07:06,400 Speaker 1: big sale recently and accepted bitcoin as payment instead of 103 00:07:06,440 --> 00:07:09,200 Speaker 1: converting it to US dollars. He kept the payment in 104 00:07:09,279 --> 00:07:12,800 Speaker 1: bitcoin and wound up watching its value rise when he 105 00:07:12,840 --> 00:07:15,680 Speaker 1: withdrew the money from his checking account. He realized the 106 00:07:15,720 --> 00:07:21,440 Speaker 1: thrill of accepting the cryptocurrency. We've never had a problem 107 00:07:21,480 --> 00:07:24,080 Speaker 1: with it. It's so how fast it was, and that's 108 00:07:24,080 --> 00:07:27,360 Speaker 1: how fast it's usually is. You can find a few 109 00:07:27,360 --> 00:07:30,640 Speaker 1: other places that accepted near me. Not every one accepted, 110 00:07:31,360 --> 00:07:33,720 Speaker 1: but there are a few. The will I got interested 111 00:07:33,760 --> 00:07:37,480 Speaker 1: to cost the investment aspect called my attention. That's with 112 00:07:37,640 --> 00:07:40,360 Speaker 1: certain amounts he could make money, according through a price 113 00:07:40,400 --> 00:07:50,240 Speaker 1: of bitcoin. Back in San Salvador, Diego Medanda has been 114 00:07:50,280 --> 00:07:55,040 Speaker 1: speculating on cryptocurrencies for several years and even made enough 115 00:07:55,080 --> 00:07:58,080 Speaker 1: money on its appreciation against the dollar to expand his 116 00:07:58,160 --> 00:08:02,160 Speaker 1: small company. He imports jewelry and sells it at several 117 00:08:02,200 --> 00:08:10,720 Speaker 1: locations around the capitol. Cryptocurrency is the new option. It's 118 00:08:10,760 --> 00:08:13,840 Speaker 1: just one more currency. When I was younger, I lived 119 00:08:13,840 --> 00:08:16,200 Speaker 1: through a new currency when we switched from the clone 120 00:08:16,240 --> 00:08:19,320 Speaker 1: to the dollar, and this is exactly the same It 121 00:08:19,400 --> 00:08:22,559 Speaker 1: happened when we only used to use tangible currency, the dollar, 122 00:08:23,080 --> 00:08:25,960 Speaker 1: and then started to introduce credit and debit cards, and 123 00:08:26,040 --> 00:08:28,480 Speaker 1: people found it improbable that their money could be on 124 00:08:28,520 --> 00:08:31,760 Speaker 1: a little plastic thing. It was unthinkable to say I 125 00:08:31,800 --> 00:08:34,720 Speaker 1: have ten thousand dollars in my hand. Now we have 126 00:08:34,760 --> 00:08:37,840 Speaker 1: to convince people that we can say in my phone, 127 00:08:37,960 --> 00:08:40,920 Speaker 1: I have ten thousand in bitcoin, which is just a 128 00:08:40,920 --> 00:09:03,120 Speaker 1: new way to implement a new legal currency. So for 129 00:09:03,160 --> 00:09:05,640 Speaker 1: some in our Salvador, at least, this isn't such a 130 00:09:05,679 --> 00:09:08,320 Speaker 1: new world after all. And several of the experts I 131 00:09:08,360 --> 00:09:10,839 Speaker 1: spoke to it that Bank of International Settlements event the 132 00:09:10,920 --> 00:09:14,559 Speaker 1: other day said much the same thing. The technology may 133 00:09:14,559 --> 00:09:18,320 Speaker 1: be new, but this debate we're having about what money is, 134 00:09:18,600 --> 00:09:22,280 Speaker 1: how we regulated, how we trust it, it's very old. Indeed, 135 00:09:22,800 --> 00:09:25,040 Speaker 1: you're going to hear an edited version of that conversation 136 00:09:25,080 --> 00:09:29,319 Speaker 1: now featuring the governor of the Swedish Central Bank, Stephan Ingves, 137 00:09:29,360 --> 00:09:33,920 Speaker 1: the chief executive of Santander Bank, Jose Antonio Alvarez and 138 00:09:34,000 --> 00:09:40,679 Speaker 1: the Yale University Professor of Finance, Gary Gorton. Gary, I'm 139 00:09:40,679 --> 00:09:43,760 Speaker 1: going to sort of break a precedent. We often start 140 00:09:43,840 --> 00:09:46,560 Speaker 1: with the policymakers, but I think given the analysis that 141 00:09:46,600 --> 00:09:49,360 Speaker 1: you've done in this area and the contributions you've made, 142 00:09:49,360 --> 00:09:51,240 Speaker 1: I