15. Central Banks & Commercial Banking, Part 1
The, following content, is provided under, a Creative Commons, license. Your, support will help MIT, OpenCourseWare continue. To, offer high, quality educational, resources, for, free to. Make a donation or to view additional materials, from hundreds, of MIT courses visit, MIT. Opencourseware at. Ocw.mit.edu. All. Right we're gonna we're, gonna turn today to a fun, topic of how central, bags right, at the heart of the, financial system, we're. Thinking about blockchain. And. We're. Going to do this over two. Classes, where we're fortunate that we have. Some. Real expertise, in the room and I'm not talking about myself but Rob, Ali. Who. Ran the digital, efforts at, the Bank of England and is. Now. And. Has been for some. Time part, of the digital currency initiative, ever the Media Lab is going, to come up from time to time and, and, give. His perspective not. Only from, mi, t--'s media labs perspective, but also from the history of what, he's done, he's. Authored. A number of, papers in this area he works with technologists. Creating. A. Number, of technologies, but I'll let Rob tell you a little bit about what he's doing in central banking Simon Johnston's also joined us who, is a former, chief, economist, of the International, Monetary. Fund he's. Told me he doesn't want to be caught on but I will call on Simon, to give his perspective at, some point in time from. The IMF, days but as you all know Simon. Is. A. Sloan, faculty, a great, teacher, himself teaches. A lot of you the global markets course and the G lab course and things like that and, Simon. And I and the spring teach a public policy and private sector course which. Is just one one, more time for me to plug that that's a good course to, so. Now let's just talk a little bit about central. Banking, and and blockchain. First. What are we going to do a little bit about our readings, and the. Study questions, we're. Going to start with fiat. Currency. And go back again to fiat, currency, and what, how does it fit into central, banking so the first. 20. Or 30 percent of today is really just about what is the central bank and how does it fit into money, then. How, are central, bank's thinking about blockchain technology. What are their approaches. And we're gonna talk about four different approaches, that central, banks are taking, to. Blockchain, tech nology, then. Dive into one, of those four approaches, payment, systems and how are they looking at payment, systems, right. Now dive. In the probably, the most interesting one, central. Bank digital, currency, and what's called the money flower you might remember that money flower that was in the BIS report. And. So forth and then just wrap it up so that's that's a little bit of what we're trying to, do. The, study questions, were. Really about central, banking what are they thinking about how are they thinking, about digital, reserves and so forth because I have a guest with me I'm not going to do as much cold calling cuz we're going to leave time for Rob to get up here and give, some of his thoughts as we go through. But. The key questions, were really. How are central bank's thinking about central. Bank digital currency. How. Might they think of the design considerations. Which we're gonna dive into in the latter part of the. Class designing. Retail, versus, hotel. Access. Should it be a token or account based interest. Bearing or not, and. We'll talk a lot Thursday, about why Sweden, right now has come out with their most recent paper which was not an assigned reading because the paper came out of about a week ago but. They're saying they're thinking they should make an interest-bearing. Which. I wouldn't. Have necessarily predicted. But that's where they're, thinking is as of October, of, 2018, and. Then. What are the challenges, that it might. Relate. Back to the commercial, banking business, the credit markets, the economy, as a whole. So. That's a little bit of the background and these were the readings I apologize. Because this week is probably a little heavy reading which meant you all skimmed, rather than actually dove in. One. Of these readings Broadbent, Rob did you help write this this, speech, that, Broadbent wrote. I, reviewed. The draft. And. Anybody, working, in this central bank digital, currency, space really goes back to broadband, speech I had assumed, it Rob may, have written it or reviewed. It and. And. Garrett. Who gave, testimony, in. Front of the US Congress on that these issues, is also. Often quoted, by the. Bank of International Settlement. So, if there were two that you really want to think about you, know the economics. Of money and central, bank digital currency, Garrett, and Broadbent. Or. Picked up a lot The, Economist, piece was kind of lively, and walked, us all the way back to Adam Adam. Smith, did, anybody read The Economist, piece and remember what would. He. Anybody. Remember the Adam James. Dude, everything that's done, right and, wrong.
And. Any quote in the Economist, piece it talks about in the 1770s. When. They started to move a bit, away from gold, money to paper money and they. Set up a clearing house in, 1773. To, deal with the paper it was going but amongst. In between all the banks. That. Adam, Smith apparently, wrote that it was wagon, wheels in, the air and, that. Gold was, was, the highway, of money but. Paper money and central, clearing, of that paper money was the wagon, wheels in the air. So. The Economist was basically saying these. Debates, are as old as time Adam. Smith was saying you, can promote an economy, with wagon wheels in the air money. But. Maybe that's what's going on now, as. Well so. I've. Already introduced, Rob research. Scientist, from the digital currency initiative, and before MIT. He helped broadband, he won't say did but he helped broadband do everything he did at, the Bank of England and, then. Simon. Who's taking. Notes, did, I get your did, I get this right, yeah, good, picture. What's. That not sure about the picture. So. Fiat, currency, is anybody gonna remind me what fiat currency, is British. You're. Slouching in the chair a little bit there. It's. The norm in the system, and what, are what are two very, important. Economic features of fiat currency that. Make, it so widely accepted. In any economy that. We've talked about. One. Of the reasons is that it's typically used as the B's to pay taxes. Taxes. And. What was the other big. One that almost every country you can use it for Priya. You, looking at me no. Payments. So so societies, come together and say you can use it for for all debts public and private, you can use it for taxes, it, sort of gives it an enormous, network. Effect, in an advantage, in in, in any, economy. And then. What happens is so. Many, of. Us, in a society. Then use it as a unit, of account and there's. An enormous amount of network effect just. The raw economics. Of money, is that. Others, will use it in exchange it and thus. It becomes the medium of exchange unit, account, and store of value so. It's. Represented, by central, bank notes and. Commercial. Bank deposits, relies on a system, of Ledger's which makes it somewhat adaptable. And why blockchains. Interesting, in this space and taxes. And debts. So. Then I've. Pieced together a little bit of a slide to think about where does central banks fit into this ultimately, you'll see where. I'm going with this but commercial, banks and central, banks both have money, central. Bank money our reserves, and, cash. So. It's not simply, the cash in our pocket, it's, also reserves, and bank. Deposits. Actually, are a form of money. So. A little diagram if, the central bank is at the top and, these. Are number, banks, commercial. Banks. Reserves. Or the, deposits. That commercial, banks have with. The central bank when. Central banking started, two and three hundred years ago was that commercial banks wanted. Something from the government they wanted some backing they wanted a lender of last resort and, they, would have to open. Up accounts, at the central, bank. But. Today when we have kind, of unified, Ledger's. Then. The central bank issues reserves.
