1 00:00:11,200 --> 00:00:14,920 Speaker 1: Hello, and welcome to another episode of the Odd Thoughts podcast. 2 00:00:15,120 --> 00:00:18,280 Speaker 1: My co host Joe Wisenval is away this week. I've 3 00:00:18,320 --> 00:00:21,880 Speaker 1: actually noticed a pattern to Joe's absences, which is that 4 00:00:21,960 --> 00:00:25,920 Speaker 1: he suspiciously goes missing whenever we're scheduled to talk about 5 00:00:26,040 --> 00:00:30,040 Speaker 1: negative rates on the show. In any case, we recently 6 00:00:30,080 --> 00:00:34,440 Speaker 1: had the annual gathering of monetary policymakers in Jackson Hole, Wyoming, 7 00:00:34,840 --> 00:00:38,000 Speaker 1: and as you can imagine, negative interest rates were a 8 00:00:38,080 --> 00:00:41,320 Speaker 1: big feature of that meeting, and in fact, the title 9 00:00:41,440 --> 00:00:45,840 Speaker 1: for this year's symposium was Challenges for Monetary Policy, which 10 00:00:45,920 --> 00:00:48,360 Speaker 1: kind of gives you an idea of the headspace that 11 00:00:48,560 --> 00:00:51,440 Speaker 1: a lot of central bankers are operating in at the moment. 12 00:00:52,000 --> 00:00:54,120 Speaker 1: But one of the most interesting things to come out 13 00:00:54,160 --> 00:00:56,600 Speaker 1: of Jackson Hole this year, certainly a thing that got 14 00:00:56,640 --> 00:00:59,160 Speaker 1: a lot of attention, was a speech by Bank of 15 00:00:59,200 --> 00:01:02,480 Speaker 1: England Governor Mark Karney, where he talked about the idea 16 00:01:02,520 --> 00:01:05,280 Speaker 1: of getting rid of the dollar as a reserve currency 17 00:01:05,600 --> 00:01:09,200 Speaker 1: and basically replacing it with a virtual currency that would 18 00:01:09,200 --> 00:01:12,520 Speaker 1: look a lot like Facebook's Libra in the sense that 19 00:01:12,560 --> 00:01:15,760 Speaker 1: it could be a sort of consortium of digital currencies 20 00:01:15,880 --> 00:01:20,920 Speaker 1: maintained by central banks, a multipolar virtual currency. He actually 21 00:01:20,959 --> 00:01:25,760 Speaker 1: called it a synthetic hegemonic currency, or s h C 22 00:01:26,240 --> 00:01:30,600 Speaker 1: for short. Now, Carney's idea did raise a lot of eyebrows, 23 00:01:30,800 --> 00:01:34,479 Speaker 1: not least because central banks have been critics of cryptocurrencies 24 00:01:34,480 --> 00:01:38,039 Speaker 1: in general and of libra in particular. So I thought 25 00:01:38,080 --> 00:01:41,720 Speaker 1: to myself, who better to help us gain more insight 26 00:01:41,800 --> 00:01:45,160 Speaker 1: into Carney's thinking and to also talk to us about 27 00:01:45,280 --> 00:01:48,600 Speaker 1: negative rates and the future of payments and the future 28 00:01:48,640 --> 00:01:52,440 Speaker 1: of all of finance in fact, than Hugh van Stine's. 29 00:01:52,840 --> 00:01:55,280 Speaker 1: Hugh charired a review of the future of finance for 30 00:01:55,360 --> 00:01:58,560 Speaker 1: Mark Carney and was his senior advisor at the BOE. 31 00:01:59,000 --> 00:02:02,680 Speaker 1: He'll also be shortly joining UBS as an advisor to 32 00:02:02,720 --> 00:02:06,160 Speaker 1: their CEO, and he's taking a break from his gardening 33 00:02:06,240 --> 00:02:09,840 Speaker 1: leave to come on odd lots Hugh. It's so good 34 00:02:09,840 --> 00:02:12,440 Speaker 1: to have you, Tracy, Thanks very much for having me. 35 00:02:13,280 --> 00:02:16,560 Speaker 1: So I guess we need to start with Carney's Jackson 36 00:02:16,639 --> 00:02:19,720 Speaker 1: Hole speech. But we do know that Carney is due 37 00:02:19,840 --> 00:02:23,120 Speaker 1: to leave the BOE in a few months, So I 38 00:02:23,120 --> 00:02:26,360 Speaker 1: guess my question is, since you are someone who worked 39 00:02:26,440 --> 00:02:30,560 Speaker 1: quite closely with him, how seriously should we take his 40 00:02:30,720 --> 00:02:37,920 Speaker 1: proposal for this sort of multipolar virtual currency. Well, look, 41 00:02:37,960 --> 00:02:40,000 Speaker 1: I mean I'm going to speak myself here rather than 42 00:02:40,040 --> 00:02:41,960 Speaker 1: for for the mark. I mean, I thought it's a 43 00:02:42,000 --> 00:02:44,640 Speaker 1: really great speech because it put its finger on a 44 00:02:44,720 --> 00:02:48,720 Speaker 1: number of the dilemmas that policymakers are wrestling with. I mean, first, 45 00:02:48,800 --> 00:02:52,440 Speaker 1: let's let's be clear. Technology is transforming the basis advantage 46 00:02:52,440 --> 00:02:56,000 Speaker 1: and financial services, and big texts are entering, fin texts 47 00:02:56,000 --> 00:02:59,799 Speaker 1: are playing scale is far more important, and the regulations 48 00:03:00,080 --> 00:03:01,720 Speaker 1: to catch up. So I think first and foremost, it's 49 00:03:01,720 --> 00:03:05,280 Speaker 1: about the way technology is transforming the system. I think 50 00:03:05,360 --> 00:03:10,080 Speaker 1: second is that payments is the battleground between big tech 51 00:03:10,480 --> 00:03:13,880 Speaker 1: payments firms and banks, and it's kind of existential. And 52 00:03:13,919 --> 00:03:16,840 Speaker 1: as you've pointed out regularly, Tracy, the combination of negative 53 00:03:16,960 --> 00:03:20,560 Speaker 1: rates and a disruptive environment is one which is an 54 00:03:20,600 --> 00:03:24,240 Speaker 1: existential threat for for banks. And I think the challenge 55 00:03:24,400 --> 00:03:28,520 Speaker 1: for firms entering payments liber Facebook is just the first 56 00:03:28,560 --> 00:03:31,919 Speaker 1: of which most recent of which is pretty challenging. And 57 00:03:32,040 --> 00:03:34,480 Speaker 1: I think that one pushback that some had is that, 58 00:03:34,639 --> 00:03:37,160 Speaker 1: you know, this was a little bit right out there 59 00:03:37,240 --> 00:03:40,520 Speaker 1: in terms of forward thinking. But one question I often 60 00:03:40,560 --> 00:03:42,720 Speaker 1: got challenged is what can we learn from the Chinese 61 00:03:42,760 --> 00:03:46,080 Speaker 1: financial system is it just the gallapagus of the financial world. 