think it would be very useful to have you 143 00:09:51,720 --> 00:09:55,800 Speaker 1: setting a little bit of the landscape that we're seeing 144 00:09:55,840 --> 00:09:59,280 Speaker 1: that the change in payments around the world. But I 145 00:09:59,280 --> 00:10:03,880 Speaker 1: think particularly um what challenges and opportunities arise for central 146 00:10:03,920 --> 00:10:07,559 Speaker 1: banks out of this. So let me let me just 147 00:10:07,679 --> 00:10:12,360 Speaker 1: say two things. One is about a hundred years ago 148 00:10:12,520 --> 00:10:17,680 Speaker 1: or so, every sovereign state decided that the government should 149 00:10:17,679 --> 00:10:21,319 Speaker 1: have monopoly on the production of money, and the reason 150 00:10:21,440 --> 00:10:24,400 Speaker 1: was that only the government can provide a currency that 151 00:10:25,000 --> 00:10:28,760 Speaker 1: trades at par with no questions asked, and only the 152 00:10:28,800 --> 00:10:32,280 Speaker 1: government's currency is not subject to bank runs. So the 153 00:10:32,400 --> 00:10:36,679 Speaker 1: question of whether we should have monopoly, whether states should 154 00:10:36,679 --> 00:10:39,880 Speaker 1: have monopoly of our money production has arisen again because 155 00:10:39,880 --> 00:10:43,520 Speaker 1: stable coins are a form of privately produced money, and 156 00:10:43,840 --> 00:10:47,200 Speaker 1: they've already have a foothold, and I think it's at 157 00:10:47,240 --> 00:10:49,760 Speaker 1: least in the US, it's too late to do anything 158 00:10:49,800 --> 00:10:53,160 Speaker 1: about it until we have the next financial crisis. The 159 00:10:53,200 --> 00:10:56,560 Speaker 1: other thing I would say, and fortunately I think this 160 00:10:56,679 --> 00:10:59,400 Speaker 1: is not so controversial as it might have been, but 161 00:10:59,440 --> 00:11:03,079 Speaker 1: everybody has a seem now the importance of the global 162 00:11:03,120 --> 00:11:07,360 Speaker 1: financial plumbing was swift, and the U. S. Treasury was 163 00:11:07,480 --> 00:11:11,160 Speaker 1: using Swift data, you know, before all this to track 164 00:11:11,360 --> 00:11:14,600 Speaker 1: terrorists and so on. And that's going to change when 165 00:11:14,640 --> 00:11:18,160 Speaker 1: we moved to blockchain, say in ten years, when everything 166 00:11:18,240 --> 00:11:22,160 Speaker 1: is interoperable, the standards for how you get data are 167 00:11:22,160 --> 00:11:25,480 Speaker 1: going to be completely different. And I think central banks 168 00:11:25,520 --> 00:11:28,840 Speaker 1: have to be involved here to jointly decide what the 169 00:11:28,920 --> 00:11:32,120 Speaker 1: standards are going to be and to understand how the 170 00:11:32,200 --> 00:11:34,400 Speaker 1: data is going to flow. And I think that's an 171 00:11:34,400 --> 00:11:38,920 Speaker 1: issue that's been overlooked and governor ingvis as. I mentioned 172 00:11:38,960 --> 00:11:41,840 Speaker 1: that the Risk Bank was very early, I think it 173 00:11:41,880 --> 00:11:44,400 Speaker 1: was twenty sixteen you announced that you would do that 174 00:11:44,480 --> 00:11:48,120 Speaker 1: the pilot of the of the digital currency. How do 175 00:11:48,200 --> 00:11:51,840 Speaker 1: you think of your role as a central bank in 176 00:11:51,880 --> 00:11:55,240 Speaker 1: this in this landscape sort of both in terms of 177 00:11:55,240 --> 00:11:59,679 Speaker 1: your own intervention with the pilot, but also in potentially 178 00:12:00,280 --> 00:12:04,520 Speaker 1: regulating and moderating the kind of interventional innovation we're seeing 179 00:12:04,520 --> 00:12:09,360 Speaker 1: on the private space obvious to us, maybe earlier than 180 00:12:09,400 --> 00:12:11,840 Speaker 1: in some other places, that we needed to sort of 181 00:12:11,840 --> 00:12:15,679 Speaker 1: start thinking about these things because given the technological change 182 00:12:15,679 --> 00:12:19,040 Speaker 1: that was going on, people were just moving out of cash. 183 00:12:19,360 --> 00:12:22,440 