WEBVTT - Kopi Time E105 - Eswar Prasad on the future of money 0:00:05.940 --> 0:00:09.078 Welcome to Kobe Time, a podcast series on Markets and 0:00:09.090 --> 0:00:12.949 Economies from Devious Group Research. I'm Tambe, chief economist. Welcoming 0:00:12.960 --> 0:00:17.299 you to our 105th episode. Our guest today is a 0:00:17.309 --> 0:00:21.950 return guest is Raad Tolani, senior uh senior professor of 0:00:21.959 --> 0:00:24.950 Trade Policy at Cornell University first came to Coby Time 0:00:24.959 --> 0:00:28.790 2.5 years ago on episode 36. And in that episode, 0:00:28.799 --> 0:00:32.369 we talked about the global economic outlook and major developments 0:00:32.380 --> 0:00:33.439 in the currency world. 0:00:33.909 --> 0:00:37.479 Since then, I has published a book called The Future 0:00:37.490 --> 0:00:41.770 of Money. How the digital revolution is transforming currencies and finance. 0:00:41.779 --> 0:00:45.490 He has also continued to publish on China's economy, central bank, 0:00:45.500 --> 0:00:50.769 digital currencies, us dollar dominance or like thereof and cryptocurrencies. 0:00:51.009 --> 0:00:54.700 So much to talk about Iras. Welcome back to Kobe time. 0:00:56.259 --> 0:00:57.990 It's so nice to be back on your show and 0:00:58.000 --> 0:01:00.319 certainly things have changed a little bit in the last 0:01:00.330 --> 0:01:02.919 2.5 years. So we have much to talk about 0:01:03.159 --> 0:01:05.769 just a little bit. All right. So uh I want 0:01:05.779 --> 0:01:09.699 to start with the broad macro initially, I uh how 0:01:09.709 --> 0:01:13.169 has the global financial system held up around the pandemic? 0:01:13.180 --> 0:01:17.510 The policy response around the pandemic and its inflationary aftermath. 0:01:19.510 --> 0:01:23.760 So remarkably, the global financial system by and large did 0:01:23.769 --> 0:01:27.300 hold up quite well in the initial phase of the pandemic. 0:01:27.309 --> 0:01:31.330 And we did not see major banking system stresses um 0:01:31.339 --> 0:01:34.209 emerge in any part of the world. And I think 0:01:34.220 --> 0:01:38.910 that speaks to the increased resilience. Um that was um 0:01:39.220 --> 0:01:41.919 you know, put in place by the regulatory changes that 0:01:41.930 --> 0:01:45.660 took place after the global financial crisis and 0:01:45.910 --> 0:01:49.589 um some crises that occurred after that including the eurozone 0:01:49.599 --> 0:01:51.610 debt crisis. Um 0:01:52.309 --> 0:01:55.419 More recently, of course, things have begun to change. There 0:01:55.430 --> 0:01:57.919 are parts of the world where we are beginning to 0:01:57.930 --> 0:02:02.720 see certain elements of stresses pop up in China, for instance. 0:02:02.730 --> 0:02:05.360 Um there are some banks that are quite exposed to 0:02:05.370 --> 0:02:07.959 the real estate sector and while they don't see a 0:02:07.970 --> 0:02:12.020 major financial panic uh um or crash emerging, 0:02:12.250 --> 0:02:15.929 there are certainly some property developers that are highly leveraged, 0:02:15.949 --> 0:02:19.019 some banks, especially some of the small, medium uh medium 0:02:19.029 --> 0:02:21.940 sized banks, uh small to medium sized banks that are 0:02:21.949 --> 0:02:24.449 quite exposed to the property sector and that are already 0:02:24.460 --> 0:02:28.240 facing some stresses. And then there are other parts of 0:02:28.250 --> 0:02:30.119 the world like the US, of course, where we had 0:02:30.130 --> 0:02:34.250 these uh um couple of uh uh banks that um 0:02:34.258 --> 0:02:37.079 uh faced a fair amount of. But there again, 0:02:37.320 --> 0:02:40.460 um things seem to have been contained to a relatively 0:02:40.470 --> 0:02:44.029 small sliver of the banking system. So there is a 0:02:44.038 --> 0:02:48.070 sense that there are elements of fragility in the banking 0:02:48.080 --> 0:02:50.989 system um in many parts of the world. But by 0:02:51.000 --> 0:02:52.769 and large things seem to be holding up. 0:02:53.250 --> 0:02:57.059 Although um the period of rising interest rates in many 0:02:57.070 --> 0:02:59.679 of the advanced economies, you know, in some ways, it 0:02:59.690 --> 0:03:02.418 um helps banks in some ways, it puts some of 0:03:02.429 --> 0:03:05.880 their balance sheets and their stress especially. Um if as 0:03:05.889 --> 0:03:09.309 was the case with uh um uh Silicon Valley Bank 0:03:09.320 --> 0:03:12.869 and the First Republic, we see some stresses building up 0:03:12.880 --> 0:03:13.119 on the 0:03:13.214 --> 0:03:18.214 asset side of um bank balance sheets as um interest 0:03:18.225 --> 0:03:21.434 rates on government bonds in particular, um, start rising. So 0:03:21.445 --> 0:03:25.335 I don't think we've seen the end of banking system troubles, 0:03:25.345 --> 0:03:28.264 but by and large, the financial system, especially the banking 0:03:28.274 --> 0:03:31.024 system seems to have held up reasonably well in most 0:03:31.035 --> 0:03:33.125 countries for the last few years. 0:03:33.929 --> 0:03:37.050 Sure. One of the reasons arguably is the fact that 0:03:37.059 --> 0:03:40.240 we basically have a financial sector put in place that 0:03:40.250 --> 0:03:43.949 if you have banks experiencing runs, it seems like the 0:03:43.960 --> 0:03:47.169 regulators will come and give you a blanket guarantee. Is 0:03:47.179 --> 0:03:47.800 that an issue 0:03:49.710 --> 0:03:52.509 that is certainly an issue that we're going to have 0:03:52.520 --> 0:03:56.509 to grapple with the sense that even in countries um 0:03:56.520 --> 0:04:00.119 including the US where there isn't a blanket full uh 0:04:00.130 --> 0:04:04.428 deposit insurance system that basically covers the entire banking system 0:04:04.440 --> 0:04:07.229 in its entirety. What we are seeing is that when 0:04:07.240 --> 0:04:09.750 trouble erupts, especially if that trouble 0:04:09.839 --> 0:04:12.089 looks like it could spill over to the rest of 0:04:12.100 --> 0:04:15.580 the banking system, the regulators step in and you end 0:04:15.589 --> 0:04:18.329 up with uh you know, any sense of market discipline 0:04:18.339 --> 0:04:22.290 being lost now, countries like China where there is um 0:04:22.299 --> 0:04:25.529 um where there was a sense that there was an implicit, 0:04:25.540 --> 0:04:29.959 full uh insurance of the entire banking system in place. 0:04:30.559 --> 0:04:32.510 Um was something that was a concern. 0:04:32.750 --> 0:04:36.390 Um China has been moving towards an explicit uh deposit 0:04:36.399 --> 0:04:40.549 insurance system, but what we're seeing is that across the world, 0:04:40.559 --> 0:04:45.909 um that notion of market discipline through limited deposit insurance 0:04:45.920 --> 0:04:50.579 that um prevents bank runs, but still um gives depositors 0:04:50.589 --> 0:04:53.059 an incentive to look into the books of their banks 0:04:53.070 --> 0:04:55.630 more carefully. I don't think that is holding up and 0:04:55.640 --> 0:04:58.269 that is going to have some longer term repercussions uh 0:04:58.279 --> 0:05:01.428 for the banking system, soundness and stability. If we have 0:05:01.440 --> 0:05:02.339 a situation 0:05:02.619 --> 0:05:07.510 um where almost uh um by construction, we're going to 0:05:07.519 --> 0:05:11.450 have forces that uh feed into more concentration that lead 0:05:11.459 --> 0:05:14.070 to potentially more risk taking and so forth. 0:05:14.880 --> 0:05:19.929 Um Any view on the state of heavily indebted emerging 0:05:19.940 --> 0:05:24.450 markets economies which are facing ever rising, you know, dollar debt, 0:05:24.459 --> 0:05:27.029 servicing costs and some of them are an outright crisis. 0:05:28.178 --> 0:05:31.230 Now. It is true that there are some economies in crisis. 0:05:31.238 --> 0:05:34.630 But what is more striking to me is that during 0:05:34.640 --> 0:05:36.940 the last three or 44 years, we haven't had any 0:05:36.950 --> 0:05:43.289 systemically important emerging market economies facing um major crises. Now, 0:05:43.299 --> 0:05:46.570 to some extent, this is because I think many emerging market, 0:05:46.579 --> 0:05:50.630 um policymakers did learn the right lessons um from the 0:05:50.640 --> 0:05:51.489 Asian financial 0:05:51.570 --> 0:05:56.000 crisis, the Russian crisis, the Mexican tequila crisis and so on. 0:05:56.010 --> 0:05:59.140 And in the global financial crisis, of course, we had 0:05:59.149 --> 0:06:03.709 many emerging markets holding up reasonably well. Unfortunately, in the 0:06:03.720 --> 0:06:05.738 last few years, I think some of those lessons have 0:06:05.750 --> 0:06:09.719 been unlearned. Many emerging market economies, particularly some of the 0:06:09.730 --> 0:06:13.760 frontier economies have taken on large amounts of foreign currency, 0:06:13.769 --> 0:06:14.880 external debt. 0:06:15.200 --> 0:06:17.738 And there is a mix of this sort of lack 0:06:17.750 --> 0:06:22.200 of policy restraint and um political and economic instability in 0:06:22.209 --> 0:06:27.649 many of these countries such as um Sri Lanka, uh Pakistan, Venezuela, 0:06:27.660 --> 0:06:30.789 Turkey and so on which have put them under very 0:06:30.863 --> 0:06:35.545 significant uh uh duress. Um But the major emerging market 0:06:35.553 --> 0:06:38.894 economies do seem to be holding up um quite well 0:06:38.904 --> 0:06:41.484 uh so far. So there is this bifurcation that has 0:06:41.494 --> 0:06:46.433 emerged even among the emerging market and developing economy uh class. 