To. The banking system and those reserves, are a form, of money. The, next thing is there's the public down at the bottom Bob. Alice. And Charlie, we. All have money and it's called bank deposits. But. There's one other piece of this puzzle if I can get it is cash, so. Three forms, of money. We. Can all have cash in our pocket, as, I commonly. Pull out. This. Here. Right. I'm. Gonna watch you Hugo I'm, gonna watch you. But. No no but what is that right there. Right. That. Federal, Reserve Note is a representation. That. At the central bank they're storing, some value, for me it's. Got a serial, number. That. Piece of paper itself, is not the store of value in, a sense even though we accept, it would. You say that's a store of value. And. What way is that a store of value i. Dollars. And. Why is it worth $20. And. See what happens if you hand it to rob, he'll. Take it right. That's. How you know it's worth something but. It's it's it's a tokenized. Means. Of, money it's, a physical, token and the. Central bank has something, stored there. But. You also have bank deposits, and if you go into Starbucks and, you. Buy something at Starbucks, James. If you buy something at Starbucks, what are you giving them. Do. You actually who here. Alright. So when you give a credit card what are you giving to Starbucks, ultimately. Exchange. For coffee. You're. Gonna I hope, you give them more than a notion, what. Will the payment system do Ross. They. Just have a. Right. That, company checks to make sure they're long and. Ultimately. That receivable, would be removed bank deposit, to the bank deposit. You'll. Never be handing of my $20, bill. What's. That all right Rob that's his big teaching. Fees are cheaper than my tea. But. Ross you want to go through that so the receivable, will be a bank deposit ultra, and they collected. From the credit card companies who's. Gonna move money from their account the Starbucks. Company. Sends you a bill, so. There's two separately, so. When they're checking your card it's just a credit card company checking, its records, to. See if they're willing to teach. You the receivable.
Start You're. Really doing is you're spending, a form of money caught bank deposits, and, you're. Back to pods it's gonna go down and what, Starbucks back to posit gonna go go. Up. So. Three forms of money. The. Cash. The. Deposits, and the, reserves, because, the central bank is giving, some money. All, of this is handled in accounts, and a ledger structure. And. We talked about it so, the accounts, there's central bank accounts, and their bank accounts, it just accounts, are Ledger's I've, just changed the words and it's. Moved through, a system, a payment system that we talked about last week and I'm putting to real-time gross, settlement is, that little box up there real-time. Gross settlement is, a system, between banks. And a central, bank almost, every country has some form of real-time gross settlement system. Here in the u.s. we might call it the the Fed, wire. Or. ACH. I see a lien which is ACH, real-time, gross settlement or, maybe not just the. Fed wire. So. In the US we have chips and the Fed wire both real-time gross settlement. That's. Between banks. And. The. Central bank and then, you have all sorts of systems what's, in that little box is not as important, to read is basically. To move between backs, so. That's central, banking and how it fits into money. Rob. How we doing all right so far. You. Can come up here any time, all. Right what's. That all. Right we've got some feedback though, wait so. I just wanted to hit two things on cash cash, in in, in, the economy, is moving up a little bit the BIS report. For those who read deeply this is just a chart that comes from your reading this is, cash, as a percentage, of GDP. You'll. See one arrow going, down, Sweden. Sweden. Only has, about two percent of their. Economy, in. Cash the u.s. is. Going. Up it's about eight percent. We. Have a twenty trillion dollar economy we have one point six trillion dollars, of. Those. $20 bills. So. In most countries it's going up China. Japan. By the way as close to 20 percent of their, GDP. In, cash, I. Added. This chart Simon, this was to keep you guessing. Yes. You. Want to answer this question at Kyra. All the people are. Feel, uncomfortable. To, use that number. So. A bit, of a cultural. -. Yeah hi Joe and technological. Or. More culture. Yeah. So, long younger generations right to use that credit card Laura he loved it but, all those people. What's. Interesting about this slide is a lot. Of the other central banks in Sweden is like a canary in LA. They. See cash, eavesdropping. And they're thinking about this or you. Know, fundamental. Question, about should the political access, is simply like me at all and they have it now in terms of cash and ship we provide digital version - is, not gonna be anymore. When. You say this. Qe4, is a capturing. The effect of the bank's buying a lot. So facets, in the market. Question. Is does this reflect, because we start in 2007. To, 2016, is, there, something else going on the, quantitative, easing of central banks but what else happened, during this period of time what what fundamentally happened. During this period, align. The. Mortgage crisis, or more broadly the financial, crisis, so. There was a. I. Think, more than quantitative. Easing I think that this whole sense. The. Satoshi, nakamoto tapped. Into to is, central. Institutions. Are failing, so. Should there be a run to physical. Cash should. Is this, it's, not gold but is, this more more, in. Some cases safe. Than. Commercial. Bank deposits. Now. My dad if he would have been, well. He was alive during this period but he would have been taking his money out of the bank and getting gold. There. Simon you haven't heard this story but my dad always. Had some gold coins and, a. Few diamonds, he. Did not he inherently. Did not trust government. He. Also carried, a gun in most days -. He's. In a tough business. But. In. This. Period of time couldn't. Easily get the gold a lot, of people went to cash, how. Much do you think the u.s. is 1.6. Trillion or 8% of our economy, is, $20. Bills like like, that and, tens and how, much do you think is $100, bills, anybody, it was not in the readings I'm just kind of curious what are people think here. Worth. Like 80%. So. 80% of, the of, the, 1.6, trillion, so, anybody have a different thought. That, was pretty good so, here's a chart that I pulled, out through 2017. Of the 1.6, trillion, it. Looks like about 1.3. Trillion is hundred-dollar bills. So. What's, expanding. In the u.s. is not, the use of $20, bills and $10 bills it's it's it's the use of the.
