Could Central Bank Currencies Transform the Digital Economy?

0:01 thank you so much to daniel for that excellent summary next up is a panel that will continue 0:06 this conversation and explore how cbdc's could transform economies and financial systems in the future live 0:13 q a is available for this session so please submit any questions through the engagement hub for registered attendees 0:19 under the day 2 live stream okay as as we wait for our guests to 0:25 load up and on stream uh my name is chris brummer and i'm a law professor over at georgetown university law center 0:32 and i am uh just uh delighted to welcome with me uh some of the world's great experts on 0:39 both financial inclusion central bank digital currencies and digital infrastructures uh more generally i think we'll just go 0:46 around and have each of them introduce themselves but before i did um i did want to give 0:51 a thanks to our organizers uh to to to michael barr adrian harris and others have been involved um so i guess 0:58 we'll just start off with this uh group of luminaries for their introductions and then we're just going to go 1:03 straight into the headline questions we'll start off with you lisa 1:09 lisa cook michigan state university and and world famous economist and yes 1:16 uh chris uh carlo please thank you chris i'm chris giancarlo 1:21 i'm the former chairman of the us commodity futures training commission i'm senior counsel the wilkie foreign gallagher and i'm a 1:27 partner with daniel gorfin who you've just heard of as a founding member of the digital 1:32 dollar project which i look forward to discussing with you in this session this is also apparently one of the most 1:38 modest sessions that you'll ever hear because uh christian carl was also the chairman of the cftc a little uh 1:45 agency regulating uh a good chunk of the financial system uh bajoy hi thank you 1:52 happy to be here thanks chris uh beejoy vlascoop the chief economist of e-currency 1:57 we provide the tech for central banks to issue cbdc we interact with about 30 plus central 2:03 banks around the world former chief economist of asia pacific at the iif great to be here great and then finally 2:11 morgan hi morgan ricks i'm a professor of law at vanderbilt law school 2:17 and previously worked at the treasury department in the obama administration and i've done a fair amount of writing 2:23 on cbdc and in particular the fed account implementation of a cbdc which i'll hopefully be talking about 2:30 wonderful okay so you know certainly just just in in terms of uh 2:36 morgan's response in and of itself i think it's good to maybe start off with some definitional uh questions just so that we know what 2:43 we're talking about uh usually when you think about the fintech ecosystem there are plenty of terms of 2:48 art and those terms of art uh may be used and deployed in different ways in in different contexts 2:56 so from that standpoint um uh uh bajoy i mean uh has there been any progress in terms 3:02 of understanding uh uh what a cbdc is both definitionally but also 3:11 in terms of the choices and potential design features of cbdc's so i mean 3:18 maybe you can walk us through again what what a cd is i mean um certainly dan has done a great 3:23 job in sort of cueing us up and then are we seeing even now certain kinds of recognizable 3:30 patterns uh yes chris yes lots of progress in the last couple of years essentially the question 3:38 is to remain relevant in the digital age it is clear that the central bank of the future 3:43 needs a monetary instrument which is digital alongside notes and cards 3:48 so what is a cbdc cbdc is a liability of the central bank 3:55 the digital equivalent of physical cash it is part of m0 4:02 and it is fiat money and of course it has to be widely 4:08 accessible it can be used for low volume 4:13 high value transactions between financial institutions in the form of wholesale cbdc's 4:20 and but even more importantly for an inclusive financial system it can be used for high volume 4:28 but low value transactions by for individuals and businesses 4:35 as cbdc's for retail use let me quickly touch on some of the 4:41 gains and before i talk about the two design that kind of issues in terms of the gains uh 4:47 also wholesale cbdc of course these are efficiency gains in inter bank and securities payments and 4:54 settlements in terms of operational costs and things like that but more importantly for retail cbdc's 5:01 uh they bring efficiency gains from lower costs and instant settlement along with 5:07 expanded markets and financial inclusion they also 5:12 give the access to to the general public uh well regulated and state guaranteed 5:20 means of payments and helps boston financial stability 5:25 now what are the two kind of design issues that we have we're talking about for wholesale cbdc 5:30 it's pretty straightforward uh you know our financial institutions have accounts with 5:36 the central bank uh so operationally and policy wise there's not much to it uh that however the design 5:44 choices are more complex when you come to retail cbdc's 5:49 and here there are two issues firstly they can be accounts account based where individuals and 5:55 businesses hold accounts directly with the central bank alternatively they can be a value base 6:03 to a hybrid model where the cbdc is 6:08 issued by the central bank as a digital bearer instrument it is distributed 6:15 through private payment service providers are used by consumers 6:21 and businesses so it can be thought of as a public private partnership where which 6:28 combines both central bank and private sector innovation and this 6:33 approaches is gaining popularity uh with central banks around the world 6:39 just one last uh one point here so the beauty of the hybrid model is the private sector builds 6:47 and operates the payment rails and continues to innovate whereas where the central bank is 6:54 actually providing the digital instrument that operates across those payment rails 7:01 so it's interoperable which is great for financial inclusion it's pro competition and it's pro 7:07 stability of the digital and mobile money uh private providers i'll stop here for now 7:15 yeah i mean i think that's that's a useful sort of starting point and and i know that morgan and others will will have sort of more to add to that 7:22 but you know one is it was i guess the the access point issue you know are we talking about um a 7:28 kind of digital currency that's accessible at the wholesale level or the retail level um as 7:34 as what's alluded to earlier and then um what kind of payment rail is it and 7:41 who builds it as as sort of being this the second question as to uh whether or not you have a hybrid um 7:48 uh structure um uh mr chairman um what are you seeing uh you know 7:55 globally uh certainly