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Speaker 1: Welcome to Kobe Time, a podcast series on Markets and

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Speaker 1: Economies from Devious Group Research. I'm Tambe, chief economist. Welcoming

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Speaker 1: you to our 105th episode. Our guest today is a

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Speaker 1: return guest is Raad Tolani, senior uh senior professor of

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Speaker 1: Trade Policy at Cornell University first came to Coby Time

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Speaker 1: 2.5 years ago on episode 36. And in that episode,

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Speaker 1: we talked about the global economic outlook and major developments

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Speaker 1: in the currency world.

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Speaker 1: Since then, I has published a book called The Future

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Speaker 1: of Money. How the digital revolution is transforming currencies and finance.

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Speaker 1: He has also continued to publish on China's economy, central bank,

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Speaker 1: digital currencies, us dollar dominance or like thereof and cryptocurrencies.

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Speaker 1: So much to talk about Iras. Welcome back to Kobe time.

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Speaker 2: It's so nice to be back on your show and

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Speaker 2: certainly things have changed a little bit in the last

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Speaker 2: 2.5 years. So we have much to talk about

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Speaker 1: just a little bit. All right. So uh I want

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Speaker 1: to start with the broad macro initially, I uh how

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Speaker 1: has the global financial system held up around the pandemic?

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Speaker 1: The policy response around the pandemic and its inflationary aftermath.

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Speaker 2: So remarkably, the global financial system by and large did

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Speaker 2: hold up quite well in the initial phase of the pandemic.

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Speaker 2: And we did not see major banking system stresses um

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Speaker 2: emerge in any part of the world. And I think

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Speaker 2: that speaks to the increased resilience. Um that was um

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Speaker 2: you know, put in place by the regulatory changes that

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Speaker 2: took place after the global financial crisis and

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Speaker 2: um some crises that occurred after that including the eurozone

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Speaker 2: debt crisis. Um

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Speaker 2: More recently, of course, things have begun to change. There

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Speaker 2: are parts of the world where we are beginning to

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Speaker 2: see certain elements of stresses pop up in China, for instance.

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Speaker 2: Um there are some banks that are quite exposed to

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Speaker 2: the real estate sector and while they don't see a

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Speaker 2: major financial panic uh um or crash emerging,

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Speaker 2: there are certainly some property developers that are highly leveraged,

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Speaker 2: some banks, especially some of the small, medium uh medium

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Speaker 2: sized banks, uh small to medium sized banks that are

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Speaker 2: quite exposed to the property sector and that are already

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Speaker 2: facing some stresses. And then there are other parts of

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Speaker 2: the world like the US, of course, where we had

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Speaker 2: these uh um couple of uh uh banks that um

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Speaker 2: uh faced a fair amount of. But there again,

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Speaker 2: um things seem to have been contained to a relatively

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Speaker 2: small sliver of the banking system. So there is a

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Speaker 2: sense that there are elements of fragility in the banking

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Speaker 2: system um in many parts of the world. But by

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Speaker 2: and large things seem to be holding up.

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Speaker 2: Although um the period of rising interest rates in many

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Speaker 2: of the advanced economies, you know, in some ways, it

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Speaker 2: um helps banks in some ways, it puts some of

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Speaker 2: their balance sheets and their stress especially. Um if as

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Speaker 2: was the case with uh um uh Silicon Valley Bank

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Speaker 2: and the First Republic, we see some stresses building up

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Speaker 2: on the

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Speaker 2: asset side of um bank balance sheets as um interest

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Speaker 2: rates on government bonds in particular, um, start rising. So

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Speaker 2: I don't think we've seen the end of banking system troubles,

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Speaker 2: but by and large, the financial system, especially the banking

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Speaker 2: system seems to have held up reasonably well in most

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Speaker 2: countries for the last few years.

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Speaker 1: Sure. One of the reasons arguably is the fact that

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Speaker 1: we basically have a financial sector put in place that

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Speaker 1: if you have banks experiencing runs, it seems like the

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Speaker 1: regulators will come and give you a blanket guarantee. Is

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Speaker 1: that an issue

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Speaker 2: that is certainly an issue that we're going to have

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Speaker 2: to grapple with the sense that even in countries um

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Speaker 2: including the US where there isn't a blanket full uh

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Speaker 2: deposit insurance system that basically covers the entire banking system

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Speaker 2: in its entirety. What we are seeing is that when

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Speaker 2: trouble erupts, especially if that trouble

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Speaker 2: looks like it could spill over to the rest of

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Speaker 2: the banking system, the regulators step in and you end

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Speaker 2: up with uh you know, any sense of market discipline

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Speaker 2: being lost now, countries like China where there is um

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Speaker 2: um where there was a sense that there was an implicit,

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Speaker 2: full uh insurance of the entire banking system in place.

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Speaker 2: Um was something that was a concern.

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Speaker 2: Um China has been moving towards an explicit uh deposit

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Speaker 2: insurance system, but what we're seeing is that across the world,

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Speaker 2: um that notion of market discipline through limited deposit insurance

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Speaker 2: that um prevents bank runs, but still um gives depositors

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Speaker 2: an incentive to look into the books of their banks

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Speaker 2: more carefully. I don't think that is holding up and

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Speaker 2: that is going to have some longer term repercussions uh

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Speaker 2: for the banking system, soundness and stability. If we have

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Speaker 2: a situation

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Speaker 2: um where almost uh um by construction, we're going to

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Speaker 2: have forces that uh feed into more concentration that lead

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Speaker 2: to potentially more risk taking and so forth.

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Speaker 1: Um Any view on the state of heavily indebted emerging

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Speaker 1: markets economies which are facing ever rising, you know, dollar debt,

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Speaker 1: servicing costs and some of them are an outright crisis.

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Speaker 2: Now. It is true that there are some economies in crisis.

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Speaker 2: But what is more striking to me is that during

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Speaker 2: the last three or 44 years, we haven't had any

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Speaker 2: systemically important emerging market economies facing um major crises. Now,

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Speaker 2: to some extent, this is because I think many emerging market,

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Speaker 2: um policymakers did learn the right lessons um from the

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Speaker 2: Asian financial

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Speaker 2: crisis, the Russian crisis, the Mexican tequila crisis and so on.

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Speaker 2: And in the global financial crisis, of course, we had

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Speaker 2: many emerging markets holding up reasonably well. Unfortunately, in the

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Speaker 2: last few years, I think some of those lessons have

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Speaker 2: been unlearned. Many emerging market economies, particularly some of the

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Speaker 2: frontier economies have taken on large amounts of foreign currency,

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Speaker 2: external debt.

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Speaker 2: And there is a mix of this sort of lack

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Speaker 2: of policy restraint and um political and economic instability in

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Speaker 2: many of these countries such as um Sri Lanka, uh Pakistan, Venezuela,

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Speaker 2: Turkey and so on which have put them under very

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Speaker 2: significant uh uh duress. Um But the major emerging market

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Speaker 2: economies do seem to be holding up um quite well

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Speaker 2: uh so far. So there is this bifurcation that has

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Speaker 2: emerged even among the emerging market and developing economy uh class.

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Speaker 1: It is interesting and it, I just want to share

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Speaker 1: with you one insight that we run for emerging and

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Speaker 1: developed markets. A, you know, sort of a cross country

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Speaker 1: exchange rate, misalignment analysis and the biggest misalignment cases we

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Speaker 1: find are actually in developed markets, not in emerging markets,

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Speaker 1: but to your point about the countries like the Pakistan

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Speaker 1: and Sri Lanka, I think the debt sustainability issue still

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Speaker 1: such a big question even though they have extensively IMF

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Speaker 1: programs in place.

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Speaker 1: Um If for the other big development over the last

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Speaker 1: couple of years is the war in Ukraine and with

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Speaker 1: Western sanctions on Russia, in particular, we have seen wide

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Speaker 1: ranging weaponization of the US dollar, so to speak, what

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Speaker 1: will be the legacy of that?

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Speaker 2: The fact that the US has been, um, so willing

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Speaker 2: to use sanctions, of course, has been taken note of

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Speaker 2: by policymakers around the world and certainly for a while now, um,

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Speaker 2: you know, it's not just US rivals but also traditional

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Speaker 2: allies of the US, including Europe that have been very

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Speaker 2: eager to get away from a dollar dominated the global

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Speaker 2: financial system.

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Speaker 2: The sanctions have given an edge uh to that uh

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Speaker 2: um to that effort because what we've learned is that

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Speaker 2: the US is willing to bend or even break the rules.

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Speaker 2: Um in certain cases, now, one can see that the

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Speaker 2: US has been aggressively using sanctions on international payments and

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Speaker 2: while Swift is supposed to be um you know, in principle,

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Speaker 2: um a nonpartisan um

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Speaker 2: uh group, the reality is that um American banks are

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Speaker 2: so important to swift that the US does maintain a

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Speaker 2: bit of a chokehold over swift as well. So cutting

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Speaker 2: off a country from access to the swift messaging system

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Speaker 2: and from the international payment system is certainly a very

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Speaker 2: pot uh threat. So there are countries around the world

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Speaker 2: trying to find their ways around it. China has set

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Speaker 2: up the cross-border interbank payment system that could more directly

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Speaker 2: communicate with the payment systems of other countries, both in

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Speaker 2: terms of messaging and also in terms of payment and

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Speaker 2: settlement um of international transactions. But where the US is really,

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Speaker 2: um I I think broken what had come to be

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Speaker 2: seen um as a set of uh widely accepted rules

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Speaker 2: was that it even

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Speaker 2: um attempted to freeze um Russia's foreign exchange reserves now.

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Speaker 2: Um it did not technically really freeze the reserves, but

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Speaker 2: it made it very difficult for Russia to get access

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Speaker 2: to those rainy day funds and for emerging market policymakers.

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Speaker 2: This is a real concern because after all, um if

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Speaker 2: you store away a lot of um

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Speaker 2: your rainy day funds in the form of foreign exchange reserves,

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Speaker 2: put a lot of them in the US and um

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Speaker 2: other advanced economy, um government bond markets. And then when

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Speaker 2: the storm comes, you cannot use those rainy day funds.

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Speaker 2: That is a real concern.