0:06:47.140 --> 0:06:49.029 It is interesting and it, I just want to share 0:06:49.040 --> 0:06:52.659 with you one insight that we run for emerging and 0:06:52.709 --> 0:06:55.670 developed markets. A, you know, sort of a cross country 0:06:55.678 --> 0:07:00.279 exchange rate, misalignment analysis and the biggest misalignment cases we 0:07:00.290 --> 0:07:02.989 find are actually in developed markets, not in emerging markets, 0:07:03.000 --> 0:07:05.988 but to your point about the countries like the Pakistan 0:07:06.000 --> 0:07:08.469 and Sri Lanka, I think the debt sustainability issue still 0:07:08.480 --> 0:07:12.119 such a big question even though they have extensively IMF 0:07:12.130 --> 0:07:13.410 programs in place. 0:07:13.769 --> 0:07:16.859 Um If for the other big development over the last 0:07:16.869 --> 0:07:19.760 couple of years is the war in Ukraine and with 0:07:19.769 --> 0:07:23.220 Western sanctions on Russia, in particular, we have seen wide 0:07:23.230 --> 0:07:26.670 ranging weaponization of the US dollar, so to speak, what 0:07:26.679 --> 0:07:28.359 will be the legacy of that? 0:07:30.619 --> 0:07:33.829 The fact that the US has been, um, so willing 0:07:33.839 --> 0:07:36.140 to use sanctions, of course, has been taken note of 0:07:36.149 --> 0:07:41.440 by policymakers around the world and certainly for a while now, um, 0:07:41.450 --> 0:07:44.769 you know, it's not just US rivals but also traditional 0:07:44.779 --> 0:07:49.279 allies of the US, including Europe that have been very 0:07:49.290 --> 0:07:52.570 eager to get away from a dollar dominated the global 0:07:52.579 --> 0:07:53.709 financial system. 0:07:54.290 --> 0:07:58.000 The sanctions have given an edge uh to that uh 0:07:58.010 --> 0:08:01.190 um to that effort because what we've learned is that 0:08:01.200 --> 0:08:04.619 the US is willing to bend or even break the rules. 0:08:04.630 --> 0:08:08.140 Um in certain cases, now, one can see that the 0:08:08.149 --> 0:08:12.769 US has been aggressively using sanctions on international payments and 0:08:12.779 --> 0:08:18.019 while Swift is supposed to be um you know, in principle, 0:08:18.029 --> 0:08:20.040 um a nonpartisan um 0:08:20.260 --> 0:08:23.750 uh group, the reality is that um American banks are 0:08:23.760 --> 0:08:26.929 so important to swift that the US does maintain a 0:08:26.940 --> 0:08:30.489 bit of a chokehold over swift as well. So cutting 0:08:30.500 --> 0:08:34.179 off a country from access to the swift messaging system 0:08:34.440 --> 0:08:37.609 and from the international payment system is certainly a very 0:08:37.674 --> 0:08:41.294 pot uh threat. So there are countries around the world 0:08:41.304 --> 0:08:43.684 trying to find their ways around it. China has set 0:08:43.693 --> 0:08:48.263 up the cross-border interbank payment system that could more directly 0:08:48.273 --> 0:08:51.713 communicate with the payment systems of other countries, both in 0:08:51.723 --> 0:08:54.343 terms of messaging and also in terms of payment and 0:08:54.354 --> 0:08:59.804 settlement um of international transactions. But where the US is really, 0:08:59.814 --> 0:09:02.254 um I I think broken what had come to be 0:09:02.263 --> 0:09:05.604 seen um as a set of uh widely accepted rules 0:09:05.614 --> 0:09:06.744 was that it even 0:09:07.000 --> 0:09:12.640 um attempted to freeze um Russia's foreign exchange reserves now. 0:09:12.650 --> 0:09:15.549 Um it did not technically really freeze the reserves, but 0:09:15.559 --> 0:09:18.630 it made it very difficult for Russia to get access 0:09:18.640 --> 0:09:22.469 to those rainy day funds and for emerging market policymakers. 0:09:22.479 --> 0:09:25.840 This is a real concern because after all, um if 0:09:25.849 --> 0:09:27.669 you store away a lot of um 0:09:28.119 --> 0:09:31.390 your rainy day funds in the form of foreign exchange reserves, 0:09:31.400 --> 0:09:33.949 put a lot of them in the US and um 0:09:33.960 --> 0:09:39.380 other advanced economy, um government bond markets. And then when 0:09:39.390 --> 0:09:42.630 the storm comes, you cannot use those rainy day funds. 0:09:42.799 --> 0:09:44.380 That is a real concern. 0:09:44.909 --> 0:09:48.609 However, the difficulty that countries that want to step away 0:09:48.619 --> 0:09:52.340 from the dollar face is the following. There aren't any 0:09:52.349 --> 0:09:57.320 clear alternatives in terms of either payment currencies or in 0:09:57.330 --> 0:10:00.299 terms of reserve currencies. I'll take those one by one 0:10:00.570 --> 0:10:03.819 on the payment currency front. One can well imagine a 0:10:03.830 --> 0:10:08.219 shift taking place. I refer to China's cross-border interbank payment 0:10:08.229 --> 0:10:12.599 system or SS one can well imagine that when China's 0:10:12.609 --> 0:10:16.119 trading partners have payment systems that reach a similar level 0:10:16.130 --> 0:10:17.200 of maturity 0:10:17.510 --> 0:10:20.409 that you could have em emerging market currency pairs being 0:10:20.419 --> 0:10:24.719 directly traded for each other, say Renminbi versus uh um 0:10:24.729 --> 0:10:28.349 uh the Rupe without having to go through an intermediate 0:10:28.359 --> 0:10:31.409 currencies such as the dollar or for that matter, the euro. 0:10:31.799 --> 0:10:34.780 Um You could also have China and Russia trading directly 0:10:34.789 --> 0:10:39.609 in their pairs of currencies. So new technologies, financial market 0:10:39.619 --> 0:10:43.340 developments in the emerging market countries are I think reducing 0:10:43.479 --> 0:10:45.659 the need for vehicle currencies. 0:10:46.179 --> 0:10:50.039 Now, what is interesting is that it is not obvious 0:10:50.049 --> 0:10:52.608 that the dollar is going to suffer the most here. 0:10:52.770 --> 0:10:54.780 In fact, what we've seen in the last four or 0:10:54.789 --> 0:10:58.049 five years is that the euro has if anything suffered 0:10:58.059 --> 0:11:01.099 a little more than the dollar in terms of the 0:11:01.109 --> 0:11:05.280 share of payments that are intermediate through that currency, at 0:11:05.289 --> 0:11:08.010 least based on data that we have um on 0:11:08.299 --> 0:11:13.179 um payment transactions where the messaging runs through swift. Um 0:11:13.190 --> 0:11:15.979 There is also the prospect of uh certain types of 0:11:15.989 --> 0:11:19.770 cryptocurrencies like stable coins a subject. I suspect we will 0:11:19.780 --> 0:11:22.549 turn to later in our talk um gaining traction in 0:11:22.559 --> 0:11:26.580 international payments. But there again, it is really stable coins 0:11:26.590 --> 0:11:29.330 that are backed up by us dollar reserves 0:11:29.450 --> 0:11:31.909 that seem to be gaining the most traction. So the 0:11:31.919 --> 0:11:35.319 US dollar might indirectly gain even more prominence as a 0:11:35.330 --> 0:11:39.218 payment currency. So it is possible that the dollar will 0:11:39.229 --> 0:11:43.098 face some erosion in its role as a payment currency 0:11:43.140 --> 0:11:46.309 that even emerging market currencies will take on larger shares. 0:11:46.320 --> 0:11:48.580 But I think the dollar will remain by far the 0:11:48.590 --> 0:11:50.520 most important payment currency 0:11:51.549 --> 0:11:55.960 as a reserve currency. Likewise, the dollar share has eroded 0:11:55.969 --> 0:12:00.238 somewhat in the last few years. Um Now, um before 0:12:00.250 --> 0:12:02.659 the euro came into being the dollar share of global 0:12:02.669 --> 0:12:07.679 foreign exchange reserves was about 71 72%. Um After the 0:12:07.690 --> 0:12:10.539 euro came into being, that share fell by about 10% 0:12:10.549 --> 0:12:14.559 points and then it fell to about, you know, 62% 0:12:14.570 --> 0:12:16.419 just before the global financial 0:12:16.484 --> 0:12:20.164 financial crisis. But since then, the dollar share has eroded 0:12:20.174 --> 0:12:25.093 only marginally to about 59%. Right now. What is interesting 0:12:25.104 --> 0:12:27.614 is that in the last four or five years, the 0:12:27.625 --> 0:12:30.534 Euro share of global foreign exchange reserves has taken a 0:12:30.544 --> 0:12:34.275 real hit down to less than 20%. 