Speaker 1: And then we sort of started thinking about it kind 184 00:12:22,480 --> 00:12:26,360 Speaker 1: of in a way that Gary just referred to, because 185 00:12:26,400 --> 00:12:29,400 Speaker 1: we started looking at what happened actually in the late 186 00:12:29,440 --> 00:12:36,040 Speaker 1: eighteen hundreds, what was the process that produced the division 187 00:12:36,080 --> 00:12:39,480 Speaker 1: of labor, if I call it that, between the central 188 00:12:39,480 --> 00:12:43,319 Speaker 1: banks and what the private banks used. But we're doing 189 00:12:43,360 --> 00:12:46,520 Speaker 1: back then, and the basic starting point is very very simple. 190 00:12:47,080 --> 00:12:51,760 Speaker 1: In the old days, everything was on paper. Now we're 191 00:12:51,880 --> 00:12:55,160 Speaker 1: moving into another world where nothing will be on paper. 192 00:12:56,080 --> 00:13:01,120 Speaker 1: Now when that technological change happens, would we like to 193 00:13:01,240 --> 00:13:05,839 Speaker 1: maintain roughly the same structure that has been established for 194 00:13:05,880 --> 00:13:08,160 Speaker 1: about a hundred hundred and fifty years ago in many 195 00:13:08,160 --> 00:13:12,360 Speaker 1: many countries, or should we just let it go? And 196 00:13:12,440 --> 00:13:15,560 Speaker 1: then we came to the conclusion that no, we should 197 00:13:15,600 --> 00:13:19,040 Speaker 1: not let it go, because that would imply that in 198 00:13:19,080 --> 00:13:23,480 Speaker 1: my country we would only have private sectre money available 199 00:13:23,600 --> 00:13:27,559 Speaker 1: to the general public. And if history gives us any guidance, 200 00:13:28,240 --> 00:13:31,960 Speaker 1: that's a bad idea, and all the more so in 201 00:13:32,000 --> 00:13:37,199 Speaker 1: a small, very very open economy where it's important, given 202 00:13:37,240 --> 00:13:40,800 Speaker 1: that we have our own field currency, that people actually 203 00:13:40,960 --> 00:13:44,280 Speaker 1: use that currency, because supposed we were just sitting with 204 00:13:44,320 --> 00:13:47,520 Speaker 1: our arms crossed, the whole thing moves into I don't 205 00:13:47,520 --> 00:13:52,360 Speaker 1: know what other other currencies. In that environment, you can 206 00:13:52,400 --> 00:13:56,160 Speaker 1: forget about monetary policy as we know it, because then 207 00:13:56,200 --> 00:13:59,960 Speaker 1: there is no way of increasing or reducing the supply 208 00:14:00,000 --> 00:14:03,800 Speaker 1: own money in the system, because people would start using 209 00:14:03,840 --> 00:14:08,000 Speaker 1: what I call o PM other people's money, and producing 210 00:14:08,040 --> 00:14:11,280 Speaker 1: money nowadays in a small central bank is actually a 211 00:14:11,280 --> 00:14:15,199 Speaker 1: competitive business. People never think about it in that way, 212 00:14:15,240 --> 00:14:18,920 Speaker 1: but it actually it actually is. And that means that 213 00:14:19,040 --> 00:14:24,280 Speaker 1: what we do has to be from a transactions purpose efficient, 214 00:14:25,120 --> 00:14:28,440 Speaker 1: and we need to ensure that we can maintain the 215 00:14:28,520 --> 00:14:33,600 Speaker 1: exchange rate between central bank money and private sector money. 216 00:14:33,960 --> 00:14:37,120 Speaker 1: And if that exchange rate is not one to want, 217 00:14:38,200 --> 00:14:40,880 Speaker 1: then with a fairly high likelihood, you end up with 218 00:14:41,000 --> 00:14:44,200 Speaker 1: serious problems in the system. And those were exactly the 219 00:14:44,240 --> 00:14:47,760 Speaker 1: problems that we had in the eighteen hundreds when banks 220 00:14:47,920 --> 00:14:51,280 Speaker 1: issued all sorts of notes and coins on on their own, 221 00:14:51,800 --> 00:14:54,840 Speaker 1: and that it created all sorts of all sorts of problems. 