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Speaker 2: However, the difficulty that countries that want to step away

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Speaker 2: from the dollar face is the following. There aren't any

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Speaker 2: clear alternatives in terms of either payment currencies or in

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Speaker 2: terms of reserve currencies. I'll take those one by one

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Speaker 2: on the payment currency front. One can well imagine a

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Speaker 2: shift taking place. I refer to China's cross-border interbank payment

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Speaker 2: system or SS one can well imagine that when China's

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Speaker 2: trading partners have payment systems that reach a similar level

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Speaker 2: of maturity

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Speaker 2: that you could have em emerging market currency pairs being

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Speaker 2: directly traded for each other, say Renminbi versus uh um

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Speaker 2: uh the Rupe without having to go through an intermediate

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Speaker 2: currencies such as the dollar or for that matter, the euro.

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Speaker 2: Um You could also have China and Russia trading directly

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Speaker 2: in their pairs of currencies. So new technologies, financial market

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Speaker 2: developments in the emerging market countries are I think reducing

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Speaker 2: the need for vehicle currencies.

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Speaker 2: Now, what is interesting is that it is not obvious

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Speaker 2: that the dollar is going to suffer the most here.

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Speaker 2: In fact, what we've seen in the last four or

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Speaker 2: five years is that the euro has if anything suffered

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Speaker 2: a little more than the dollar in terms of the

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Speaker 2: share of payments that are intermediate through that currency, at

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Speaker 2: least based on data that we have um on

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Speaker 2: um payment transactions where the messaging runs through swift. Um

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Speaker 2: There is also the prospect of uh certain types of

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Speaker 2: cryptocurrencies like stable coins a subject. I suspect we will

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Speaker 2: turn to later in our talk um gaining traction in

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Speaker 2: international payments. But there again, it is really stable coins

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Speaker 2: that are backed up by us dollar reserves

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Speaker 2: that seem to be gaining the most traction. So the

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Speaker 2: US dollar might indirectly gain even more prominence as a

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Speaker 2: payment currency. So it is possible that the dollar will

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Speaker 2: face some erosion in its role as a payment currency

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Speaker 2: that even emerging market currencies will take on larger shares.

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Speaker 2: But I think the dollar will remain by far the

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Speaker 2: most important payment currency

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Speaker 2: as a reserve currency. Likewise, the dollar share has eroded

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Speaker 2: somewhat in the last few years. Um Now, um before

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Speaker 2: the euro came into being the dollar share of global

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Speaker 2: foreign exchange reserves was about 71 72%. Um After the

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Speaker 2: euro came into being, that share fell by about 10%

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Speaker 2: points and then it fell to about, you know, 62%

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Speaker 2: just before the global financial

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Speaker 2: financial crisis. But since then, the dollar share has eroded

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Speaker 2: only marginally to about 59%. Right now. What is interesting

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Speaker 2: is that in the last four or five years, the

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Speaker 2: Euro share of global foreign exchange reserves has taken a

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Speaker 2: real hit down to less than 20%.

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Speaker 2: Um Professor Barry Eire of the University of California Berkeley

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Speaker 2: has made this other interesting observation that if you take

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Speaker 2: many of the smaller reserve currencies like the Australian dollar,

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Speaker 2: the Canadian dollar, the Swedish Corona and so on. Cumulatively,

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Speaker 2: all of those small reserve currencies have increased their share,

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Speaker 2: although each of them accounts for only

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Speaker 2: very small share. So what is happening is sort of

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Speaker 2: interesting right now, the distance between the dollar and the

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Speaker 2: second tier of reserve currencies in which I'm going to

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Speaker 2: include the euro that is actually increased. So there is

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Speaker 2: a lot more jockeying for position, a lot more fragmentation

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Speaker 2: among the 2nd and 3rd tier reserve currency

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Speaker 2: so that um pound sterling the Japanese Yen, uh the

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Speaker 2: Euro have all taken a bit of a beating in

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Speaker 2: the last decade or so. So the distance between them

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Speaker 2: and the dollar has increased and there is a lot

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Speaker 2: more um uh coming up in the form of these

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Speaker 2: smaller reserve currencies. So a lot more fragmentation

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Speaker 2: and why is this fragmentation taking place? Because emerging market

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Speaker 2: and other uh reserve managers desperately are looking for diversification options.

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Speaker 2: But again, the paradoxical issue here is that while the

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Speaker 2: dollar share may erode somewhat, it has weakened the rivals

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Speaker 2: even more, putting the dollar at some level in an

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Speaker 2: even more uh strong position.

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Speaker 1: Absolutely fascinating. I want to stay on the subject a

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Speaker 1: little longer if, if I may uh China. So China

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Speaker 1: does swaps with various central banks around the world. All

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Speaker 1: these petrol cny discussions, we hear about all the time

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Speaker 1: that they want to have commodities coming from the Middle

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Speaker 1: East invoiced in R and B. Uh And then the Chinese,

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Speaker 1: these uh fintech companies have even like mobile wallets that

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Speaker 1: are now interfacing with the ecny. So I do want

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Speaker 1: to talk about CBD CS and other things later with you.

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Speaker 1: But just in terms of China's desire to make the

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Speaker 1: R and B more acceptable, is it even reasonably possible

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Speaker 1: without capital economic liberalization?

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Speaker 2: So I was in um China um after the 3.5

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Speaker 2: year hiatus just a couple of weeks ago and this,

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Speaker 2: of course, was uh a subject that I did uh

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Speaker 2: discuss with the Chinese policymakers because there is something dear

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Speaker 2: to my heart. Um And the um authorities seem very

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Speaker 2: determined to continue uh with capital account liberalization and freeing

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Speaker 2: up the exchange rate to be more uh market uh determine.

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Speaker 2: In fact, over the last um

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Speaker 2: um five or six years after the um 2014, 2015

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Speaker 2: episode of Renminbi depreciation.

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Speaker 2: It is true that the direct intervention in the foreign

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Speaker 2: exchange market um has been quite limited. The amount of

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Speaker 2: foreign exchange reserves held by the Chinese central bank has

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Speaker 2: remained relatively flat in the range of somewhere between three

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Speaker 2: and $3.1 trillion. There's been some marginal intervention using the

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Speaker 2: balance sheets of commercial banks. But overall, they seem quite

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Speaker 2: comfortable letting their

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Speaker 2: in the um rise and fall in value um especially

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Speaker 2: relative to the dollar on the capital account. Um I

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Speaker 2: was told quite clearly that China is never going to

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Speaker 2: have a fully open capital account. But for all practical purposes,

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Speaker 2: as far as international investors are concerned, they do want

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Speaker 2: to make it easy and they have opened up the

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Speaker 2: bond and equity markets with very few restrictions on foreign investors.

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Speaker 2: The difficult issue that China faces is whether foreign investors

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Speaker 2: view that as a credible promise that the capital account

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Speaker 2: will be kept open or whether if the Renminbi were

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Speaker 2: to face depreciation pressures. Again, um the capital account might

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Speaker 2: not be used as an exchange rate management tool essentially

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Speaker 2: by limiting uh capital outflows by putting restrictions on them.

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Speaker 2: So foreign investors don't seem to be buying it yet,

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Speaker 2: but the government does seem committed to

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Speaker 2: continue with capital account liberalization and exchange rate uh uh

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Speaker 2: liberalization as well.

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Speaker 2: Now, this is certainly going to go hand in hand

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Speaker 2: with the um Chinese government's desire to um you know,

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Speaker 2: to uh have the Renminbi play a larger role in

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Speaker 2: um international finance, particularly um in order to um

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Speaker 2: you know, escape the clutches of the dollar based uh

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Speaker 2: global financial system. So I think China is trying to

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Speaker 2: put in place the elements of the technical infrastructure that

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Speaker 2: are necessary um to avoid um being subject to sanctions

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Speaker 2: of the u wherever uh

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Speaker 2: to use that as a threat against China. So it's

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Speaker 2: not quite there yet. But China is clearly um using

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Speaker 2: the Renminbi and using these various elements of the infrastructure,

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Speaker 2: including its own payment system and um connection with other

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Speaker 2: payment systems in order to move this forward

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Speaker 1: since you were in China very recently. Actually, I haven't

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Speaker 1: been there in three years. Uh I want you to

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Speaker 1: ask uh I, I would ask you a slightly broader question,

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Speaker 1: what was your sense on the sentiments? Because you know,

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Speaker 1: we sitting outside are largely reading a pretty negative narrative.

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Speaker 2: It depends on where the narrative uh is coming from.

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Speaker 2: I was quite struck by the difference in tone between

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Speaker 2: what I heard um from Beijing and from uh Shanghai

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Speaker 2: and Beijing. Of course, I was largely meeting with uh

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Speaker 2: um government um and um regulatory and financial officials um

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Speaker 2: in Shanghai had a lot more meetings with the private sector.

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Speaker 2: Um And this was a couple of uh um weeks

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Speaker 2: ago before the recent uh um uh um Politburo meetings

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Speaker 2: um where even the government seems to be expressing some

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Speaker 2: concern about the um um the momentum that the economic

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Speaker 2: um

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Speaker 2: um recovery has had in China. So in Beijing, I

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Speaker 2: got the sense that policymakers were a little more sanguine

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Speaker 2: that um they did not need to unleash huge amounts

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Speaker 2: of stimulus, that there was some amount of stimulus already

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Speaker 2: in the system. Um Some of it through easing of

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Speaker 2: constraints on local government borrowing um you know, reducing some

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Speaker 2: of the restrictions they put on the property sector, uh

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Speaker 2: some

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Speaker 2: similar that was already in train, what I heard from

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Speaker 2: Shanghai was a very different set of views. Um There

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Speaker 2: seemed to be concern among private sector participants from a

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Speaker 2: variety of sectors um that the government had not set

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Speaker 2: a clear direction of policies yet. And in particular, the

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Speaker 2: government's attitude towards the private sector was something that they

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Speaker 2: did not fully find credible

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Speaker 2: yet. Now, Beijing of course, has been trying to send

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Speaker 2: a lot of signals that after the private sector crackdown

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Speaker 2: um that took place in the late part of 2022

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Speaker 2: and early 2023 that in fact, the government does view

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Speaker 2: the private sector as playing a very important role in

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Speaker 2: the economy. Um That message does not quite seem to

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Speaker 2: have filtered through in a credible and durable

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Speaker 2: sense uh to the private sector. And we've seen that

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Speaker 2: um in the dismal um private sector investment growth that

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Speaker 2: we had in 2022 and the fact that it's not

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Speaker 2: really picked up yet, and it may also be feeding

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Speaker 2: into the lack of household confidence that we've seen in

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Speaker 2: very weak uh uh retail sales. So I think the

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Speaker 2: government has a pretty significant task uh on its hand,

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Speaker 2: both in terms of using

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Speaker 2: some mix of macroeconomic stimulus, perhaps um uh with a

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Speaker 2: little more weight on fiscal stimulus. Um but also trying

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Speaker 2: to send a clear signal um in some uh credible

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Speaker 2: way to the private sector that the government is um

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Speaker 2: going to ease some constraints and move. Um you know,

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Speaker 2: the entire policy making appetit us in a more positive direction.