0:12:34.590 --> 0:12:38.359 Um Professor Barry Eire of the University of California Berkeley 0:12:38.369 --> 0:12:41.579 has made this other interesting observation that if you take 0:12:41.590 --> 0:12:45.299 many of the smaller reserve currencies like the Australian dollar, 0:12:45.359 --> 0:12:49.599 the Canadian dollar, the Swedish Corona and so on. Cumulatively, 0:12:49.609 --> 0:12:53.429 all of those small reserve currencies have increased their share, 0:12:53.440 --> 0:12:54.859 although each of them accounts for only 0:12:54.950 --> 0:12:57.669 very small share. So what is happening is sort of 0:12:57.679 --> 0:13:01.940 interesting right now, the distance between the dollar and the 0:13:01.950 --> 0:13:04.959 second tier of reserve currencies in which I'm going to 0:13:04.969 --> 0:13:08.710 include the euro that is actually increased. So there is 0:13:08.719 --> 0:13:12.900 a lot more jockeying for position, a lot more fragmentation 0:13:12.909 --> 0:13:15.218 among the 2nd and 3rd tier reserve currency 0:13:15.969 --> 0:13:20.280 so that um pound sterling the Japanese Yen, uh the 0:13:20.289 --> 0:13:22.549 Euro have all taken a bit of a beating in 0:13:22.559 --> 0:13:26.440 the last decade or so. So the distance between them 0:13:26.450 --> 0:13:29.020 and the dollar has increased and there is a lot 0:13:29.030 --> 0:13:32.079 more um uh coming up in the form of these 0:13:32.090 --> 0:13:35.478 smaller reserve currencies. So a lot more fragmentation 0:13:36.000 --> 0:13:39.330 and why is this fragmentation taking place? Because emerging market 0:13:39.340 --> 0:13:44.289 and other uh reserve managers desperately are looking for diversification options. 0:13:44.669 --> 0:13:48.250 But again, the paradoxical issue here is that while the 0:13:48.260 --> 0:13:51.989 dollar share may erode somewhat, it has weakened the rivals 0:13:52.000 --> 0:13:55.319 even more, putting the dollar at some level in an 0:13:55.330 --> 0:13:57.229 even more uh strong position. 0:13:57.719 --> 0:14:00.539 Absolutely fascinating. I want to stay on the subject a 0:14:00.549 --> 0:14:04.890 little longer if, if I may uh China. So China 0:14:04.900 --> 0:14:08.479 does swaps with various central banks around the world. All 0:14:08.489 --> 0:14:11.729 these petrol cny discussions, we hear about all the time 0:14:11.739 --> 0:14:13.909 that they want to have commodities coming from the Middle 0:14:13.919 --> 0:14:17.468 East invoiced in R and B. Uh And then the Chinese, 0:14:17.539 --> 0:14:21.500 these uh fintech companies have even like mobile wallets that 0:14:21.510 --> 0:14:24.510 are now interfacing with the ecny. So I do want 0:14:24.520 --> 0:14:26.770 to talk about CBD CS and other things later with you. 0:14:26.780 --> 0:14:30.909 But just in terms of China's desire to make the 0:14:30.919 --> 0:14:35.650 R and B more acceptable, is it even reasonably possible 0:14:35.659 --> 0:14:37.289 without capital economic liberalization? 0:14:39.020 --> 0:14:42.440 So I was in um China um after the 3.5 0:14:42.450 --> 0:14:44.520 year hiatus just a couple of weeks ago and this, 0:14:44.530 --> 0:14:46.679 of course, was uh a subject that I did uh 0:14:46.690 --> 0:14:50.130 discuss with the Chinese policymakers because there is something dear 0:14:50.140 --> 0:14:55.989 to my heart. Um And the um authorities seem very 0:14:56.000 --> 0:15:00.890 determined to continue uh with capital account liberalization and freeing 0:15:00.900 --> 0:15:05.169 up the exchange rate to be more uh market uh determine. 0:15:05.179 --> 0:15:06.890 In fact, over the last um 0:15:07.179 --> 0:15:11.609 um five or six years after the um 2014, 2015 0:15:11.619 --> 0:15:13.750 episode of Renminbi depreciation. 0:15:14.010 --> 0:15:18.039 It is true that the direct intervention in the foreign 0:15:18.049 --> 0:15:22.059 exchange market um has been quite limited. The amount of 0:15:22.070 --> 0:15:25.099 foreign exchange reserves held by the Chinese central bank has 0:15:25.109 --> 0:15:28.479 remained relatively flat in the range of somewhere between three 0:15:28.489 --> 0:15:34.059 and $3.1 trillion. There's been some marginal intervention using the 0:15:34.070 --> 0:15:37.510 balance sheets of commercial banks. But overall, they seem quite 0:15:37.520 --> 0:15:38.659 comfortable letting their 0:15:38.765 --> 0:15:43.034 in the um rise and fall in value um especially 0:15:43.044 --> 0:15:46.604 relative to the dollar on the capital account. Um I 0:15:46.614 --> 0:15:49.065 was told quite clearly that China is never going to 0:15:49.075 --> 0:15:53.385 have a fully open capital account. But for all practical purposes, 0:15:53.395 --> 0:15:56.484 as far as international investors are concerned, they do want 0:15:56.494 --> 0:15:58.544 to make it easy and they have opened up the 0:15:58.554 --> 0:16:03.434 bond and equity markets with very few restrictions on foreign investors. 0:16:03.700 --> 0:16:07.200 The difficult issue that China faces is whether foreign investors 0:16:07.210 --> 0:16:10.900 view that as a credible promise that the capital account 0:16:10.909 --> 0:16:14.719 will be kept open or whether if the Renminbi were 0:16:14.729 --> 0:16:18.500 to face depreciation pressures. Again, um the capital account might 0:16:18.510 --> 0:16:21.700 not be used as an exchange rate management tool essentially 0:16:21.710 --> 0:16:25.929 by limiting uh capital outflows by putting restrictions on them. 0:16:26.150 --> 0:16:29.130 So foreign investors don't seem to be buying it yet, 0:16:29.140 --> 0:16:32.309 but the government does seem committed to 0:16:32.570 --> 0:16:36.619 continue with capital account liberalization and exchange rate uh uh 0:16:36.630 --> 0:16:38.700 liberalization as well. 0:16:39.510 --> 0:16:42.500 Now, this is certainly going to go hand in hand 0:16:42.510 --> 0:16:47.109 with the um Chinese government's desire to um you know, 0:16:47.119 --> 0:16:50.260 to uh have the Renminbi play a larger role in 0:16:50.270 --> 0:16:55.400 um international finance, particularly um in order to um 0:16:55.669 --> 0:16:58.960 you know, escape the clutches of the dollar based uh 0:16:58.969 --> 0:17:02.200 global financial system. So I think China is trying to 0:17:02.210 --> 0:17:06.359 put in place the elements of the technical infrastructure that 0:17:06.369 --> 0:17:11.280 are necessary um to avoid um being subject to sanctions 0:17:11.290 --> 0:17:13.140 of the u wherever uh 0:17:13.213 --> 0:17:16.644 to use that as a threat against China. So it's 0:17:16.654 --> 0:17:20.603 not quite there yet. But China is clearly um using 0:17:20.614 --> 0:17:23.562 the Renminbi and using these various elements of the infrastructure, 0:17:23.573 --> 0:17:28.163 including its own payment system and um connection with other 0:17:28.173 --> 0:17:30.683 payment systems in order to move this forward 0:17:31.489 --> 0:17:34.660 since you were in China very recently. Actually, I haven't 0:17:34.670 --> 0:17:36.920 been there in three years. Uh I want you to 0:17:36.930 --> 0:17:40.438 ask uh I, I would ask you a slightly broader question, 0:17:40.449 --> 0:17:43.180 what was your sense on the sentiments? Because you know, 0:17:43.189 --> 0:17:47.619 we sitting outside are largely reading a pretty negative narrative. 0:17:49.380 --> 0:17:52.728 It depends on where the narrative uh is coming from. 0:17:52.739 --> 0:17:57.290 I was quite struck by the difference in tone between 0:17:57.300 --> 0:18:00.869 what I heard um from Beijing and from uh Shanghai 0:18:00.880 --> 0:18:03.510 and Beijing. Of course, I was largely meeting with uh 0:18:03.770 --> 0:18:08.810 um government um and um regulatory and financial officials um 0:18:09.040 --> 0:18:12.010 in Shanghai had a lot more meetings with the private sector. 0:18:12.150 --> 0:18:14.619 Um And this was a couple of uh um weeks 0:18:14.630 --> 0:18:19.589 ago before the recent uh um uh um Politburo meetings 0:18:19.599 --> 0:18:22.619 um where even the government seems to be expressing some 0:18:22.630 --> 0:18:26.839 concern about the um um the momentum that the economic 0:18:26.849 --> 0:18:27.020 um 0:18:27.339 --> 0:18:31.869 um recovery has had in China. So in Beijing, I 0:18:31.880 --> 0:18:34.969 got the sense that policymakers were a little more sanguine 0:18:34.979 --> 0:18:38.250 that um they did not need to unleash huge amounts 0:18:38.260 --> 0:18:41.229 of stimulus, that there was some amount of stimulus already 0:18:41.239 --> 0:18:44.339 in the system. Um Some of it through easing of 0:18:44.349 --> 0:18:48.619 constraints on local government borrowing um you know, reducing some 0:18:48.630 --> 0:18:51.260 of the restrictions they put on the property sector, uh 0:18:51.270 --> 0:18:52.030 some 0:18:52.536 --> 0:18:56.386 similar that was already in train, what I heard from 0:18:56.396 --> 0:19:00.686 Shanghai was a very different set of views. Um There 0:19:00.696 --> 0:19:04.046 seemed to be concern among private sector participants from a 0:19:04.057 --> 0:19:07.337 variety of sectors um that the government had not set 0:19:07.347 --> 0:19:11.807 a clear direction of policies yet. And in particular, the 0:19:11.817 --> 0:19:15.357 government's attitude towards the private sector was something that they 0:19:15.366 --> 0:19:17.646 did not fully find credible 0:19:17.734 --> 0:19:21.043 yet. Now, Beijing of course, has been trying to send 0:19:21.053 --> 0:19:24.683 a lot of signals that after the private sector crackdown 0:19:24.864 --> 0:19:29.284 um that took place in the late part of 2022 0:19:29.292 --> 0:19:32.994 and early 2023 that in fact, the government does view 0:19:33.004 --> 0:19:35.833 the private sector as playing a very important role in 0:19:35.843 --> 0:19:40.234 the economy. Um That message does not quite seem to 0:19:40.244 --> 0:19:42.843 have filtered through in a credible and durable 0:19:42.931 --> 0:19:46.071 sense uh to the private sector. And we've seen that 0:19:46.260 --> 0:19:50.331 um in the dismal um private sector investment growth that 0:19:50.340 --> 0:19:53.010 we had in 2022 and the fact that it's not 0:19:53.020 --> 0:19:55.770 really picked up yet, and it may also be feeding 0:19:55.781 --> 0:19:59.080 into the lack of household confidence that we've seen in 0:19:59.090 --> 0:20:02.400 very weak uh uh retail sales. So I think the 0:20:02.411 --> 0:20:06.151 government has a pretty significant task uh on its hand, 0:20:06.191 --> 0:20:08.041 both in terms of using 0:20:08.630 --> 0:20:12.859 some mix of macroeconomic stimulus, perhaps um uh with a 0:20:12.869 --> 0:20:16.669 little more weight on fiscal stimulus. Um but also trying 0:20:16.680 --> 0:20:20.500 to send a clear signal um in some uh credible 0:20:20.510 --> 0:20:23.680 way to the private sector that the government is um 0:20:23.689 --> 0:20:26.889 going to ease some constraints and move. Um you know, 0:20:26.900 --> 0:20:31.140 the entire policy making appetit us in a more positive direction. 