Host
Phillipa Lamb
Guests
- Polly Tsang, Senior Financial Services Regulatory Manager, ICAEW
- Dr Tony Moore, Lecturer in Finance, Henley Business School
Producer
Natalie Chisholm
Transcript
Philippa Lamb: Hello. Welcome to Behind the Numbers. In this episode, we’re taking a look at what the history of money can tell us about its future. Innovations in currency go back thousands of years, but the pace of change really ramped up after World War Two, with credit cards emerging in the 50s. Now, of course, digital banking and crypto. So what parallels are there between modern advances in currency and historical ones, and what are the lessons for how we should adopt digital currencies?
Tony Moore: What we think of as new today is, in fact, not something that’s new at all, but simply a different iteration of something that was tried in the past.
Polly Tsang: Everybody’s talking about tokenisation right now. The reason is, the idea is you can remove all the middlemen in the financial system currently.
PL: Dr Tony Moore is here to help us with those questions. He’s a historian with particular expertise around finance in the Middle Ages. He’s also Lecturer in Finance at Henley Business School. Polly Tsang has been thinking about these issues, too, because she is ICAEW’s Senior Financial Services Regulatory Manager. Welcome both.
PT: Thanks, Philippa, great to be here.
TM: Yes. Great to have a chance to talk about history.
PL: Tony, shall we start with what is money?
TM: It may seem a simple question. We all know intuitively what money is. We think we’re experienced with it, but in fact, it turns out to be a bit more complicated than we might at first think. So if you ask an economist, which I wouldn’t ever advise doing, but if you do, they will tell you that there are three roles that money plays. The first is as a unit of account, a way of measuring value. The second is a medium of exchange, a way of conducting transactions, and the third is as a store of value, and recently, we’ve kind of got used to the idea that money, the same item, the same instrument, fulfils all three of these roles. But that actually turns out to be quite a historical anomaly, and it may well be something that changes in the future with the rise of digital currencies. So I think one of the things that we want to bear in mind as we go through this discussion is, particularly, the distinction between money as a unit of account, the pound or the dollar as a way of valuing things, and money as a medium of exchange because we’re used to those two roles being performed by the same instrument, but they didn’t always used to be, and they may well not be in the future.
PL: At what point in history did money become money as we might understand it now?
TM: To boil down 6,000 years into...
PL: If you don’t mind!
TM: ... a few sentences, we can see the origins of money, particularly as a unit of account, maybe, in ancient Mesopotamia, in what’s now modern Iran and Iraq.
PL: How did they do it?
TM: Well, initially, they were coming up with ways of keeping records. And, of course, finance is always and accounting has always been about, well, counting and keeping records. So they came up with the idea of basically representing items and values using tokens. Initially you would have a token that represented a sheep or a cow or an amount of grain that you could use to record transactions. And then eventually, somewhat later, they standardised these units. And so if we think of the Latin pecunia, for money, actually comes from the word for cow. So they initially standardised the unit of cattle and then you could value items in relation to this unit of account.
PL: And what were those tokens made of? Were they valuable in themselves?
TM: No. So the tokens had no value. They were just clay that was then fired in a kiln so that it couldn’t be, sort of, changed in an early form. Again, we’ll be talking about cryptography, an early form of fraud prevention, because you couldn’t then alter the tokens once they had been fixed and fired in the kiln.
PL: So at what stage then did money become valuable in itself?
TM: We then fast forward about 2,000 years to the Greek city states, who introduced what we would probably call the first coin. So first recognisably modern concept, where we had a physical item that embodied value, a physical item made of gold or silver, precious metals, which had an intrinsic value and which were then cut into a standardised weight and shape, stamped with the insignia of the particular city state to show its authenticity. And really this was introduced effectively to pay mercenaries. Previous systems of the unit of account was more tied to credit. If you had continuing relations with people, you didn’t necessarily need your media of exchange to have intrinsic value.
PL: Okay, but the mercenaries were mobile.
TM: Yes, the mercenaries were mobile. One year you might be fighting for Sparta, the next year you might be fighting for Athens. And then if you had what we would today call fiat currency from Sparta, that would not be particularly useful if you were now fighting against them. And that’s when we kind of get the development of what we think of as coins. And in one sense, money today. In the modern sense, we can think of the pound, the Great British pound, and indeed, most currencies were valued, were expressed in means of weight and so a pound, pound sterling, is a pound of sterling standard silver. Obviously, it’s not anymore, but that was the origin and the French livre and so on. So these, these currencies, were developed based on this notional idea of a pound. They never had any coins that were literally a pound of silver, for obvious reasons.