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Speaker 1: Well, let, let's hope that, you know, we, we see

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Speaker 1: some concrete actions, I suppose in the part of your meetings,

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Speaker 1: we heard some words that were welcome from market sentiment perspective,

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Speaker 1: but in terms of actual action, whether it is debt

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Speaker 1: restructuring or additional fiscal support, um we're still waiting for

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Speaker 1: some concrete stuff. All right, if we uh time to

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Speaker 1: talk about your book,

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Speaker 1: um So this came out, I believe in 2021. But

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Speaker 1: most of the reviews I read are from 2022. Uh

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Speaker 1: And I highly recommend to the listeners of Kopi Time

365
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Speaker 1: to read this book, Future of Money. How the digital

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Speaker 1: revolution is transforming currencies and finance. Now, I will do

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Speaker 1: this in an unorthodox manner. I will first ask you

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Speaker 1: something that is not in the book. So there was

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Speaker 1: a reviewer who seemed a bit disappointed by one part

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Speaker 1: of your book. So the reviewer wrote and I quote,

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Speaker 1: reading through the book is unlikely to provide any insights

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Speaker 1: into how to value cryptocurrencies or how digital currencies such

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Speaker 1: as Bitcoin are likely to replace government issued money as

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Speaker 1: a store of value. I, why don't you take a

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Speaker 1: crack at these issues?

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Speaker 2: I was quite clear in the book that I cannot

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Speaker 2: value uh decentralized cryptocurrencies like Bitcoin because um

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Speaker 2: uh there is no clear valuation model in my mind

379
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Speaker 2: that you can apply to a decentralized Cryptocurrency. So, you know,

380
00:21:53,030 --> 00:21:57,150
Speaker 2: the um Bitcoin is a Marvel, um the fact that

381
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Speaker 2: um whoever the creator was and you know, having written

382
00:22:00,339 --> 00:22:02,770
Speaker 2: the book, I go to a lot of Cryptocurrency conferences

383
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Speaker 2: these days that I have so far shared the stage

384
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Speaker 2: with three people who've claimed to be

385
00:22:07,660 --> 00:22:09,879
Speaker 2: the real creator of Bitcoin. I don't know if any

386
00:22:09,890 --> 00:22:13,650
Speaker 2: of them really uh is. Um But you know, the

387
00:22:13,660 --> 00:22:16,839
Speaker 2: fact that um we have a technology that allows you

388
00:22:16,849 --> 00:22:21,660
Speaker 2: to undertake transactions um between parties who may not even

389
00:22:21,670 --> 00:22:24,229
Speaker 2: know who each other are. That is just using their

390
00:22:24,239 --> 00:22:28,550
Speaker 2: digital identities and without using a centralized trust mechanism. That

391
00:22:28,560 --> 00:22:29,609
Speaker 2: is remarkable. And

392
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Speaker 2: I think the technology is spawning some interesting developments in

393
00:22:33,030 --> 00:22:36,959
Speaker 2: decentralized finance. But the reality is that Bitcoin has not

394
00:22:36,969 --> 00:22:40,329
Speaker 2: functioned well in what it was supposed to be, which

395
00:22:40,339 --> 00:22:45,159
Speaker 2: is a um uh trust, less or decentralized trust based

396
00:22:45,239 --> 00:22:48,589
Speaker 2: um medium of exchange because it is very volatile value,

397
00:22:48,599 --> 00:22:51,609
Speaker 2: it's not very efficient as a medium of exchange.

398
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Speaker 2: So for something that does not have intrinsic value, um

399
00:22:56,280 --> 00:22:59,239
Speaker 2: and where the entire value proposition seems to be in

400
00:22:59,250 --> 00:23:02,520
Speaker 2: terms of its scarcity, um which is based on the

401
00:23:02,530 --> 00:23:05,179
Speaker 2: fact that ultimately, there are going to be only 21

402
00:23:05,189 --> 00:23:08,680
Speaker 2: million Bitcoins of which about 19 million have been created

403
00:23:08,689 --> 00:23:11,380
Speaker 2: so far. And the supply is created on a very

404
00:23:11,390 --> 00:23:15,738
Speaker 2: specific predetermined schedule that seems to give, you know,

405
00:23:15,816 --> 00:23:20,264
Speaker 2: um Bitcoin maximalist confidence that Bitcoin's value is going to

406
00:23:20,276 --> 00:23:23,625
Speaker 2: be preserved. But to me, just the fact that something

407
00:23:23,635 --> 00:23:27,984
Speaker 2: is scarce um does not necessarily make it valuable. So

408
00:23:27,994 --> 00:23:30,494
Speaker 2: I don't know what the valuation model is. And I'm

409
00:23:30,505 --> 00:23:33,566
Speaker 2: quite explicit about that. In my book, there are other

410
00:23:33,576 --> 00:23:38,166
Speaker 2: decentralized cryptocurrencies like Ethereum, which potentially have a lot more

411
00:23:38,176 --> 00:23:39,045
Speaker 2: functionality

412
00:23:39,121 --> 00:23:42,362
Speaker 2: because the Ethereum Blockchain uh does allow for a lot

413
00:23:42,371 --> 00:23:46,712
Speaker 2: of smart contracting functions. Um So these are again ways

414
00:23:46,722 --> 00:23:48,410
Speaker 2: in which we can, one can conduct a lot of

415
00:23:48,421 --> 00:23:55,041
Speaker 2: more complex financial transactions without using uh trusted third party intermediaries.

416
00:23:55,261 --> 00:24:00,171
Speaker 2: Um So for these other cryptocurrencies, I really don't see

417
00:24:00,182 --> 00:24:02,331
Speaker 2: um a clear valuation model.

418
00:24:02,810 --> 00:24:06,459
Speaker 2: Now, the interesting element of the Cryptocurrency ecosystem is that

419
00:24:06,469 --> 00:24:10,359
Speaker 2: there are some cryptocurrencies that have stable value that do

420
00:24:10,369 --> 00:24:13,540
Speaker 2: seem to be working quite well as mediums of exchange

421
00:24:13,550 --> 00:24:17,979
Speaker 2: for transactions both within countries, but also for cross-border payments.

422
00:24:17,989 --> 00:24:21,750
Speaker 2: These are of course the fiat currency backed stable coins

423
00:24:21,989 --> 00:24:26,349
Speaker 2: now fiat currency backed stable coins. Um you know, are

424
00:24:26,859 --> 00:24:31,119
Speaker 2: ironic in many ways, um the whole point of decentralized

425
00:24:31,130 --> 00:24:34,119
Speaker 2: cryptocurrencies like Bitcoin was to get away from the dependence

426
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Speaker 2: on fiat currencies. Stable coins get their stable value precisely

427
00:24:38,180 --> 00:24:42,489
Speaker 2: by being backed up by stores of fiat currencies. Bitcoin

428
00:24:42,500 --> 00:24:46,079
Speaker 2: was supposed to have a decentralized governance mechanism, a decentralized

429
00:24:46,089 --> 00:24:50,160
Speaker 2: trust mechanism, stable coins are issued by particular companies or

430
00:24:50,170 --> 00:24:52,119
Speaker 2: agencies which set the rules of

431
00:24:52,199 --> 00:24:54,250
Speaker 2: the game which you decide who gets to use those

432
00:24:54,260 --> 00:24:57,729
Speaker 2: stable coins which conduct the validation of all the transactions.

433
00:24:57,739 --> 00:25:01,929
Speaker 2: So they are largely centralized. Um So that part of

434
00:25:01,939 --> 00:25:05,640
Speaker 2: the uh ecosystem does seem to be working well. So

435
00:25:05,660 --> 00:25:11,270
Speaker 2: do I see decentralized cryptocurrencies as um you know, displacing

436
00:25:11,280 --> 00:25:15,310
Speaker 2: fiat currencies as store of value, not quite and stable

437
00:25:15,319 --> 00:25:17,589
Speaker 2: coins are getting their fundamental value

438
00:25:17,670 --> 00:25:20,829
Speaker 2: from being tapped by fiat currencies. So they too are

439
00:25:20,839 --> 00:25:26,219
Speaker 2: not displacing um fiat currencies. Uh really the important thing

440
00:25:26,229 --> 00:25:29,500
Speaker 2: about cryptocurrencies and I think their true legacy, other than

441
00:25:29,510 --> 00:25:33,020
Speaker 2: the Blockchain technology. Is that what they have shown us

442
00:25:33,030 --> 00:25:35,739
Speaker 2: is that there are lots of pain points, lots of

443
00:25:35,750 --> 00:25:39,819
Speaker 2: inefficiencies in the traditional financial system. Now, I know that

444
00:25:39,829 --> 00:25:42,739
Speaker 2: you will work for a traditional financial institution,

445
00:25:43,140 --> 00:25:45,829
Speaker 2: but certainly your institution seems to be far ahead of

446
00:25:45,839 --> 00:25:49,129
Speaker 2: many others in terms of taking these new technologies and

447
00:25:49,140 --> 00:25:52,909
Speaker 2: adopting them uh to decrease many of these pain points.