in terms of the kinds of design choices central banks are making i mean 8:01 you've obviously been at the cutting edge of a lot of these conversations over at the digital dollar foundation but and you know from those 8:08 conversations with uh central bankers overseas and in other 8:13 jurisdictions how do you listen to those conversations and how are they comparing to how people are thinking here in the 8:20 united states you know chris uh you know when i when i sort of survey the globe globe generally i 8:26 see six uh what i call imperatives that are driving central banks and as we know from work 8:32 done by the bis over 80 of the world's central banks are exploring to some degree or other 8:38 central bank digital currency and so as they say i see six general imperatives i would start with a 8:45 geopolitical currency uh influence and power that comes with that and i think that's 8:51 certainly driving uh to some degree uh china's very world-leading efforts in this area but i 8:56 think to some degree the european union as well i'll turn to the u.s in a second but just focus on 9:02 the globe uh in terms of another imperative is concern about data the data of financial 9:09 in transactions you know if data is the new oil central banks are concerned about 9:14 that very powerful and very valuable resource being controlled by commercial entities 9:20 as opposed to to central bank entities and then a third imperative i would say is financial inclusion 9:26 and if we look at the work that's being done in say countries like the bahamas with their sand dollar initiative 9:32 they've got a lot of very digitally sophisticated residents but actually a relatively low level 9:39 of financial inclusion and so they see a digital transactions as a sort of an entry ramp 9:44 into greater financial inclusion and then a fourth imperative i would say is just modern 9:51 digital infrastructure uh to move from uh analog to digital transactions and 9:58 certainly in the wholesale area uh singapore and its monetary authority is really exploring 10:04 the wholesale institutional uh use of this new technology for less friction uh a greater speed greater velocity of 10:11 money and then a a fifth imperative i would say would be uh surgical precision with 10:18 monetary policy the ability to to 10:23 utilize monetary policy and very precise very targeted look at micro communities specific areas 10:31 speed uh as well and then the last one is one that i talk a lot about and that's social values i really 10:38 believe and i've said this for a long time money carries with it the values of a given society 10:44 and i think that that china for example uh with its notion of uh social credit um with its uh 10:52 tradition of relatively strong state surveillance and currency controls uh wants control of money in order to 10:58 make sure those values are incorporated and the european union with its strong tradition and legislation 11:04 against commercial exploitation of data uh wants to make sure the values of their uh 11:10 of their of their their laws against gdpr laws against commercial exploitation of data uh is 11:17 there as well as currency support now just briefly to take those six imperatives and apply them now in the us 11:23 the first one of geopolitical currency influence i actually think that doesn't resonate right now with the fed uh 11:30 the dollar is probably at an all-time high in terms of its geopolitical influence and i don't think 11:35 the fed perceives a need to innovate for that purpose um certainly 11:40 uh a lot of folks in washington got real upset with the prospect of libra coin and the notion of 11:46 financial data falling in the hands of commercial players and i think that brought a lot 11:51 of voices into the debate about cdb at cdbc and also 11:56 you know we've got a long tradition of protecting data uh privacy from government interference 12:02 in our fourth amendment and so the notion of data and who owns it who's protected in it what our 12:07 privacy rights has brought a new uh uh i think uh uh uh interest in this from from people 12:13 that are focused on civil liberties financial inclusion um i think well you've got folks right here on this 12:19 panel that have been focused on this for years not just uh with the onset of culvert not just with the onset of cbdc 12:26 and yet i think that uh this audience now is is looking at cbdc and saying 12:33 how can this be a tool for greater financial inclusion that's been long a concern uh then infrastructure i mentioned 12:39 before this notion of tokenized digital well we know that the boston fed and mit is looking at 12:46 uh core infrastructure aspects of cbdc monetary policy that surgical precision 12:52 um i think nothing has pointed out the lack of precision in our account space model than covid 12:59 when millions of americans were waiting a month or more to receive a relief by paper check and over a 13:06 million a million of them went to dead people we certainly know we don't have a precise 13:11 precision surgical like approach with our existing account space system and then finally social values which as 13:17 i said is the one that i keep coming back to at the end of the day the dollar does 13:22 carry with it in its global role certain social values values of individual rights of privacy 13:29 and privacy in your financial transactions provided they're not engaged in illicit conduct free speech 13:35 and the ability to you know deploy money in a way that reflects your own personal values 13:40 without state interference a free enterprise the ability to raise capital to build businesses and 13:47 then an air issue very important to me at the cftc was lack of government interference in marketplaces the reason 13:53 why the world trusts the price of cotton and soybeans to set be set in american markets 13:59 and not other markets is because we don't have a government home team in the us that steps in markets when they go 14:05 down to make sure they go up the way it's done in certain non-democracies those values 14:10 are built into the dollar and i think one of the most important reasons why we should be exploring a central bank digital currency in the 14:17 united states is to make sure those very values stay in the digital form of money going forward because there is a contest 14:23 underway right now for what values are going to dominate in the future of money and i think those values that have 14:29 gotten us to where we are we need to make sure they're built in to the values of money going forward 14:35 you know i want to pick up on that as as as we move uh to morgan i mean uh some of the great um observations 14:42 that were just made and i think it's useful for the audience to keep in mind is that the definition of what money is 14:49 is actually currently being um investigated and refined