62 00:03:46,600 --> 00:03:48,360 Speaker 1: And I think it's not science fiction. I mean, there 63 00:03:48,400 --> 00:03:53,720 Speaker 1: you've got and Financial and we chat pay controlling of 64 00:03:53,840 --> 00:03:57,560 Speaker 1: online payments, and Financial now has got the most customers 65 00:03:57,600 --> 00:03:59,800 Speaker 1: of any financial services firm in the world. If you 66 00:04:00,040 --> 00:04:02,320 Speaker 1: can combine what they've gone in China and India, it's 67 00:04:02,360 --> 00:04:05,120 Speaker 1: over a billion five time city group. So I think 68 00:04:05,200 --> 00:04:08,080 Speaker 1: that the payments, both in terms of currency and in 69 00:04:08,200 --> 00:04:11,320 Speaker 1: terms of new entrants, being the battleground. I think he's 70 00:04:11,320 --> 00:04:14,440 Speaker 1: put his finger on something really important right in China 71 00:04:14,520 --> 00:04:17,600 Speaker 1: has actually announced that it is close to releasing its 72 00:04:17,680 --> 00:04:20,920 Speaker 1: own cryptocurrency. Whether or not that's going to be an 73 00:04:21,000 --> 00:04:26,480 Speaker 1: actual cryptocurrency or something that's more akin to digital cash, 74 00:04:27,040 --> 00:04:29,799 Speaker 1: we don't know just yet, but but definitely there seems 75 00:04:29,800 --> 00:04:32,560 Speaker 1: to be some interest from some central banks, at least 76 00:04:32,680 --> 00:04:37,040 Speaker 1: in virtual currencies. So, just on the notion of payments, 77 00:04:37,760 --> 00:04:39,720 Speaker 1: you know you've said before and you just said it 78 00:04:39,800 --> 00:04:43,720 Speaker 1: then that payments are now the battleground. Can you expand 79 00:04:43,800 --> 00:04:45,680 Speaker 1: on that a little bit? Why is there so much 80 00:04:45,760 --> 00:04:50,280 Speaker 1: pressure around this particular space in financial services, particularly low rates. 81 00:04:50,320 --> 00:04:52,320 Speaker 1: They're not that many areas which have got strong growth 82 00:04:52,720 --> 00:04:55,599 Speaker 1: and payments clearly is one where people are moving offline 83 00:04:55,720 --> 00:04:58,280 Speaker 1: to online. I mean, one thing that we on earthed 84 00:04:58,320 --> 00:05:00,520 Speaker 1: in our port was that, let's take a sweet, we've 85 00:05:00,560 --> 00:05:04,000 Speaker 1: had an eight reduction in cash transactions the last decade. 86 00:05:04,680 --> 00:05:06,480 Speaker 1: The UK is probably four or five years behind that, 87 00:05:07,000 --> 00:05:09,240 Speaker 1: the US is probably another four or five years behind that. 88 00:05:09,440 --> 00:05:13,240 Speaker 1: There is a very long tailwind of shifting commerce online 89 00:05:13,760 --> 00:05:17,320 Speaker 1: and everyone wants to be the gateway into the online 90 00:05:17,760 --> 00:05:20,640 Speaker 1: commercial world. So I think that's one key aspect around payments. 91 00:05:21,120 --> 00:05:24,159 Speaker 1: I think second is these are person to person apps, 92 00:05:24,320 --> 00:05:28,279 Speaker 1: whether it's you know, Ali in Pay in China, whether 93 00:05:28,400 --> 00:05:32,520 Speaker 1: it's Swish and Sweden, whether it's Ideal in Holland. These 94 00:05:32,560 --> 00:05:35,679 Speaker 1: are sort of category killers. You know, they really munch 95 00:05:35,760 --> 00:05:40,440 Speaker 1: through cash and are provide convenience and flexibility for customers, 96 00:05:40,480 --> 00:05:42,800 Speaker 1: which you know customers are quite frankly lapping up. So 97 00:05:42,880 --> 00:05:45,440 Speaker 1: I think there's that transformation. But I think the big 98 00:05:45,560 --> 00:05:48,440 Speaker 1: thing for financial regulator and a particular central bank where 99 00:05:48,520 --> 00:05:51,240 Speaker 1: you know money is what it's all about, is the 100 00:05:51,480 --> 00:05:55,360 Speaker 1: role of big text either becoming a toll road that 101 00:05:55,440 --> 00:05:57,440 Speaker 1: they just want to be the toll which people get 102 00:05:57,480 --> 00:06:00,799 Speaker 1: into the commercial world, but potentially be coming much bigger 103 00:06:00,839 --> 00:06:04,440 Speaker 1: and financial services, and that with their advantages of scale 104 00:06:04,640 --> 00:06:09,000 Speaker 1: with other related businesses quite frankly a way of thinking 105 00:06:09,040 --> 00:06:12,040 Speaker 1: which is very different from financial services. So if you 106 00:06:12,120 --> 00:06:15,000 Speaker 1: take the Libra white paper plus all the other papers 107 00:06:15,040 --> 00:06:16,880 Speaker 1: they put out on that day, you know, there's over 108 00:06:16,960 --> 00:06:19,440 Speaker 1: eighty pages on the tech and there's just under a 109 00:06:19,480 --> 00:06:22,520 Speaker 1: dozen pages on the way the syndicate work. There's not 110 00:06:22,640 --> 00:06:26,640 Speaker 1: a single page on regulation. And I think that's really atypical, 111 00:06:27,360 --> 00:06:29,960 Speaker 1: and I think that's something which that means it's really 112 00:06:30,000 --> 00:06:32,760 Speaker 1: difficult for a traditional policymaker regulator to get their heads 113 00:06:32,800 --> 00:06:35,400 Speaker 1: around because there's just nothing there. Well, I was going 114 00:06:35,440 --> 00:06:37,560 Speaker 1: to ask you the fact that a lot of these 115 00:06:37,640 --> 00:06:42,679 Speaker 1: tech companies have made such massive inroads into payments so quickly, 116 00:06:43,279 --> 00:06:45,560 Speaker 1: is that actually down to the tech or is it 117 00:06:45,680 --> 00:06:48,520 Speaker 1: down to regulatory arbitrage in the sense that they are 118 00:06:48,600 --> 00:06:52,520 Speaker 1: not hindered in the same way that banks are. I 119 00:06:52,640 --> 00:06:55,320 Speaker 1: think there's an element of an un leveled playing field 120 00:06:56,000 --> 00:07:00,240 Speaker 1: where they are coming in on a different basis. But 121 00:07:00,320 --> 00:07:02,240 Speaker 1: it doesn't have to be that the big text win. 122 00:07:02,320 --> 00:07:04,520 Speaker 1: I mean, just go back to Sweden. Swishes a bank 123 00:07:04,720 --> 00:07:08,080 Speaker 1: consortium app which allows anyone to pay one at anyone, 124 00:07:08,600 --> 00:07:10,920 Speaker 1: So you need to get over the hurdle of antitrust 125 00:07:11,000 --> 00:07:14,760 Speaker 1: about how banks collaborate with each other. But there's a 126 00:07:14,880 --> 00:07:18,080 Speaker 1: country where actually it wasn't the big text who drove 127 00:07:18,160 --> 00:07:20,280 Speaker 1: the innovation. So I think this is much more about 128 00:07:20,720 --> 00:07:23,400 Speaker 1: do the banks have the budget, do they have the 129 00:07:23,640 --> 00:07:26,800 Speaker 1: ability to respond? And of course, going back to one 130 00:07:26,800 --> 00:07:29,160 Speaker 1: of your favorite topics, in a world of negative rates, 131 00:07:29,600 --> 00:07:32,400 Speaker 1: bank profitability is pinched and as a result of that, 132 00:07:32,520 --> 00:07:34,640 Speaker 1: they just don't have the tech budgets that some of 133 00:07:34,680 --> 00:07:36,880 Speaker 1: these other firms have. And I think the other bit 134 00:07:37,800 --> 00:07:39,920 Speaker 1: is that you know, I mean I met with over 135 00:07:40,920 --> 00:07:43,560 Speaker 1: entrepreneurs and fintech companies for the review I did for 136 00:07:43,600 --> 00:07:46,880 Speaker 1: the governor. They have a very different profit motivation. They 137 00:07:46,920 --> 00:07:50,000 Speaker 1: can withstand losses for three five more years. There's not 138 00:07:50,080 --> 00:07:53,000 Speaker 1: a single bank which can really do that art for 139 00:07:53,160 --> 00:07:54,720 Speaker 1: for a five year basis, so they just start with 140 00:07:54,760 --> 00:07:57,600 