0:20:32.349 --> 0:20:34.698 Well, let, let's hope that, you know, we, we see 0:20:34.709 --> 0:20:37.810 some concrete actions, I suppose in the part of your meetings, 0:20:37.819 --> 0:20:42.280 we heard some words that were welcome from market sentiment perspective, 0:20:42.290 --> 0:20:45.310 but in terms of actual action, whether it is debt 0:20:45.319 --> 0:20:49.619 restructuring or additional fiscal support, um we're still waiting for 0:20:49.630 --> 0:20:52.948 some concrete stuff. All right, if we uh time to 0:20:52.959 --> 0:20:53.900 talk about your book, 0:20:54.290 --> 0:20:58.319 um So this came out, I believe in 2021. But 0:20:58.329 --> 0:21:02.040 most of the reviews I read are from 2022. Uh 0:21:02.050 --> 0:21:04.930 And I highly recommend to the listeners of Kopi Time 0:21:04.939 --> 0:21:07.448 to read this book, Future of Money. How the digital 0:21:07.459 --> 0:21:10.619 revolution is transforming currencies and finance. Now, I will do 0:21:10.630 --> 0:21:13.839 this in an unorthodox manner. I will first ask you 0:21:13.849 --> 0:21:15.909 something that is not in the book. So there was 0:21:15.920 --> 0:21:18.209 a reviewer who seemed a bit disappointed by one part 0:21:18.219 --> 0:21:20.520 of your book. So the reviewer wrote and I quote, 0:21:20.819 --> 0:21:23.969 reading through the book is unlikely to provide any insights 0:21:23.979 --> 0:21:28.189 into how to value cryptocurrencies or how digital currencies such 0:21:28.199 --> 0:21:31.670 as Bitcoin are likely to replace government issued money as 0:21:31.680 --> 0:21:33.689 a store of value. I, why don't you take a 0:21:33.699 --> 0:21:35.410 crack at these issues? 0:21:37.280 --> 0:21:39.869 I was quite clear in the book that I cannot 0:21:39.880 --> 0:21:45.250 value uh decentralized cryptocurrencies like Bitcoin because um 0:21:45.640 --> 0:21:49.020 uh there is no clear valuation model in my mind 0:21:49.030 --> 0:21:53.020 that you can apply to a decentralized Cryptocurrency. So, you know, 0:21:53.030 --> 0:21:57.150 the um Bitcoin is a Marvel, um the fact that 0:21:57.160 --> 0:22:00.329 um whoever the creator was and you know, having written 0:22:00.339 --> 0:22:02.770 the book, I go to a lot of Cryptocurrency conferences 0:22:02.780 --> 0:22:05.280 these days that I have so far shared the stage 0:22:05.290 --> 0:22:07.530 with three people who've claimed to be 0:22:07.660 --> 0:22:09.879 the real creator of Bitcoin. I don't know if any 0:22:09.890 --> 0:22:13.650 of them really uh is. Um But you know, the 0:22:13.660 --> 0:22:16.839 fact that um we have a technology that allows you 0:22:16.849 --> 0:22:21.660 to undertake transactions um between parties who may not even 0:22:21.670 --> 0:22:24.229 know who each other are. That is just using their 0:22:24.239 --> 0:22:28.550 digital identities and without using a centralized trust mechanism. That 0:22:28.560 --> 0:22:29.609 is remarkable. And 0:22:29.680 --> 0:22:33.020 I think the technology is spawning some interesting developments in 0:22:33.030 --> 0:22:36.959 decentralized finance. But the reality is that Bitcoin has not 0:22:36.969 --> 0:22:40.329 functioned well in what it was supposed to be, which 0:22:40.339 --> 0:22:45.159 is a um uh trust, less or decentralized trust based 0:22:45.239 --> 0:22:48.589 um medium of exchange because it is very volatile value, 0:22:48.599 --> 0:22:51.609 it's not very efficient as a medium of exchange. 0:22:52.510 --> 0:22:56.270 So for something that does not have intrinsic value, um 0:22:56.280 --> 0:22:59.239 and where the entire value proposition seems to be in 0:22:59.250 --> 0:23:02.520 terms of its scarcity, um which is based on the 0:23:02.530 --> 0:23:05.179 fact that ultimately, there are going to be only 21 0:23:05.189 --> 0:23:08.680 million Bitcoins of which about 19 million have been created 0:23:08.689 --> 0:23:11.380 so far. And the supply is created on a very 0:23:11.390 --> 0:23:15.738 specific predetermined schedule that seems to give, you know, 0:23:15.816 --> 0:23:20.264 um Bitcoin maximalist confidence that Bitcoin's value is going to 0:23:20.276 --> 0:23:23.625 be preserved. But to me, just the fact that something 0:23:23.635 --> 0:23:27.984 is scarce um does not necessarily make it valuable. So 0:23:27.994 --> 0:23:30.494 I don't know what the valuation model is. And I'm 0:23:30.505 --> 0:23:33.566 quite explicit about that. In my book, there are other 0:23:33.576 --> 0:23:38.166 decentralized cryptocurrencies like Ethereum, which potentially have a lot more 0:23:38.176 --> 0:23:39.045 functionality 0:23:39.121 --> 0:23:42.362 because the Ethereum Blockchain uh does allow for a lot 0:23:42.371 --> 0:23:46.712 of smart contracting functions. Um So these are again ways 0:23:46.722 --> 0:23:48.410 in which we can, one can conduct a lot of 0:23:48.421 --> 0:23:55.041 more complex financial transactions without using uh trusted third party intermediaries. 0:23:55.261 --> 0:24:00.171 Um So for these other cryptocurrencies, I really don't see 0:24:00.182 --> 0:24:02.331 um a clear valuation model. 0:24:02.810 --> 0:24:06.459 Now, the interesting element of the Cryptocurrency ecosystem is that 0:24:06.469 --> 0:24:10.359 there are some cryptocurrencies that have stable value that do 0:24:10.369 --> 0:24:13.540 seem to be working quite well as mediums of exchange 0:24:13.550 --> 0:24:17.979 for transactions both within countries, but also for cross-border payments. 0:24:17.989 --> 0:24:21.750 These are of course the fiat currency backed stable coins 0:24:21.989 --> 0:24:26.349 now fiat currency backed stable coins. Um you know, are 0:24:26.859 --> 0:24:31.119 ironic in many ways, um the whole point of decentralized 0:24:31.130 --> 0:24:34.119 cryptocurrencies like Bitcoin was to get away from the dependence 0:24:34.130 --> 0:24:38.170 on fiat currencies. Stable coins get their stable value precisely 0:24:38.180 --> 0:24:42.489 by being backed up by stores of fiat currencies. Bitcoin 0:24:42.500 --> 0:24:46.079 was supposed to have a decentralized governance mechanism, a decentralized 0:24:46.089 --> 0:24:50.160 trust mechanism, stable coins are issued by particular companies or 0:24:50.170 --> 0:24:52.119 agencies which set the rules of 0:24:52.199 --> 0:24:54.250 the game which you decide who gets to use those 0:24:54.260 --> 0:24:57.729 stable coins which conduct the validation of all the transactions. 0:24:57.739 --> 0:25:01.929 So they are largely centralized. Um So that part of 0:25:01.939 --> 0:25:05.640 the uh ecosystem does seem to be working well. So 0:25:05.660 --> 0:25:11.270 do I see decentralized cryptocurrencies as um you know, displacing 0:25:11.280 --> 0:25:15.310 fiat currencies as store of value, not quite and stable 0:25:15.319 --> 0:25:17.589 coins are getting their fundamental value 0:25:17.670 --> 0:25:20.829 from being tapped by fiat currencies. So they too are 0:25:20.839 --> 0:25:26.219 not displacing um fiat currencies. Uh really the important thing 0:25:26.229 --> 0:25:29.500 about cryptocurrencies and I think their true legacy, other than 0:25:29.510 --> 0:25:33.020 the Blockchain technology. Is that what they have shown us 0:25:33.030 --> 0:25:35.739 is that there are lots of pain points, lots of 0:25:35.750 --> 0:25:39.819 inefficiencies in the traditional financial system. Now, I know that 0:25:39.829 --> 0:25:42.739 you will work for a traditional financial institution, 0:25:43.140 --> 0:25:45.829 but certainly your institution seems to be far ahead of 0:25:45.839 --> 0:25:49.129 many others in terms of taking these new technologies and 0:25:49.140 --> 0:25:52.909 adopting them uh to decrease many of these pain points. 0:25:52.939 --> 0:25:56.069 But I think the sense that traditional finance is not 0:25:56.079 --> 0:25:59.390 working well in many respects is not working well for 0:25:59.400 --> 0:26:02.069 a lot of people that I think is what sparked 0:26:02.079 --> 0:26:05.500 the revolution. And certainly we are moving towards that now, 0:26:05.510 --> 0:26:08.430 whether it will be the decentralized finance ecosystem 0:26:08.609 --> 0:26:13.920 or traditional financial institutions, co-opting these technologies uh in order 0:26:13.930 --> 0:26:16.149 to catalyze changes is a little hard to read at 0:26:16.160 --> 0:26:18.869 this moment. Uh But I think they are moving towards 0:26:18.880 --> 0:26:22.910 a somewhat better financial future and that may or may 0:26:22.920 --> 0:26:26.250 not have a place for decentralized cryptocurrencies. But I'm very 0:26:26.260 --> 0:26:29.280 grateful for the Bitcoin revolution because I think it has 0:26:29.290 --> 0:26:34.000 pointed the way to a lot of uh much needed changes. 