448
00:25:52,939 --> 00:25:56,069
Speaker 2: But I think the sense that traditional finance is not

449
00:25:56,079 --> 00:25:59,390
Speaker 2: working well in many respects is not working well for

450
00:25:59,400 --> 00:26:02,069
Speaker 2: a lot of people that I think is what sparked

451
00:26:02,079 --> 00:26:05,500
Speaker 2: the revolution. And certainly we are moving towards that now,

452
00:26:05,510 --> 00:26:08,430
Speaker 2: whether it will be the decentralized finance ecosystem

453
00:26:08,609 --> 00:26:13,920
Speaker 2: or traditional financial institutions, co-opting these technologies uh in order

454
00:26:13,930 --> 00:26:16,149
Speaker 2: to catalyze changes is a little hard to read at

455
00:26:16,160 --> 00:26:18,869
Speaker 2: this moment. Uh But I think they are moving towards

456
00:26:18,880 --> 00:26:22,910
Speaker 2: a somewhat better financial future and that may or may

457
00:26:22,920 --> 00:26:26,250
Speaker 2: not have a place for decentralized cryptocurrencies. But I'm very

458
00:26:26,260 --> 00:26:29,280
Speaker 2: grateful for the Bitcoin revolution because I think it has

459
00:26:29,290 --> 00:26:34,000
Speaker 2: pointed the way to a lot of uh much needed changes.

460
00:26:34,689 --> 00:26:37,459
Speaker 1: Absolutely right. Uh I, but I want you to weigh

461
00:26:37,469 --> 00:26:41,369
Speaker 1: in on the dramatic developments we saw around the private

462
00:26:41,380 --> 00:26:44,188
Speaker 1: digital currency ecosystem last year, you know, all sorts of

463
00:26:44,199 --> 00:26:49,439
Speaker 1: governance related issues came out massive price volatility. Um Is

464
00:26:49,449 --> 00:26:53,199
Speaker 1: this just one of those things that happens with new technology?

465
00:26:53,209 --> 00:26:56,209
Speaker 1: You know, some people take advantage or is it revealing

466
00:26:56,219 --> 00:27:00,520
Speaker 1: that in a purely digital infrastructure, there are inherent

467
00:27:00,849 --> 00:27:05,300
Speaker 1: opacities or cybersecurity risks that we haven't fully addressed and

468
00:27:05,310 --> 00:27:08,060
Speaker 1: therefore can't really trust the system very well.

469
00:27:09,209 --> 00:27:12,280
Speaker 2: There was this notion that because of its scarcity, something

470
00:27:12,290 --> 00:27:15,780
Speaker 2: like Bitcoin might even service in inflation hedge. Now, it

471
00:27:15,790 --> 00:27:18,698
Speaker 2: turns out based on what we've seen over the last

472
00:27:18,709 --> 00:27:19,099
Speaker 2: uh um

473
00:27:19,329 --> 00:27:23,339
Speaker 2: um few years and admittedly Bitcoin is a relatively short history.

474
00:27:23,349 --> 00:27:26,979
Speaker 2: Um but it's had significant traction. Um You know, it

475
00:27:26,989 --> 00:27:30,579
Speaker 2: turns out that Bitcoin basically behaves like a risky asset.

476
00:27:30,589 --> 00:27:35,050
Speaker 2: And because there is no clear valuation model, um underpinning

477
00:27:35,060 --> 00:27:38,119
Speaker 2: its value, it turns out to be a highly volatile

478
00:27:38,130 --> 00:27:41,619
Speaker 2: risky asset which is buffeted by the sort of macro

479
00:27:41,719 --> 00:27:45,729
Speaker 2: economic factors including monetary policy factors and that seem to

480
00:27:45,739 --> 00:27:50,599
Speaker 2: drive other um similar um risky assets. So I think

481
00:27:50,609 --> 00:27:53,619
Speaker 2: the lack of the valuation model is leading to these

482
00:27:53,630 --> 00:27:58,709
Speaker 2: huge amounts of volatility. Now, certainly we've seen a very

483
00:27:58,719 --> 00:28:03,119
Speaker 2: drastic fall in the overall market capitalization. Um If one

484
00:28:03,130 --> 00:28:03,969
Speaker 2: might use that term

485
00:28:04,109 --> 00:28:07,569
Speaker 2: somewhat guarded way for the uh market value of all

486
00:28:07,579 --> 00:28:11,339
Speaker 2: these crypto assets taken together, which um at its height

487
00:28:11,550 --> 00:28:15,420
Speaker 2: um towards the middle of 2022 was roughly $3 trillion.

488
00:28:15,430 --> 00:28:18,160
Speaker 2: It's about one trillion right now. So that seems like

489
00:28:18,170 --> 00:28:20,688
Speaker 2: a very big fall. But, you know, one trillion is

490
00:28:20,699 --> 00:28:23,920
Speaker 2: still a pretty sizable chunk of money. So lots of

491
00:28:23,930 --> 00:28:26,489
Speaker 2: people still seem to have their faith in the system.

492
00:28:26,859 --> 00:28:29,750
Speaker 2: Um But the interesting thing that has been revealed, I

493
00:28:29,760 --> 00:28:31,280
Speaker 2: think over the last year

494
00:28:31,800 --> 00:28:36,310
Speaker 2: is this notion of decentralization um really has given way

495
00:28:36,319 --> 00:28:39,670
Speaker 2: to a great deal of centralization if you think about

496
00:28:39,680 --> 00:28:43,469
Speaker 2: FTX coin base and so on. Um these are very

497
00:28:43,479 --> 00:28:47,229
Speaker 2: centralized um players where uh you know, you're getting the

498
00:28:47,239 --> 00:28:51,150
Speaker 2: custody as well as trading of assets, which don't necessarily

499
00:28:51,160 --> 00:28:54,880
Speaker 2: need to take place in centralized exchanges. Actually all migrating

500
00:28:54,890 --> 00:28:56,709
Speaker 2: onto these centralized exchanges,

501
00:28:56,963 --> 00:29:00,912
Speaker 2: partly because they're convenient, but partly also because users seem

502
00:29:00,922 --> 00:29:03,942
Speaker 2: to really want to have an institution that they can

503
00:29:03,953 --> 00:29:06,661
Speaker 2: rely upon. So the need for some sort of trust

504
00:29:06,672 --> 00:29:10,373
Speaker 2: mechanism doesn't seem to have gone away completely. Um If

505
00:29:10,383 --> 00:29:12,692
Speaker 2: you look at even something like Bitcoin, you know, the

506
00:29:12,703 --> 00:29:16,723
Speaker 2: validation is undertaken in principle by mining nodes that are

507
00:29:16,733 --> 00:29:19,133
Speaker 2: distributed around the world. But in fact,

508
00:29:19,326 --> 00:29:24,865
Speaker 2: about 6 to 8 clusters of computers um um essentially

509
00:29:24,875 --> 00:29:29,985
Speaker 2: mining pools control much of the hash rate. Um that

510
00:29:29,995 --> 00:29:33,326
Speaker 2: is the computing power that powers the Bitcoin network. So

511
00:29:33,336 --> 00:29:37,176
Speaker 2: even with Bitcoin, you see a lot of centralization and

512
00:29:37,186 --> 00:29:41,576
Speaker 2: as I mentioned, stable coins are all very centralized. So unfortunately,

513
00:29:42,020 --> 00:29:45,829
Speaker 2: many of the promises of decentralized finance that we will

514
00:29:45,839 --> 00:29:50,150
Speaker 2: have a decentralized architecture that creates more robust uh financial

515
00:29:50,160 --> 00:29:54,050
Speaker 2: systems that allow. So the democratization of finance by giving

516
00:29:54,060 --> 00:29:59,449
Speaker 2: anybody easy open permission, less access to financial products and

517
00:29:59,459 --> 00:30:03,609
Speaker 2: services allows developers to very easily provide these products and

518
00:30:03,619 --> 00:30:04,510
Speaker 2: services

519
00:30:04,744 --> 00:30:08,344
Speaker 2: at scale at very low cost those promises have not

520
00:30:08,354 --> 00:30:13,805
Speaker 2: been realized yet. Instead, we've seen many of the fragilities

521
00:30:13,814 --> 00:30:18,415
Speaker 2: of traditional finance essentially being imported into what was meant

522
00:30:18,425 --> 00:30:21,785
Speaker 2: to be decentralized finance. We've seen a lot of speculative

523
00:30:21,795 --> 00:30:26,535
Speaker 2: activity in financial engineering taking place in this ecosystem and

524
00:30:26,545 --> 00:30:27,165
Speaker 2: a lot of

525
00:30:27,390 --> 00:30:29,849
Speaker 2: investors who may not be fully aware of the risks

526
00:30:29,859 --> 00:30:33,770
Speaker 2: that they're taking on uh being exposed to very significant risk. So,

527
00:30:33,780 --> 00:30:37,290
Speaker 2: investor protection in that part of the ecosystem has taken

528
00:30:37,300 --> 00:30:41,119
Speaker 2: a hit as well. So unfortunately, at this stage, all

529
00:30:41,130 --> 00:30:45,119
Speaker 2: the wonderful promises of decentralized finance have not borne out.

530
00:30:45,130 --> 00:30:49,400
Speaker 2: I still think that there is promise in this technology,

531
00:30:49,410 --> 00:30:50,020
Speaker 2: but

532
00:30:50,084 --> 00:30:53,305
Speaker 2: um it's going to have to require some regulatory guard

533
00:30:53,314 --> 00:30:56,314
Speaker 2: rails that limit some of these risks both in terms

534
00:30:56,324 --> 00:31:00,405
Speaker 2: of risk to retail investors spillovers to the traditional financial system.

535
00:31:00,734 --> 00:31:04,364
Speaker 2: Um And uh finding a way to get a regulatory

536
00:31:04,375 --> 00:31:09,564
Speaker 2: framework that allows for innovation without completely stifling this ecosystem

537
00:31:09,655 --> 00:31:12,655
Speaker 2: is going to be a tough balance for regulators to strike.