Speaker 1: a very different basis of competition. I do want to 141 00:07:57,640 --> 00:08:01,080 Speaker 1: ask you about regulating payments come panies, but before I do, 142 00:08:01,600 --> 00:08:05,280 Speaker 1: you've mentioned China several times as being very ahead in 143 00:08:05,320 --> 00:08:08,560 Speaker 1: the payment space. Um, we have things like Ali pay, 144 00:08:08,680 --> 00:08:11,880 Speaker 1: and we chat over here. How did they get to 145 00:08:12,000 --> 00:08:14,640 Speaker 1: that place? Because a lot of people would call them 146 00:08:14,920 --> 00:08:19,200 Speaker 1: a sort of special case in the wider evolution of 147 00:08:19,320 --> 00:08:23,360 Speaker 1: technology and financial technology in particular. I think it's a 148 00:08:23,400 --> 00:08:25,560 Speaker 1: really important exam question to think about what we can 149 00:08:25,680 --> 00:08:28,800 Speaker 1: understand and what may be borrowed from other markets, and 150 00:08:28,880 --> 00:08:33,480 Speaker 1: what's what's different. So first is the payment firms are 151 00:08:33,600 --> 00:08:37,360 Speaker 1: really pump primed by a big tech firm. So whether 152 00:08:37,480 --> 00:08:40,400 Speaker 1: it's Ali with U and Financial or we Chat with 153 00:08:40,440 --> 00:08:44,079 Speaker 1: we Chat pay, they use their existing cleon tell and 154 00:08:44,240 --> 00:08:47,720 Speaker 1: network effects to the hugely sair advantage. I think second 155 00:08:47,800 --> 00:08:52,960 Speaker 1: is that they really did offer phenomenal promotions to get acceptances. 156 00:08:53,400 --> 00:08:56,679 Speaker 1: So in one case they offer taxi drivers in ebaging 157 00:08:56,960 --> 00:09:00,640 Speaker 1: a premium if clients paid with Ali pay, and also 158 00:09:00,720 --> 00:09:02,800 Speaker 1: gave the clients a discount if they're paid, So they 159 00:09:02,840 --> 00:09:07,719 Speaker 1: were really smart about discounting and generating client interest. And 160 00:09:07,800 --> 00:09:10,160 Speaker 1: then and the third of course is maybe what is 161 00:09:10,200 --> 00:09:13,520 Speaker 1: different is they've got a whole financial supermarket. Now in 162 00:09:13,679 --> 00:09:19,360 Speaker 1: most Western regulatory structures, different regulators have have have purchased 163 00:09:19,400 --> 00:09:21,760 Speaker 1: on different parts of the financial system, and you've got 164 00:09:21,960 --> 00:09:25,480 Speaker 1: one financial supermarket which is a bit different. The other 165 00:09:25,679 --> 00:09:28,679 Speaker 1: error which is is different to China is identification. There 166 00:09:28,800 --> 00:09:30,800 Speaker 1: is an element that everyone is identified, and one of 167 00:09:30,840 --> 00:09:33,439 Speaker 1: the big issues that everyone's wrestling with in the West 168 00:09:33,600 --> 00:09:36,199 Speaker 1: is how you can make how you reduce fraud, and 169 00:09:36,240 --> 00:09:38,040 Speaker 1: how you make sure you know who your client is. 170 00:09:38,520 --> 00:09:41,000 Speaker 1: And actually some of the emerging markets probably have leapfrogged 171 00:09:41,520 --> 00:09:44,640 Speaker 1: the West on on this and maybe and obviously quite frankly, 172 00:09:44,679 --> 00:09:48,320 Speaker 1: have a different sense of um, you know, libertarian values 173 00:09:48,320 --> 00:09:52,439 Speaker 1: about what the States should or shouldn't know about you. Right, So, 174 00:09:52,600 --> 00:09:56,000 Speaker 1: how much of the China example would be replicable in 175 00:09:56,559 --> 00:10:00,480 Speaker 1: for instance, at the UK or the US. Well, I 176 00:10:00,520 --> 00:10:03,319 Speaker 1: think so, First, you've already got some pretty strong capacitors. 177 00:10:03,520 --> 00:10:06,120 Speaker 1: And I love Alex ram pull at A sixteen Z 178 00:10:06,320 --> 00:10:11,080 Speaker 1: has got a great line that the quintessential debate between 179 00:10:11,080 --> 00:10:13,520 Speaker 1: an incumbent and a new entrant is does the new 180 00:10:13,640 --> 00:10:17,760 Speaker 1: entrant get distribution before the incumbent gets innovation? And I 181 00:10:17,840 --> 00:10:20,840 Speaker 1: think that battle is really about you know, what China 182 00:10:21,679 --> 00:10:26,560 Speaker 1: shows us is that the new entrant got distribution incredibly quickly. 183 00:10:27,000 --> 00:10:29,280 Speaker 1: And I think as you look into the States, you've 184 00:10:29,320 --> 00:10:33,800 Speaker 1: got some pretty serious payment firms Visa, MasterCard, MX, PayPal, 185 00:10:34,160 --> 00:10:36,520 Speaker 1: as well as some of the key banks, JP, organ 186 00:10:36,559 --> 00:10:39,199 Speaker 1: and so forth, which have got really big positions in 187 00:10:39,280 --> 00:10:43,160 Speaker 1: payments already, I think two very few big texts want 188 00:10:43,200 --> 00:10:47,040 Speaker 1: to have the hassle of bank and payments regulation and 189 00:10:47,080 --> 00:10:49,599 Speaker 1: all the capital that goes with that. So most of 190 00:10:49,679 --> 00:10:51,320 Speaker 1: the firms so far I've tried to be a wallet 191 00:10:51,800 --> 00:10:54,439 Speaker 1: or or or a toll road on the back of 192 00:10:54,520 --> 00:10:57,679 Speaker 1: the existing banking system. But you know, what I think 193 00:10:57,800 --> 00:11:00,240 Speaker 1: we could see is that over a period of time 194 00:11:00,920 --> 00:11:05,120 Speaker 1: these firms could grow broader and deeper. And many of 195 00:11:05,160 --> 00:11:08,360 Speaker 1: the financial FinTechs that I met have ambitions for, you know, 196 00:11:08,440 --> 00:11:11,000 Speaker 1: quite frankly, world domination. And I think therefore it's about 197 00:11:11,080 --> 00:11:13,280 Speaker 1: making sure that the banks and the payment firms respond, 198 00:11:13,920 --> 00:11:18,360 Speaker 1: you know, and really understand that existential challenges pretty real, right, 199 00:11:18,920 --> 00:11:23,520 Speaker 1: So as these tech firms potentially grow bigger and encroach 200 00:11:23,679 --> 00:11:28,880 Speaker 1: ever more on the financial space, and to your earlier point, 201 00:11:29,480 --> 00:11:33,760 Speaker 1: what are the challenges posed by that for central bankers? 