0:26:34.689 --> 0:26:37.459 Absolutely right. Uh I, but I want you to weigh 0:26:37.469 --> 0:26:41.369 in on the dramatic developments we saw around the private 0:26:41.380 --> 0:26:44.188 digital currency ecosystem last year, you know, all sorts of 0:26:44.199 --> 0:26:49.439 governance related issues came out massive price volatility. Um Is 0:26:49.449 --> 0:26:53.199 this just one of those things that happens with new technology? 0:26:53.209 --> 0:26:56.209 You know, some people take advantage or is it revealing 0:26:56.219 --> 0:27:00.520 that in a purely digital infrastructure, there are inherent 0:27:00.849 --> 0:27:05.300 opacities or cybersecurity risks that we haven't fully addressed and 0:27:05.310 --> 0:27:08.060 therefore can't really trust the system very well. 0:27:09.209 --> 0:27:12.280 There was this notion that because of its scarcity, something 0:27:12.290 --> 0:27:15.780 like Bitcoin might even service in inflation hedge. Now, it 0:27:15.790 --> 0:27:18.698 turns out based on what we've seen over the last 0:27:18.709 --> 0:27:19.099 uh um 0:27:19.329 --> 0:27:23.339 um few years and admittedly Bitcoin is a relatively short history. 0:27:23.349 --> 0:27:26.979 Um but it's had significant traction. Um You know, it 0:27:26.989 --> 0:27:30.579 turns out that Bitcoin basically behaves like a risky asset. 0:27:30.589 --> 0:27:35.050 And because there is no clear valuation model, um underpinning 0:27:35.060 --> 0:27:38.119 its value, it turns out to be a highly volatile 0:27:38.130 --> 0:27:41.619 risky asset which is buffeted by the sort of macro 0:27:41.719 --> 0:27:45.729 economic factors including monetary policy factors and that seem to 0:27:45.739 --> 0:27:50.599 drive other um similar um risky assets. So I think 0:27:50.609 --> 0:27:53.619 the lack of the valuation model is leading to these 0:27:53.630 --> 0:27:58.709 huge amounts of volatility. Now, certainly we've seen a very 0:27:58.719 --> 0:28:03.119 drastic fall in the overall market capitalization. Um If one 0:28:03.130 --> 0:28:03.969 might use that term 0:28:04.109 --> 0:28:07.569 somewhat guarded way for the uh market value of all 0:28:07.579 --> 0:28:11.339 these crypto assets taken together, which um at its height 0:28:11.550 --> 0:28:15.420 um towards the middle of 2022 was roughly $3 trillion. 0:28:15.430 --> 0:28:18.160 It's about one trillion right now. So that seems like 0:28:18.170 --> 0:28:20.688 a very big fall. But, you know, one trillion is 0:28:20.699 --> 0:28:23.920 still a pretty sizable chunk of money. So lots of 0:28:23.930 --> 0:28:26.489 people still seem to have their faith in the system. 0:28:26.859 --> 0:28:29.750 Um But the interesting thing that has been revealed, I 0:28:29.760 --> 0:28:31.280 think over the last year 0:28:31.800 --> 0:28:36.310 is this notion of decentralization um really has given way 0:28:36.319 --> 0:28:39.670 to a great deal of centralization if you think about 0:28:39.680 --> 0:28:43.469 FTX coin base and so on. Um these are very 0:28:43.479 --> 0:28:47.229 centralized um players where uh you know, you're getting the 0:28:47.239 --> 0:28:51.150 custody as well as trading of assets, which don't necessarily 0:28:51.160 --> 0:28:54.880 need to take place in centralized exchanges. Actually all migrating 0:28:54.890 --> 0:28:56.709 onto these centralized exchanges, 0:28:56.963 --> 0:29:00.912 partly because they're convenient, but partly also because users seem 0:29:00.922 --> 0:29:03.942 to really want to have an institution that they can 0:29:03.953 --> 0:29:06.661 rely upon. So the need for some sort of trust 0:29:06.672 --> 0:29:10.373 mechanism doesn't seem to have gone away completely. Um If 0:29:10.383 --> 0:29:12.692 you look at even something like Bitcoin, you know, the 0:29:12.703 --> 0:29:16.723 validation is undertaken in principle by mining nodes that are 0:29:16.733 --> 0:29:19.133 distributed around the world. But in fact, 0:29:19.326 --> 0:29:24.865 about 6 to 8 clusters of computers um um essentially 0:29:24.875 --> 0:29:29.985 mining pools control much of the hash rate. Um that 0:29:29.995 --> 0:29:33.326 is the computing power that powers the Bitcoin network. So 0:29:33.336 --> 0:29:37.176 even with Bitcoin, you see a lot of centralization and 0:29:37.186 --> 0:29:41.576 as I mentioned, stable coins are all very centralized. So unfortunately, 0:29:42.020 --> 0:29:45.829 many of the promises of decentralized finance that we will 0:29:45.839 --> 0:29:50.150 have a decentralized architecture that creates more robust uh financial 0:29:50.160 --> 0:29:54.050 systems that allow. So the democratization of finance by giving 0:29:54.060 --> 0:29:59.449 anybody easy open permission, less access to financial products and 0:29:59.459 --> 0:30:03.609 services allows developers to very easily provide these products and 0:30:03.619 --> 0:30:04.510 services 0:30:04.744 --> 0:30:08.344 at scale at very low cost those promises have not 0:30:08.354 --> 0:30:13.805 been realized yet. Instead, we've seen many of the fragilities 0:30:13.814 --> 0:30:18.415 of traditional finance essentially being imported into what was meant 0:30:18.425 --> 0:30:21.785 to be decentralized finance. We've seen a lot of speculative 0:30:21.795 --> 0:30:26.535 activity in financial engineering taking place in this ecosystem and 0:30:26.545 --> 0:30:27.165 a lot of 0:30:27.390 --> 0:30:29.849 investors who may not be fully aware of the risks 0:30:29.859 --> 0:30:33.770 that they're taking on uh being exposed to very significant risk. So, 0:30:33.780 --> 0:30:37.290 investor protection in that part of the ecosystem has taken 0:30:37.300 --> 0:30:41.119 a hit as well. So unfortunately, at this stage, all 0:30:41.130 --> 0:30:45.119 the wonderful promises of decentralized finance have not borne out. 0:30:45.130 --> 0:30:49.400 I still think that there is promise in this technology, 0:30:49.410 --> 0:30:50.020 but 0:30:50.084 --> 0:30:53.305 um it's going to have to require some regulatory guard 0:30:53.314 --> 0:30:56.314 rails that limit some of these risks both in terms 0:30:56.324 --> 0:31:00.405 of risk to retail investors spillovers to the traditional financial system. 0:31:00.734 --> 0:31:04.364 Um And uh finding a way to get a regulatory 0:31:04.375 --> 0:31:09.564 framework that allows for innovation without completely stifling this ecosystem 0:31:09.655 --> 0:31:12.655 is going to be a tough balance for regulators to strike. 0:31:13.280 --> 0:31:14.119 I want to stay on the 0:31:14.130 --> 0:31:17.810 regulatory issue a little bit because we've seen a few 0:31:18.000 --> 0:31:21.689 actions by us regulators in the past year, uh cracking 0:31:21.699 --> 0:31:23.530 down on exchanges and 0:31:23.790 --> 0:31:27.949 suing the very large exchanges um for um malfeasance. And 0:31:27.959 --> 0:31:32.819 also we've seen some rulings about what is a Cryptocurrency? 0:31:32.829 --> 0:31:36.079 Is it a security? Is it a currency? Uh are 0:31:36.089 --> 0:31:37.739 the US regulators? And let's just talk with the US 0:31:37.750 --> 0:31:41.160 regulators in this context? Are they doing a good job 0:31:41.170 --> 0:31:46.280 in getting investors incentive, the regular publics incentive and the 0:31:46.290 --> 0:31:49.260 need to sort of promote innovation. Are they getting that? Right. 0:31:50.900 --> 0:31:53.880 So, from a regulator's point of view, I think um 0:31:53.890 --> 0:31:57.829 one needs to take an enlightened approach to this um 0:31:58.030 --> 0:32:02.130 how to um get the benefits of these innovations um 0:32:02.140 --> 0:32:06.770 without um you know, impeding the traditional functions of a regulator, 0:32:06.780 --> 0:32:11.000 which is um trying to minimize um institution of product 0:32:11.010 --> 0:32:15.989 specific risk as well as systemic financial stability risks. Um 0:32:16.000 --> 0:32:17.810 trying to maintain integrity 0:32:17.894 --> 0:32:22.413 of payment and financial systems and uh maintaining investor protection. 