222 00:14:54,960 --> 00:14:57,080 Speaker 1: And that has to do with the fact that money 223 00:14:57,600 --> 00:15:01,280 Speaker 1: is not about technology. Money Essentially, what we have in 224 00:15:01,320 --> 00:15:04,960 Speaker 1: our heads, and then we need to agree on what 225 00:15:05,000 --> 00:15:09,960 Speaker 1: we're should have in our heads moving moving forward, and 226 00:15:10,000 --> 00:15:14,240 Speaker 1: then that speaks in favor of producing a central bank 227 00:15:14,280 --> 00:15:18,760 Speaker 1: digital currency. But having said that, I just don't expect 228 00:15:18,840 --> 00:15:23,360 Speaker 1: a CBDC to sort of outcompete, so to speak, private 229 00:15:23,400 --> 00:15:26,480 Speaker 1: sector money at all. It's a sort of it's it's 230 00:15:26,520 --> 00:15:30,000 Speaker 1: the final thing that you can provide on the public 231 00:15:30,040 --> 00:15:34,280 Speaker 1: sector side in order to ensure that the system is 232 00:15:35,040 --> 00:15:40,720 Speaker 1: is stabled. We've been around in sixteen sixty and had 233 00:15:40,760 --> 00:15:43,640 Speaker 1: we not changed the way we do business and the 234 00:15:43,680 --> 00:15:46,920 Speaker 1: way we do things time and time again, then of 235 00:15:46,920 --> 00:15:50,080 Speaker 1: course we have been out of this business a long, long, long, 236 00:15:50,080 --> 00:15:53,320 Speaker 1: long time ago. And we started out back in the 237 00:15:53,360 --> 00:15:59,280 Speaker 1: sixteen hundreds with twenty kilo copper coins. That's extremely inefficient, 238 00:16:00,520 --> 00:16:02,880 Speaker 1: and had we not gotten rid of the copper coins 239 00:16:02,960 --> 00:16:07,040 Speaker 1: moved into physical notes, then it would have been game 240 00:16:07,120 --> 00:16:09,760 Speaker 1: over a long long time ago. So now, given that, 241 00:16:10,000 --> 00:16:12,680 Speaker 1: at least in my corner of the world, people are 242 00:16:13,400 --> 00:16:17,160 Speaker 1: earlier adapters when it comes to new technologies, and there 243 00:16:17,160 --> 00:16:21,160 Speaker 1: are probably earlier adapters because there is a fairly good 244 00:16:21,200 --> 00:16:24,440 Speaker 1: trust in what the government does. So if you're so 245 00:16:24,520 --> 00:16:28,280 Speaker 1: if you introduce new technological sort of things into into 246 00:16:28,320 --> 00:16:32,160 Speaker 1: our system. People tend to use them, and then it's 247 00:16:32,240 --> 00:16:35,640 Speaker 1: just it's our job to go with the flow. Well, 248 00:16:35,680 --> 00:16:37,200 Speaker 1: and I guess you have you have to say Sweden 249 00:16:37,240 --> 00:16:39,600 Speaker 1: was an early adopter when it comes to central banks 250 00:16:39,600 --> 00:16:42,320 Speaker 1: being being the very first. And of course you've also 251 00:16:42,720 --> 00:16:45,800 Speaker 1: you were able to solve some of these problems before 252 00:16:46,280 --> 00:16:48,840 Speaker 1: for other central banks who came after you. So I 253 00:16:48,840 --> 00:16:51,680 Speaker 1: guess in the world definitely as you ows you were 254 00:16:51,720 --> 00:16:56,680 Speaker 1: dead now, Jose Antonio, you are representing all of the 255 00:16:57,480 --> 00:17:01,160 Speaker 1: private financial system in this debate, so you better be good. 256 00:17:02,360 --> 00:17:06,440 Speaker 1: But often the private sector view on this is quite different. 257 00:17:07,000 --> 00:17:11,400 Speaker 1: There is sometimes a feeling, either explicit or beneath the surface, 258 00:17:11,960 --> 00:17:14,439 Speaker 1: that says central banks aren't the ones who are going 259 00:17:14,480 --> 00:17:17,000 Speaker 1: to be good at innovating, and they shouldn't be at 260 00:17:17,000 --> 00:17:20,280 Speaker 1: the forefront of this development. We should be counting on 261 00:17:20,320 --> 00:17:22,760 Speaker 1: the private sector to come up with all the right 262 00:17:22,880 --> 00:17:27,040 Speaker 1: solutions here, Um, how do you see that the comparative 263 00:17:27,080 --> 00:17:30,880 Speaker 1: advantages of the private and public sector here? The first 264 00:17:30,960 --> 00:17:34,080 Speaker 1: not you said, doesn't matter where the innovation comes from, 265 00:17:34,119 --> 00:17:37,520 Speaker 