538
00:31:13,280 --> 00:31:14,119
Speaker 2: I want to stay on the

539
00:31:14,130 --> 00:31:17,810
Speaker 1: regulatory issue a little bit because we've seen a few

540
00:31:18,000 --> 00:31:21,689
Speaker 1: actions by us regulators in the past year, uh cracking

541
00:31:21,699 --> 00:31:23,530
Speaker 1: down on exchanges and

542
00:31:23,790 --> 00:31:27,949
Speaker 1: suing the very large exchanges um for um malfeasance. And

543
00:31:27,959 --> 00:31:32,819
Speaker 1: also we've seen some rulings about what is a Cryptocurrency?

544
00:31:32,829 --> 00:31:36,079
Speaker 1: Is it a security? Is it a currency? Uh are

545
00:31:36,089 --> 00:31:37,739
Speaker 1: the US regulators? And let's just talk with the US

546
00:31:37,750 --> 00:31:41,160
Speaker 1: regulators in this context? Are they doing a good job

547
00:31:41,170 --> 00:31:46,280
Speaker 1: in getting investors incentive, the regular publics incentive and the

548
00:31:46,290 --> 00:31:49,260
Speaker 1: need to sort of promote innovation. Are they getting that? Right.

549
00:31:50,900 --> 00:31:53,880
Speaker 2: So, from a regulator's point of view, I think um

550
00:31:53,890 --> 00:31:57,829
Speaker 2: one needs to take an enlightened approach to this um

551
00:31:58,030 --> 00:32:02,130
Speaker 2: how to um get the benefits of these innovations um

552
00:32:02,140 --> 00:32:06,770
Speaker 2: without um you know, impeding the traditional functions of a regulator,

553
00:32:06,780 --> 00:32:11,000
Speaker 2: which is um trying to minimize um institution of product

554
00:32:11,010 --> 00:32:15,989
Speaker 2: specific risk as well as systemic financial stability risks. Um

555
00:32:16,000 --> 00:32:17,810
Speaker 2: trying to maintain integrity

556
00:32:17,894 --> 00:32:22,413
Speaker 2: of payment and financial systems and uh maintaining investor protection.

557
00:32:22,634 --> 00:32:26,213
Speaker 2: Um And I think um regulators in the US um

558
00:32:26,223 --> 00:32:30,394
Speaker 2: are rightly asking the following question, which I think is

559
00:32:30,404 --> 00:32:33,423
Speaker 2: very important in many of these issues, which is um

560
00:32:33,703 --> 00:32:36,953
Speaker 2: are there alternative ways to get many of the benefits

561
00:32:36,963 --> 00:32:40,193
Speaker 2: which crypto technology says that it will deliver to us?

562
00:32:40,203 --> 00:32:43,864
Speaker 2: So the US has put in place for instance, um

563
00:32:43,874 --> 00:32:44,784
Speaker 2: fed now,

564
00:32:44,887 --> 00:32:47,968
Speaker 2: which is this um suite of retail and wholesale payment

565
00:32:47,978 --> 00:32:51,078
Speaker 2: services that are supposed to make the US payment system,

566
00:32:51,088 --> 00:32:55,458
Speaker 2: which um until recently has been very antiquated to move

567
00:32:55,468 --> 00:32:59,118
Speaker 2: it into a more efficient realm. So, in that circumstance,

568
00:32:59,128 --> 00:33:02,797
Speaker 2: do you really need, for instance, stable coins which in principle,

569
00:33:02,807 --> 00:33:07,637
Speaker 2: take fiat currencies, um convert them into tokenized form and

570
00:33:07,647 --> 00:33:09,907
Speaker 2: allow them to be used more efficiently. Do you really

571
00:33:09,917 --> 00:33:11,777
Speaker 2: need that? Um And

572
00:33:11,881 --> 00:33:15,371
Speaker 2: then if you think about this promise of democratizing finance,

573
00:33:15,381 --> 00:33:19,131
Speaker 2: are we really getting the benefits of democratizing finance without

574
00:33:19,141 --> 00:33:23,161
Speaker 2: just creating grounds for um you know, uh promoters of

575
00:33:23,171 --> 00:33:26,771
Speaker 2: uh a variety of crypto products to take advantage of

576
00:33:26,781 --> 00:33:30,112
Speaker 2: uh um uninformed retail investors. Um So I think regulators

577
00:33:30,121 --> 00:33:33,891
Speaker 2: are asking the right questions, but there is a risk

578
00:33:33,901 --> 00:33:37,092
Speaker 2: that they face that if you put up regulatory barriers,

579
00:33:37,102 --> 00:33:38,771
Speaker 2: um that could make the system a lot safe.

580
00:33:39,436 --> 00:33:42,645
Speaker 2: But you limit innovation and in particular, you sort of

581
00:33:42,656 --> 00:33:47,166
Speaker 2: foster centralization because regulations are good in terms of keeping

582
00:33:47,176 --> 00:33:50,556
Speaker 2: things safe. But they are essentially also act as barriers

583
00:33:50,566 --> 00:33:53,956
Speaker 2: to entry. And one of the promises of this decentralized

584
00:33:53,965 --> 00:33:57,316
Speaker 2: finance space is that you could have much easier entry.

585
00:33:57,385 --> 00:34:00,576
Speaker 2: Um So we might end up with even more centralization,

586
00:34:00,586 --> 00:34:03,926
Speaker 2: which again breeds a whole new set of risks. Now,

587
00:34:03,936 --> 00:34:05,765
Speaker 2: having said all this, um

588
00:34:06,300 --> 00:34:10,069
Speaker 2: I think it's a very difficult task for um regulators

589
00:34:10,080 --> 00:34:13,250
Speaker 2: because even enlightened regulators, and there are many of them

590
00:34:13,260 --> 00:34:17,169
Speaker 2: here in Washington, despite what the crypto industry might uh

591
00:34:17,179 --> 00:34:22,750
Speaker 2: might uh might suggest. Um but they understand also that

592
00:34:22,760 --> 00:34:26,169
Speaker 2: the crypto industry doesn't seem to be delivering all the

593
00:34:26,179 --> 00:34:28,810
Speaker 2: promise that it suggested um it would

594
00:34:28,879 --> 00:34:32,359
Speaker 2: uh deliver in terms of benefits to customers, businesses and

595
00:34:32,370 --> 00:34:34,658
Speaker 2: so on. And then even if you take something like

596
00:34:34,669 --> 00:34:38,239
Speaker 2: stable coins, which have certainly shown a lot of lacking

597
00:34:38,250 --> 00:34:41,159
Speaker 2: in the existing payment systems, the risk that you could

598
00:34:41,169 --> 00:34:44,069
Speaker 2: have a redemption run on stable coins where they end

599
00:34:44,080 --> 00:34:47,250
Speaker 2: up having to liquidate a large number of Treasury securities

600
00:34:47,260 --> 00:34:50,360
Speaker 2: which ends up roiling the Treasury securities market is a

601
00:34:50,370 --> 00:34:51,389
Speaker 2: real concern.

602
00:34:51,590 --> 00:34:53,790
Speaker 2: So from a regulatory perspective, I think we are in

603
00:34:53,800 --> 00:34:59,040
Speaker 2: a very uncertain phase right now. Um The Cryptocurrency industry

604
00:34:59,050 --> 00:35:02,830
Speaker 2: says it is clamoring for regulation because it wants the

605
00:35:02,840 --> 00:35:06,100
Speaker 2: regulatory guidelines. But I think what they really want is

606
00:35:06,110 --> 00:35:10,040
Speaker 2: the legitimacy of regulation with very light touch regulation. And

607
00:35:10,050 --> 00:35:13,509
Speaker 2: I think regulators are rightly concerned about arriving in that

608
00:35:13,520 --> 00:35:17,659
Speaker 2: halfway point, which could actually be very destructive. Um So

609
00:35:17,770 --> 00:35:17,939
Speaker 2: at the

610
00:35:18,040 --> 00:35:21,330
Speaker 2: moment, I think we have a mishmash of regulations which

611
00:35:21,340 --> 00:35:24,610
Speaker 2: are really creating a lot more uncertainty. You referred to

612
00:35:24,620 --> 00:35:28,629
Speaker 2: this issue about the definition of crypto assets. The latest

613
00:35:28,639 --> 00:35:33,729
Speaker 2: ruling against ripple, um which was partly in favor of ripple,

614
00:35:33,739 --> 00:35:36,379
Speaker 2: which was partly not in favor of ripple as I

615
00:35:36,389 --> 00:35:40,529
Speaker 2: think created even more cons uh confusion because basically what

616
00:35:40,540 --> 00:35:44,389
Speaker 2: the judge said is that the native tokens issued by this,

617
00:35:44,580 --> 00:35:48,989
Speaker 2: a Cryptocurrency called uh Ripper, if they are sold to

618
00:35:49,000 --> 00:35:53,810
Speaker 2: uh institutional investors, those do count as securities. Um but

619
00:35:53,820 --> 00:35:56,969
Speaker 2: if they are sold on open exchanges to retail investors,

620
00:35:57,000 --> 00:36:00,300
Speaker 2: they are not. So uh we have even less clarity

621
00:36:00,310 --> 00:36:04,149
Speaker 2: right now on what exactly a crypto crypto asset uh

622
00:36:04,169 --> 00:36:07,399
Speaker 2: should be defined as and therefore how it should be regulated.

623
00:36:07,409 --> 00:36:09,899
Speaker 2: So I think at a minimum, some clarity is going

624
00:36:09,909 --> 00:36:10,820
Speaker 2: to be essential,

625
00:36:11,149 --> 00:36:12,310
Speaker 2: right? It was like

626
00:36:12,320 --> 00:36:14,319
Speaker 1: a crypto quantum moment. It can be both at the

627
00:36:14,330 --> 00:36:17,520
Speaker 1: same time depending on who's holding it. Um If were

628
00:36:17,530 --> 00:36:20,040
Speaker 1: a large part of your book, uh you do this

629
00:36:20,050 --> 00:36:23,280
Speaker 1: masterful job of chronicling the wave of innovations we have

630
00:36:23,290 --> 00:36:25,929
Speaker 1: seen in the financial technology area, not just in the

631
00:36:25,939 --> 00:36:29,290
Speaker 1: last few years, but over a much longer period of time.