PL: Yeah.
TM: So they were split up into pence in the old fashioned 12 pence in the shilling, 20 shillings in a pound system.
PL: So this is interesting, Polly, isn’t it? Because, I mean, going back to the whole Mesopotamian thing, tokenisation, and we think that’s a new iteration, but it really isn’t.
PT: No, you’re absolutely right. It’s really interesting. Everybody’s talking about tokenisation right now. And why is that? The reason is, the idea is you can remove all the middlemen in the financial system currently. So we have custodians, we have brokers, we have banks. Why? Because of trust. The idea of tokenisation is you’ve put your real-world asset on to an asset rail blockchain. You put your money on money rails blockchain and then, combined with smart contracts, it just executes itself when the circumstances are fit. You don’t need the middlemen. So that’s very exciting. However, in order to do that, we need money in a digital form that does not currently exist. You’re probably thinking: “Well, when I go to the supermarket, I tap already. It’s really easy.” But the problem is that system is not sufficient for tokenisation. Tokenisation, you need something that’s faster. Currently, there’s a lot of friction in terms of cross-border settlements. If you’re a company, it’s slightly easier because you’ve got Swift, but as an individual, it still takes days to settle.
PL: I mean, that’s interesting too, isn’t it? Because as consumers, we kind of think we have frictionless transactions now because it feels that way at the point of sale, doesn’t it? But as you say, not really.
PT: Not really. Try transferring money to Canada, it takes a few days. But, I mean, the other thing is, it’s really costly. So the idea of digital assets, using them for cross border is it’s just a lot cheaper and we can already see it with AI companies. Most AI companies, they pay their employees overseas with stablecoin because it’s cheaper, it’s faster. Makes a lot of business sense.
PL: But that takes us to the place of trust, doesn’t it? Because obviously, long before digital we had a whole bunch of iterations in currency over time. Do you want to fill us in Tony? I was fascinated to know that China got to paper money centuries before anyone else.
TM: Yeah. So what we can kind of see in the evolution and, in fact, that perhaps is not particularly good word, because when we think of evolution, we think of an end point. We think of things evolving, developing, changing to reach where we are today. But of course, the past was a much more uncertain series of events and, in fact, it’s very easy to fall into this teleology of things continually get quicker, more efficient, more advanced. In fact, what we see through history is things tend to change in waves. We have a wave of innovation that then causes, often, some kind of a reaction to that. We can talk about bubbles and scams, and then you have regulation to try and restore trust. And then you have a new innovation that kicks off the cycle again. So we can see these kind of repeated waves or patterns. And often what we see throughout history is what we think of as new today is, in fact, not something that’s new at all, but simply a different iteration of something that was tried in the past, and that maybe now is the right moment for something. The situation has changed, the technology has improved to a situation that means that maybe now we can have, maybe now we can have instantaneous settlements. Whereas before communications technology, I work on mediaeval traders, when if you wanted to communicate between Florence and London, it took three weeks to basically transmit information backwards and forwards. So the concept of instantaneous settlement would not have been meaningful to them. Maybe now it’s something that is technologically feasible, whether it is kind of regulatory, politically, economically feasible or desirable...
PL: That we can get to!
TM: ...but maybe the technology has now reached a point where we can actually make this system work.
PL: So economic circumstances drove change for one reason or another. As Polly says, right now, it’s about transaction, speed, agility. What drove the iterations in the past?
TM: It’s very similar sorts of things. It’s about improving trust. It’s about improving efficiency. It’s often the key to many of these innovations because obviously the key thing about an innovation that is often neglected is no one is going to introduce innovation unless they can make money from it. That can be because you are improving the efficiency of a system and that creates a surplus that the innovator could in some way capture. It could be because you’re basically just going to scam someone and run off with the money. We’ve seen both examples throughout history. Maybe we’re seeing both examples, at least one of them today.
PL: Let’s talk about trust and fraud because, as we all know, there have been many, many examples where ideas about how currency might work have turned out to be extremely flawed. So what would be your favourite?
TM: In terms of ideas for forming, forming money?
PL: What would be your favourite scam of the past, currency related scam?