0:32:22.634 --> 0:32:26.213 Um And I think um regulators in the US um 0:32:26.223 --> 0:32:30.394 are rightly asking the following question, which I think is 0:32:30.404 --> 0:32:33.423 very important in many of these issues, which is um 0:32:33.703 --> 0:32:36.953 are there alternative ways to get many of the benefits 0:32:36.963 --> 0:32:40.193 which crypto technology says that it will deliver to us? 0:32:40.203 --> 0:32:43.864 So the US has put in place for instance, um 0:32:43.874 --> 0:32:44.784 fed now, 0:32:44.887 --> 0:32:47.968 which is this um suite of retail and wholesale payment 0:32:47.978 --> 0:32:51.078 services that are supposed to make the US payment system, 0:32:51.088 --> 0:32:55.458 which um until recently has been very antiquated to move 0:32:55.468 --> 0:32:59.118 it into a more efficient realm. So, in that circumstance, 0:32:59.128 --> 0:33:02.797 do you really need, for instance, stable coins which in principle, 0:33:02.807 --> 0:33:07.637 take fiat currencies, um convert them into tokenized form and 0:33:07.647 --> 0:33:09.907 allow them to be used more efficiently. Do you really 0:33:09.917 --> 0:33:11.777 need that? Um And 0:33:11.881 --> 0:33:15.371 then if you think about this promise of democratizing finance, 0:33:15.381 --> 0:33:19.131 are we really getting the benefits of democratizing finance without 0:33:19.141 --> 0:33:23.161 just creating grounds for um you know, uh promoters of 0:33:23.171 --> 0:33:26.771 uh a variety of crypto products to take advantage of 0:33:26.781 --> 0:33:30.112 uh um uninformed retail investors. Um So I think regulators 0:33:30.121 --> 0:33:33.891 are asking the right questions, but there is a risk 0:33:33.901 --> 0:33:37.092 that they face that if you put up regulatory barriers, 0:33:37.102 --> 0:33:38.771 um that could make the system a lot safe. 0:33:39.436 --> 0:33:42.645 But you limit innovation and in particular, you sort of 0:33:42.656 --> 0:33:47.166 foster centralization because regulations are good in terms of keeping 0:33:47.176 --> 0:33:50.556 things safe. But they are essentially also act as barriers 0:33:50.566 --> 0:33:53.956 to entry. And one of the promises of this decentralized 0:33:53.965 --> 0:33:57.316 finance space is that you could have much easier entry. 0:33:57.385 --> 0:34:00.576 Um So we might end up with even more centralization, 0:34:00.586 --> 0:34:03.926 which again breeds a whole new set of risks. Now, 0:34:03.936 --> 0:34:05.765 having said all this, um 0:34:06.300 --> 0:34:10.069 I think it's a very difficult task for um regulators 0:34:10.080 --> 0:34:13.250 because even enlightened regulators, and there are many of them 0:34:13.260 --> 0:34:17.169 here in Washington, despite what the crypto industry might uh 0:34:17.179 --> 0:34:22.750 might uh might suggest. Um but they understand also that 0:34:22.760 --> 0:34:26.169 the crypto industry doesn't seem to be delivering all the 0:34:26.179 --> 0:34:28.810 promise that it suggested um it would 0:34:28.879 --> 0:34:32.359 uh deliver in terms of benefits to customers, businesses and 0:34:32.370 --> 0:34:34.658 so on. And then even if you take something like 0:34:34.669 --> 0:34:38.239 stable coins, which have certainly shown a lot of lacking 0:34:38.250 --> 0:34:41.159 in the existing payment systems, the risk that you could 0:34:41.169 --> 0:34:44.069 have a redemption run on stable coins where they end 0:34:44.080 --> 0:34:47.250 up having to liquidate a large number of Treasury securities 0:34:47.260 --> 0:34:50.360 which ends up roiling the Treasury securities market is a 0:34:50.370 --> 0:34:51.389 real concern. 0:34:51.590 --> 0:34:53.790 So from a regulatory perspective, I think we are in 0:34:53.800 --> 0:34:59.040 a very uncertain phase right now. Um The Cryptocurrency industry 0:34:59.050 --> 0:35:02.830 says it is clamoring for regulation because it wants the 0:35:02.840 --> 0:35:06.100 regulatory guidelines. But I think what they really want is 0:35:06.110 --> 0:35:10.040 the legitimacy of regulation with very light touch regulation. And 0:35:10.050 --> 0:35:13.509 I think regulators are rightly concerned about arriving in that 0:35:13.520 --> 0:35:17.659 halfway point, which could actually be very destructive. Um So 0:35:17.770 --> 0:35:17.939 at the 0:35:18.040 --> 0:35:21.330 moment, I think we have a mishmash of regulations which 0:35:21.340 --> 0:35:24.610 are really creating a lot more uncertainty. You referred to 0:35:24.620 --> 0:35:28.629 this issue about the definition of crypto assets. The latest 0:35:28.639 --> 0:35:33.729 ruling against ripple, um which was partly in favor of ripple, 0:35:33.739 --> 0:35:36.379 which was partly not in favor of ripple as I 0:35:36.389 --> 0:35:40.529 think created even more cons uh confusion because basically what 0:35:40.540 --> 0:35:44.389 the judge said is that the native tokens issued by this, 0:35:44.580 --> 0:35:48.989 a Cryptocurrency called uh Ripper, if they are sold to 0:35:49.000 --> 0:35:53.810 uh institutional investors, those do count as securities. Um but 0:35:53.820 --> 0:35:56.969 if they are sold on open exchanges to retail investors, 0:35:57.000 --> 0:36:00.300 they are not. So uh we have even less clarity 0:36:00.310 --> 0:36:04.149 right now on what exactly a crypto crypto asset uh 0:36:04.169 --> 0:36:07.399 should be defined as and therefore how it should be regulated. 0:36:07.409 --> 0:36:09.899 So I think at a minimum, some clarity is going 0:36:09.909 --> 0:36:10.820 to be essential, 0:36:11.149 --> 0:36:12.310 right? It was like 0:36:12.320 --> 0:36:14.319 a crypto quantum moment. It can be both at the 0:36:14.330 --> 0:36:17.520 same time depending on who's holding it. Um If were 0:36:17.530 --> 0:36:20.040 a large part of your book, uh you do this 0:36:20.050 --> 0:36:23.280 masterful job of chronicling the wave of innovations we have 0:36:23.290 --> 0:36:25.929 seen in the financial technology area, not just in the 0:36:25.939 --> 0:36:29.290 last few years, but over a much longer period of time. 0:36:29.500 --> 0:36:33.899 Um from your perspective, which innovation has been the most 0:36:33.909 --> 0:36:36.239 consequential and transformative. 0:36:39.659 --> 0:36:43.010 You know, that is a tough question to answer because 0:36:43.020 --> 0:36:46.158 if you think about new technologies, I think the Blockchain 0:36:46.169 --> 0:36:49.189 technology has certainly um um 0:36:49.979 --> 0:36:53.810 it has transformative potential. I don't think it's quite there yet. 0:36:53.820 --> 0:36:55.969 But you know, if you think about transformation in a 0:36:55.979 --> 0:37:00.639 different sense, uh transforming the lives of ordinary people, there 0:37:00.649 --> 0:37:04.709 are very basic technologies that go on the rubric of fintech, 0:37:04.719 --> 0:37:07.560 you know, mobile payments, for instance, which have really made 0:37:07.570 --> 0:37:12.100 a dramatic difference um to the lives of uh um 0:37:12.110 --> 0:37:13.169 you know, consumer, 0:37:13.754 --> 0:37:18.995 um small businesses, merchants in many um low income economies 0:37:19.004 --> 0:37:22.395 which had very underdeveloped financial systems to begin with. So 0:37:22.405 --> 0:37:25.725 if you think about something very basic like mobile money, 0:37:25.814 --> 0:37:29.094 um and how that has made a huge difference um 0:37:29.395 --> 0:37:33.594 in um uh low to um lower middle income um 0:37:33.604 --> 0:37:36.415 economies in Africa and Asia and so on. 0:37:36.649 --> 0:37:40.260 Um those I think are transformative in a very different way. 0:37:40.270 --> 0:37:43.010 So uh I mentioned being in China, you know, uh 0:37:43.020 --> 0:37:45.419 on my trip, I literally felt like I was the 0:37:45.429 --> 0:37:49.360 last person in China still um using uh cash. I 0:37:49.370 --> 0:37:52.139 tried to pay for some of my camp rides using 0:37:52.149 --> 0:37:55.419 cash and I was stunned uh first that I would 0:37:55.429 --> 0:37:57.859 pull out a ¥50 note and of course, didn't have 0:37:57.870 --> 0:38:01.530 any change to um uh to give me. Um So 0:38:01.540 --> 0:38:03.959 the fact that you have these digital payments um 0:38:04.310 --> 0:38:09.199 available at low cost um uh with easy access with 0:38:09.209 --> 0:38:11.620 a great deal of efficiency that I think is much 0:38:11.629 --> 0:38:15.060 more transformative Again, not just in terms of digital payments, 0:38:15.070 --> 0:38:18.419 but also serving as a porter uh for basic banking 0:38:18.429 --> 0:38:19.939 products and services. 0:38:20.719 --> 0:38:23.010 Uh It short to your point on China, I mean, 0:38:23.020 --> 0:38:25.330 I have had a hard time using credit cards there. 0:38:25.340 --> 0:38:27.379 And initially, my view was this was a platform of 0:38:27.389 --> 0:38:30.089 a barrier to entry by the Chinese authorities. But it 0:38:30.100 --> 0:38:32.319 turns out that because the Chinese modes of payment are 0:38:32.330 --> 0:38:36.879 so cheap, vendors have no interest in being charged 2% 2.5% 0:38:36.889 --> 0:38:39.529 by Visa or mastercard. And that's why they don't accept them. 0:38:39.780 --> 0:38:43.120 Um So, so to me, uh my bias was that 0:38:43.129 --> 0:38:45.000 perhaps this was some sort of a barrier to entry, 0:38:45.010 --> 0:38:47.030 but actually turns out that it's the vendors who don't 0:38:47.040 --> 0:38:49.859 carry those credit cards. And I also felt like you 0:38:49.870 --> 0:38:52.489 and I was actually trying to use a card. Um 0:38:52.500 --> 0:38:56.709 uh If we're in the world of CBD CS, uh 0:38:56.719 --> 0:39:00.489 you again, you know, have been writing about this for 0:39:00.500 --> 0:39:03.229 a while. Of course, the book does a great job 0:39:03.239 --> 0:39:05.610 at that as well. So I have a few questions 0:39:05.620 --> 0:39:07.389 in the areas of CBD CS. But let me ask 0:39:07.399 --> 0:39:09.090 you first, like uh 0:39:09.389 --> 0:39:12.669 36,000 ft question. Uh where will we end up with 0:39:12.679 --> 0:39:15.520 CBD CS by the time this decade is over? 0:39:17.080 --> 0:39:21.060 So retail CBD CS uh um and let's stick to 0:39:21.070 --> 0:39:24.049 that uh uh for the moment. Um So retail C 0:39:24.060 --> 0:39:28.149 BT CS would essentially be the digital equivalent um of 0:39:28.159 --> 0:39:31.439 uh physical currency, the bank notes and coins that at 0:39:31.449 --> 0:39:35.199 least some of us uh still use and love. Um 0:39:35.459 --> 0:39:39.050 The um advent of retail C BT C si think 0:39:39.060 --> 0:39:41.149 is an inevitability because um 0:39:41.439 --> 0:39:44.929 um cash is disappearing very fast in some economies like 0:39:44.939 --> 0:39:50.120 China and Sweden. Um it's already practically non-existent. And if 0:39:50.129 --> 0:39:54.780 you think about the convenience of um digital payments for 0:39:54.790 --> 0:39:58.860 um businesses, consumers for governments, um the advantages that it 0:39:58.870 --> 0:40:02.330 has in pulling economic activity out of the shadows. Um 0:40:02.340 --> 0:40:06.159 The advantages are very clear. So uh I think we're 0:40:06.169 --> 0:40:09.530 going to get a shift towards digital currencies by any 0:40:09.540 --> 0:40:10.270 central bank 0:40:10.479 --> 0:40:14.070 that wants to keep its money relevant for retail transactions. 