202 00:11:33,840 --> 00:11:38,120 Speaker 1: How are they exactly supposed to respond to this new 203 00:11:38,240 --> 00:11:43,480 Speaker 1: group of financial intermediaries. So there's a couple of things, 204 00:11:43,600 --> 00:11:46,160 Speaker 1: and it does vary country by countries. So first is 205 00:11:46,200 --> 00:11:51,240 Speaker 1: around innovation. Most geographies want to encourage innovation of new firms, 206 00:11:51,679 --> 00:11:54,120 Speaker 1: but in many jurisdictions you've got a concept of a 207 00:11:54,480 --> 00:11:58,160 Speaker 1: startup or you've got a systemic financial payments firm, and 208 00:11:58,320 --> 00:12:00,760 Speaker 1: very little in between. And so I was struck that 209 00:12:00,880 --> 00:12:04,400 Speaker 1: the Singaporeans in the last year injected a new third 210 00:12:04,480 --> 00:12:06,719 Speaker 1: category saying, actually, if you've got half a million and 211 00:12:06,760 --> 00:12:09,000 Speaker 1: billion customers, we need to deal with you in a 212 00:12:09,120 --> 00:12:12,760 Speaker 1: different way. And so payment regulation has to probably be 213 00:12:13,000 --> 00:12:16,160 Speaker 1: updated to reflect that these are now very large firms 214 00:12:16,240 --> 00:12:19,120 Speaker 1: which may not yet be systemic, but whose failure would 215 00:12:19,160 --> 00:12:23,439 Speaker 1: be pretty brutal for the system. I think second is 216 00:12:24,080 --> 00:12:27,040 Speaker 1: around what it means for the banking system. I use 217 00:12:27,200 --> 00:12:29,800 Speaker 1: skimming off the cream of profits for banks and leaving 218 00:12:29,880 --> 00:12:32,319 Speaker 1: them just simply as dumb pipes, in the words of 219 00:12:32,440 --> 00:12:35,880 Speaker 1: one of my colleagues who who looks at this space, 220 00:12:36,440 --> 00:12:38,920 Speaker 1: or maybe even maybe not done pipes. That's undfair, high 221 00:12:38,960 --> 00:12:42,719 Speaker 1: cost due diligence machines, but nonetheless not very profitable. I 222 00:12:42,760 --> 00:12:44,839 Speaker 1: think that's worth well, yeah, I think that is, and 223 00:12:44,880 --> 00:12:46,719 Speaker 1: I think that but that that it is interesting that 224 00:12:46,800 --> 00:12:48,400 Speaker 1: quite a few of the payments firms are trying to 225 00:12:48,480 --> 00:12:51,880 Speaker 1: rely on the know your customer checks that the banks do, 226 00:12:52,280 --> 00:12:53,800 Speaker 1: and then they don't get rewarded for it, and so 227 00:12:53,880 --> 00:12:56,480 Speaker 1: there is to be honest, a slight unleveled playing field 228 00:12:56,760 --> 00:13:00,400 Speaker 1: between payment firms and banks in most but to be honest, 229 00:13:00,440 --> 00:13:03,480 Speaker 1: not all jurisdictions. But the third thing tracy there is 230 00:13:03,559 --> 00:13:06,280 Speaker 1: coming back to actually who's being left behind? And I 231 00:13:06,360 --> 00:13:09,160 Speaker 1: know that that I was struck by a huge interest 232 00:13:09,240 --> 00:13:12,320 Speaker 1: in what does the decline of cash mean for those 233 00:13:12,360 --> 00:13:16,640 Speaker 1: who potentially may be getting left behind, whether it be elderly, 234 00:13:17,280 --> 00:13:20,280 Speaker 1: disadvantaged or potentially disabled. And if you look at Sweden, 235 00:13:20,320 --> 00:13:23,560 Speaker 1: where cash has fallen by eight percent of the last decade, 236 00:13:23,960 --> 00:13:27,120 Speaker 1: they start to hit some crunch points. And one thing 237 00:13:27,200 --> 00:13:29,400 Speaker 1: that I spent some time looking at in the review 238 00:13:29,520 --> 00:13:31,679 Speaker 1: is how close are we to those crunch points in 239 00:13:31,679 --> 00:13:33,839 Speaker 1: the UK or other markets? And what would you do 240 00:13:33,960 --> 00:13:36,360 Speaker 1: to make sure that there is a minimum or even 241 00:13:36,440 --> 00:13:40,720 Speaker 1: a viable infrastructure to at least maintain that cash system. 242 00:13:41,040 --> 00:13:43,320 Speaker 1: And so you end up with some quite out there 243 00:13:43,360 --> 00:13:45,760 Speaker 1: discussions of should in the long term it be the 244 00:13:45,800 --> 00:13:48,520 Speaker 1: responsibility of the state or the central bank to keep 245 00:13:48,559 --> 00:13:50,880 Speaker 1: the cash economy viable. But I think you know, for 246 00:13:51,000 --> 00:13:52,960 Speaker 1: many listeners in the States that sounds like a bit 247 00:13:52,960 --> 00:13:55,760 Speaker 1: of site sci fi, but it's something which in Norway 248 00:13:55,800 --> 00:13:58,440 Speaker 1: and Sweden, where less than ten per cent of transactions 249 00:13:58,559 --> 00:14:01,680 Speaker 1: are now done with cash, is something which is pretty important. 250 00:14:02,520 --> 00:14:05,599 Speaker 1: So why exactly do we need cash? So there's a 251 00:14:05,640 --> 00:14:08,520 Speaker 1: big debate as always about what is the right mandate 252 00:14:08,559 --> 00:14:11,559 Speaker 1: for the central bank. At the moment, it's society's decision 253 00:14:12,280 --> 00:14:15,240 Speaker 1: how we pay, not the central banks. And so I 254 00:14:15,360 --> 00:14:18,800 Speaker 1: think that the Bank having like other central banks, takes 255 00:14:18,840 --> 00:14:22,520 Speaker 1: it as a political decision what the future of cash 256 00:14:22,520 --> 00:14:24,560 Speaker 1: should be. And if you look at the sort of 257 00:14:25,040 --> 00:14:28,400 Speaker 1: a debate in history, I mean in the nineteenth century 258 00:14:28,400 --> 00:14:30,640 Speaker 1: there were some pretty big debates about who had the 259 00:14:30,680 --> 00:14:33,560 Speaker 1: responsibility to print money, should you have private sector money 260 00:14:33,640 --> 00:14:37,360 Speaker 1: or not. Today we're gonna be debating who how much 261 00:14:37,640 --> 00:14:39,480 Speaker 1: should there still be cash in the system. I think 262 00:14:39,560 --> 00:14:41,760 Speaker 1: over the next ten years what we're talking about is 263 00:14:41,800 --> 00:14:45,040 Speaker 1: not cash less, but just increasingly cash light as a 264 00:14:45,160 --> 00:14:47,800 Speaker 1: year by year more payments are done online. But I 265 00:14:47,840 --> 00:14:51,120 Speaker 1: think it's really a political discussion, and if you look 266 00:14:51,160 --> 00:14:53,680 Speaker 1: in Sweden, it's getting more intense about you know, where 267 00:14:53,680 --> 00:14:55,720 Speaker 1: the politics lie. And I think at the moment, the 268 00:14:55,760 --> 00:14:59,200 Speaker 1: assumption is there should be some cash to allow people 269 00:14:59,240 --> 00:15:00,920 Speaker 1: to transact. But you know, you and I can debate, 270 00:15:00,960 --> 00:15:22,560 Speaker 1: you know, twenty years out what that should be just 271 00:15:22,680 --> 00:15:25,840 Speaker 1: when it comes to the sort of value of cash 272 00:15:26,120 --> 00:15:29,000 Speaker 1: in a society. If we go back to the negative 273 00:15:29,120 --> 00:15:34,560 Speaker 1: rates idea, I mean, negative rates basically make cash uncompetitive, 274 00:15:34,640 --> 00:15:37,240 Speaker 1: whether it's physical and you're stuffing it under your mattress, 275 00:15:37,400 --> 00:15:39,840 Speaker 1: or whether you know you're putting it in a bank 276 00:15:39,960 --> 00:15:42,760 Speaker 1: and it's a sort of digital number. What does that 277 00:15:43,040 --> 00:15:47,000 Speaker 1: mean for central bankers who whose purview is you know, 278 00:15:47,200 --> 00:15:50,320 Speaker 1: of course monetary policy. It's all about the money and 279 00:15:50,760 --> 00:15:55,400 Speaker 1: cash is