Hundreds And and. I could have put up another chart over half of those hundred-dollar bills are thought to be held internationally. And they're not even held within, the, 50. Continental. 48. Continental states, in Alaska Hawaii they're. Not helped domestically, so. It's great to be a reserve currency it's. Great to be a store of value. Ross. I was, just gonna ask this core value question maybe, I misheard the port when we were passing the $20, you, said is it a store value might but you're sitting know and. If. Half of that is hundreds, I. Don't. Think there's a. Really. Answer to it I would say this, represents a, store of value ultimately, on, the central bank's ledger. Because. The, central, bank could. If. They wish to. Deny. Use, of this they haven't they haven't for decades, but I'm saying somebody, could say that's. A bad serial, number. But. Most people would say that $20, piece of linen is a store of value what. I. Was. Gonna ask would. You expect the velocity, needs to be like inverse inverse, they're related. Yes, so the question is is the velocity of 20s higher. Than hundreds, yes meaning it they turn over faster, and what, measurement, of it is is how quickly these. Currencies. These linens. Have. To be replaced and. $1. Bills, I, think. Have an average life about 18 months they, keep coming in and out of the system and I. I'm. Not in, entirely sure but I think 20s, are maybe, three four five years. In. Essence, you, these, are all signed by secretaries, of the Treasuries, and I apologize, for those who aren't Americans, but it's, hard nails to still find Reubens Bob Rubin or Benson's. Which was early. 90s. Signatures. On the $20 bills. Now. Part of that is because the currency design, keeps changing. So. Hundreds, aren't used as often, they. Have turned over, since the currency, design has changed because even. In illicit, activity, you'd prefer a new hundred to an old hundred, because. A new hundred is more secure. It's. Less less able to be counterfeited, and when, I served, in the US Department, of Treasury I had to spend a lot of time because I I i, chaired, something, called the interagency. Counterfeit. Deterrent, committee and. You know I had to meet in the secure rooms where they locked us in and you learned about who was counterfeiting, the money. Most. Of the. Rationale. Of the. Issue. More, cash to meet that demand. Compared. To smaller denominations, where the. Brodus, is asking, why. Why. In essence. Is. This. Happening. Well. A central, bank has a couple of choices they can issue paper. Currency to. Meet demand, and. The. Demand is really as. Evidence. Through this thing called this. Does. The public, ask for the cash and, that's. What's largely, happening, or can, they put some quota system, or buy government. Fiat like in India where, they said no you have to hand in all the old banknotes. And there. Was an active. Desire. In India to take. Cash out of the system, but. In the u.s. we've not had that we, have not had any you. Know real, large, government, interest, of taking, it out of the system and so, what you do have is you have more. More demand, for hundreds, as a. Cost. Store of value whether, it's for illicit. Activity, or straight-up. Appropriate. You know activity. And the. Central bank is, facilitating. That this. Entire. Eight. Percent, of our GDP, or one point six trillion, dollars of notes is interest-free, borrowing. For the US government. So. There's a there's senior. Edge. Eric. I just wanted to make if we come in regarding, the, sort. Of body and, going. Back to what we discussed the, first assets was that this. Actually account a social construct, that believe that you're, going to.
Solve. Dimps. Or pay, taxes, without without. Fiat, currency, that, remind you of a story, so, was this is true this was a South. American, drug lord, family, this, this drachma was on the verge of being caught all. Their, assets were were. Being seized by the government. The. Stories told by by his son was actually sitting, in, the one apartment, surrounded. By. Piles and, piles of. Dollar bills, which. They actually couldn't. Do. Anything with they, actually use them to burn and, get. Some heat, and. Then you go back to think is, it. Is. Going. Back to the social, contract, right because. Their, money was was wasn't good for any. Merchant. In the in the South in that specific, South American, country. If. Your point is it's a social construct I'm, a king, agreeing. In that, case, maybe it was also a little bit of time value, of paper money he was about to get arrested. You. Know there there so there my but. So I don't, know enough about that circumstance. But, for. Sure so. Let's move a little bit on to central. Banking. And. I choose the US. But. It it. It's, true around the globe so, there are economic, policy, goals that central, banks have taken on in the US it was captured written, into, law in, the 1970s. 1977. To be precise. Something. Called the dual mandate. Interestingly. The, u.s. dual mandate for, the central bank has three. Three. Things written in law this is a quote promote effectively. The goals of maximum employment, comma. Stable. Prices and, moderate. Long-term interest, rates that. Is what's known as in the u.s. is the Federal Reserve's dual mandate you might say it looks like three mandates. Címon, DoD. That's. Mostly people call the dual mandate, is is. Price. Stability and, maximum. Employment. And. Then some central bankers would say the best way to promote. Maximum, employment is, stable prices you, know depending on how. You. Wouldn't say that if you're going for Senate confirmation. To be a member. Of the Federal Reserve Board but. Am. I not right that some economist. President. Of the European Central Bank. Because. One. Mandate. So. Around the globe central, banks might have different mandates but almost I, would. Say though. I haven't studied 180, central banks all of them would have price stability. Or. To. Ensure that there's, not much inflation because, they are in the business of, having. The public mandate to secure. The. Money. That's the core thing. Now. What. Do they do they manage money, and. I think of it as supply, and price. So. These are genzler's, way to think about what central banks do but it's about supply, money supply, is physical. Cash do. We keep issuing more, physical, cash this 1.6. Trillion of cash. But. There's broader things called monetary, base this is not in the reading does anybody want to tell me things like m2, and m3 what. What. Anybody. Taking a finance. Course are you studying what what monetary. Base is or m1 or m2 or m3, is. It there's, no reflection on you it's maybe reflectional, and Sloane I'm just asking, know, so, there's different measurements. Of money that, central, bankers. Will. Monitor. And manage, my, is. Usually, the hardest core, money it used to just be cash or cash, and demand deposits. In the u.s. system it's, about three and a half to four trillion so about half of it's the cash and then, they add the the, the. Federal Reserve says demand. Deposits, in a bank or just, like cash and this comes back four.