and and 14:54 and there are questions about what money should be what money should mean in a world where 15:01 it takes this leap from a kind of paper or even traditional electronic 15:06 sort of infrastructure to a specifically to it to a digital one 15:11 we've heard uh morgan conversations as to sort of two different vectors by which you can 15:16 imagine uh what a cbdc or how a cbdc could operate we've only really thought 15:22 or kicked the tires at least initially on those two questions of whether or not there's a wholesale retail payments and then again who's involved with 15:29 building that infrastructure but again the quality features of that infrastructure itself can can can differ 15:35 considerably we've heard a lot about values here in the united states and and there's certainly be a lot of elasticity 15:43 uh in the bbc debate even if you're in the united states depending on sort of where you're you're you're looking um 15:51 how in your view does the conversation on cbdc's intersect with other conversations conversations 15:57 that you've been very active uh and involved in uh on fed accounts uh faster payments and postal banking 16:05 yeah so that's a great question chris um and you know one way of thinking about this about cbdc 16:11 is is and majority referred to this which is that there's a sense of which we already have a cbdc 16:16 which is reserve balances that banks and certain other financial institutions are 16:21 allowed to hold at the fed and in those accounts they're they're they're digital right it's a 16:27 it's an entry in a digital ledger so it's a it's a central bank digital currency it's part of the monetary base 16:33 um and those accounts by the way are pretty great you know they offer real time payments really have since the 16:38 1970s uh they carry interest that's higher than ordinary bank accounts 16:44 uh and they're completely non-defaultable right they're pure base money but they can only be held by banks and 16:50 other financial institutions whereas uh ordinary physical currency is as an equal access resource so we really have 16:57 this sort of um asymmetry uh in at the core of our monetary framework there are two kinds 17:03 of money to fed issues physical currency and then and then bank accounts and 17:08 one's available to the general public and the other is is for an exclusive clientele 17:14 uh and so one way of thinking about the cbdc debate is to think about expanding 17:20 access to the form of cbdc that we already the defender already offers uh which is an account based and not not 17:27 a bearer instrument not a tokenized digital currency but an account based digital currency and so 17:33 so um there are several as you mentioned there are several strands of uh a policy thinking that have been 17:39 going on for years uh one argument that uh that both chris and majori referred to was the inclusion 17:46 aspect of a cbdc uh this is an issue that we it's really 17:52 almost unique to the united states in the developed world that we don't have uh really full bank account penetration 17:58 across um across all demographics and and so the postal banking 18:04 idea which has been around for many years was really an inclusion based 18:09 argument right the arguments for cl postal banking or expanding uh access to the mainstream system of 18:17 money and payments uh a fed account idea which i and a couple of others um wrote a paper about a number of years 18:24 ago but i don't want to claim that we were the first to ever think about this i mean james tobin the great economy 18:30 macroeconomist wrote a paper in 1987 uh arguing that everyone should be able to have what he 18:36 called the deposited currency account at the fed which is exactly 18:42 that's the same concept of just expanding access to accounts and so that idea has been also around 18:47 for a while and the cbdc debate as as both chris and majora referred to um 18:52 is is somewhat more recent inspired to a significant extent by the cryptocurrency 18:58 um the emergence of cryptocurrencies were i think what really really set off the debate over cbdc's 19:05 and then and then further accelerated uh pretty dramatically when facebook 19:10 launched its libra initiative and i think that's what really really led the fire under uh ranks to think about this um to think 19:18 about these issues a lot harder than they had been previously but these things are all sort of in some ways converging into a single 19:25 discussion as you said almost a philosophical question about what money is what's the nature of our monetary 19:31 framework how fragmented is it going to be versus integrated uh how available is it 19:36 going to be to everyone what are the benefits what are the monetary monetary policy benefits of having um 19:43 having a cbdc of some sort uh whether it's account based or token based and so we really see these debates converging 19:49 now uh into into more of a single unified debate yeah and i'm just going to follow up 19:56 with that just so that our audience can can sort of uh for those who are new to to to this wonderfully uh it's a 20:02 interesting uh world is is so part of it is whether or not because we we've certainly had e-money 20:09 uh and we've certainly had also central bank digital currencies um and then part of the the debate 20:15 it's not really a debate it's more like kicking the tires to see what's what's what's best at this point in time is okay we have new kinds of 20:23 infrastructures that allow as a joy sort of hinted at 20:28 um a kind of decentralized 20:33 right and there's always been this question of decentralization i suppose because there's always this question as 20:38 to what is the role the proper role of say private banks in money creation and the 20:44 like but that that question becomes sort of supercharged when you introduce a technology that is 20:50 itself sort of built on on decentralization and and then you ask yourself well 20:55 does tokenize decentralized architecture you know is there something different 21:01 about it when you talk about a cbdc versus what what would a cbdc look like 21:08 using the current rails that we already have versus and i think it's really important to 21:13 keep these all sort of conceptually distinct what what does it mean when 21:18 people talk about postal banking is this postal banking in people 21:25 see a sort of account based system is this postal banking where you put some kind of tokenized layer on it what 21:32 i mean like the the post office in and of itself is almost a kind of a of a metaphor in in some in some ways because there are 21:39 so many different rails that you could um conceivably use um and i want to get get to lisa because 21:46 she hasn't said a word um but if you don't mind um lisa just for one quick second i just wanted to to 21:53 get morgan's