uncompetitive. So look on this I should really 280 00:15:55,440 --> 00:15:57,720 Speaker 1: say this is my personal view than the banks view. 281 00:15:57,720 --> 00:15:59,440 Speaker 1: But obviously we don't have negative rates in the UK. 282 00:16:00,520 --> 00:16:04,040 Speaker 1: When I was Morgan Stanley, I argued vociferously that negative 283 00:16:04,120 --> 00:16:07,800 Speaker 1: rates were a high risk experiment, and in particular that 284 00:16:07,960 --> 00:16:12,200 Speaker 1: you know, most of modern macroeconomics takes the financial system 285 00:16:12,360 --> 00:16:15,560 Speaker 1: and then assumes it away just basically ignores banks and 286 00:16:15,680 --> 00:16:19,080 Speaker 1: intermediaries and their own actions. And I think ignoring that 287 00:16:19,240 --> 00:16:22,080 Speaker 1: friction comes at a cost. And you can see that 288 00:16:22,760 --> 00:16:24,840 Speaker 1: the way that negative rates are played out, As you 289 00:16:24,880 --> 00:16:27,000 Speaker 1: know you were discussing a few weeks ago, Japanese bank 290 00:16:27,080 --> 00:16:30,240 Speaker 1: regional banks are the least profitable in the world and 291 00:16:30,280 --> 00:16:33,920 Speaker 1: actually have really been sort of supported by clipping coupons 292 00:16:33,960 --> 00:16:38,000 Speaker 1: as government bonds get get revalued. I think that the 293 00:16:38,280 --> 00:16:42,080 Speaker 1: corrosive impact of negative rates on bank profitability is very strong, 294 00:16:42,840 --> 00:16:45,200 Speaker 1: and I think there's been two great new papers, one 295 00:16:45,280 --> 00:16:48,560 Speaker 1: by Professor Charles Goodheart or the lsc in another and 296 00:16:48,600 --> 00:16:52,000 Speaker 1: norgious nor justis Bank Working paper, both of which you 297 00:16:52,120 --> 00:16:54,800 Speaker 1: challenge the orthodoxy and say, actually, if you ignore banks 298 00:16:55,240 --> 00:16:57,240 Speaker 1: and insurers, you do it at your peril because as 299 00:16:57,280 --> 00:17:00,120 Speaker 1: you get towards low rates and move into the les 300 00:17:00,200 --> 00:17:03,640 Speaker 1: in Wonderland rule world of negative rates, the credit transmission 301 00:17:03,680 --> 00:17:08,280 Speaker 1: simply becomes much less effective. And I think that's really 302 00:17:08,400 --> 00:17:11,360 Speaker 1: something which policymakers need to weigh up as we think 303 00:17:11,400 --> 00:17:16,080 Speaker 1: about confronting the global slowdown. I certainly, for my vote 304 00:17:16,119 --> 00:17:20,240 Speaker 1: would be hardly against any further moves more negative. And 305 00:17:20,359 --> 00:17:22,879 Speaker 1: I think also what really struck me doing the review is, 306 00:17:23,320 --> 00:17:26,600 Speaker 1: you know, tech is really important, but also cyber defense. 307 00:17:27,280 --> 00:17:31,159 Speaker 1: European banks, particularly Urozone banks, are spending almost half the 308 00:17:31,240 --> 00:17:34,840 Speaker 1: proportion of their tech budgets on digital transmation then their 309 00:17:34,960 --> 00:17:37,639 Speaker 1: US colleagues. Now some of that is being subscale, and 310 00:17:37,800 --> 00:17:39,199 Speaker 1: ye know, we can debate whether there should be more 311 00:17:39,359 --> 00:17:41,080 Speaker 1: M and A in Europe. But some of it is 312 00:17:41,160 --> 00:17:44,400 Speaker 1: just the lack of profitability, and of which negative rates 313 00:17:44,440 --> 00:17:47,840 Speaker 1: is a key component. So I think it's a it's 314 00:17:47,880 --> 00:17:50,560 Speaker 1: a tough experiment, and that's before we go onto you know, 315 00:17:50,680 --> 00:17:54,639 Speaker 1: people storing cash in deposits and and being disincentivized. So 316 00:17:54,760 --> 00:17:57,399 Speaker 1: I think it's a remains a high risk experiment here 317 00:17:57,440 --> 00:18:00,200 Speaker 1: three or four years on. But just on this point, 318 00:18:00,280 --> 00:18:02,920 Speaker 1: this is one thing that I don't understand, because central 319 00:18:02,960 --> 00:18:09,400 Speaker 1: banks must know that banks are important transmitters of monetary policy. 320 00:18:09,560 --> 00:18:14,680 Speaker 1: So if banks are structurally unprofitable, doesn't that worry the 321 00:18:14,800 --> 00:18:18,080 Speaker 1: central bank? I think it does. But I think that 322 00:18:18,240 --> 00:18:19,960 Speaker 1: what you've put your finger on is a as a 323 00:18:20,080 --> 00:18:22,840 Speaker 1: key difference between probably the Anglo Saxon world and else 324 00:18:23,160 --> 00:18:25,800 Speaker 1: and some of the other systems, where I think the 325 00:18:25,800 --> 00:18:29,040 Speaker 1: Anglo Saxon world firmly believes in a positive interest rate, 326 00:18:29,040 --> 00:18:31,480 Speaker 1: even if it may be low. I think a second is, 327 00:18:31,520 --> 00:18:35,359 Speaker 1: you know, because macroeconomics have just assumed this way, there 328 00:18:35,520 --> 00:18:39,880 Speaker 1: is very very little in the literature that central bankers 329 00:18:39,960 --> 00:18:43,240 Speaker 1: are relying on to understand how this works. And I 330 00:18:43,280 --> 00:18:46,080 Speaker 1: think it's fair to say negative rates work in in 331 00:18:46,240 --> 00:18:50,080 Speaker 1: quote a myriad of ways you know, they obviously impact 332 00:18:50,720 --> 00:18:53,560 Speaker 1: net interest income margin further banks like the top line, 333 00:18:54,160 --> 00:18:57,159 Speaker 1: but in some cases as your markets get revalued up 334 00:18:57,200 --> 00:18:59,639 Speaker 1: commission income, the sale of asset amount of wealth mantial 335 00:18:59,680 --> 00:19:03,040 Speaker 1: products can increase low rates. Clearly a suppressed bad debts, 336 00:19:03,160 --> 00:19:05,880 Speaker 1: and that's been a key defense of you know, ECB 337 00:19:06,160 --> 00:19:09,320 Speaker 1: and and and others in support of the policy. But 338 00:19:09,400 --> 00:19:11,479 Speaker 1: when you really dig deep, it's probably more QUEI than 339 00:19:11,520 --> 00:19:13,399 Speaker 1: negative rates who have done that, because there's more about 340 00:19:13,440 --> 00:19:16,919 Speaker 1: tackling the bad debt problems in Spain, Portugal, Greece. Itally 341 00:19:17,400 --> 00:19:20,720 Speaker 1: and arguably QUI would have been more effective than negative 342 00:19:20,800 --> 00:19:22,960 Speaker 1: rates and suppressing it. But you know, as you and 343 00:19:23,040 --> 00:19:25,760 Speaker 1: I and your listener though, that's already priced in. So 344 00:19:25,880 --> 00:19:28,639 Speaker 1: at this point, you know, lower lower bad debts is 345 00:19:28,680 --> 00:19:30,680 Speaker 1: priced in. It's much more about what the next step 346 00:19:30,800 --> 00:19:35,480 Speaker 1: is from here, and a very unprofitable system is one 347 00:19:35,560 --> 00:19:38,200 Speaker 1: which is more brittle, and so I think that's a 348 00:19:38,400 --> 00:19:42,359 Speaker 1: that's definitely concern one. You know, Larry, someone's recently came 349 00:19:42,440 --> 00:19:46,000 Speaker 1: up with the great um analogy about black hole economics. 