632
00:36:29,500 --> 00:36:33,899
Speaker 1: Um from your perspective, which innovation has been the most

633
00:36:33,909 --> 00:36:36,239
Speaker 1: consequential and transformative.

634
00:36:39,659 --> 00:36:43,010
Speaker 2: You know, that is a tough question to answer because

635
00:36:43,020 --> 00:36:46,158
Speaker 2: if you think about new technologies, I think the Blockchain

636
00:36:46,169 --> 00:36:49,189
Speaker 2: technology has certainly um um

637
00:36:49,979 --> 00:36:53,810
Speaker 2: it has transformative potential. I don't think it's quite there yet.

638
00:36:53,820 --> 00:36:55,969
Speaker 2: But you know, if you think about transformation in a

639
00:36:55,979 --> 00:37:00,639
Speaker 2: different sense, uh transforming the lives of ordinary people, there

640
00:37:00,649 --> 00:37:04,709
Speaker 2: are very basic technologies that go on the rubric of fintech,

641
00:37:04,719 --> 00:37:07,560
Speaker 2: you know, mobile payments, for instance, which have really made

642
00:37:07,570 --> 00:37:12,100
Speaker 2: a dramatic difference um to the lives of uh um

643
00:37:12,110 --> 00:37:13,169
Speaker 2: you know, consumer,

644
00:37:13,754 --> 00:37:18,995
Speaker 2: um small businesses, merchants in many um low income economies

645
00:37:19,004 --> 00:37:22,395
Speaker 2: which had very underdeveloped financial systems to begin with. So

646
00:37:22,405 --> 00:37:25,725
Speaker 2: if you think about something very basic like mobile money,

647
00:37:25,814 --> 00:37:29,094
Speaker 2: um and how that has made a huge difference um

648
00:37:29,395 --> 00:37:33,594
Speaker 2: in um uh low to um lower middle income um

649
00:37:33,604 --> 00:37:36,415
Speaker 2: economies in Africa and Asia and so on.

650
00:37:36,649 --> 00:37:40,260
Speaker 2: Um those I think are transformative in a very different way.

651
00:37:40,270 --> 00:37:43,010
Speaker 2: So uh I mentioned being in China, you know, uh

652
00:37:43,020 --> 00:37:45,419
Speaker 2: on my trip, I literally felt like I was the

653
00:37:45,429 --> 00:37:49,360
Speaker 2: last person in China still um using uh cash. I

654
00:37:49,370 --> 00:37:52,139
Speaker 2: tried to pay for some of my camp rides using

655
00:37:52,149 --> 00:37:55,419
Speaker 2: cash and I was stunned uh first that I would

656
00:37:55,429 --> 00:37:57,859
Speaker 2: pull out a ¥50 note and of course, didn't have

657
00:37:57,870 --> 00:38:01,530
Speaker 2: any change to um uh to give me. Um So

658
00:38:01,540 --> 00:38:03,959
Speaker 2: the fact that you have these digital payments um

659
00:38:04,310 --> 00:38:09,199
Speaker 2: available at low cost um uh with easy access with

660
00:38:09,209 --> 00:38:11,620
Speaker 2: a great deal of efficiency that I think is much

661
00:38:11,629 --> 00:38:15,060
Speaker 2: more transformative Again, not just in terms of digital payments,

662
00:38:15,070 --> 00:38:18,419
Speaker 2: but also serving as a porter uh for basic banking

663
00:38:18,429 --> 00:38:19,939
Speaker 2: products and services.

664
00:38:20,719 --> 00:38:23,010
Speaker 1: Uh It short to your point on China, I mean,

665
00:38:23,020 --> 00:38:25,330
Speaker 1: I have had a hard time using credit cards there.

666
00:38:25,340 --> 00:38:27,379
Speaker 1: And initially, my view was this was a platform of

667
00:38:27,389 --> 00:38:30,089
Speaker 1: a barrier to entry by the Chinese authorities. But it

668
00:38:30,100 --> 00:38:32,319
Speaker 1: turns out that because the Chinese modes of payment are

669
00:38:32,330 --> 00:38:36,879
Speaker 1: so cheap, vendors have no interest in being charged 2% 2.5%

670
00:38:36,889 --> 00:38:39,529
Speaker 1: by Visa or mastercard. And that's why they don't accept them.

671
00:38:39,780 --> 00:38:43,120
Speaker 1: Um So, so to me, uh my bias was that

672
00:38:43,129 --> 00:38:45,000
Speaker 1: perhaps this was some sort of a barrier to entry,

673
00:38:45,010 --> 00:38:47,030
Speaker 1: but actually turns out that it's the vendors who don't

674
00:38:47,040 --> 00:38:49,859
Speaker 1: carry those credit cards. And I also felt like you

675
00:38:49,870 --> 00:38:52,489
Speaker 1: and I was actually trying to use a card. Um

676
00:38:52,500 --> 00:38:56,709
Speaker 1: uh If we're in the world of CBD CS, uh

677
00:38:56,719 --> 00:39:00,489
Speaker 1: you again, you know, have been writing about this for

678
00:39:00,500 --> 00:39:03,229
Speaker 1: a while. Of course, the book does a great job

679
00:39:03,239 --> 00:39:05,610
Speaker 1: at that as well. So I have a few questions

680
00:39:05,620 --> 00:39:07,389
Speaker 1: in the areas of CBD CS. But let me ask

681
00:39:07,399 --> 00:39:09,090
Speaker 1: you first, like uh

682
00:39:09,389 --> 00:39:12,669
Speaker 1: 36,000 ft question. Uh where will we end up with

683
00:39:12,679 --> 00:39:15,520
Speaker 1: CBD CS by the time this decade is over?

684
00:39:17,080 --> 00:39:21,060
Speaker 2: So retail CBD CS uh um and let's stick to

685
00:39:21,070 --> 00:39:24,049
Speaker 2: that uh uh for the moment. Um So retail C

686
00:39:24,060 --> 00:39:28,149
Speaker 2: BT CS would essentially be the digital equivalent um of

687
00:39:28,159 --> 00:39:31,439
Speaker 2: uh physical currency, the bank notes and coins that at

688
00:39:31,449 --> 00:39:35,199
Speaker 2: least some of us uh still use and love. Um

689
00:39:35,459 --> 00:39:39,050
Speaker 2: The um advent of retail C BT C si think

690
00:39:39,060 --> 00:39:41,149
Speaker 2: is an inevitability because um

691
00:39:41,439 --> 00:39:44,929
Speaker 2: um cash is disappearing very fast in some economies like

692
00:39:44,939 --> 00:39:50,120
Speaker 2: China and Sweden. Um it's already practically non-existent. And if

693
00:39:50,129 --> 00:39:54,780
Speaker 2: you think about the convenience of um digital payments for

694
00:39:54,790 --> 00:39:58,860
Speaker 2: um businesses, consumers for governments, um the advantages that it

695
00:39:58,870 --> 00:40:02,330
Speaker 2: has in pulling economic activity out of the shadows. Um

696
00:40:02,340 --> 00:40:06,159
Speaker 2: The advantages are very clear. So uh I think we're

697
00:40:06,169 --> 00:40:09,530
Speaker 2: going to get a shift towards digital currencies by any

698
00:40:09,540 --> 00:40:10,270
Speaker 2: central bank

699
00:40:10,479 --> 00:40:14,070
Speaker 2: that wants to keep its money relevant for retail transactions.

700
00:40:14,290 --> 00:40:17,350
Speaker 2: There is a broader question about whether you need central

701
00:40:17,360 --> 00:40:20,669
Speaker 2: bank money at all for retail transactions because central banks,

702
00:40:20,719 --> 00:40:23,389
Speaker 2: you know, can do their job of managing monetary policy

703
00:40:23,399 --> 00:40:27,928
Speaker 2: perfectly well, even if they were not issuing um currency

704
00:40:27,939 --> 00:40:30,979
Speaker 2: either in digital or physical form. Uh And if the

705
00:40:30,989 --> 00:40:33,770
Speaker 2: private sector is doing a good job of providing digital payments.

706
00:40:33,780 --> 00:40:36,448
Speaker 2: Maybe you don't even need a retail CBD C. So

707
00:40:36,459 --> 00:40:39,689
Speaker 2: why are central banks continuing with this? The um

708
00:40:40,040 --> 00:40:42,850
Speaker 2: reason seem to be manifold in some countries. The idea

709
00:40:42,860 --> 00:40:45,870
Speaker 2: is to give um you know, everyone who wants it

710
00:40:45,879 --> 00:40:48,370
Speaker 2: easy access to a digital payment system no matter what

711
00:40:48,379 --> 00:40:51,889
Speaker 2: your income or net worth. Another idea is to provide

712
00:40:51,899 --> 00:40:55,909
Speaker 2: um a backstop uh to a purely private payments uh

713
00:40:55,919 --> 00:41:00,259
Speaker 2: um uh infrastructure and the third is to ensure some

714
00:41:00,270 --> 00:41:03,270
Speaker 2: payment innovation. Uh So, for instance, um

715
00:41:03,610 --> 00:41:06,590
Speaker 2: both uh uh China, India and other countries that are

716
00:41:06,600 --> 00:41:11,010
Speaker 2: expanding CBD CS talk about CBD CS being interoperable. So

717
00:41:11,020 --> 00:41:13,939
Speaker 2: if you take China, for instance, Alipay and wechat pay

718
00:41:13,949 --> 00:41:17,939
Speaker 2: work very well, but they are not um uh mutually compatible.

719
00:41:17,949 --> 00:41:21,620
Speaker 2: So they don't have interoperability. So digital um or digital

720
00:41:21,629 --> 00:41:25,729
Speaker 2: yuan uh could you know, set up this interoperability? But,

721
00:41:25,739 --> 00:41:26,000
Speaker 2: you know,

722
00:41:26,159 --> 00:41:29,610
Speaker 2: I handed in the manuscript for my book in early 2021.

723
00:41:29,620 --> 00:41:32,830
Speaker 2: The book eventually came out, as you said in late 2021.