0:40:14.290 --> 0:40:17.350 There is a broader question about whether you need central 0:40:17.360 --> 0:40:20.669 bank money at all for retail transactions because central banks, 0:40:20.719 --> 0:40:23.389 you know, can do their job of managing monetary policy 0:40:23.399 --> 0:40:27.928 perfectly well, even if they were not issuing um currency 0:40:27.939 --> 0:40:30.979 either in digital or physical form. Uh And if the 0:40:30.989 --> 0:40:33.770 private sector is doing a good job of providing digital payments. 0:40:33.780 --> 0:40:36.448 Maybe you don't even need a retail CBD C. So 0:40:36.459 --> 0:40:39.689 why are central banks continuing with this? The um 0:40:40.040 --> 0:40:42.850 reason seem to be manifold in some countries. The idea 0:40:42.860 --> 0:40:45.870 is to give um you know, everyone who wants it 0:40:45.879 --> 0:40:48.370 easy access to a digital payment system no matter what 0:40:48.379 --> 0:40:51.889 your income or net worth. Another idea is to provide 0:40:51.899 --> 0:40:55.909 um a backstop uh to a purely private payments uh 0:40:55.919 --> 0:41:00.259 um uh infrastructure and the third is to ensure some 0:41:00.270 --> 0:41:03.270 payment innovation. Uh So, for instance, um 0:41:03.610 --> 0:41:06.590 both uh uh China, India and other countries that are 0:41:06.600 --> 0:41:11.010 expanding CBD CS talk about CBD CS being interoperable. So 0:41:11.020 --> 0:41:13.939 if you take China, for instance, Alipay and wechat pay 0:41:13.949 --> 0:41:17.939 work very well, but they are not um uh mutually compatible. 0:41:17.949 --> 0:41:21.620 So they don't have interoperability. So digital um or digital 0:41:21.629 --> 0:41:25.729 yuan uh could you know, set up this interoperability? But, 0:41:25.739 --> 0:41:26.000 you know, 0:41:26.159 --> 0:41:29.610 I handed in the manuscript for my book in early 2021. 0:41:29.620 --> 0:41:32.830 The book eventually came out, as you said in late 2021. 0:41:32.939 --> 0:41:35.679 I was much more positive about CBD CS. But I 0:41:35.689 --> 0:41:40.179 look around the world right now, I see much less 0:41:40.189 --> 0:41:43.629 um strong a case in terms of the value proposition 0:41:43.639 --> 0:41:47.089 for users. Uh take China again, Alipay and wechat pay 0:41:47.100 --> 0:41:48.629 are working perfectly well. 0:41:48.850 --> 0:41:52.290 Um The question is why does China need a digital 0:41:52.300 --> 0:41:55.879 um yuan uh India is going to face the same issue. 0:41:55.889 --> 0:42:00.109 Sweden undertook extensive CBD C trials. But the parliamentary committee 0:42:00.120 --> 0:42:01.939 that was set up by the, but they were set 0:42:01.949 --> 0:42:04.040 up by the government to evaluate the need 0:42:04.120 --> 0:42:07.580 for a digital corner, basically decided that Sweden doesn't really 0:42:07.590 --> 0:42:11.149 need a digital corner. Um Right now, so what are 0:42:11.159 --> 0:42:13.330 central banks doing in order to make sure that the 0:42:13.340 --> 0:42:18.100 retail CBD CS might still be um useful to um 0:42:18.110 --> 0:42:19.310 to the end users 0:42:20.229 --> 0:42:23.840 interoperability is one thing that might give CBD CS a 0:42:23.850 --> 0:42:27.020 bit of an edge of the margin. But then many 0:42:27.030 --> 0:42:30.800 central banks that I've spoken to recently talk about using 0:42:30.810 --> 0:42:34.780 the programmable features of money. And these are very exciting 0:42:34.810 --> 0:42:37.219 from the point of view of economic policies. 0:42:37.300 --> 0:42:40.729 So if you could actually um provide, you know, uh 0:42:40.739 --> 0:42:44.389 units of money which have expiry dates, you know, if 0:42:44.399 --> 0:42:46.830 uh you have a period of extreme economic distress or 0:42:46.840 --> 0:42:50.500 even a garden variety recession, giving people money with expiry 0:42:50.510 --> 0:42:53.360 dates would incentivize them to spend that money rather than 0:42:53.370 --> 0:42:54.290 save that money. 0:42:54.540 --> 0:42:59.110 Um You could imagine um helicopter drops of money which 0:42:59.120 --> 0:43:02.300 um you know, the economists fantasize about where basically you 0:43:02.310 --> 0:43:05.429 give everybody in an economy uh in a lump sum fashion, 0:43:05.439 --> 0:43:08.350 a certain amount of money to stimulate economic activity. These 0:43:08.360 --> 0:43:13.209 are all very powerful tools, but I've grown increasingly concerned 0:43:13.409 --> 0:43:17.389 that if all of these programmable features are put in place, 0:43:17.399 --> 0:43:19.189 you might actually start affecting 0:43:19.639 --> 0:43:23.590 the integrity of central banks and the very credibility and 0:43:23.600 --> 0:43:26.810 legitimacy of central banks central banks around the world are 0:43:26.820 --> 0:43:29.989 already under a lot of pressure. They have to manage 0:43:30.020 --> 0:43:33.580 exchange rates in some countries. They have to manage monetary policy, 0:43:33.590 --> 0:43:37.819 financial stability, maintaining economic activity. So they have a huge 0:43:37.830 --> 0:43:39.479 amount of political pressure on them. 0:43:39.820 --> 0:43:43.310 Now, what if a central bank starts being seen as 0:43:43.320 --> 0:43:47.129 the agent of the government in terms of undertaking surveillance? 0:43:47.139 --> 0:43:50.469 Um either broadly speaking or to make sure that the 0:43:50.479 --> 0:43:54.729 digital money is issued is not falling afoul of government regulations. 0:43:55.060 --> 0:43:58.139 Second, if you start seeing the central bank as a 0:43:58.149 --> 0:44:01.879 tool of the government, in terms of implementing fiscal policy, 0:44:01.889 --> 0:44:05.100 as I mentioned with these uh um helicopter drops of 0:44:05.110 --> 0:44:07.899 money and so on, then the central bank could become 0:44:07.909 --> 0:44:09.760 subject to a lot more pressure 0:44:10.689 --> 0:44:12.560 and then think about a world in which we have 0:44:12.570 --> 0:44:15.739 some units of central bank money that aren't just like cash, 0:44:15.750 --> 0:44:18.340 they have paid zero interest, they have no expiry dates, 0:44:18.350 --> 0:44:21.360 other units of central bank money that have expiry dates 0:44:21.370 --> 0:44:25.330 or potentially have negative nominal interest rates. Now you could 0:44:25.340 --> 0:44:29.580 imagine secondary markets where you might want to give away 0:44:29.590 --> 0:44:32.500 your units of uh uh money with the expiry dates 0:44:32.580 --> 0:44:34.340 um because you don't want to spend it, you want 0:44:34.350 --> 0:44:35.040 to save it. So 0:44:35.143 --> 0:44:38.212 we have secondary markets with different units of central bank 0:44:38.222 --> 0:44:42.872 money trading at different prices. I really worry that this 0:44:42.883 --> 0:44:46.572 could all affect the integrity of central bank money and 0:44:46.583 --> 0:44:50.002 of central banks. Now this seems a little dystopian at 0:44:50.012 --> 0:44:53.732 one level. But, you know, technology has taken us from 0:44:53.742 --> 0:44:58.292 what seemed like very promising outcomes to some very dark places. 