sort of take on that you know in terms of how you conceptually distinguish these three 21:59 things that you converge as you know depending on who the person is in terms of their 22:05 their sort of plan for for an upgrade yeah well look it's a great question chris and i think i think there's more 22:10 than one way to think about this i mean when we talk about decentralization in the context of a cbdc you know it's a 22:17 central bank digital currency so the word central's already there there's some sense in which it's not complete 22:22 it's not decentralized in the same way that uh that the cryptocurrencies are um the the central bank is there 22:29 it's the issuer of the dollar and it's the manager of this system at some level um that doesn't mean we can't have a 22:35 distribution channels that are private as bajoy mentioned and the customer interface for retail can be private but 22:41 there is a there is a centralized aspect to it no matter what even if it's a um distributed ledger uh but but on the 22:48 postal side i completely agree with you i mean uh i wouldn't necessarily say metaphor but but 22:54 but the post office we can think of as to the extent we need a physical 22:59 interface of some sort a branch network of some sort which i think we all agree is sort of less important now than it was 10 years ago 23:05 certainly than 20 years ago i don't go to my local bank branch very often anymore uh and i'm sure many of the watchers don't 23:12 either but but to the extent we do want that physical interface and it is a central bank digital currency it's an aspect of the federal 23:18 government you know in the constitution the congress's power to coin money and regulate its value 23:24 it's directly adjacent to right before it's uh its power to set up the post office and 23:29 those are two money payments and the postal service our basic communications back 23:36 uh backbone are just two aspects of public infrastructure that really have constitutional status 23:41 here and i think we can think about the post office as being a physical distribution or branch 23:47 network to the extent that that is is required and and the virtual channel i mean but as 23:52 as you know physical in your neighborhood and virtual um uh which is just fascinating uh lisa i know i've 23:58 made you late sorry uh but your your your expertise um particularly on these issues is is 24:05 extraordinary um yeah when you when you listen to sort of these these kinds of you know the the suite of options that 24:12 really um all of the other participants have kind of laid out as well as the kinds of questions in 24:17 terms of our values and and the like um what do those features tell you uh 24:23 as an economist about sort of the the trade-offs uh that one could possibly see in terms 24:29 of how people are at least trying to evaluate the the risks and the rewards of a central bank uh 24:36 digital currency in all of its many guys 24:42 i have worked on financial crises since my dissertation 24:47 since i wrote my dissertation in russia in the mid-1990s so i've always thought 24:54 about what happened in economies in the extreme and 25:00 if we had had a central bank digital currency in place for this pandemic 25:08 we would not be in the shape we're in at least partly at least partly 25:15 i put forward a mobile money proposal at the beginning of the pandemic because we don't have everybody 25:22 registered to easily get 1200 directly from the federal government 25:28 we use tax rolls and if you paid your taxes uh using a bank account 25:35 then you were easily paid but there are a lot of people who weren't let's start with 25 percent of the u.s 25:41 population is either unbanked or underbanked so they would have had to have found 25:48 the website that treasury wanted you to sign up on to be able to receive your money 25:54 through ach and ach is not as you know it's it's speedy you know 25:59 but it's not as speedy as it as it could be uh people were were suffering and they 26:06 were suffering very quickly after the pandemic started so we could have done better uh say through a digital currency 26:13 so that's that's one thing but then there are also many people who don't pay taxes right 26:20 they don't make enough to pay taxes or for some reason they don't pay uh taxes so the twelve hundred dollars 26:27 could have gone that would go to uh an adult could have gone to a lot more people 26:32 a lot of these checks still have not been paid this is this is the the scandal 26:37 uh much after the first ones were delivered people still haven't been paid and we 26:42 know that there are people suffering because we see these food lines 26:48 that are miles long so we could think about the well-being of people being in the hands of 26:54 something like a digital currency so that's that's one side of it that that's that's the 26:59 broad definition of financial inclusion typically we're talking about sort of um you know low-income or 27:07 marginalized groups but this is the american population and we've got to be ready for it we 27:12 can't wait until a crisis happens for us to be uh suited for 27:19 that to implement the infrastructure uh for that i think libra certainly uh put a fire 27:26 under the federal reserve uh to quicken its uh it's not just thoughts 27:33 but ways of implementation figure out how to do this in practice 27:38 and i think that was a great idea and a second wave of this is this current uh pandemic crisis 27:46 so i would say this is one of the biggest benefits but if we're talking about generic benefits certainly as a macro economist i'm 27:53 constantly thinking about monetary policy anyway we could increase uh 27:58 intermediation obviously we could use the tools that we have 28:03 uh even better and given that interest rates are near zero monetary 28:09 policy is going to be less effective we have fewer tools anything that can make this more precise 28:16 to make it uh work even better would be useful so if there were any other time 28:22 that a digital digital currency a central bank digital currency would be useful it would be now 28:28 certainly there is the cost of processing cash 28:33 now uh that is it's all a cost in the u.s it's a much bigger cost than some 28:39 other places but this is something that i worked on when i was at cea and the obama administration in 28:46 terms of uh the cost of processing cash at some point we're going to have to have that 28:51 discussion about what we're going to do with the penny you know canada already got rid of it yeah we're 28:57 we're spending more money on on the penny and the question is when we're going to take it out of 29:02 circulation i don't think it's uh it's uh weather but when uh so we have to we have to think 29:09 about that i think those are our three major uh benefits of such a currency