724
00:41:32,939 --> 00:41:35,679
Speaker 2: I was much more positive about CBD CS. But I

725
00:41:35,689 --> 00:41:40,179
Speaker 2: look around the world right now, I see much less

726
00:41:40,189 --> 00:41:43,629
Speaker 2: um strong a case in terms of the value proposition

727
00:41:43,639 --> 00:41:47,089
Speaker 2: for users. Uh take China again, Alipay and wechat pay

728
00:41:47,100 --> 00:41:48,629
Speaker 2: are working perfectly well.

729
00:41:48,850 --> 00:41:52,290
Speaker 2: Um The question is why does China need a digital

730
00:41:52,300 --> 00:41:55,879
Speaker 2: um yuan uh India is going to face the same issue.

731
00:41:55,889 --> 00:42:00,109
Speaker 2: Sweden undertook extensive CBD C trials. But the parliamentary committee

732
00:42:00,120 --> 00:42:01,939
Speaker 2: that was set up by the, but they were set

733
00:42:01,949 --> 00:42:04,040
Speaker 2: up by the government to evaluate the need

734
00:42:04,120 --> 00:42:07,580
Speaker 2: for a digital corner, basically decided that Sweden doesn't really

735
00:42:07,590 --> 00:42:11,149
Speaker 2: need a digital corner. Um Right now, so what are

736
00:42:11,159 --> 00:42:13,330
Speaker 2: central banks doing in order to make sure that the

737
00:42:13,340 --> 00:42:18,100
Speaker 2: retail CBD CS might still be um useful to um

738
00:42:18,110 --> 00:42:19,310
Speaker 2: to the end users

739
00:42:20,229 --> 00:42:23,840
Speaker 2: interoperability is one thing that might give CBD CS a

740
00:42:23,850 --> 00:42:27,020
Speaker 2: bit of an edge of the margin. But then many

741
00:42:27,030 --> 00:42:30,800
Speaker 2: central banks that I've spoken to recently talk about using

742
00:42:30,810 --> 00:42:34,780
Speaker 2: the programmable features of money. And these are very exciting

743
00:42:34,810 --> 00:42:37,219
Speaker 2: from the point of view of economic policies.

744
00:42:37,300 --> 00:42:40,729
Speaker 2: So if you could actually um provide, you know, uh

745
00:42:40,739 --> 00:42:44,389
Speaker 2: units of money which have expiry dates, you know, if

746
00:42:44,399 --> 00:42:46,830
Speaker 2: uh you have a period of extreme economic distress or

747
00:42:46,840 --> 00:42:50,500
Speaker 2: even a garden variety recession, giving people money with expiry

748
00:42:50,510 --> 00:42:53,360
Speaker 2: dates would incentivize them to spend that money rather than

749
00:42:53,370 --> 00:42:54,290
Speaker 2: save that money.

750
00:42:54,540 --> 00:42:59,110
Speaker 2: Um You could imagine um helicopter drops of money which

751
00:42:59,120 --> 00:43:02,300
Speaker 2: um you know, the economists fantasize about where basically you

752
00:43:02,310 --> 00:43:05,429
Speaker 2: give everybody in an economy uh in a lump sum fashion,

753
00:43:05,439 --> 00:43:08,350
Speaker 2: a certain amount of money to stimulate economic activity. These

754
00:43:08,360 --> 00:43:13,209
Speaker 2: are all very powerful tools, but I've grown increasingly concerned

755
00:43:13,409 --> 00:43:17,389
Speaker 2: that if all of these programmable features are put in place,

756
00:43:17,399 --> 00:43:19,189
Speaker 2: you might actually start affecting

757
00:43:19,639 --> 00:43:23,590
Speaker 2: the integrity of central banks and the very credibility and

758
00:43:23,600 --> 00:43:26,810
Speaker 2: legitimacy of central banks central banks around the world are

759
00:43:26,820 --> 00:43:29,989
Speaker 2: already under a lot of pressure. They have to manage

760
00:43:30,020 --> 00:43:33,580
Speaker 2: exchange rates in some countries. They have to manage monetary policy,

761
00:43:33,590 --> 00:43:37,819
Speaker 2: financial stability, maintaining economic activity. So they have a huge

762
00:43:37,830 --> 00:43:39,479
Speaker 2: amount of political pressure on them.

763
00:43:39,820 --> 00:43:43,310
Speaker 2: Now, what if a central bank starts being seen as

764
00:43:43,320 --> 00:43:47,129
Speaker 2: the agent of the government in terms of undertaking surveillance?

765
00:43:47,139 --> 00:43:50,469
Speaker 2: Um either broadly speaking or to make sure that the

766
00:43:50,479 --> 00:43:54,729
Speaker 2: digital money is issued is not falling afoul of government regulations.

767
00:43:55,060 --> 00:43:58,139
Speaker 2: Second, if you start seeing the central bank as a

768
00:43:58,149 --> 00:44:01,879
Speaker 2: tool of the government, in terms of implementing fiscal policy,

769
00:44:01,889 --> 00:44:05,100
Speaker 2: as I mentioned with these uh um helicopter drops of

770
00:44:05,110 --> 00:44:07,899
Speaker 2: money and so on, then the central bank could become

771
00:44:07,909 --> 00:44:09,760
Speaker 2: subject to a lot more pressure

772
00:44:10,689 --> 00:44:12,560
Speaker 2: and then think about a world in which we have

773
00:44:12,570 --> 00:44:15,739
Speaker 2: some units of central bank money that aren't just like cash,

774
00:44:15,750 --> 00:44:18,340
Speaker 2: they have paid zero interest, they have no expiry dates,

775
00:44:18,350 --> 00:44:21,360
Speaker 2: other units of central bank money that have expiry dates

776
00:44:21,370 --> 00:44:25,330
Speaker 2: or potentially have negative nominal interest rates. Now you could

777
00:44:25,340 --> 00:44:29,580
Speaker 2: imagine secondary markets where you might want to give away

778
00:44:29,590 --> 00:44:32,500
Speaker 2: your units of uh uh money with the expiry dates

779
00:44:32,580 --> 00:44:34,340
Speaker 2: um because you don't want to spend it, you want

780
00:44:34,350 --> 00:44:35,040
Speaker 2: to save it. So

781
00:44:35,143 --> 00:44:38,212
Speaker 2: we have secondary markets with different units of central bank

782
00:44:38,222 --> 00:44:42,872
Speaker 2: money trading at different prices. I really worry that this

783
00:44:42,883 --> 00:44:46,572
Speaker 2: could all affect the integrity of central bank money and

784
00:44:46,583 --> 00:44:50,002
Speaker 2: of central banks. Now this seems a little dystopian at

785
00:44:50,012 --> 00:44:53,732
Speaker 2: one level. But, you know, technology has taken us from

786
00:44:53,742 --> 00:44:58,292
Speaker 2: what seemed like very promising outcomes to some very dark places.

787
00:44:58,302 --> 00:44:59,113
Speaker 2: So I've gotten

788
00:44:59,594 --> 00:45:02,736
Speaker 2: concerned a little bit about CBD CS and the notion

789
00:45:02,885 --> 00:45:05,565
Speaker 2: that you could start using them as instruments of economic

790
00:45:05,575 --> 00:45:10,185
Speaker 2: policy or potentially even social policy, you know, allowing CBD

791
00:45:10,196 --> 00:45:13,145
Speaker 2: CS to be used for certain purchases and not for

792
00:45:13,156 --> 00:45:16,506
Speaker 2: other things that a government might determine um are not

793
00:45:16,516 --> 00:45:19,845
Speaker 2: desirable uh for central bank money to be used. So

794
00:45:20,045 --> 00:45:22,884
Speaker 2: I worry a great deal about where CBD CS might

795
00:45:22,895 --> 00:45:23,926
Speaker 2: be taking us.

796
00:45:24,629 --> 00:45:27,699
Speaker 1: These are such fascinating discussion points. If were a couple

797
00:45:27,709 --> 00:45:29,299
Speaker 1: of years ago, it seemed like, you know, we were

798
00:45:29,310 --> 00:45:32,659
Speaker 1: only focusing on all the revolutionary possibilities uh to your

799
00:45:32,669 --> 00:45:34,790
Speaker 1: point of, you know, programmable money. I was about to

800
00:45:34,800 --> 00:45:36,149
Speaker 1: say that, you know, we have them in Singapore, they're

801
00:45:36,159 --> 00:45:40,239
Speaker 1: called coupons from the government. Um But uh but all

802
00:45:40,250 --> 00:45:44,070
Speaker 1: of those points that the Big Brother aspect, the capriciousness,

803
00:45:44,080 --> 00:45:47,250
Speaker 1: the diluting of the role of central bank versus Mr Fit.

804
00:45:47,335 --> 00:45:50,145
Speaker 1: And uh all of those are, you know, questions that

805
00:45:50,156 --> 00:45:52,165
Speaker 1: I'm glad that, you know, we are asking before we

806
00:45:52,176 --> 00:45:54,986
Speaker 1: have gone ahead and rolled out CBD C's Willy Nilly

807
00:45:54,996 --> 00:45:57,266
Speaker 1: and I'm glad that people like you are thinking about

808
00:45:57,275 --> 00:46:00,206
Speaker 1: it really, really hard. Um I wanted to ask you

809
00:46:00,216 --> 00:46:02,545
Speaker 1: a couple of questions you touched on the financial inclusion

810
00:46:02,555 --> 00:46:07,145
Speaker 1: issue briefly. Um Just the experience with uh the whole

811
00:46:07,156 --> 00:46:09,686
Speaker 1: digital ecosystem in parts of Africa

812
00:46:10,041 --> 00:46:13,912
Speaker 1: and parts of Asia. Um, it seems to me that

813
00:46:13,922 --> 00:46:18,862
Speaker 1: a lot of these technological solutions use cases are better

814
00:46:18,872 --> 00:46:23,750
Speaker 1: suited in poorer countries with less developed infrastructure than say,

815
00:46:23,761 --> 00:46:26,562
Speaker 1: a country like Singapore where everybody has a bank account

816
00:46:26,652 --> 00:46:29,021
Speaker 1: and everybody has a certain level of education and access

817
00:46:29,031 --> 00:46:31,912
Speaker 1: to smartphones and perhaps it's not that compelling in a

818
00:46:31,922 --> 00:46:32,672
Speaker 1: place like here.