0:44:58.302 --> 0:44:59.113 So I've gotten 0:44:59.594 --> 0:45:02.736 concerned a little bit about CBD CS and the notion 0:45:02.885 --> 0:45:05.565 that you could start using them as instruments of economic 0:45:05.575 --> 0:45:10.185 policy or potentially even social policy, you know, allowing CBD 0:45:10.196 --> 0:45:13.145 CS to be used for certain purchases and not for 0:45:13.156 --> 0:45:16.506 other things that a government might determine um are not 0:45:16.516 --> 0:45:19.845 desirable uh for central bank money to be used. So 0:45:20.045 --> 0:45:22.884 I worry a great deal about where CBD CS might 0:45:22.895 --> 0:45:23.926 be taking us. 0:45:24.629 --> 0:45:27.699 These are such fascinating discussion points. If were a couple 0:45:27.709 --> 0:45:29.299 of years ago, it seemed like, you know, we were 0:45:29.310 --> 0:45:32.659 only focusing on all the revolutionary possibilities uh to your 0:45:32.669 --> 0:45:34.790 point of, you know, programmable money. I was about to 0:45:34.800 --> 0:45:36.149 say that, you know, we have them in Singapore, they're 0:45:36.159 --> 0:45:40.239 called coupons from the government. Um But uh but all 0:45:40.250 --> 0:45:44.070 of those points that the Big Brother aspect, the capriciousness, 0:45:44.080 --> 0:45:47.250 the diluting of the role of central bank versus Mr Fit. 0:45:47.335 --> 0:45:50.145 And uh all of those are, you know, questions that 0:45:50.156 --> 0:45:52.165 I'm glad that, you know, we are asking before we 0:45:52.176 --> 0:45:54.986 have gone ahead and rolled out CBD C's Willy Nilly 0:45:54.996 --> 0:45:57.266 and I'm glad that people like you are thinking about 0:45:57.275 --> 0:46:00.206 it really, really hard. Um I wanted to ask you 0:46:00.216 --> 0:46:02.545 a couple of questions you touched on the financial inclusion 0:46:02.555 --> 0:46:07.145 issue briefly. Um Just the experience with uh the whole 0:46:07.156 --> 0:46:09.686 digital ecosystem in parts of Africa 0:46:10.041 --> 0:46:13.912 and parts of Asia. Um, it seems to me that 0:46:13.922 --> 0:46:18.862 a lot of these technological solutions use cases are better 0:46:18.872 --> 0:46:23.750 suited in poorer countries with less developed infrastructure than say, 0:46:23.761 --> 0:46:26.562 a country like Singapore where everybody has a bank account 0:46:26.652 --> 0:46:29.021 and everybody has a certain level of education and access 0:46:29.031 --> 0:46:31.912 to smartphones and perhaps it's not that compelling in a 0:46:31.922 --> 0:46:32.672 place like here. 0:46:34.290 --> 0:46:36.810 That is certainly true. I mean, change is much more 0:46:36.820 --> 0:46:40.659 needed and change has been much more dramatic in countries 0:46:40.669 --> 0:46:45.139 with less developed financial systems where um much of the population, 0:46:45.149 --> 0:46:48.120 um you know, is close to substance levels of uh 0:46:48.129 --> 0:46:52.899 um income. Um and those are areas where, um you know, 0:46:53.120 --> 0:46:57.199 um the lack of very basic financial services has provided 0:46:57.209 --> 0:47:00.560 a real um boost to these kinds to the adoption 0:47:00.570 --> 0:47:03.689 of these new kinds of technologies. And certainly um some 0:47:03.699 --> 0:47:07.699 degree of regulatory forbearance has certainly helped as well. Um 0:47:07.709 --> 0:47:09.149 Plus the fact that there aren't 0:47:09.360 --> 0:47:13.270 um uh strong legacy players who have uh an incentive 0:47:13.280 --> 0:47:16.060 to keep things um the way they are. Uh so 0:47:16.070 --> 0:47:18.790 the fact that credit cards are very easy to use 0:47:18.800 --> 0:47:21.090 uh in the US has certainly made it much harder 0:47:21.159 --> 0:47:24.100 for the US to move forward with alternative um uh 0:47:24.110 --> 0:47:28.399 digital payment uh options. Um So we are seeing um 0:47:28.409 --> 0:47:31.290 a great deal of leap frogging by 0:47:31.889 --> 0:47:35.100 developing and emerging market economies and of course, the demand 0:47:35.110 --> 0:47:39.169 for financial services um has also been um rising very 0:47:39.179 --> 0:47:42.299 fast in many of these economies because in um many 0:47:42.310 --> 0:47:46.820 of the um middle to upper income emerging market economies, 0:47:46.830 --> 0:47:50.580 in particular, there is a rising middle class that wants 0:47:50.590 --> 0:47:54.800 um better financial services delivered um in a more efficient 0:47:54.810 --> 0:47:58.280 way and the new technologies are certainly providing ways uh 0:47:58.370 --> 0:48:01.310 to make that happen. So yes, um I think we 0:48:01.320 --> 0:48:06.570 are seeing um the transformative potential of these new technologies 0:48:06.580 --> 0:48:10.080 uh um taking shape much more clearly um in the 0:48:10.090 --> 0:48:13.959 parts of the world um where financial systems are already 0:48:13.969 --> 0:48:15.199 not well developed 0:48:15.870 --> 0:48:18.080 is where I had promised you a 45 minute conversation. 0:48:18.090 --> 0:48:20.760 We've gone past that because just so many interesting things 0:48:20.770 --> 0:48:22.580 to talk about. But I do want to add one 0:48:22.590 --> 0:48:27.919 more question as apo with apologies. Um capital account convertibility 0:48:27.929 --> 0:48:32.300 and digital currencies. I mean, is there a contradiction for 0:48:32.310 --> 0:48:35.159 say a country that wants to have capital controls but 0:48:35.169 --> 0:48:35.850 also want to have 0:48:35.860 --> 0:48:36.500 digital money? 0:48:38.070 --> 0:48:40.889 So the world we are moving to is one where 0:48:40.899 --> 0:48:44.979 money is going to be much more um fungible across countries. 0:48:44.989 --> 0:48:45.199 Um 0:48:45.600 --> 0:48:50.370 um Now, stable coins are already um providing ways to 0:48:50.379 --> 0:48:53.280 um move money across national borders. And of course many 0:48:53.290 --> 0:48:57.280 central banks um recognizing that this is a real pain 0:48:57.290 --> 0:49:02.909 point in international finance because international payments right now are costly, expensive, 0:49:02.919 --> 0:49:06.340 difficult to track in real time. They are integrating their 0:49:06.350 --> 0:49:08.189 um wholesale CBD S 0:49:08.382 --> 0:49:11.511 in some cases into their retail CBD CS and trying 0:49:11.521 --> 0:49:16.381 to set up these cross border um bridges or multiple 0:49:16.392 --> 0:49:20.332 uh wholesale central bank CBD C approaches to provide more 0:49:20.342 --> 0:49:24.342 efficient conduits for international payments. Now there are those official channels, 0:49:24.352 --> 0:49:25.771 but I think they're also going to have a lot 0:49:25.781 --> 0:49:29.721 more unofficial channels for money to flow across national borders. 0:49:29.731 --> 0:49:30.862 And this is some level is going 0:49:30.944 --> 0:49:34.914 to be great for reducing frictions in international payments. It 0:49:34.924 --> 0:49:38.093 means for instance that economic migrants sending remittances back to 0:49:38.104 --> 0:49:41.543 their home countries can do so much more cheaply. If 0:49:41.553 --> 0:49:45.873 you have practically instantaneous settlement of cross border settlements rather 0:49:45.884 --> 0:49:48.513 than T plus two T plus three or even longer, 0:49:48.523 --> 0:49:51.114 you don't need to hedge against the exchange rate risk 0:49:51.123 --> 0:49:53.414 over those short horizons 0:49:53.614 --> 0:49:57.716 for uh payment and settlement uh are concluded. So this 0:49:57.726 --> 0:50:00.225 is all going to be good. In principle, you could 0:50:00.236 --> 0:50:05.044 have um low income households, low network households, having access 0:50:05.055 --> 0:50:10.256 to international portfolio diversification opportunities, small and medium enterprises being 0:50:10.266 --> 0:50:13.885 able to access global pools of capital. This is all good. 0:50:13.895 --> 0:50:16.206 But unfortunately, it's also going to mean 0:50:16.469 --> 0:50:20.320 that the more conduits for um capital flows, you have 0:50:20.330 --> 0:50:23.790 the more capital flow volatility and potentially more exchange rate 0:50:23.800 --> 0:50:28.199 volatility that emerging market economies in particular might be subjected 0:50:28.209 --> 0:50:31.760 to and the smaller open economies in particular, I think 0:50:31.770 --> 0:50:37.810 face um pretty serious macroeconomic but also um existential crises 0:50:37.820 --> 0:50:39.489 for their currencies because you can 0:50:39.735 --> 0:50:42.625 you imagine a digital version of the dollar or a 0:50:42.635 --> 0:50:46.034 digital version of the Renminbi or stable coins issued by 0:50:46.044 --> 0:50:50.064 major corporations displacing their domestic currency. So you could get 0:50:50.074 --> 0:50:53.044 a real shake up in terms of the international monetary 0:50:53.054 --> 0:50:57.004 system at the lower tiers of that monetary system as well. 0:50:57.074 --> 0:51:00.214 Um But more specifically on capital controls, those are going 0:51:00.225 --> 0:51:03.725 to become very difficult to sustain over time. That 0:51:03.735 --> 0:51:06.004 that sentiment was echoed to me by the central bank 0:51:06.014 --> 0:51:08.205 governor of India. Recently. 0:51:09.060 --> 0:51:12.409 I can't thank you enough. Uh This was a fantastic conversation. 0:51:12.419 --> 0:51:14.350 Thank you so much for your time and your very 0:51:14.360 --> 0:51:15.489 valuable insights. 0:51:16.659 --> 0:51:18.209 Thank you so much for having me again on your show. 0:51:18.489 --> 0:51:21.229 That was a really fun conversation. I enjoyed it very much. 0:51:21.260 --> 0:51:21.850 Thank 0:51:21.860 --> 0:51:24.320 you and thanks to our listeners as well. Copy time 0:51:24.330 --> 0:51:28.590 is for information only and does not represent any trade recommendations. 0:51:28.600 --> 0:51:32.049 All 105 episodes of the podcast are available on youtube 0:51:32.260 --> 0:51:36.459 and on all major podcast platforms including Apple Google and Spotify. 0:51:36.540 --> 0:51:40.158 As for our research publications, webinars and live streams, you 0:51:40.169 --> 0:51:42.790 can find them all by Googling D BS research library. 0:51:42.810 --> 0:51:44.129 Have a great day.