350 00:19:46,359 --> 00:19:48,320 Speaker 1: The one that I've debated more with a bunch of 351 00:19:48,359 --> 00:19:51,600 Speaker 1: academics I've been working with is it's more like steroids. 352 00:19:52,040 --> 00:19:54,920 Speaker 1: Storids and short blasts can be very effective in repair, 353 00:19:55,560 --> 00:19:58,480 Speaker 1: but long term dependency on steroids starts to dissolve your 354 00:19:58,840 --> 00:20:01,359 Speaker 1: bones and makes the pay more brittle. And maybe negative 355 00:20:01,440 --> 00:20:06,240 Speaker 1: rates are more like steroids than other analogies. So just 356 00:20:06,359 --> 00:20:08,679 Speaker 1: to continue that analogy, if you have banks that are 357 00:20:08,760 --> 00:20:12,600 Speaker 1: sort of reliant on the steroids of easy monetary policy, 358 00:20:12,760 --> 00:20:16,440 Speaker 1: and we're reaching the limits of that potential monetary policy. 359 00:20:16,560 --> 00:20:19,880 Speaker 1: And at the same time, payments is a space where 360 00:20:20,080 --> 00:20:23,240 Speaker 1: you can still make money as a financial intermediary, but 361 00:20:23,320 --> 00:20:26,080 Speaker 1: you're getting a lot of tech firms encroaching on it, 362 00:20:26,600 --> 00:20:29,520 Speaker 1: and in the meantime, lending out money doesn't actually earn 363 00:20:29,600 --> 00:20:33,520 Speaker 1: you any interest. What does that mean for the banking 364 00:20:34,040 --> 00:20:37,240 Speaker 1: business model? Is there a future for banks in their 365 00:20:37,320 --> 00:20:41,040 Speaker 1: current form? I think that no. I I firmly think 366 00:20:41,080 --> 00:20:42,399 Speaker 1: there is, And I think we go back to this 367 00:20:42,520 --> 00:20:46,720 Speaker 1: that it's first technology at one level allows many new entrants, 368 00:20:47,080 --> 00:20:49,760 Speaker 1: but also provides real scale economies. And in a world 369 00:20:49,840 --> 00:20:54,480 Speaker 1: where let's say large corporates are obsessed, rightly obsessed about 370 00:20:54,480 --> 00:20:57,280 Speaker 1: their security and money, the firms who've got the single 371 00:20:57,359 --> 00:21:01,960 Speaker 1: best cybersecurity should win out. So number one there's a 372 00:21:02,119 --> 00:21:05,520 Speaker 1: I think tech is becoming an arms race for the 373 00:21:05,640 --> 00:21:09,680 Speaker 1: winning financials and back sorry, winning banks. So I think 374 00:21:09,760 --> 00:21:12,000 Speaker 1: that's one aspect which is really important. I think to 375 00:21:12,320 --> 00:21:15,159 Speaker 1: what flows from that is scale is more important. And 376 00:21:15,280 --> 00:21:18,280 Speaker 1: so it may well be that actually the combination of 377 00:21:18,359 --> 00:21:22,399 Speaker 1: low rates and tech actually accelerates more M and A, 378 00:21:22,920 --> 00:21:24,680 Speaker 1: which is you know, let's be not let's be honest, 379 00:21:24,720 --> 00:21:27,960 Speaker 1: has been somewhat on hold in recent times, and you 380 00:21:28,000 --> 00:21:30,800 Speaker 1: can see that with a couple of recent US transactions 381 00:21:30,840 --> 00:21:33,119 Speaker 1: which have really been around payments and the tech space. 382 00:21:33,840 --> 00:21:36,720 Speaker 1: And I think third is it really will be about 383 00:21:37,040 --> 00:21:39,959 Speaker 1: becoming a low cost manufacturer. And so I think there 384 00:21:40,080 --> 00:21:43,000 Speaker 1: is going to be relentless hard work for bankers and 385 00:21:43,080 --> 00:21:45,960 Speaker 1: making sure they've got a lean and a very effective platform. 386 00:21:46,359 --> 00:21:49,320 Speaker 1: Because you know, throughout my professional care career, let's take 387 00:21:49,359 --> 00:21:51,080 Speaker 1: sort of um, when I used to sit on and 388 00:21:51,160 --> 00:21:53,840 Speaker 1: exutary trading for many many years ago before we got 389 00:21:53,880 --> 00:21:56,680 Speaker 1: moved into the research box. The you know, commissions have 390 00:21:56,800 --> 00:22:00,320 Speaker 1: gone down through thick and thin, double digit year by year. 391 00:22:00,480 --> 00:22:03,000 Speaker 1: And I think that banks have been able to confront 392 00:22:03,080 --> 00:22:05,840 Speaker 1: that through becoming more efficient and more scaled. So I 393 00:22:05,880 --> 00:22:09,520 Speaker 1: think there's a lot of industrial logic which needs to 394 00:22:09,560 --> 00:22:11,280 Speaker 1: flow from this, but they'll probably need a bit of 395 00:22:11,359 --> 00:22:15,680 Speaker 1: luck as well. Is there space for regulation to play 396 00:22:15,840 --> 00:22:19,760 Speaker 1: a role in this? Could payments companies big tech companies 397 00:22:19,920 --> 00:22:23,480 Speaker 1: entering the payment space? Could they be regulated like banks? 398 00:22:24,040 --> 00:22:26,240 Speaker 1: And one of the reasons I asked this is because 399 00:22:26,520 --> 00:22:29,719 Speaker 1: one of the outcomes of your review was the BOE 400 00:22:29,920 --> 00:22:34,760 Speaker 1: starting a consultation on opening access to its balance sheet 401 00:22:34,840 --> 00:22:38,840 Speaker 1: to payment providers, which you know it's kind of uh 402 00:22:39,280 --> 00:22:43,320 Speaker 1: controversial in many ways. Yeah, I mean so, I think 403 00:22:43,359 --> 00:22:45,399 Speaker 1: the way that the President I see this through is 404 00:22:45,880 --> 00:22:47,720 Speaker 1: having a level playing field. It is not the job 405 00:22:47,760 --> 00:22:50,520 Speaker 1: of the bank to pick winners or losers, but provider 406 00:22:51,480 --> 00:22:55,159 Speaker 1: the the infrastructure and set of rules and standards to 407 00:22:55,320 --> 00:22:57,920 Speaker 1: ensure that there is just a great suite of financial 408 00:22:58,000 --> 00:23:01,320 Speaker 1: services which are safe and secure for society. So I 409 00:23:01,600 --> 00:23:03,520 Speaker 1: view this much more about the level of the playing fields. 