And Five decades, ago started. To say the. Hard. Money, m1, is that. M2. Includes, the rest of deposits. So. M2 in the u.s. is somewhere, in the order of fourteen trillion dollars. In. The US there's about 13 trillion dollars or. 65%, of our economy, is in deposits, the. Banking, system has every, country that you're from has a different number I'm, just using the US as an example so. Deposits. Make up more money than, cash. Cash. Is about 1/2 to 2 trillion, deposits. Or 13 trillion and you add them together you, roughly. I'm. Using this term loosely. M2. Which is a wider form, of money is about 14, trillion dollars, here in the US there's also an m3 and. There's other, measurements, of money. So. The. Federal, Reserve tries to manage that and they manage it not only, I have minutes physical. Cash is printed, but, it's also the leverage, in the banking system, if you let a banking, system be highly leveraged, then you're in essence creating. More money if. A banking system needs more capital. Then. It's, gonna have fewer abilities. To expand the economy and, those are the big tools that a Federal Reserve or, the Bank. Of England or any central, bank has to, basically. Shape. The supply, of money but, there's also things they do to shape, the price of money and that's. Interest, rates the. Price of money is like I'm lending, Rob money he's giving it back to me in a year what's, the price of money and and. It's that so. Two big, tools supply, of money and price of money, if. You ever want to be a governor. Of your central bank your. Business. Didn't, end. There. Was. A. History. Of the eurozone. Shopping. Bodies there was a guy at the IMF I think worked on the Greek, crisis, knee wrote a very good book about my committees fear. And. How. When. One weekend, in, 1971. If I've got my year correct, early. 1970s. Richard, Nixon. Took. To Camp David which is the presidential, retreat in Western Maryland. The, leaders that he needed to get together in one weekend, the head of the Federal Reserve the. Head of monetary, that the, undersecretary. For monetary affairs at the Treasury Department who, was having to be Paul Volcker at the time. But. He got together four or five people. In. One weekend, and what took the u.s. off the. End of the gold standard, we we kind of went off the gold standard in the 1930s. But, after World War Two there was an international. Consensus, Bretton, Woods and there was still that, central. Banks to central, banks could exchange money, for gold so, we were still in somewhat. A gold standard and. Rob. Might have a different point of view a, good, friend of mine Jeff Gordon is writing a book about that weekend, he was dean of the business, school, at Yale. But. The French had asked for some, of their gold back and they. Got it back, but then the British started, to make noise. Bank. Of England start to make noise that they wanted some of their gold back and, Richard. Nixon had a challenge. So. He decided to just take us off the gold standard there's, a lot of historians, debate whether the Bank of England forced it or not Simon. So. Professor, Johnson hastag was actually. Wait. It was the u.s. gold or the UK's gone. And. So the question was whose gold was it and under. Richard Nixon's view and I think Simon's agreeing it was I didn't. Know because you're you're a dual citizen aren't you. I just didn't know when you said our gold, whose, gold. So. Your British accent, was throwing me off. Okay. So Richard, Nixon would agree with Professor Johnson, that it was our gold, and and. And and the British to this day would say well we didn't really ask for it back there was kind of making some noises about. This. I, don't. Know if that's I might, even be. So. What. Did they do what, is the central bank's actually do they oversee, the fractional, banking system. Providing. Those reserves, but. Also regulating. The banking system I mean. If you're sitting on top of all, of this back, here, you. Might want to regulate, the whole system, and that's, why around the globe by and large central, banks regulate, the banking system not always, and sometimes like. In the United Kingdom they gave it up to another agency, and then pulled it back you, go. So. I understand. How central. Banks introduce new, money into the system but, what would be the mechanism of, trying to decrease the supply of cash would it be an increase, in our, like.
Not. Allowing the commercial banks to. So. You can you can you, can apply. A very, good question to you go saying how can you change the amount of money and I'm gonna use all digital, forms of money not just physical, cash but. Dolf digital. Forms the way you can effect it if say that any one Bank. Needs. More capital. Or more reserve, so you're lowering, the, multiplier, effect in, fractional, banking if. You need 5% capital. That. Means you can have $20. Of balance. Sheet for every dollar of capital if. All of a sudden you say no you need 10%. And. Then you would be shrinking the banking system in half for, instance so. So, that there's a number of tools but one of the direct tools is reserve required our mints and capital, requirements, it's not the only tool so. It would be a mandate. To the commercial, banks it wouldn't necessarily directly. Interact with a retailer retail, correct. Federal. Reserve manages. Monetary. Supply in numerous, ways but, some of the direct ways are. And it's why they also regulate, the fractional, banking system, they, have that direct need. But. They also need very, importantly, the third bullet point to promote a safe, and efficient payment system in some. Countries. Many. Of the countries represented here written right in the in, the the legislative, act that sets up a central bank says they must promote a safe, and efficient payment system, and. If it's not written into legislation, it's at the heart of every central bank. They. Are also the lender of last resort when, banks fail they. Come in and support them our central. Bank was set up in 1913. In 1907. We had a crisis. Banks. Were failing all around does. Anyone know the history of that crisis, who who actually was the lender of last resort in, the US economy in 1907. And it was not the US government. JP. Morgan. And. Not JP Morgan the bank JP, Morgan the. Man the. Man I mean, he had it back he had a library he had a lot of other things going on for. Sure you, know you could say he was the Bill Gates or Warren Buffett of, his time but, in sense he had more influence than a Warren Buffett or a Bill Gates in. 1907. We. Had gone it we had had a in. Fact that picture in the upper right corner is the, first bank of the u.s. in, Philadelphia. Set, up in. 1791. It. Was set up with a 20-year Charter, Hamilton, and Jefferson had, a huge, fight. The. Congress, passed the law to set up the first bank of the US and, jefferson, recommends, hit jefferson, was Secretary of State, recommends, to President Washington, veto. It, Hamilton's. Wrong. Washington. Gave Hamilton, one week to, write him a report it's, an it's a really, well-written report I have not read it in a number of years but I went back and read it when, I was at Treasury. One. Week later. Washington. Signed the bill Jefferson, was never, forgave, Hamilton, for that and many other things but. It. Was a 20 it was a compromise, it only lasted, 20 years in 1811, we. We. No longer had a central bank. So. We had a love-hate in the US with this central, authority, in central banking. Sort. Of worthless I guess, what would your response or the bankers in the room what, would your response to that there I. Think. I. Mean. Money is it, comes back as money as a social construct, big right and anything. Can be money if you want until almost, anything so, if you've got a big enough group of people you think some things money even has but it's valuable and that's true u.s., dollar and a Bitcoin. But. I guess the question is how do you generate trust in the system and I guess the US government generates it through having. Nation-states. And an army and a Treasury and everything else when a Bitcoin has this network of -, and this. So. Just generates, the trust in a different way but. I'd like to say like, money doesn't work as if everyone thinks it's worthless or like a significant, group of people so there's embodiment dollars, worthless right. But. Fiat money is a general concept being, worthless, it's. You, know you've got choice you can choose. Depending. On your preferences, but I think, it's difficult to maintain it's worthless when I. Think. Also. Fiat. Currency, has had a lot of challenges in. Crises. Usually. Related to I their poor fiscal, policy, than the nation, the government state. Is. Overspending. Its, taxing, ability, because. Taxes, are revenue, and then the spending. Often. Related to Wars but, not always. Or, to. The. Monetary, policy in essence, a lot of printing, of money in the old days there was physical printing. Of money and the new days it's digital, it's it's the overseeing, of the banking.
