The future monetary system

Summary

The speaker discusses the current challenges facing the crypto ecosystem, highlighting its instability and unsuitability as a basis for a monetary system. The talk emphasizes the fragmentation of cryptocurrencies and the reliance on stablecoins, which ultimately depend on central bank money. The speaker contrasts crypto with central bank money, advocating for a future monetary system rooted in central bank trust, with innovations like CBDCs enhancing financial stability. The conclusion stresses the importance of central banks in shaping the future monetary system beyond the turmoil in the crypto world.

Takeaways

• 📉 The crypto market is experiencing significant turmoil with many cryptocurrencies losing over 90% of their value compared to their peaks.
• 🏦 The strain on the crypto ecosystem, including shadow banks, raises concerns about financial stability and the urgent need for policy responses.
• 🔍 Despite the immediate challenges, there's a need to focus on the structural flaws in crypto that make it unsuitable as a foundational monetary system.
• 🔑 The prevalence of stablecoins indicates crypto's reliance on traditional currencies, highlighting the need for a stable unit of account provided by central banks.
• 🌐 The extreme fragmentation of the crypto market, with over 10,000 coins, contradicts the concept of money as a unified medium of exchange.
• 💡 Crypto's decentralized nature leads to high transaction costs and congestion, which are counterproductive to its widespread adoption as a currency.
• 📈 The success of crypto is highly dependent on rising coin prices and new buyer inflows, which is not sustainable for a stable monetary system.
• 🌳 The future monetary system should be rooted in central bank money, with a robust ecosystem of services provided by the private sector.
• 💼 Central banks are uniquely positioned to lead the future monetary system, providing the unit of account and ensuring payment finality through their balance sheets.
• 🏦 The introduction of Central Bank Digital Currencies (CBDCs) could offer programmability, tokenization, and other advanced features while maintaining the trust in central bank money.
• 🌐 Multi-CBDC platforms have the potential to create a richer ecosystem, facilitating transactions across different currencies on a shared DLT platform.

Q & A

What is the current state of the crypto universe according to the script?

The crypto universe is in turmoil, with the ecosystem of crypto coins and shadow crypto banks showing considerable strain. Prices of many cryptocoins have crashed, with some lesser-known coins falling by 90% or more relative to their peaks last year.

What is the role of stable coins in the crypto ecosystem?

Stable coins are cryptocurrencies designed to maintain a stable value relative to traditional currencies, such as the US dollar. They indicate the pervasive need for crypto to rely on the credibility of central bank money, serving as a sign of the search for a nominal anchor.

Why are stable coins often far from stable as mentioned in the script?

The script refers to the example of the Terra stable coin, which was the third largest and collapsed significantly over a few days in May, illustrating that despite their aim for stability, stable coins can be volatile.

What does the prevalence of stable coins indicate about the crypto system?

The prevalence of stable coins shows that if central bank money did not exist, it would need to be invented, highlighting the inherent need for a stable unit of account in the economy.

How does the script describe the fragmentation of the crypto universe?

The script describes the fragmentation as a result of the proliferation of over 10,000 crypto coins, which contradicts the expectation that a suitable currency would lead to a coalescence around one cryptocoin.

What is the role of validators in the crypto system?

Validators in the crypto system can be miners, large holders of coins, or 'whales' in a proof-of-stake system. They play a crucial role in the consensus-based settlement process of cryptocurrencies.

Why does the script mention congestion as a feature of crypto systems?

Congestion in crypto systems leads to high transaction costs and rents for insiders, functioning like a toll road. It creates an opportunity for new entrants but also sustains the system by ensuring that tolls are paid.

How does the script relate the concept of network effects to money and crypto?

The script explains that money benefits from network effects where greater use leads to greater acceptance. In contrast, crypto illustrates a case of fragmentation and high costs, which is the opposite of the 'more the merrier' property of money.

What is the vision for the future monetary system as described in the script?

The vision for the future monetary system is the fusion of enhanced technical capabilities around the core of trust provided by central bank money. Central banks are positioned to provide the core, with a rich ecosystem of services provided by the private sector.

What are the potential benefits of using wholesale CBDCs (Central Bank Digital Currencies) with distributed ledger technology?

Wholesale CBDCs with distributed ledger technology could incorporate additional functionality such as programmability, atomic settlement, composability, and tokenization, while maintaining privacy and enhancing the结算 of transactions.

How does the script differentiate between retail CBDCs and retail fast payment systems?

The main difference is that retail CBDCs are a direct claim on the central bank, while a fast payment system gives users access to the liabilities of payment service providers. Both aim to enhance financial inclusion and lower the cost of payments.

What is the significance of multi-CBDC platforms mentioned in the script?

Multi-CBDC platforms bring together CBDCs from several central banks, transacting on the same platform, governed by DLT, and represent an important component of the future monetary system, fostering richer ecosystems with diverse private sector service providers.