1: as long as the good innovation that it's good for 266 00:17:37,600 --> 00:17:40,360 Speaker 1: the society as a whole. Doesn't mother it comes from 267 00:17:40,400 --> 00:17:42,560 Speaker 1: the central ban of the private sector. I am not 268 00:17:42,800 --> 00:17:47,560 Speaker 1: going to make a distinction so into between who is 269 00:17:47,640 --> 00:17:53,440 Speaker 1: innovating whoever it is innovating, welcome, Okay, that's our approach um, 270 00:17:53,560 --> 00:18:00,680 Speaker 1: particularly in any space where technology has changed. As Stephans before, 271 00:18:01,160 --> 00:18:03,720 Speaker 1: we've been doing the things in a way for many 272 00:18:03,800 --> 00:18:11,800 Speaker 1: many years, and suddenly technology allows a more diverse, diverse ecosystem, 273 00:18:11,840 --> 00:18:15,600 Speaker 1: particularly in the payments space. The payments space has been 274 00:18:16,280 --> 00:18:20,480 Speaker 1: in space where we used to have the bank's central 275 00:18:20,480 --> 00:18:24,399 Speaker 1: banks and a few other places. Suddenly we got on 276 00:18:24,480 --> 00:18:27,679 Speaker 1: the back of the new technology, the tech companies in 277 00:18:27,720 --> 00:18:31,080 Speaker 1: the space, the fintech in the space, in a world 278 00:18:31,160 --> 00:18:37,679 Speaker 1: that where the number of transations grew exponentially on the 279 00:18:37,720 --> 00:18:42,000 Speaker 1: back of the new technology. Online and e commerce means 280 00:18:42,080 --> 00:18:47,320 Speaker 1: that the number of transations is growing exponentially year after year. 281 00:18:47,440 --> 00:18:52,679 Speaker 1: So we have suddenly this and another future that is 282 00:18:52,760 --> 00:18:56,919 Speaker 1: quite interesting for a lot of business models. That is 283 00:18:57,160 --> 00:19:04,440 Speaker 1: the data. So digital payments means that your capacity to 284 00:19:04,480 --> 00:19:11,800 Speaker 1: gather data that enrich a verety of business models is 285 00:19:11,920 --> 00:19:16,240 Speaker 1: another feature that came along. Yeah, So with this explosion 286 00:19:16,800 --> 00:19:21,280 Speaker 1: of the payments using the new technology, volument and I 287 00:19:21,359 --> 00:19:24,159 Speaker 1: think the public sector has a clear role here. The 288 00:19:24,240 --> 00:19:27,680 Speaker 1: first thing is we need to establish standards, standards on 289 00:19:27,800 --> 00:19:38,440 Speaker 1: what on first customer protection, second data security, their data sharing, 290 00:19:38,800 --> 00:19:43,359 Speaker 1: for privacy, so this kind of things we need to 291 00:19:43,400 --> 00:19:47,160 Speaker 1: have standards. So innovation is good, but at the same time, 292 00:19:47,840 --> 00:19:51,400 Speaker 1: if if we need to have you do an activity, 293 00:19:51,680 --> 00:19:54,560 Speaker 1: you should have the same roles that other people doing 294 00:19:54,600 --> 00:19:58,840 Speaker 1: the same activity, the same supervision if any. That has 295 00:19:58,880 --> 00:20:03,520 Speaker 1: been the role of the on the central banks. So 296 00:20:03,560 --> 00:20:07,520 Speaker 1: the public sector has a role there. And finally we 297 00:20:07,600 --> 00:20:11,000 Speaker 1: have the crypto space. The crypto space I'm not referring 298 00:20:11,040 --> 00:20:13,119 Speaker 1: to the big coins and like and referring more to 299 00:20:13,200 --> 00:20:17,560 Speaker 1: the stable coins, digital bonds and all these things, so 300 00:20:17,840 --> 00:20:23,280 Speaker 1: more kind of traditional means of payments where the shuttle 301 00:20:23,320 --> 00:20:29,199 Speaker 1: bunks need to have a potential regulations. If the banks 302 00:20:29,240 --> 00:20:32,240 Speaker 1: are going to have a financial city desire, going to 303 00:20:32,359 --> 00:20:36,439 Speaker 1: have these crypto asis in the bounty, we need a 304 00:20:37,600 --> 00:20:42,439 Speaker 1: well some potential approach in relation with those assets that 305 00:20:42,520 --> 00:20:53,040 Speaker 1: eventually eventually not