410 00:23:03,600 --> 00:23:06,840 Speaker 1: On one hand, if there are some really high quality 411 00:23:07,240 --> 00:23:11,320 Speaker 1: payment firms who pass some pretty high hurdles of security, 412 00:23:11,640 --> 00:23:16,040 Speaker 1: cybersecurity and resilience, then why shouldn't they potentially have access 413 00:23:16,200 --> 00:23:19,920 Speaker 1: to part money at the Central Bank overnight and help 414 00:23:20,280 --> 00:23:23,600 Speaker 1: a foster competition. But the other aspect of a level 415 00:23:23,640 --> 00:23:26,440 Speaker 1: playing field is the payment firms or the Big Text 416 00:23:26,840 --> 00:23:29,879 Speaker 1: have to be held to the same standards as banks, 417 00:23:30,080 --> 00:23:33,320 Speaker 1: So whether that be with knowing your customer and antimony 418 00:23:33,400 --> 00:23:37,879 Speaker 1: laundering controls, whether be cybersecurity, whether it be resilience. And 419 00:23:38,000 --> 00:23:40,399 Speaker 1: that's why the other part of my report was to 420 00:23:40,520 --> 00:23:44,160 Speaker 1: argue for updating payments regulation. Now within the UK, that's 421 00:23:44,160 --> 00:23:45,840 Speaker 1: obviously a role for the government and they're kind of 422 00:23:45,880 --> 00:23:48,760 Speaker 1: busy at the moment with other things and I can't 423 00:23:48,760 --> 00:23:52,240 Speaker 1: imagine what, but the former Chancellor, you know, did commit 424 00:23:52,359 --> 00:23:56,480 Speaker 1: the Treasury to looking at a updated payments regulation. As 425 00:23:56,520 --> 00:23:58,280 Speaker 1: I said, I think what the singer Porens of Dana. 426 00:23:58,359 --> 00:24:01,600 Speaker 1: Introducing a third category or you know, large important payment 427 00:24:01,680 --> 00:24:05,119 Speaker 1: firms which are held high standards is at least an 428 00:24:05,160 --> 00:24:08,480 Speaker 1: intriguing idea which you know, many jurisdictions I'm sure must 429 00:24:08,480 --> 00:24:11,720 Speaker 1: be looking at. And the other bit about reciprocity of data. 430 00:24:11,840 --> 00:24:14,399 Speaker 1: So one of the big challenges is if the banks 431 00:24:15,000 --> 00:24:18,040 Speaker 1: are asked to share their data with Big Text, what 432 00:24:18,200 --> 00:24:20,119 Speaker 1: do they get in return, or at least how do 433 00:24:20,160 --> 00:24:23,119 Speaker 1: they get compensated for that? And so a level playing 434 00:24:23,160 --> 00:24:26,760 Speaker 1: fielding information is probably just as important as having really 435 00:24:26,840 --> 00:24:30,199 Speaker 1: high standards. So I'm going to ask you a very 436 00:24:30,280 --> 00:24:34,080 Speaker 1: broad question now for which I ask your forgiveness in advance. 437 00:24:34,160 --> 00:24:37,920 Speaker 1: But when you look a decade into the future, what 438 00:24:38,119 --> 00:24:42,240 Speaker 1: exactly does the financial system look like to you? Who 439 00:24:42,440 --> 00:24:46,920 Speaker 1: is dominating and how are central bankers responding? Well, look, 440 00:24:46,960 --> 00:24:49,480 Speaker 1: I have the humility to know that I thought about 441 00:24:50,080 --> 00:24:52,280 Speaker 1: to try and think about scenarios because none of us 442 00:24:52,280 --> 00:24:54,960 Speaker 1: are clever enough to to be able to forecast the future. 443 00:24:55,520 --> 00:24:57,400 Speaker 1: But so let me let me turn it around saying 444 00:24:57,480 --> 00:25:01,120 Speaker 1: that the scenarios that I think policymakers really must think through. 445 00:25:01,840 --> 00:25:04,880 Speaker 1: So one would be that if we have a two 446 00:25:04,920 --> 00:25:07,720 Speaker 1: by two of the rate environment and have the degree 447 00:25:07,720 --> 00:25:10,240 Speaker 1: of disruption, the one where we have negative or low 448 00:25:10,359 --> 00:25:14,000 Speaker 1: rates and high disruption is very challenging for the banking system. 449 00:25:14,080 --> 00:25:16,800 Speaker 1: So thinking through what does that mean then for scale 450 00:25:17,359 --> 00:25:21,080 Speaker 1: their budgets to respond. What can they be allowed to 451 00:25:21,160 --> 00:25:25,359 Speaker 1: do in response to these competitive challenges potentially changing you know, 452 00:25:25,560 --> 00:25:27,600 Speaker 1: what market shares they can have to try and have 453 00:25:27,800 --> 00:25:31,000 Speaker 1: more scale. That's something I think is really important to 454 00:25:31,320 --> 00:25:34,920 Speaker 1: weigh up. A second is if big tech, in the 455 00:25:34,960 --> 00:25:38,000 Speaker 1: scenario where big texts become really important, or at least 456 00:25:38,040 --> 00:25:41,119 Speaker 1: even fin techs are a much broader range of players 457 00:25:41,160 --> 00:25:44,159 Speaker 1: are skimming the cream. What standards do we hold them to, 458 00:25:44,720 --> 00:25:48,800 Speaker 1: particularly knowing that the network effects are so powerful that 459 00:25:48,840 --> 00:25:50,879 Speaker 1: when a firm is large, like let's say the Chinese 460 00:25:51,280 --> 00:25:54,760 Speaker 1: payment firms, it's very difficult to row them back. And 461 00:25:54,920 --> 00:25:56,680 Speaker 1: so you know, one reason why I think the bank 462 00:25:56,800 --> 00:25:59,120 Speaker 1: talked about you're making sure they want to get ahead 463 00:25:59,119 --> 00:26:01,680 Speaker 1: of Libra of than just respond when it's out, is 464 00:26:01,760 --> 00:26:04,760 Speaker 1: to try and think through firms which could become systemic 465 00:26:05,119 --> 00:26:09,399 Speaker 1: and get further ahead. I think the other aspect of tracy, 466 00:26:09,440 --> 00:26:11,960 Speaker 1: which is slightly more you know, basic, but I think 467 00:26:11,960 --> 00:26:14,600 Speaker 1: it's really important, which is the central bank needs to 468 00:26:14,720 --> 00:26:18,920 Speaker 1: have the capabilities and the kind of know how of 469 00:26:19,000 --> 00:26:21,480 Speaker 1: the tech world. You know, most central banks around the 470 00:26:21,520 --> 00:26:25,800 Speaker 1: world are dominated by outstanding public servants who have got 471 00:26:25,880 --> 00:26:28,640 Speaker 1: PhDs in economics, and I think that's an important skill set, 472 00:26:28,680 --> 00:26:30,200 Speaker 1: but we need to make sure that they also have 473 00:26:30,920 --> 00:26:34,800 Speaker 1: much richer understanding of cyber of technology and you know, 474 00:26:34,880 --> 00:26:37,720 Speaker 1: the tools and so you know, one scenarios that the 475 00:26:37,800 --> 00:26:40,160 Speaker 1: regulator of the future is more like on the Star 476 00:26:40,320 --> 00:26:44,040 Speaker 1: Trek enterprise, you know, with the data coming in automatically 477 00:26:44,480 --> 00:26:47,600 Speaker 1: to you know, screens and understanding so they can get 478 00:26:47,640 --> 00:26:49,560 Speaker 1: their finger on the pulse much more quickly. And what 479 00:26:49,760 --> 00:26:53,480 Speaker 1: is quite frankly a complex and challenging world, right, So 480 00:26:53,760 --> 00:26:56,720 Speaker 1: was the technology aspect of your research? Was that difficult 481 00:26:56,880 --> 00:26:58,560 Speaker 1: when you were at the b o E. Did you, 482 00:26:58,960 --> 00:27:02,600 Speaker 1: you know, for instance, have to I guess, tap specific 483 00:27:02,720 --> 00:27:09,400 Speaker 1: expertise or ask specific people to help you on technological issues. Yes, 484 00:27:09,840 --> 00:27:13,440 Speaker 1: I mean I was blessed that everyone was very happy 485 00:27:13,480 --> 00:27:15,480 Speaker 1: to help out, and so I met with over three 486 00:27:15,560 --> 00:27:22,320 Speaker 1: hundred entrepreneurs, techy CEOs, cyber experts. Many other policy makers 487 00:27:22,359 --> 00:27:23,920 Speaker 1: around the world lent they had too, so I was 488 00:27:24,000 --> 00:27:26,000 Speaker 1: able to dig deep. I mean, obviously I have the 489 00:27:26,080 --> 00:27:27,879 Speaker 1: humility that even in a year, I can only scratch 490 00:27:27,920 --> 00:27:31,520 Speaker 1: the surface of some of these important questions. I think 491 00:27:31,600 --> 00:27:33,800 Speaker 1: that you know, one thing that I put my finger 492 00:27:33,880 --> 00:27:36,440 Speaker 1: on is that it's still quite a paper based world. 