now they're challenges 29:16 uh certainly again when i think about financial crises i think about bank runs first and if it is an asymmetrically deployed 29:26 uh digital currency uh there could be bank runs and uh the the kinds of bank 29:33 runs that we see that might evolve slowly could evolve much more quickly so that has to be 29:39 managed but every central bank that i know uh who is developing this and having uh serious 29:46 conversations is is already thinking about that so uh i would say that's at 29:51 the top of the list certainly disintermediation bank disarm intermediation uh where would deposits 29:58 go now deposit insurance obviously can take uh care of a lot of these problems but 30:04 deposit insurance has to be evenly uh deployed and enforced we saw 30:09 this in cyprus uh certainly a lot of the russian oligarchs who showed up with their 30:16 deposits in cypriot banks in 2012 thought that these were 30:23 going to be covered just because uh they had a lot of deposits well that's not that's not how deposit insurance works 30:30 and uh cyber so you know you you get these anomalies but they are instructed uh they should be 30:37 instructed for how uh central bank currency is deployed but rather than go on since i uh this is 30:44 one of my favorite topics sort of preventing financial crises first 30:50 and then making sure that they don't do significant damage second uh i uh would like to 30:56 leave time for any questions that the audience might have and there are quite a few you know this 31:02 is a great constellation of experts you know um uh i i just to follow up on on your 31:07 uh remarks there lisa you know um uh the ft's isabella kaminska sort of evolved her 31:14 thinking you know about um cbdc's and and part of her uh sort of critique was that okay 31:22 well it's not even so much um disintermediation from the standpoint of 31:27 uh commercial bank balance sheets from a financial stability perspective but what you know what does this do to to money 31:35 creation itself to the extent to which those those deposits kind of um pick up and 31:41 leave and she's been a critic and so you know i want to make sure that we get all those those sort of points in there you know 31:47 has that been a yellow flag or or or red flag or a flag uh in some way in your thinking 31:55 um um uh particularly when you when you think about that that as an economist about that 32:01 um disintermediation question i think i think it's been a yellow flag 32:06 and i think that those who are doing serious research on this are uh taking that into account 32:13 my thinking has evolved i i didn't believe that central banks needed a 32:20 digital currency when markets work fine and and 32:25 the the thing that i started thinking about when all of these cryptocurrencies were showing up was 32:31 we're gonna have to bail them out anyway so we may as well have our own currency and we're gonna have to bail them out if 32:36 they're tied in some way to uh to to dollars to hard currencies 32:43 uh we are going to have to step in at some point so we may as well uh have one that is 32:50 regulated and uh that offers a counterbalance to these private currencies i think that 32:57 is uh that is the way in which my thinking evolved so it was before uh the introduction of libra but uh 33:04 but certainly i think that with a balanced or hybrid system as bajoy was uh 33:09 suggesting i think that we can get that kind of balance and with deposit insurance 33:15 that is enforced and is uh well written and well articulated 33:20 yeah boy and then i think morgan also wanted to get in on this question um you know again the money creation 33:26 question not just from a balance sheet sort of commercial bank stability question but you know where is lending 33:32 coming from uh in you know when when you do have the entry of the cbdc 33:39 so let me take a shot at it first of all i couldn't agree more with what lisa is 33:44 saying she's absolutely spot-on so cbdc is a public good 33:50 it's good for monetary policy it's good for fiscal policy it's good for financial 33:56 stability you know where we are you know e-money cryptocurrency stable coins these are 34:03 all private liabilities so at the end of the day the central bank needs to innovate and come up with 34:09 a digital instrument for the digital age but let me come come to your question so with regard to 34:16 concerns there are two sets of concerns and you know i have a paper out in the conference website on where we're not in kansas anymore and 34:23 all of it so there's sort of detail there but the issue is really two concerns one is banking disintermediation 34:29 and the potential for triggering bank runs now there are mitigating uh issues in 34:36 the design but i'll get to that but before that let's not overstate the cons 34:41 concerns as as also lisa has pointed out so in a modern money creation a view of 34:48 banking banks do not necessarily need deposits for funding more generally 34:54 to provide lending to the economy so what banks really need our central bank 35:00 reserves and capital to satisfy regulatory requirements 35:06 and after that the lending itself creates more deposits in the banking system moreover the 35:14 volume of demand deposits is typically small in an economy 35:19 another factor is that we've seen both in the u.s and elsewhere the rise of non-banks 35:25 or shadow banks has not undermined money creation and credit expansion by the banks in the 35:32 u.s and elsewhere now lisa talked about trust in in the banks deposit insurance 35:40 regulation supervision and these are all backed by uh you know the banks providing 35:46 value-added services these things do not change 35:52 uh in that uh oh cbdc world uh what what you know another 35:58 thing that should be noted is that typically retail users can switch uh out of the banking system 36:06 switch their funds instantaneously into money market funds or government securities even today i could 36:13 go to an um to my you know computer and open and buy for treasury securities 36:18 that doesn't change and and typically the the greatest bank round threat usually comes from wholesaling 36:25 funding and institution investors already have access to other safe haven assets and now let's 36:34 talk about the design issues in terms of mitigating concerns now yeah 36:42 i just want to make sure that we keep going around because now we're getting a quite a few questions from from from the 36:47 crowd and we're going to have to uh uh yeah just one thing on the mitigating 36:53 concerns in our cbdc system we have limits on cbdc design 36:58 on on transaction sizes on holdings as well as non interest bearing or 37:04 tiered emulation systems these are easy to design easy to 37:09 implement and that's what central banks around the world are thinking and doing