there are payment means of payments today 306 00:20:54,440 --> 00:20:57,280 Speaker 1: carry and I'm sort of interested in you've given the 307 00:20:57,359 --> 00:21:00,400 Speaker 1: historical parallel, which I suspect some of the sort of 308 00:21:00,440 --> 00:21:05,040 Speaker 1: the fintech firms would would resent being classed along with 309 00:21:05,119 --> 00:21:09,119 Speaker 1: the sort of the wild West years of private currencies 310 00:21:09,160 --> 00:21:12,919 Speaker 1: in the US. But I think it's quite a powerful parallel. Um. 311 00:21:13,000 --> 00:21:18,200 Speaker 1: Do you see US regulators sort of coming towards a 312 00:21:20,040 --> 00:21:24,760 Speaker 1: consistent view on how these stable coins the outside of 313 00:21:24,800 --> 00:21:28,640 Speaker 1: the central bank system should should be regulated and treated. 314 00:21:30,359 --> 00:21:33,359 Speaker 1: I don't think they have come to a decision other 315 00:21:33,440 --> 00:21:37,440 Speaker 1: than that stable coin issuers are banks, and in terms 316 00:21:37,440 --> 00:21:41,200 Speaker 1: of service of a stable coin, say you can redeem 317 00:21:41,200 --> 00:21:45,320 Speaker 1: your coin on demand at par that's a bank. So 318 00:21:46,240 --> 00:21:49,720 Speaker 1: the Treasury President's working groups said they're a bank, but 319 00:21:49,800 --> 00:21:53,760 Speaker 1: they didn't say anything else. Really, I think the issuers 320 00:21:53,760 --> 00:21:56,639 Speaker 1: of stable coins they understand that they have all these problems. 321 00:21:57,119 --> 00:22:01,280 Speaker 1: They're trying to get some aneer of at ability by 322 00:22:01,320 --> 00:22:05,480 Speaker 1: getting you know, bank licenses, fintech licenses in various states, 323 00:22:05,480 --> 00:22:08,760 Speaker 1: but those are not real bank charters and they don't 324 00:22:08,920 --> 00:22:12,800 Speaker 1: as Mr Alvaret said, there's no prudential oversight of these guys. 325 00:22:12,800 --> 00:22:16,000 Speaker 1: So the top five stable coin prices all moved together, 326 00:22:16,840 --> 00:22:20,800 Speaker 1: right the market can't even distinguish between them. So I 327 00:22:20,840 --> 00:22:23,880 Speaker 1: think I think eventually we're gonna have to say they're 328 00:22:23,880 --> 00:22:26,800 Speaker 1: a real bank, and they have to be regulated as 329 00:22:26,800 --> 00:22:28,880 Speaker 1: a real bank. And I mean this would really come 330 00:22:28,920 --> 00:22:31,480 Speaker 1: to a head if say JP Morgan issued it's a 331 00:22:31,480 --> 00:22:35,639 Speaker 1: stable coin, right, that would cause Congress to act right away. 332 00:22:35,680 --> 00:22:37,159 Speaker 1: But you know then I don't think they're going to 333 00:22:37,280 --> 00:22:39,200 Speaker 1: do that. But I mean, I don't want to be 334 00:22:39,280 --> 00:22:41,679 Speaker 1: too pessimistic, but I think the stable coins are not 335 00:22:41,720 --> 00:22:43,800 Speaker 1: big now, but they will be big because lots of 336 00:22:43,800 --> 00:22:47,639 Speaker 1: the problems with blockchain are being solved as we speak. 337 00:22:48,040 --> 00:22:53,040 Speaker 1: It's becoming uh scalable. The problem is this interoperability with 338 00:22:53,119 --> 00:22:55,840 Speaker 1: the current system, and the FED has resisted that they 339 00:22:55,840 --> 00:22:59,240 Speaker 1: won't give a master account to anybody who looks different 340 00:22:59,240 --> 00:23:01,639 Speaker 1: than a bank, and that would be one way to 341 00:23:01,800 --> 00:23:04,919 Speaker 1: get some oversight because you could have rules around you 342 00:23:04,960 --> 00:23:07,480 Speaker 1: know what you have to do to get a master account. 343 00:23:07,840 --> 00:23:10,119 Speaker 1: I think the FED on its own could address this, 344 00:23:10,200 --> 00:23:12,480 Speaker 1: but I don't think they will. I think they want 345 00:23:12,520 --> 00:23:16,320 Speaker 1: to leave it to Congress. So so I make the 346 00:23:16,359 --> 00:23:18,879 Speaker 1: react to this. Yeah, I still having the Museum of 347 00:23:18,960 --> 00:23:22,200 Speaker 1: the Bank, some builders that were issued by bank or something. 