TM: Something that’s not exactly currency related. So we had in, obviously, 1720 the South Sea bubble, one of the most famous sort of innovation, the introduction of a joint stock company that was going to trade in the national debt and manage the national debt, an idea that got a lot of people very excited and led to, obviously, the asset price bubble in South Sea stock, which then kind of spread off to what we call the bubble companies, people setting up these speculative ventures, and whether it’s an apocryphal story or not, but in Charles Mackay, in his book Extraordinary Popular Delusions and the Madness of Crowds, talks about one particular company that was a company for carrying on an undertaking of great advantage, but nobody to know what it is.
PL: That really is big ask on the trust front.
TM: And then the founder managed to raise about £2,000 in terms of initial subscriptions and then promptly, very wisely, took advantage of that to run off and abscond with that money.
PL: I mean, some of it’s been simpler, hasn’t it? It’s been around things like coin clipping, you know, just literally pinching bits off the coins and, you know, just stealing it away in a physical way.
TM: And then this brings us to the question of, kind of, regulation because when the state did get involved in producing coins, and the interesting thing here historically is people often have the idea that these coins circulated by weight, that people would wave a coin and then basically the transaction would depend on the weight of the coins rather than the kind of face value of a number. It’s difficult to know because we don’t have many actual descriptions of what was going on, but the records seem to suggest that most of these coins circulated by tare or by count, so they circulated as if they had the face value, the nominal value, rather than the weight, which is, of course, why coin clipping was a profitable thing to do. Because obviously, if you cut, carefully snipped little bits or sweated the coins by putting them in a bag, basically, over time, little bits of metal would kind of be shaken loose.
PL: I don’t know about that one! Ok!
TM: All kinds of ways you could do that. If we were indeed weighing these coins when you’re doing transactions, there’ll be no benefit to doing that.
PL: There’s the physicality of the currency, but then there’s also the issue there isn’t there about so I’m thinking about wildcat banking.
PT: Wildcat banking, and actually I would say the South Sea bubble is a great example. It’s like the original meme coin crash, in a way, if you think about it. But yes, wildcat banking. So I’m going to parallel stablecoins. So stablecoins for the audience, it’s technically pegged to fiat. So your most common stablecoins today are pegged to the US dollar. That’s Tether and USDC. In a way, it’s very similar to the 19th-century wildcat banking in America. This is an era where banks from the remotest areas were just issuing notes. You didn’t know what the bank was, whether it would exist the next day. So a $5 note by bank A might be worth 450 in state B. It was just zero regulation.
PL: So the banks accepted each other’s or not, or they might do?
PT: They might do.
PL: OK right.
PT: It was a complete mess, let’s put it that way, but in a way, it’s, I’m not saying stablecoins – I believe there’s a use case for stablecoins – but you’re very right in the sense that your issuer quality is going to affect it, right? They call it stablecoins. But we can see from the SVB crash, Silicon Valley Bank crash, they were not stable. They were anything but stable. And similarly, fall of Terra Luna, that was an algorithmic stablecoin. They’re not inherently stable.
PL: I mean, the naming of currencies, it’s all about inspiring trust, isn’t it? So stablecoins a great name, isn’t it? But how did the wildcat banking environment play out? What brought that to an end? Regulation presumably.
TM: The problem it was solving, which was a very real problem, was a shortage of physical money. And so effectively the banks stepped into that. People wanted a medium of exchange and so the banks produced their own notes because at that period, basically the United States did not have a central bank, but produced sufficient quantities of bank notes, as opposed to coins, and there weren’t enough silver or gold in circulation to meet the needs of the economy. So that was basically the need. Now, obviously it gave rise to issues, which were both the, kind of, potential fraud because of the lack of regulation, also just the high level of transaction costs because of the difficulty of getting information about the value and the stability of all these different banks that were issuing these coins. So it was necessary, in a sense, at the time, but it was not ideal, and it was when basically you had reforms in the United States to introduce basically a better supply of, kind of, official US dollars, that reduced the need for basically to have private issuance, which is an interesting question when we look ahead today because what we’re kind of thinking about is replacing state-issued pounds and dollars with privately issued pounds and dollars, and we currently have the idea that that’s going to be an improvement, that’s going to be more efficient, efficient, more effective. History, we tried these sorts of things before. They’re not always better. Maybe this time we will have solved, you know, the technological or the trust or the regulatory problems and this will be a viable approach. But it might turn out to be another one of those cases where we repeat something that we’ve tried before and then discover maybe that it doesn’t work as well as we hoped.