right so basically a calibration to sort 37:16 of uh sort of as a kind of a bulwark against the 37:22 the capital you know banking system um okay i wanna i wanna return to just 37:27 uh some of the questions that we're getting um and morgan you can also if you have something to add to those regulatory 37:33 sort of fixes or or safeguards but but also you know an issue that um christian 37:40 garlow mentioned which was the privacy question and something that's mentioned as well sort of in the queue right 37:45 um you know uh money uh whether or not whether or not you're 37:51 using an account based or tokenized system you know none of this stuff is as quite as anonymous as as good old 37:58 paper you know uh in the suitcase kind of uh for good and for bad uh but there but 38:04 there is this question of surveillance whether or not we're implementing a cbdc i mean you are by definition sort 38:11 of giving new powers uh to the state how exactly do you create a kind of cryptocurrency 38:18 or cbdc tokenized cryptocurrency or an account whatever you want to call it 38:23 how do you create a cbd infrastructure right that provides the privacy safeguards um that one would 38:30 need in order to have a free economy [Applause] 38:36 morgan yeah so look i think that's that's a terrific question and it's one 38:41 of the big it's one of the big challenges and one of the big things that everyone needs to think about carefully with respect to cbdc whether 38:47 it's tokenized or account based you know you can have a permissioned distributed ledger you could have a 38:53 permissionless uh centralized ledger so it's not it's not inherent in the technology right we 38:59 could say we could do a fed account system where we said it's just like signing up for a gmail account and 39:04 uh and you get an account number and you don't have to identify yourself i think that i think that would be a bad 39:10 idea i think that i think tax evaders would love it uh but 39:15 when you have central banks uh uh own infrastructure being used for law breaking money laundering tax evasion 39:22 terrorist financing uh i'm not sure that's a sustainable um 39:27 sustainable direction so i think some degree of privacy 39:34 some degree of of identification is going to probably be needed no matter what if we're going to do this at scale 39:40 and and pure anonymity probably is not um is not realistic and probably isn't 39:46 desirable but then it does raise questions about uh about access to your information 39:51 about law enforcement access and and uh and we this is something that has to be thought very carefully about you know 39:57 the way we do it with the irs is we have a very significant privacy 40:02 uh legal privacy um infrastructure surrounding tax information and tax returns you know 40:07 for someone at the irs to even access your tax information without authorization 40:13 or much less to share it is a is a criminal violation that can result in them going to prison 40:18 legal process court order has to be has to be granted before law enforcement 40:24 can have access to tax records and we could envision uh one example 40:29 uh replicating the legal privacy 40:35 infrastructure surrounding the irs and surrounding tax records and putting it with respect to 40:40 cbdc or fed accounts and so there are you know look there are there are relatively tried and true uh 40:47 legal mechanisms for doing this but i do think it's a very legitimate uh look there's no way to make it as 40:52 private as currency transactions there's going to be some record somewhere of a transaction having been made even if 40:58 even if it isn't necessarily connected to the identity of an individual and so it's inherently less private and 41:04 less anonymous than a physical currency transaction uh but that balance is something that's going to have to be struck if we go in 41:11 this direction and it's not an easy question can i just jump in with just an eye once on that and that is 41:18 that there is a fundamental difference between accounts-based system and a token-based system 41:23 and that is an account based system you must establish the identity of the parties to the transaction 41:28 and the accounts efficiency of the transfer or the receipt by the transferee and so you've got identify accounts as 41:35 well in a token-based system the difference is you don't need to verify identity you've 41:40 just got to verify the token and that's a mathematical process of identification now 41:45 distributed ledger will contain that identity information but those are design choices how that 41:52 how the identity is revealed are key design choices need to be built in you could have a system 41:58 where based upon mega data analysis that identifiable identity is not unmasked 42:04 unless there is certain triggers built into it what a digital system gives you is the ability to make really precise 42:11 and thoughtful design choices you're not limited the the analog nature of the technology 42:18 you can actually program in and i think one of the most important choices that each economy each society will have to 42:25 make is where is that balance between individual privacy in in a cbdc and government's 42:31 lawful ability to surveil for legitimate law enforcement purposes and and here's my final point here's 42:38 where i think the united states actually has potentially the killer app because we're one of the few constitutional frameworks 42:45 that protect government surveillance of privacy now we'll have to build jurisprudence around that 42:50 to really protect it but there's a social expectation of a degree of privacy already that's built into our 42:55 fiat money so my point is i think if we get this right a digital dollar could could have as an 43:03 attribute a reason to for patronage around the globe the right balance of privacy rights 43:09 maybe vis-a-vis say a libra coin where there's an expectation of commercial exploitation or a sovereign currency by 43:16 a non-democracy where there's an absolute expectation of surveillance if we get the digital dollar right i 43:21 think we could have superior privacy rights and still have appropriate law enforcement interest protection so chris very very quickly 43:28 and and chairman is absolutely right so the way we approach it 43:33 is uh the the privacy part of it and you know for the cbdc technology you can 43:39 use dlt or you can use another technology which is conventional and both work the issue really is 43:47 the privacy for small transactions are protected in a hybrid uh design 43:55 and by law just as it is today the privacy for large transactions 44:00 may not be protected you know banks today have to report large transactions and in the cbdc world so with uh mobile 44:08 money and other providers they'll have to report large transactions as well 44:13 