Sector And some, of the biggest banking, crises. Have. Led to a significant. In essence expansion. Of the monetary, base maybe, it was lending against real estate in a housing, bubble in Ireland. There are other countries and so forth but we're. Not unique in the u.s. to have housing bubbles and. That. Can undermine the, the social, consensus. About fiat, money take. China. In the late, 1940s. Where. Every every, few minutes you had to worry about did, you have enough suitcases, of physical, cash to pay for your restaurant, bill if you were at a restaurant and. So forth and, in any country, that's in the midst of hyperinflation. You're, usually then the social construct, falls. Away but. It's rare that it hasn't been replaced by another fiat. Currency. Maybe. With a stronger, military or. A stronger central. Bank or but. After, some crisis, occasionally. It's replaced, by another, country's, fiat currency, and, there's a number of Latin American, countries that have said well, this isn't working we're gonna go to the US dollar and. Just, be. Door and we're not going to trust our sovereign, we're. Gonna trust somebody else and. Remember I've, said this once I think in this class the, history and Simon, bailed me out and. Robbed. Bill me up history of the Bank of England was. That the King of England, was. At war with, the King of France and, needed, to borrow some money and couldn't borrow it readily I think it was like one and a half million pounds and some. Noble Lord said, well this is how we'll give you the money if we. Set up a board, it, was initially the Bank of England was in essence a. Contract. Between. The sovereign and the noble Lords, that it said, we. Have to check, and. And then. The war went on I don't remember you, guys probably want, and beat the French but it was in the midst of a war. All. Right you're recorded, by the way video. So. Let's, move on a little bit just so we can get to what, central banks are doing but in, essence, what central banks do is they oversee, the banking, system I mean. Back to they, promote the economy. Through. Stable, prices and in some countries also this concept. Of a dual mandate. They. Manage, the fiat currency, money through, supply and pricing. Oversee. The banking, system and basically. Are the bankers, to the government. When. The government's, really in trouble think. Back to the, 1690s. When. Some noble lords were funding. The. King that, still happens that central banks do sometimes, fund governments, so. The US Federal Reserve balance sheet I'm not going to spend time on it it will be in the slides in canvas. So. Let's talk about where central banks approaches, to blockchain, and crypto. Some. I would say a majority or monitoring, studying, the US Federal Reserve would be this way the you in Central Bank Rob has a better feel because he talks to central bank's all the time but, monitor, and study is the dominant, place. Restrict. Restrict. Its use I'd say the, the the People's Bank of China is, more, towards this they're kind of a mixture between monitor, and study because one, of the readings was actually, from a senior, policy person, at the People's Bank of China he's. And he's written some remarkable. Pieces every few months there's a piece in like, CNN. Or. CC, Adhan which is a crypto, newsletter. Or corn, Telegraph, that this one individual. From the Central Bank of China is writing these pieces now I don't know a lot about the Central Bank China he always puts at the bottom. These are my personal views but I have a suspicion, he would not be allowed to write these things if it weren't something bubbling. Underneath. But. You can restrict the use of crypto, and, some. Countries like China and else we're doing that, there's. Payment, system experimentation. Which we're gonna chat about and then. There's this thing called central, bank digital currency, initiatives, and. Rob. And I know the answer of this but I'm curious of the group central bank digital currency having read all that you've read for today does. It rely on blockchain. Technology. Showing. Hands yes or no so yes, it relies when my. Hand won't matter does, it rely on blockchain. Technology, central bank digital currency. That's. I don't see a single hand how about no how many people think now. Well. You did your readings well. Did. You read it thank you she's. Signing them. So. Central bank digital currency, is inspired. By this whole crypto, finance movement, but it does not necessarily depend. Upon, blockchain, technology, but, I think it's central, to this course, and central to a study of blockchain, technology. And money because. It's absolutely, inspired. By this whole movement though.
The First person that wrote about it was Tobin, in the eighteen. 1980s. If I'm right right yeah. Yeah. 1987. Or something I think. Tobin, wrote about. Basically. Giving the public a direct, tokenized. Means, beyond, paper money a digital. Means of an account, but. Most, people would say central. Bank digital currency, relies, on blockchain, technology. And you've made me proud that, you said no, let's. Talk about the, pain points, where this was last Thursday's, lecture but there's some payment. System pain points. I. Added. One or two because of your feedback. But. Costs, delayed settlement, chargebacks frauds privacy. Financial, Inclusion and the, like, and. For. Robin Simon this was last Thursday's. Discussion. So. Some of what the public sector, is doing is non, blockchain. Initiatives. Entire, lien on blockchain initiatives. The, European, Union. The u.s. others, are doing, things about faster, payment, basically. Trying to move the payment system to 24, hours a day all seven days a week not, locked up on the weekend, where, you can actually move and that, merchants, can do it as well as. Banks. So. Whether it's the target instant, payment system, or what's known as tips in Europe or, faster, payment task force which has led to a faster, payment. Mechanism. I think I'm guessing, Priya's husband's, working on that right does. He he, was working on the task force. Shrimp. Joined us last Thursday, and he talked about, he's at MasterCard. So. A lots, going on I just, know the. I put just two other countries India's, immediate. Payment service, is really government, sponsored, government. Pressed. I. Think. One of the gentlemen that works on it Simon you have speaking, it mi. T--'s campus, in a few weeks, Arvind, worked on anything. And. In the UK, where, they're saying not, only we updating, a real-time gross settlement system. But, there's a government. And eight that banks have to open up their, bank accounts, to what's called open API a. Lot. Is going on non blockchain. Related, related to payments making it faster, and more, access. But. In the midst of that. Here's. A little bit of what's happening, in the blockchain space, and, with. The help of the South African. White. Paper on this I break it into three phases so, I thank South Africa's central bank first. Is phase one three. Countries, wrote papers Canada. Brazil. In, Singapore. Canada. And Singapore, even called, them something it's called project, Jasper, and Canada, and project, Rubin in Singapore. And they, they, they, did some experimentation. All based on a theory, of network, could. You do a better payment, system based on a theory, 'm. So. An open-source, blockchain. Permissionless. System, and they, tested, out a new real-time gross, settlement system. And they generally, the way they do this is they to get a group of banks in their country, and. If you were to read each of their detailed, reports, there's some similarities. And some differences but, by and large get a group of banks in your country, use, the platform, try, to do a talking through and see if it will work aleem. Trying, to see if they could use the theory, of network. To. Build a better payment, solution. Or are you saying they developed. A smart contract on the current. Or. Did they deploy, their own a theory on permissionless. Network which one i think it, was they, just. Like it says. Now. What you'll see because, I want to quickly go to phase, two phase. Two. None, of them used ethereal.