348 00:23:22,240 --> 00:23:26,200 Speaker 1: They're a hundred and sixty years ago when the bands 349 00:23:26,280 --> 00:23:29,439 Speaker 1: the rag Bones were issuing their own currency. All of 350 00:23:29,480 --> 00:23:32,000 Speaker 1: them were preset as supposed to be preset as the 351 00:23:32,000 --> 00:23:34,120 Speaker 1: currency in Spain at that time, all of them whereas 352 00:23:34,160 --> 00:23:38,159 Speaker 1: they were goings some cord, whereas they were goings in paper. Yeah. 353 00:23:38,320 --> 00:23:42,200 Speaker 1: So when this became a monopoly for the reason and 354 00:23:42,240 --> 00:23:46,240 Speaker 1: Stephan said, and became a monopoly because of the time, 355 00:23:46,400 --> 00:23:49,600 Speaker 1: and the reason was much more efficient. Yeah, So it's 356 00:23:49,640 --> 00:23:53,000 Speaker 1: not about the technology. The technology is there. As long 357 00:23:53,040 --> 00:23:55,959 Speaker 1: as the technology is all people problems, we should go 358 00:23:56,160 --> 00:24:00,680 Speaker 1: and using it, but using a reasonable way that allowed 359 00:24:00,760 --> 00:24:04,000 Speaker 1: to preshare what do you say I wish I should 360 00:24:04,040 --> 00:24:08,560 Speaker 1: say a public good that is the financial stability. I 361 00:24:08,600 --> 00:24:12,960 Speaker 1: completely agree with Jose Antonio because as I started out saying, 362 00:24:13,000 --> 00:24:16,840 Speaker 1: money is what we have in our heads. Money is 363 00:24:16,880 --> 00:24:20,880 Speaker 1: a common understanding of what money is as long as 364 00:24:20,920 --> 00:24:24,040 Speaker 1: we agree on what it is, and that requires some 365 00:24:24,160 --> 00:24:28,159 Speaker 1: kind of a legal framework, and without a legal framework, 366 00:24:28,200 --> 00:24:32,920 Speaker 1: you have nothing. So that's where the issue sometimes goes. 367 00:24:33,040 --> 00:24:35,480 Speaker 1: In some sense, the way I'm thinking about it a 368 00:24:35,520 --> 00:24:39,000 Speaker 1: stray because clearly, if you come from the tech side, 369 00:24:40,160 --> 00:24:42,800 Speaker 1: do you have not spent your days thinking about the 370 00:24:42,880 --> 00:24:46,440 Speaker 1: legal aspects of what you're doing, And it's the legal 371 00:24:46,480 --> 00:24:50,320 Speaker 1: framework that defines what kind of a claim you do. 372 00:24:50,359 --> 00:24:53,720 Speaker 1: You have or do not have. And that's really the 373 00:24:53,800 --> 00:24:57,119 Speaker 1: issue with with with stable coins because if the legal 374 00:24:57,160 --> 00:25:00,840 Speaker 1: framework is not there, but the fairly highlight nihood, a 375 00:25:00,960 --> 00:25:05,320 Speaker 1: stable coin is an unstable coin, and you just don't 376 00:25:05,359 --> 00:25:10,040 Speaker 1: know what kind of a claim you ultimately have. And 377 00:25:10,480 --> 00:25:13,359 Speaker 1: that's not a good thing because if history gives us 378 00:25:13,440 --> 00:25:18,600 Speaker 1: any guidance, those type of constructions tend to collapse sooner 379 00:25:18,720 --> 00:25:22,320 Speaker 1: or later. And one one thing we do know is 380 00:25:22,359 --> 00:25:25,800 Speaker 1: that we human beings, we never learn if it's too 381 00:25:25,800 --> 00:25:29,920 Speaker 1: good to be true, Well that's the case, and you're 382 00:25:30,000 --> 00:25:33,159 Speaker 1: not with a problem sooner or later. So if you 383 00:25:33,320 --> 00:25:36,239 Speaker 1: create something which behaves like a bank, well then go 384 00:25:36,320 --> 00:25:41,200 Speaker 1: and get yourself a banking license. I'm interested perhaps from 385 00:25:42,000 --> 00:25:46,080 Speaker 1: Gary Gorton because of his historical perspective. We have said 386 00:25:46,119 --> 00:25:48,600 Speaker 1: that there's not always about the technology, and that these 387 00:25:48,600 --> 00:25:51,879 Speaker 1: issues come up again and again in different forms through history. 