uh so and and um let me just follow up on that for 44:19 just one one quick second and then i want to get to this interesting question sort of international economics question 44:24 for lisa um so you know what we're hearing is you know from the conversation between 44:30 um uh morgan chris is that look you know on the one hand uh we do have expectations of of privacy 44:38 certainly with our fiat currency uh the you know whenever you get to any kind of distributed ledger technology 44:44 there will be a trail of of some sort that we have a legacy regulatory structure with regards to at 44:50 least our taxes that may be uh useful towards protecting it's you were adding that we do have 44:56 you know some real expectations um in our bs you know uh bank secrecy act and and and other 45:03 rules uh for when you get to the money laundering and kyc uh 45:08 expectations but then there's this extra little interesting dimension that gets back which really takes us to 45:14 the to the initial comments um uh to this conversation that i i 45:19 heard i think from dan gorfin which is this question of programmability right and what exactly you know what is 45:25 what does that actually mean uh uh uh both in terms of the the 45:31 privacy layer but also in terms of the larger questions as we sort of pivot a bit 45:37 to uh financial uh in inclusion uh thanks for thanks for the question 45:43 chris so just to come back to the cbdc you know i i was intentionally keeping 45:48 away from the technology side because there are technology choices you can use dlt or you can't they may not 45:54 use drt you know dlt has some limitations because of scale and and things like 45:59 that and and also the privacy part of it there's some problems there but on the technology side on the 46:05 programmability set it's very very important two things one is the central bank must 46:12 have the capacity to do the core uh to do the programming of the core 46:18 platform and by that i we talked about privacy requirements interest bearing or not transaction and 46:25 holding limits now typically uh in a hybrid system the aml kyc and all of it would be done 46:33 by the private sector intermediaries only when it crosses and trips certain 46:40 uh things like transaction sizes or something like that only then would the private 46:47 intermediaries have to report to the central bank uh now what are the aspects of the 46:54 programmability side is the customer facing needs and programming that really is something that the private 47:02 sector is best uh able to do and should do that 47:07 so lisa one of the really interesting questions you may have already seen it sort of in in the corner is whether or not a 47:13 cbdc is good for everywhere in in the world are there instances where that may not be the case 47:20 that's a good question because the most compelling arguments that i was convinced by had to do with the 47:27 economies i typically follow and those are emerging markets uh there was a time 47:33 in russia when i was living in moscow when uh it had the largest number 47:39 of armored uh armored vehicles uh protecting money transfers 47:46 than any other place in the world right so you know we have several problems associated 47:52 with having and uh having cash and transferring cash and this would have uh addressed one of 47:58 those with a credible central bank right so there was a period when uh the 48:03 central bank had credibility and and that's uh true now 48:09 like there's credibility on a spectrum but when it had an immense amount of credibility uh this 48:17 currency could have replaced uh in nigeria when i'm in nigeria i 48:22 sometimes have to carry bags of cash and that puts let's say small 48:28 business owners at a lot of risk individuals who are just trying to make small and large transactions at 48:35 risk this could be a huge huge boon for uh the central bank in that regard 48:42 and address some other issues uh associated with 48:47 uh crime money laundering and so on but i think that um it really depends on 48:54 the economies and it depends on the times when greece was running out of money in 48:59 one of its recent uh crises you know it didn't have uh currency euros to distribute uh 49:07 throughout the country and people were stranded uh visitors were stranded tourists were stranded without access to 49:13 their own uh her currency so uh this is one where one place where uh cryptocurrency 49:20 actually uh helps but this is something that everybody should have access to not just the privileged few who have uh 49:27 purchase a private currency so i would say it's not just uh particular uh types of currencies but 49:36 there are intertemporal changes it would have been much more beneficial during the pandemic 49:42 to have had this in place right then just on a normal basis because we have our 49:47 currency right so it depends on both uh time and space 49:54 so i think it could be useful uh everywhere it's just a matter of degree 50:00 you know it's not just greece that runs out of fiat money we ran out of coinage here in the united states a few 50:07 months ago and you know and think about it why does coinage even exist 50:13 it exists to make change on paper fiat well if we go to a digital dollar you 50:18 don't need to make change anymore because that's what i was saying about the penny 50:27 pluto you know you've done you've committed some tremendous crime against humanity 50:32 against space but you know we can get rid of the penny you know nobody's going to listen 50:38 people haven't missed it this corn shortage people are taking photos of you know the u.s is currently having 50:44 a corn shortage and everybody is looking at each other like oh i didn't know that so i'm saying that we have these 50:50 experiments that could uh that elucidate the uh the kind of behavior that uh 50:58 that i think humans would display so i think it's a it's been a great natural experiment in that regard 51:05 so atm's growing yeah growing dry would be a historical curiosity in the digital 51:10 age yes yeah yes 51:16 morgan i guess i'll all we only have a couple of minutes left and and um you know returning to 51:22 the question of of sort of um what you can do under your fedex accounts program you 51:29 know um uh in terms of the delivery channels that are available just sort of with what the 51:35 technology with what technology is available now maybe you could walk us through um 51:41 uh sort of the the the implementation and also again that this question of programmability to what degree is 51:49 is you know is that infrastructure the one that we sort of have in place you know that um 51:55 uh uh programmable um and and um accessible uh 52:01 for for other kinds of uh future uh upgrades 52:10 so i cannot hear you i don't know if it's just me no i think morgan's okay 52:25 [Music] you know look i tend to air 52:31 toward keeping it as simple as possible but no simpler 52:36 when you're talking about something of this magnitude uh we want there not to be technical 52:41 glitches we don't want the rollout of this to be like the roll out of the aca exchange 52:47 uh we want it to be solid and and simplicity is important i think for the most part you know a 52:53 bank account really is a pretty simple product there's a there's a there's a retail 52:59 interface that goes along with that but the underlying product itself really is a ledger uh into which debits and credits are uh 53:05 are entered and and we should we should think about not making it any more complicated than 53:11 we need to now in terms of you could imagine an opi an open api so that 53:16 different companies could produce different interfaces um for uh for a fed account but the 53:22 underlying actuality of money is is a ledger system and that's true 53:28 for reserve balances now uh and uh you could make the argument 53:34 uh well we could have an argument about bearer currency and the extent to which it approximates a ledger system 53:39 there's actually a whole academic debate around that but but i i think i think we do want to keep it 53:44 simple i think um and i think it can't look the fed has offered accounts virtually since its inception 53:49 the feds started doing um payments between these accounts through telegraph in the 1920s i mean it's been doing 53:56 something uh very rapid payments electronically uh for a long time it's been doing 54:02 real-time payments between fed accounts since the 1970s we think of real-time payments as being some 54:07 uh miraculous uh technological innovation of modern informational information 54:13 technology but ultimately messages get sent over telecom rails that exist uh to the ledger and there is a debit 54:20 and a credit involved and that's that's the core framework for how a a fed account would 54:26 work and i think that accomplishes look it's worked great for the banking system uh and they they they love their fed 54:33 accounts uh their reserve balances i mean there were entities that wanted to be designated as financial market utilities by the f 54:40 stock so that they can get access to an account not because it's a fancy product but because it's a product that works really 54:46 well extremely reliably very cheaply very seamlessly and gives 54:51 them perfect safety and there's one more thing i want to say about the safety bit because the question of bankruptcy came up and i 54:56 completely agree with bajoy that um that in the modern and with lisa uh what the modern bank 55:03 runs that are damaging to modern economies have tended to be institutional as opposed to retail 55:10 and that's largely because of deposit insurance but runs on institutional deposit substitutes are what we saw on a 55:15 huge scale in 2008 and 2009 and again to some extent back in march of this year and 55:21 and one possible benefit of a cbdc is to uh to reduce the size of those 55:27 markets right to the extent it's going to be attractive we might see fewer 55:32 institutional investors in large institutions that are cash parking going to unstable deposit 55:37 substitutes maybe they prefer the cbdc to that and that might actually be a good thing from uh uh from a stability standpoint 55:47 did you uh well actually i i want to get back to to to uh the chairman i mean you know uh 55:53 the the the the way and the ambition sort of uh when you look at cbdc is it 55:58 it differs dramatically i think that's what you had had sort of identified from the outset i mean what 56:04 mass and monetary authority of singapore wants and then you know china it's much harder to sort of read the tea leaves 56:09 because you know it depends on what announcements are coming are coming from from where and and what they want to do 56:15 i mean what's the scale of ambition that you've seen in terms of how people are conceiving in 56:21 other parts of the world what a cbdc can or or or should do yeah you know as i began 56:29 the conversation i think that there's many varied uh imperatives for cbdc i don't i think if there was just 56:35 one driving the conversation it would be easier to categorize the different efforts around the world 56:41 and i certainly as i mentioned i think financial inclusion is one of them and a very important one i would 56:46 put that almost like in the demand side in other words that society seeking 56:51 uh uh greater services when it comes to money but i also think there's a supply side i 56:56 think the central banks themselves want these tools i think central banks 57:02 themselves uh want to modernize currency their own currency so it has greater global 57:08 influence and and utility and and so i think there's a real i think central 57:14 banks worldwide are experimenting with this because they see opportunity for policy precision 57:20 policy advancement policy uh competition um and so um i i think it 57:27 would be uh you know it's funny money is as much a social construct as it's a sovereign 57:33 construct i think sometimes the people on the official sector think they've got the whole game themselves because they they 57:40 make money well society's showing right now that it can also craft money and experiment money so we've got this 57:47 big kind of societal governmental experimentation going on globally it's 57:53 actually every i tell students i talk to this is an exciting time right now what's going to come out of this is going to be transformational 58:00 but it's complex there's many facets to it and and i think one needs to follow all of them to kind of see where this ultimate 58:06 leads and ultimately as i said i think it comes down to values and the reason why i think the united states 58:11 needs to be in the game we don't need to be first but we need to be in the game because there's some certain values that got the 58:17 dollar to where it is and if we don't make sure those values are built into future money that's going to be a net negative for 58:24 our economy and our society going forward if we don't make sure those values are built into the future form of 58:29 money which the world is experimenting with as we speak well i have to go and talk to my 58:36 students literally right now uh but i do appreciate all of you uh for your time and i will 58:43 be sort of taking all this great information uh you know it's just uh fantastic to 58:50 have this level of conversation with with really uh many of the of the world's leading 58:56 experts so lisa chris morgan uh joy thank you so much for joining us uh 59:01 and i guess i'll be passing the baton back to our organizers and hopping now onto my uh my other class 59:08 but thanks so much everybody pleasure to be here thanks for watching everybody thank you