Phase. Two two, two more initiatives, happened Japan and Europe together and when I say Japan and Europe I mean the central banks in all all, of these are central bank focused Japan. And Europe added, and South. Africa, and all. Five, initiatives. All. Of all, have been published, already. Work. Happening, in those various states and lates in mid to late seventeen. And into eighteen we're. All on permission, they were looking at kurta hyper. Leger fabric, and quorum, quorum is the, closed. Loop system that JP Morgan we. Talked about hyper Leger fabric. And kurta. So. I think a lien this kind, of starts, to answer your question, that they, then said well no. It's not going to work on a permissionless every. One of them in phase one said we don't think this is going to work on a permissionless, system, let's then go into a phase two experimentation. We're. Now in, kind, of phase three, or a third wave, we. Haven't heard from Brazil, recently don't. Know whether that project, is basically stopped. But. These are big countries. In big central, banks that are interested. Is can there be a payment, system solution. So. I'm just going to talk about Singapore for a minute, and. Give you a flavor for, outside. Of the readings, but a little bit of what the Singapore, project, is but it captures all, of these by, just talking about this. Project, this. Is from their papers. But. They really see that we're in a multi phase project and they are willing to publicly, say we're gonna go further than where we are right now we, want to get to the place where we have domestic, delivery, versus, payment and, in. The future payment, versus payment systems money, versus money, delivery. Versus payment DVP. Is basically, a security. Versus. Money so. If you see the words DVP. It's. In the in the securities, business where, you move a security. And a payment. Simultaneously.
And There's no credit, risk I will. Not give Rob the security, unless he gives me the cash or vice versa. Ask, me one day about when, before, we had DV pay what what the markets, were like. So. Singapore. Is willing to publicly, announce we're we're, gonna take this as far as we can go all. The way to a, cross-border. Settlement. Of payments. And securities. Against. Each other D versus P versus P is what they call it the. D you can think of as securities. Will. They succeed do, they need to stay on a blockchain I can't, I can't predict that, but. They're they're willing to say we're, gonna give this a try, where. Are they right now in Phase two. Well, they tested, court a hyper ledger fabric, and quorum and they have a full 60, page report, they published a month or two ago about how. Did each of them work to. Do basically. Payment. Versus payment cash, large. Cash movements, but, here were the six criteria, they tested, and they say they passed every, one of them. Now. I read the full report and I have to say it struck me that they probably did pass it but I'm not enough of an expert, and this, stuff gets very granular, and, the question, still is could you just use an Oracle database to, do the same thing and. It's, a fair question. But. They tested, it basically, can you digitize, the payments, can you decentralize. The processing. Can you do the queuing, the, queuing, of payments, and. A lot of cross. Entity. Payments, you, have to net the payments, I'm, gonna pay Rob Rob is gonna pay Hugo, Hugo is gonna pay me well, that doesn't make sense you net it all and it's, a queuing, factor. And all these real-time gross, payments, Aleen. This. Was in what country versus Singapore Singapore and there's. A central banking system boards, movie very centralized, what is the central. What. They write about they think that you could lower. The. Single, point of failure, risk. By. Not having, the central, bank they actively, this is a central bank writing the paper saying, we. Could have more resilience. In the system if. The. Database, is distributed, amongst in this case they had eleven banks participating, and the eleven, banks, have separate, nodes now it's still a permission system. You. Might say and somehow the central, bank has a notary, node. Maybe. But. It's amongst, the 11 banks and that there would be more resilience.
To The system, than, having its centralized. Monetary. Policy Rob. What what do you what do you want, to add to this because you rob swims this way and I don't I think it's. Because. The. Question. Is. Like. How much, the central bank consciously, limits, its own power I think it's because. If. You have a system where because, I think, there is an instinct, at certainly some central bank's they want to. Like. A special know you for the for, the central bank we could do a list on the other and. My, arguments of the new actions want to limit that the. Power of the central bank as far as you possibly can because it to, the extent the central bank has special powers over the system that, creates a weakness in the system because if that nobodies then taken over then whoever, could you, know go. You know change the system has effectively. All the power the set of baggage which. Sort of takes away the. Benefits, of decentralization, if there's, because. The tomorrow. I can appoint decentralization, is increment possibly, attack by. Saying well to. Attack, the system we have to attack 57. Or whatever but if you have this small special no that we only, have to tackle unknown and it sort defeats the object so, I think when you're speaking circle, times you have to persuade. Them of the need to have a system. That they like, almost stand up and let it go rather. Continuously. With. So many countries. There's, gonna be a wide variety, and I really do think that I many. Of the central banks are in that monitor, and studies slipstream. And, a couple are in there let's restrict the use, slipstream. And even. China that says we're restricting the use is still studying the heck out of this but. Some countries like Singapore in Canada, are in the forefront saying let's, figure out maybe this technology. Will make the, payment. System, and thus the system of fiat money more, resilient. It's. It's still unknown but, they're. Really do they're really trying to test it the edge so, perhaps, this is just like a peculiar, observation, but if you like the very like institutions. That satochi and, Bitcoin we're trying to disintermediate. Are, the ones that are taking inspiration from, this and then trying. To advance their own technology, and the pills is it, a competitive, threat like what what's, the disconnect like how are they thinking about using, this for something. That was basically built to disintermediate. Dawn, so, Zhaan's asking, about. Bitcoin. And, wasn't. Satoshi, nakamoto's. Innovation. About. It's. Doing something not, just decentralized. But you know not, trusting. Trust, lists sort of system. But. Every, technology, evolution. Whether. It's in electronics. And, telecommunications. Or elsewhere. Startups. If. They have something good, incumbents. Will look at that technology. And see. What to it to adopt for themselves partly, because they're threatened, by the startups, and in, this case I really do think central banks have felt a little bit of heat on their neck a little, bit of heat like we've. Got to think about our payment, solutions, and our money solutions. And, maybe, there's something from blockchain, technology. But. Regardless, of whether it's the heat on the neck or opportunity. Incumbents. Will always, look, at tech technology. And, see. And, it's. Why the, paper that you've read sometimes, the Geneva report, that Simon, and three of our colleagues and I co-authored, this, past summer we call blockchain, technology, a catalyst, for change and.