819
00:46:34,290 --> 00:46:36,810
Speaker 2: That is certainly true. I mean, change is much more

820
00:46:36,820 --> 00:46:40,659
Speaker 2: needed and change has been much more dramatic in countries

821
00:46:40,669 --> 00:46:45,139
Speaker 2: with less developed financial systems where um much of the population,

822
00:46:45,149 --> 00:46:48,120
Speaker 2: um you know, is close to substance levels of uh

823
00:46:48,129 --> 00:46:52,899
Speaker 2: um income. Um and those are areas where, um you know,

824
00:46:53,120 --> 00:46:57,199
Speaker 2: um the lack of very basic financial services has provided

825
00:46:57,209 --> 00:47:00,560
Speaker 2: a real um boost to these kinds to the adoption

826
00:47:00,570 --> 00:47:03,689
Speaker 2: of these new kinds of technologies. And certainly um some

827
00:47:03,699 --> 00:47:07,699
Speaker 2: degree of regulatory forbearance has certainly helped as well. Um

828
00:47:07,709 --> 00:47:09,149
Speaker 2: Plus the fact that there aren't

829
00:47:09,360 --> 00:47:13,270
Speaker 2: um uh strong legacy players who have uh an incentive

830
00:47:13,280 --> 00:47:16,060
Speaker 2: to keep things um the way they are. Uh so

831
00:47:16,070 --> 00:47:18,790
Speaker 2: the fact that credit cards are very easy to use

832
00:47:18,800 --> 00:47:21,090
Speaker 2: uh in the US has certainly made it much harder

833
00:47:21,159 --> 00:47:24,100
Speaker 2: for the US to move forward with alternative um uh

834
00:47:24,110 --> 00:47:28,399
Speaker 2: digital payment uh options. Um So we are seeing um

835
00:47:28,409 --> 00:47:31,290
Speaker 2: a great deal of leap frogging by

836
00:47:31,889 --> 00:47:35,100
Speaker 2: developing and emerging market economies and of course, the demand

837
00:47:35,110 --> 00:47:39,169
Speaker 2: for financial services um has also been um rising very

838
00:47:39,179 --> 00:47:42,299
Speaker 2: fast in many of these economies because in um many

839
00:47:42,310 --> 00:47:46,820
Speaker 2: of the um middle to upper income emerging market economies,

840
00:47:46,830 --> 00:47:50,580
Speaker 2: in particular, there is a rising middle class that wants

841
00:47:50,590 --> 00:47:54,800
Speaker 2: um better financial services delivered um in a more efficient

842
00:47:54,810 --> 00:47:58,280
Speaker 2: way and the new technologies are certainly providing ways uh

843
00:47:58,370 --> 00:48:01,310
Speaker 2: to make that happen. So yes, um I think we

844
00:48:01,320 --> 00:48:06,570
Speaker 2: are seeing um the transformative potential of these new technologies

845
00:48:06,580 --> 00:48:10,080
Speaker 2: uh um taking shape much more clearly um in the

846
00:48:10,090 --> 00:48:13,959
Speaker 2: parts of the world um where financial systems are already

847
00:48:13,969 --> 00:48:15,199
Speaker 2: not well developed

848
00:48:15,870 --> 00:48:18,080
Speaker 1: is where I had promised you a 45 minute conversation.

849
00:48:18,090 --> 00:48:20,760
Speaker 1: We've gone past that because just so many interesting things

850
00:48:20,770 --> 00:48:22,580
Speaker 1: to talk about. But I do want to add one

851
00:48:22,590 --> 00:48:27,919
Speaker 1: more question as apo with apologies. Um capital account convertibility

852
00:48:27,929 --> 00:48:32,300
Speaker 1: and digital currencies. I mean, is there a contradiction for

853
00:48:32,310 --> 00:48:35,159
Speaker 1: say a country that wants to have capital controls but

854
00:48:35,169 --> 00:48:35,850
Speaker 1: also want to have

855
00:48:35,860 --> 00:48:36,500
Speaker 2: digital money?

856
00:48:38,070 --> 00:48:40,889
Speaker 2: So the world we are moving to is one where

857
00:48:40,899 --> 00:48:44,979
Speaker 2: money is going to be much more um fungible across countries.

858
00:48:44,989 --> 00:48:45,199
Speaker 2: Um

859
00:48:45,600 --> 00:48:50,370
Speaker 2: um Now, stable coins are already um providing ways to

860
00:48:50,379 --> 00:48:53,280
Speaker 2: um move money across national borders. And of course many

861
00:48:53,290 --> 00:48:57,280
Speaker 2: central banks um recognizing that this is a real pain

862
00:48:57,290 --> 00:49:02,909
Speaker 2: point in international finance because international payments right now are costly, expensive,

863
00:49:02,919 --> 00:49:06,340
Speaker 2: difficult to track in real time. They are integrating their

864
00:49:06,350 --> 00:49:08,189
Speaker 2: um wholesale CBD S

865
00:49:08,382 --> 00:49:11,511
Speaker 2: in some cases into their retail CBD CS and trying

866
00:49:11,521 --> 00:49:16,381
Speaker 2: to set up these cross border um bridges or multiple

867
00:49:16,392 --> 00:49:20,332
Speaker 2: uh wholesale central bank CBD C approaches to provide more

868
00:49:20,342 --> 00:49:24,342
Speaker 2: efficient conduits for international payments. Now there are those official channels,

869
00:49:24,352 --> 00:49:25,771
Speaker 2: but I think they're also going to have a lot

870
00:49:25,781 --> 00:49:29,721
Speaker 2: more unofficial channels for money to flow across national borders.

871
00:49:29,731 --> 00:49:30,862
Speaker 2: And this is some level is going

872
00:49:30,944 --> 00:49:34,914
Speaker 2: to be great for reducing frictions in international payments. It

873
00:49:34,924 --> 00:49:38,093
Speaker 2: means for instance that economic migrants sending remittances back to

874
00:49:38,104 --> 00:49:41,543
Speaker 2: their home countries can do so much more cheaply. If

875
00:49:41,553 --> 00:49:45,873
Speaker 2: you have practically instantaneous settlement of cross border settlements rather

876
00:49:45,884 --> 00:49:48,513
Speaker 2: than T plus two T plus three or even longer,

877
00:49:48,523 --> 00:49:51,114
Speaker 2: you don't need to hedge against the exchange rate risk

878
00:49:51,123 --> 00:49:53,414
Speaker 2: over those short horizons

879
00:49:53,614 --> 00:49:57,716
Speaker 2: for uh payment and settlement uh are concluded. So this

880
00:49:57,726 --> 00:50:00,225
Speaker 2: is all going to be good. In principle, you could

881
00:50:00,236 --> 00:50:05,044
Speaker 2: have um low income households, low network households, having access

882
00:50:05,055 --> 00:50:10,256
Speaker 2: to international portfolio diversification opportunities, small and medium enterprises being

883
00:50:10,266 --> 00:50:13,885
Speaker 2: able to access global pools of capital. This is all good.

884
00:50:13,895 --> 00:50:16,206
Speaker 2: But unfortunately, it's also going to mean

885
00:50:16,469 --> 00:50:20,320
Speaker 2: that the more conduits for um capital flows, you have

886
00:50:20,330 --> 00:50:23,790
Speaker 2: the more capital flow volatility and potentially more exchange rate

887
00:50:23,800 --> 00:50:28,199
Speaker 2: volatility that emerging market economies in particular might be subjected

888
00:50:28,209 --> 00:50:31,760
Speaker 2: to and the smaller open economies in particular, I think

889
00:50:31,770 --> 00:50:37,810
Speaker 2: face um pretty serious macroeconomic but also um existential crises

890
00:50:37,820 --> 00:50:39,489
Speaker 2: for their currencies because you can

891
00:50:39,735 --> 00:50:42,625
Speaker 2: you imagine a digital version of the dollar or a

892
00:50:42,635 --> 00:50:46,034
Speaker 2: digital version of the Renminbi or stable coins issued by

893
00:50:46,044 --> 00:50:50,064
Speaker 2: major corporations displacing their domestic currency. So you could get

894
00:50:50,074 --> 00:50:53,044
Speaker 2: a real shake up in terms of the international monetary

895
00:50:53,054 --> 00:50:57,004
Speaker 2: system at the lower tiers of that monetary system as well.

896
00:50:57,074 --> 00:51:00,214
Speaker 2: Um But more specifically on capital controls, those are going

897
00:51:00,225 --> 00:51:03,725
Speaker 2: to become very difficult to sustain over time. That

898
00:51:03,735 --> 00:51:06,004
Speaker 1: that sentiment was echoed to me by the central bank

899
00:51:06,014 --> 00:51:08,205
Speaker 1: governor of India. Recently.

900
00:51:09,060 --> 00:51:12,409
Speaker 1: I can't thank you enough. Uh This was a fantastic conversation.

901
00:51:12,419 --> 00:51:14,350
Speaker 1: Thank you so much for your time and your very

902
00:51:14,360 --> 00:51:15,489
Speaker 1: valuable insights.

903
00:51:16,659 --> 00:51:18,209
Speaker 2: Thank you so much for having me again on your show.

904
00:51:18,489 --> 00:51:21,229
Speaker 2: That was a really fun conversation. I enjoyed it very much.

905
00:51:21,260 --> 00:51:21,850
Speaker 2: Thank

906
00:51:21,860 --> 00:51:24,320
Speaker 1: you and thanks to our listeners as well. Copy time

907
00:51:24,330 --> 00:51:28,590
Speaker 1: is for information only and does not represent any trade recommendations.

908
00:51:28,600 --> 00:51:32,049
Speaker 1: All 105 episodes of the podcast are available on youtube

909
00:51:32,260 --> 00:51:36,459
Speaker 1: and on all major podcast platforms including Apple Google and Spotify.

910
00:51:36,540 --> 00:51:40,158
Speaker 1: As for our research publications, webinars and live streams, you

911
00:51:40,169 --> 00:51:42,790
Speaker 1: can find them all by Googling D BS research library.

912
00:51:42,810 --> 00:51:44,129
Speaker 1: Have a great day.