493 00:27:36,520 --> 00:27:39,840 Speaker 1: And so if you're sitting there as a regulator, I 494 00:27:39,960 --> 00:27:45,240 Speaker 1: calculated that the average bank regulator is receiving the complete 495 00:27:45,280 --> 00:27:48,640 Speaker 1: works of Shakespeare twice a week in terms of data. Now, 496 00:27:49,280 --> 00:27:53,280 Speaker 1: you simply can't comprehend that without modern technology. And if 497 00:27:53,280 --> 00:27:55,000 Speaker 1: you know, going back to my life as a research anaist, 498 00:27:55,440 --> 00:27:58,720 Speaker 1: you needed to automate feeds, you need to create alert screens, 499 00:27:59,040 --> 00:28:02,159 Speaker 1: you need to complete you rethink the way you you 500 00:28:02,320 --> 00:28:06,040 Speaker 1: run with hypotheses and make sure you get the appropriate data. 501 00:28:06,640 --> 00:28:09,080 Speaker 1: And the other thing is regulation is blooming complex. So 502 00:28:09,200 --> 00:28:12,400 Speaker 1: the UK rule book is longer than the complete works 503 00:28:12,400 --> 00:28:16,359 Speaker 1: of the Old Testament and unfortunately gets updated regularly, and 504 00:28:16,560 --> 00:28:19,760 Speaker 1: so you know this is no one individual can keep 505 00:28:19,800 --> 00:28:22,119 Speaker 1: on top of that data. So it's not just the regulator, 506 00:28:22,640 --> 00:28:25,040 Speaker 1: it's the people at the banks themselves who are trying 507 00:28:25,080 --> 00:28:27,760 Speaker 1: to keep on top of a god gangin amount of data. 508 00:28:27,960 --> 00:28:33,920 Speaker 1: So without embracing technology and quite frankly embracing cloud technology, 509 00:28:34,040 --> 00:28:39,320 Speaker 1: so banks and regulators communicate their data more cheaply, more effectively. 510 00:28:40,000 --> 00:28:42,160 Speaker 1: I think it's going to be part of the secret 511 00:28:42,240 --> 00:28:44,840 Speaker 1: source of of an effective central banker in the future. 512 00:28:46,080 --> 00:28:49,200 Speaker 1: What was the most interesting part of working at the 513 00:28:49,280 --> 00:28:53,160 Speaker 1: BOE on this project? Did you Did you go searching 514 00:28:53,240 --> 00:28:56,920 Speaker 1: for the BOES gold reserves for instance? Well, I think 515 00:28:56,960 --> 00:29:00,720 Speaker 1: I mentioned that, you know, Bill Winters, who had previously 516 00:29:00,800 --> 00:29:02,440 Speaker 1: done a review, so that I should get access to 517 00:29:02,520 --> 00:29:05,560 Speaker 1: the gold vaults on my security pass. But I realized 518 00:29:05,600 --> 00:29:07,000 Speaker 1: that was a joke and I when I tried to 519 00:29:07,040 --> 00:29:09,000 Speaker 1: get in there were people with guns, so I'm afraid 520 00:29:09,040 --> 00:29:11,400 Speaker 1: I never found out how much of the gold Gordon 521 00:29:11,440 --> 00:29:15,120 Speaker 1: Brown sold off, But no, I think it's um. It 522 00:29:15,280 --> 00:29:18,160 Speaker 1: was two things. One was we hosted a large and 523 00:29:18,400 --> 00:29:20,840 Speaker 1: round tables and to try and keep them you know, 524 00:29:20,960 --> 00:29:23,960 Speaker 1: bouncy a bit, you know, we we had typically you know, 525 00:29:24,440 --> 00:29:26,840 Speaker 1: four or five people from the incumbents. Four or five 526 00:29:26,840 --> 00:29:29,520 Speaker 1: attack has done a few clients to ground the conversation, 527 00:29:29,560 --> 00:29:32,440 Speaker 1: so it just didn't become sort of finance babble. And 528 00:29:32,840 --> 00:29:35,120 Speaker 1: it became really crystal clear to me that some of 529 00:29:35,160 --> 00:29:38,760 Speaker 1: the fin techs not only are challenging the status quo, 530 00:29:39,080 --> 00:29:40,520 Speaker 1: they don't even know where some of the rules are. 531 00:29:40,720 --> 00:29:45,080 Speaker 1: And I think that's a very odd environment for regulators 532 00:29:45,200 --> 00:29:49,640 Speaker 1: to comprehend. And therefore, you know the natural Pavlovian reaction 533 00:29:49,760 --> 00:29:51,840 Speaker 1: that is to sort of close up. And yet you 534 00:29:51,880 --> 00:29:54,560 Speaker 1: know the world is developing and is moving at a pace, 535 00:29:54,640 --> 00:29:57,200 Speaker 1: and so you do need to keep very open, alert 536 00:29:57,240 --> 00:30:00,040 Speaker 1: and engaged. And I think that was one aspect. I 537 00:30:00,080 --> 00:30:02,960 Speaker 1: think second was this sort of international comparisons um and 538 00:30:03,400 --> 00:30:06,560 Speaker 1: understanding what we can learn, whether it's from China, from Sweden, 539 00:30:07,160 --> 00:30:10,320 Speaker 1: from other other industries about how to respond and certainly 540 00:30:10,400 --> 00:30:13,760 Speaker 1: was I thought about what the bank regulator of the 541 00:30:13,800 --> 00:30:16,280 Speaker 1: future should look like. I was probably spending more time 542 00:30:16,360 --> 00:30:20,520 Speaker 1: to thinking about data analytics, digitization of data, taxonomy is 543 00:30:20,760 --> 00:30:23,960 Speaker 1: quite frankly data science than I was thinking about, you know, 544 00:30:24,080 --> 00:30:27,600 Speaker 1: PhD s and economics. All Right, Hugh, I think we'll 545 00:30:27,640 --> 00:30:29,600 Speaker 1: have to leave it there, but thank you so much 546 00:30:29,720 --> 00:30:32,520 Speaker 1: for coming on Odd Thoughts. As you know, I've been 547 00:30:32,560 --> 00:30:36,160 Speaker 1: following your work for so very long, including when you 548 00:30:36,240 --> 00:30:39,440 Speaker 1: were a star analyst really over at Morgan Stanley, and 549 00:30:39,520 --> 00:30:57,800 Speaker 1: it's been great to chat with you again. Thanks so much. Well, 550 00:30:58,040 --> 00:31:01,400 Speaker 1: this has been another episode of the All Thoughts podcast. 551 00:31:01,600 --> 00:31:04,920 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 552 00:31:05,000 --> 00:31:09,000 Speaker 1: Tracy Alloway, and you can follow Joe Wisenthal on Twitter 553 00:31:09,360 --> 00:31:13,360 Speaker 1: at The Stalwart. You can also follow our producer Laura 554 00:31:13,480 --> 00:31:18,400 Speaker 1: Carlson at Laura M. Carlson and finally, make sure you're 555 00:31:18,480 --> 00:31:23,480 Speaker 1: following Bloomberg Podcasts on Twitter at Podcasts. Thanks for listening, 556 00:32:01,960 --> 00:32:02,040 Speaker 1: Ye