We Were agnostic, partly. Because there were five of us co-authoring. It. But. We felt that captured. Our five points, of view that it might be a catalyst, for change for incumbents, it. Might be a catalyst, for change to inspire, central, bank digital currencies, which frankly don't have to be on a blockchain at all or. It might be some stored-up that does. Really. A unique thing and I mean unique beyond crypto, kitty's you. Know. So. Not the study not this timeline but you're saying a timeline for. Specific. And. Look. Back it's a good question I don't think Singapore, said they're gonna finish this by, 2019. But I don't know whether they said a date like 20 21, or 22 but it's a multi-year, project. Specific. Transaction, to process, it all the way to sentiment, how long it takes. The. Test case in Singapore, and Canada. Within. Seconds, but I don't know if it was like nanoseconds. No it's very quick. Three. Of you actually, how. Is the central bank thinking, about reporting. For these transactions. Or. Is it a later stage problem, to worry about. Well. The. Reporting, is I've read, these reports and then I want to move on to central bank digital currencies which were going to be largely talking about Thursday but I want to set it up because Rob won't be with us Thursday. Reporting. Is this is a ledger this creates, a database this, permission, block, Jane amongst, eleven banks in Singapore, and it's just a test, it was just a test is basically, a form of a ledger so. I don't think they've built out any customer, user interface, and. Reporting, that way but but. The the transaction. Ledger's. Were kept, similar. To Bank Ledger's as I understood, it but. They didn't build out a user interface. And. This, Rob you know any otherwise yeah so. Let's let's talk a little bit about the next and the toughest, central bank digital currencies, that may or may not be based on blockchain, technology. But they're absolutely inspired. By. Blockchain, technology, so, central bank's currently, issued digital, reserves we. Saw that earlier it's digital money already. And then. Physical, tokens, I keep. My, eye on this physical token here. Right, so that's the form of money commercial. Banks then issue. Bank, deposits. In the u.s. that's about. Thirteen. Trillion dollars, to the public and bank deposits, and there's only one point seven trillion of this so bank deposits, are the biggest form of money and it's all digital. Essentially. Bank deposits, are intermediated. Central bank digital, currency, those, are my words but.
It's. Digital, currency, bank deposits. It's. Just not directly, with the central bank it's intermediated. In between. If. You sort of go back to that that flow chart that I had earlier so. The private sector is also experimenting. With stable valued tokens, we're going to talk about that Thursday, there's some readings I'm not going to dive in now so, there's a little bit of competition. So. It's exams earlier, question the private. Sector circle, and tether and others are having these stable, value tokens, so there's a little bit of competition coming, that, way so. The strategic question. For the central bank says should we, allow. Direct, access to digital reserves. We. Have this intermediated. Central bank digital reserve caught bang deposits, but. Should we have something direct, to us like. Cash is a direct, relationship, between the central bank and the. Holder that's really, the strategic. Question, when you I believe. When you move away from the technology you don't know I have, to know about hash functions, or, anything that's, the strategic question, why. Do I think there's some opportunities and, we're going to dive more into this Thursday, but I wouldn't Rob, to see if he he wants to speak about this and tell us I think. This. Is a real question and Sweden, has highlighted, it they want to continued, involvement in the means of payment Sweden, is already down to about 2 percent of GDP or, one and a half percent of GDP is there there's. The, Cronus the physical, Cronus the, US is still at eight or nine percent but. But. They're saying nobody's, accepting, physical, Cronus anymore in Sweden, in Norway and so forth, pretty, soon most retailers. Will not take them so. They're saying maybe the government, needs to have a continued, direct, relationship. Could. It promote competition. In the banking system because, otherwise if, you don't have it then the banks are controlling, the payment, system and the means of payment promoting. Financial inclusion not. Everybody, will have a bank account well maybe they could have some digital form of central bank money instead, of a bank. Account the. Pain points, and I would say for some countries, some, countries, are clearly, looking at central bank digital currencies to avoid US sanctions. Venezuela. And Iran both.
Have Projects. For central bank digital currency, sorry. Question. And, so. Here, here. Of. Course, blockchain, technology, could be relevant, for. These six reasons or five, reasons you didn't need blockchain, technology, but I'm going to say blockchain, technology, could be relevant fiat currencies, on a ledger. Verification. And networking costs, are critical, to the economics, of money so. I wouldn't count blockchain, technology, out of this because blockchain, technology, can lower verification. And networking cost but. I think we're too early to know, whether. Blockchain, technology, will be at the center of central. Vac digital currency, but, it could have an effect. So. The. Challenges and, again we'll dive more of these Thursday. Rob. You want to say anything about these challenges. Very. Much the line on, bank. Lending. If. You do something, which essentially, drains because it's from banks are you like fundamentally. Changing, the nature of the system and how, are you gonna. Create. A system which allows people to like fund mortgages, or find businesses or whatever it is nothing that's the date change. Something. That's like the sensual. Question I think which i think is the boolean. Three, okay. So. Basically. If you disintermediate. The banks, and the banks are not collecting, again. Using us numbers thirteen, trillion of deposits, but only twelve trillion of deposits. Or. Maybe, six trillion of deposits. What. Are we doing to credit allocation because. For three to five centuries or certainly for the since the Industrial, Revolution. Banks. Form an important, feature in our economy, to promote, the. Extension, of credit and. We had this. Six. Or eight lectures ago, this. Graph that in the US debt, to our economy, is about three. Point eight or three hundred and eighty percent of our economy in. Debt it's, not all bank debt. But. Bank that's a big piece of that can. You move credit, allocation away. From the banking system, well, the answer has got to be in some level yes. But. What, are the what. Are the pros, and cons of doing that is it's not whether you can it's whether it's a better system, a better economy better, growth with, or without it Shawn. Straight stupid, of color to represent different cut level risk and, they use depreciation. Interest point as a. Way to, fund the corporates they can get a little. So. The question is could you use interest, rates to try to do it which leads us to design. Considerations. Which. Is basically, I, listed. That the last one you. Could put you could have a central, bank digital, currency that had zero interest. Rate interestingly. And we'll talk more Thursday Sweden. Said no they think they'd put an interest rate on it but. You could do no interest rate well I'd. Like to hear your thoughts Thursday. Well, why'd Sweden, come out there and what does that make sense, you could put limits, or caps on, it and say these are only low dollar accounts. You can only have X hundred, euro or X hundred kroner, you. Know Y number of dollars, and it's really just small transactional. Counts equivalent, to $20, bills not hundred dollar or. 500. Euro notes so you can put limits or caps or, no. Interest, rates and so forth, do. You make it widely accessible, and, so, forth so there's all these design, considerations. Which. I'm. Guessing Rob you've talked to a bunch of central bank's where do they come out on these issues as you see it in 2018. What. Practically, happen is it wrong. There'll. Be a lot of political pressure. In. Any, crisis, I think a lot we see this like viable. And. Then. I think the interest-bearing thing is interesting I mean the only reason cash doesn't their interest is because it's like technologically. Difficult. Their. Interest so, I've been with. With. Digital. They're marginally you don't matter give yourself the option so yeah well we, can send the interface River Walter, but.