388 00:25:51,920 --> 00:25:53,720 Speaker 1: But I guess one thing that one could say was 389 00:25:53,760 --> 00:25:56,760 Speaker 1: different about this about the potential of a central bank 390 00:25:56,760 --> 00:26:00,359 Speaker 1: digital currency would be the degree of information and the 391 00:26:00,480 --> 00:26:04,400 Speaker 1: degree of knowledge that a central bank could have about 392 00:26:05,000 --> 00:26:10,639 Speaker 1: its citizens and all the transactions being undertaken by individual citizens. 393 00:26:11,800 --> 00:26:15,520 Speaker 1: Against that we have, you know, quite large suspicions around 394 00:26:16,160 --> 00:26:21,280 Speaker 1: government these days and concern around privacy. Do you think 395 00:26:21,320 --> 00:26:24,040 Speaker 1: that is one different element to this debate that central 396 00:26:24,040 --> 00:26:25,800 Speaker 1: banks are going to have to deal with the concern 397 00:26:25,840 --> 00:26:30,760 Speaker 1: about privacy. Absolutely. I mean there's there's two issues. One 398 00:26:30,800 --> 00:26:33,760 Speaker 1: issue is the central bank, you know, at least for 399 00:26:33,880 --> 00:26:37,280 Speaker 1: large transactions, needs to know the identity of those who 400 00:26:37,320 --> 00:26:41,520 Speaker 1: are transacting, right, And that's that's why swift data is important. 401 00:26:42,200 --> 00:26:45,879 Speaker 1: But you can set a threshold and say transactions below 402 00:26:46,000 --> 00:26:48,480 Speaker 1: this number, you know, we don't care about you just 403 00:26:48,520 --> 00:26:52,000 Speaker 1: do all that anonymously. And then of course this threshold 404 00:26:52,040 --> 00:26:54,080 Speaker 1: is going to have to change because you know, if 405 00:26:54,080 --> 00:26:56,920 Speaker 1: the system is efficient, you can break the big transactions 406 00:26:56,920 --> 00:27:01,199 Speaker 1: and all these little transactions. So some arrangement about what 407 00:27:01,359 --> 00:27:03,280 Speaker 1: is going to be anonymous and what is not going 408 00:27:03,280 --> 00:27:06,280 Speaker 1: to be anonymous is going to be required. But the 409 00:27:06,359 --> 00:27:09,160 Speaker 1: central bank has to have credibility in all this. I mean, 410 00:27:09,240 --> 00:27:11,439 Speaker 1: I think if you even say you know, we're going 411 00:27:11,480 --> 00:27:13,560 Speaker 1: to have a negative interest rate, people are not gonna 412 00:27:13,600 --> 00:27:16,920 Speaker 1: want to use it, right, And we saw an Ecuador 413 00:27:17,040 --> 00:27:20,520 Speaker 1: that their central bank digital currency completely failed because people 414 00:27:20,560 --> 00:27:24,720 Speaker 1: didn't thrust the central bank. That's absolutely at the core 415 00:27:24,760 --> 00:27:28,040 Speaker 1: of this. If we have a non central banker talking 416 00:27:28,080 --> 00:27:31,680 Speaker 1: about belief in central banks. That is a very appropriate 417 00:27:31,680 --> 00:27:36,359 Speaker 1: place for a BIS panel to end. Thank you to 418 00:27:36,480 --> 00:27:40,600 Speaker 1: all of you for an excellent, very high level debate. 419 00:27:51,800 --> 00:27:53,680 Speaker 1: That's it for this week. We'll be back with more 420 00:27:53,760 --> 00:27:57,360 Speaker 1: on money and the real economy next week. In the meantime, 421 00:27:57,800 --> 00:28:00,600 Speaker 1: check out the Bloomberg News website for more on all 422 00:28:00,640 --> 00:28:04,000 Speaker 1: of the stories featured today, and follow at Economics on Twitter. 423 00:28:05,040 --> 00:28:08,440 Speaker 1: This episode was produced by Magnus Henryson, with special thanks 424 00:28:08,480 --> 00:28:13,800 Speaker 1: to Michael McDonald, Stephan Ingvers, Jose Antonio Alvarez, Gary Gorton, 425 00:28:14,320 --> 00:28:19,520 Speaker 1: Eugenia Sto Morales, Steve Matthews, and the Bank of International Settlements. 426 00:28:20,520 --> 00:28:24,160 Speaker 1: Mike Sasso is executive producer of Stephanomics and the head 427 00:28:24,160 --> 00:28:26,680 Speaker 1: of Bloombow podcast is Francesco Levi.