Why Limit yourself to, say we, won't charge interest cuz it's again it's like that's a limitation that comes from the technology, of physical, banknotes and there's, no real need to import it into the digital world. When. You can achieve the same effect. One. Of the reasons, that some countries are exploring. This option is, they think it would be easier, to do monetary, policy, because you have negative interest rates. Physical. Cash makes, it hard for all, nobody. Like that huh now. The. Two liens you don't like negative interest rates. But. For. A while we effectively, had negative, interest rates certainly. For corporate, deposits. But. If everything, was digital, and there was no physical cash. Central. Banks say we could we could actually go and have no lower bound no. Zero, bound, to interest rates. That. By supply, of money rather than the pricing, of money and and so there's both both. One. Of the most interesting to me is the second bullet point is a token, or account, based and and the two, merged together in, a sense this, piece of paper is, a token. Nobody's. Keeping in an account, that I when I hand this to rob you, can take it Rob that's. Your fee remember. Nobody. So that's a token, based a bit. Of money that's, what it's called token, based, token. Based money is more anonymous, and you can keep it more anonymous, account, base is when you're actually keeping, the ownership somewhere, on a registry, even though. That $20, bill is registered. Somewhere it has a serial, number it's. A token based bit, of money. The. Swedes. Interestingly say, they'd. Have to change the, law their, own central. Bank laws for one, of these two and now I can't remember but, they. Have if. It's token base it would come under their emoney laws and I think they don't need to change the law to do that but. In Sweden they would have to change their. Central. Bank laws to do a deposits. Because they would literally be opening, up their central bank to.
Something Other than commercial, banks that's it they have to they have to go to their legislative. Body and Parliament, to actually, do an account based and not, a token, based if I recall. So, there's some also legal, reasons why you might need to do one or the other but one would have more anonymity, than. The other. It's. Not well it's, a, token account so different sentence, will say. So. When, I see. Token I think about, particular structures transactions, which, Bitcoin when I think about accounts, I think a structure, of transactions, that are theory passed and. That's how I just think we should do those two things but, I think having started to do anything bankers they think about it differently because eat money is. Like. You. Could think about it I mean to me that's an accounting, system so it's, but. Some, bankers think about there's also some, central bankers think about a stolen, base it's. Worth noting, that the, definitions. Are very fluid. So. We're. Gonna save. This for Thursday. I'm not gonna go through this it was in one of the readings, Garrett. Who, testified. In Congress was. So popular with this than the Bank of International, Settlements, up. This thing called the money flower, but. I'm gonna save this I'm gonna kick this to Thursday but it's basically the four things widely. Accessible is, it digital, is it central bank is a token, based and depending. Upon where these intersect. All. You, can take any form of money you could say well it's not central, bank issued, its, token, based. Private. Digital, tokens, down. On the right hand corner is one piece of it it's, just a way to take, these four important. Features, and, we. Already have central bank, digital. Money, which. Is in the middle of all this is called reserves, but. But we're gonna we're gonna hold this for. Thursday. But this crazy. Little money flower central. Bankers who are in this world they kind, of been using this because this professor Garrett, came up with it I, mean I've seen this in other papers. They. Love it you know money. And flowers, together there, you go. But. Rob. I don't know if you want to come up and help close it but these are the ones we're gonna talk about on Thursday, and since Rob won't be here on Thursday I'm kind of curious if he has a point of view on you. Can see them here as well. I. Think. It. Was actually. Shot. And. I think that's from. The, other. Projects. For, example. The. Ones that go. In. Say, Singapore, and Canada are really just in-house proofs. Of concept whereas. The. The. Swedish water gathers fairly early stage that there, is, the. Burners not out there yet we've just saw starting, to explore it Museum. One is interesting, I've spoken to one of the guys. Working on that and again asked about interest because it's a live project its continuing, unlike the you, know wine project it's a continuing, project, so. Be interesting to see how it plays out there and, I think the. Reason, being is a lot of the thing that puts off central banks from actually doing is they don't. Whatever. And, I think you, will start to see when, you start see people actually trying in deployed, at Central Bank PLC. Then. You will have like a real, pilot. Real-world. Examples. Because at the moment. It's. Very but, I think once you start to see.
And. Also because of the funding effect, earlier. About the. Cash. Like. U.s. dollars physical. Cash is, effectively, one, point six trillion of interest, rate borrowing on the u.s. cotton and. It's a US government issued, digital. Dollars and arguably, you could retire after the. National debt. Replacing. It money so there, are these big sort of fiscal implications and, the body, would come off paper which is. Two. Years ago. I. Think. Big, attraction. To politicians. Before. We close, Simon, because you're rarely with us but from, your perspective. Either. From your chief economist, days at the IMF or just. Because you Simon. Hosts the Tuesday, night blockchain. Seminar. Dinners, by the way to for, three years so Simon is way ahead, one. Might say he was kind of a block J at Bitcoin maximalist. Three years ago I think you've moved more to the middle. You. Can self declare where you are. And Simon, Johnson and, Nahan Narula Michael, Casey and I are gonna be standing up a blockchain. Lab, course in the in the spring so. Simon, what your. Question is what do you think about all this and maybe. For both of you in the last minute when are we gonna see a true, central bank test. This out I mean there's nine of them on this page that are kind of feeling. It out but. I. Think comes. Down to what Rob said what, does it do to credit who, really wants to find out the hard way, and. What does it do what happens in a crisis, when everyone you know let's say you're, not paying interest on the digital visual, central. Bank currency and you can get into the bank account but there's a crisis and. You can you say well I don't want to have this, happy morning the liability but bank anymore I want to be morning though I build to you the central bank doesn't, everyone run to the central bank and what does that do to credit right and how you gonna figure this out without. Actually running something like. Two. Predictions, how many years before a country, actually this.
180. Countries nine. Of them already bubbling around the, two of these Ecuador, stopped. Your. Gray maybe stopped and the, UK Royal Mint might have been stopped by its own government but when. Do you think, we're. Gonna see a country, actually, have. A direct. Digital. Account. To their reserves, for, the retail public. So. When went back together on Thursday, we're. Gonna dig back into these, nine and, talk a little bit more about the money flour and the