PL: Yeah because the trust in even central banks is largely.... It is because there is never enough actual asset to cover …. Yeah, we’ve seen this actually play out in the not distant past and now we’ll see it all play out again. So actually, the scenario is not so different. It’s about the perception, isn’t it, the user perception of risk. We feel central banks can be trusted, even though, intellectually, we know there’s not a stack of gold enough to actually cover all their liabilities if everyone came and asked for their money. So tell me how central banks are going to play this out in relation to digital?
PT: I think it’s really interesting. The Bank for International Settlements, the recent paper on stablecoins is they’re really worried that it will disintermediate the whole system, in the sense that you’ll lose the singleness of money. All that means is one pound in your hand, in your pocket, in your account, it should all be worth the same, but with the introduction of these stablecoins and private issuers, you suddenly come into a realm where they may not, like, one, one pound may not be the same across the board.
PL: We’re back with wilcat banking.
PT: Potentially, potentially. So I completely agree with Tony. Regulation is very much needed. I think the other issue here is the endemic coins right now, stablecoins, they’re all USD backed. So there’s a lot of countries trying to, kind of, remove their reliance on the USD, but in a kind of backdoor kind of way. There’s a massive dollarisation of the economy. In hyperinflationary environments like Turkey, Nigeria, they all use stablecoins, usually Tether. So there’s that issue, but I think linked to that is if it becomes incredibly prevalent, so for example, Tether, they own more T-bills, more US T-bills, than Germany.
PL: Which is an amazing thought.
PT: It is more than a developed country. Now, what happens if there’s a run on Tether? They’re gonna have to sell those T-bills in order to liquidate and pay back.
PL: And the ripples from that will be collosal.
PT: Exactly!
PL: Well, that’s an interesting question. Yeah. Who does bail them out?
TM: But also the risk comes from the other way, because seeing what we see in America at the moment, what if there is maybe a technical default, they don’t raise the debt ceiling the next time around, then the value of the T-bills takes a hit. And now Tether is no longer fully backed, so the risk can run in both directions. What I think is, kind of, quite interesting is, in another way, of the dollarisation argument is, then, ultimately what you’re doing is you’re pegging the world’s money supply. If we do, if stablecoins do take over, you’re pegging the world’s money supply to the debt issuance decisions of the United States government. And if the United States government, it may seem unlikely at the moment, but if they do go back to a balanced budget, even repay or redeem some of their debt, then you’re going to have a shrinking money supply, as long as US assets are the main means of backing these. So then we end up back in a sort of gold standard situation, where you can easily slip into a deflationary environment because your money supply and your access to credit is determined by some external factor, which is either for discovery of new gold reserves or the budgetary decisions of the US government.
PL: So there’s some serious jeopardy here. And yet, central banks are talking about issuing these currencies. The Bank of England is talking about doing it.
PT: Well, I think they’re issuing central bank digital currencies because they don’t want the prevalence of private issuers. It all came about because Facebook announced that they were going to release Libra, and then all them governments were like: “No, we can’t have that. Let’s, let’s try to get ahead of the games and introduce the CBDC.” And that’s actually, I think now they’re more looking towards issuing a stablecoin. I know China is definitely having a look at it. And it goes back to what Tony was saying. It’s trying to get back that sovereignty over, over your own, kind of, financial systems, also financial stability, right? You don’t really want the US calling the shots on your monetary policies as a different country.
TM: So then we end up, so we end up with a situation, as you mentioned before. The great advantage of stablecoins at the moment is kind of instantaneous cross-border transactions in one unit of account, the US dollar. Of course, if every country now introduces its own stablecoin, we’re basically back to the system of needing exchange to do an international transaction. You would need to transfer your Chinese stablecoin into a US stablecoin.
PL: So then the delay you’re trying to avoid, presumably?
TM: The sort of, the frictions, the limitations, potentially the exchange rates. Obviously, if more people wanted to swap Chinese stablecoins for US stablecoins that’s obviously going to have an impact on the exchange rate, and so all these sorts of things would kind of be reintroduced by the back door, which kind of tells us that a lot of these issues are not kind of technological. It’s not a question of finding the perfect technology that will fix these things. The question is political and regulatory and economic.
PL: Yeah, regulatory being the big one, because obviously there is no global regulation here. You know, countries are going to make up their own rules. So how will that play out?
PT: So diversion, and it’s a really exciting year. So I think two weeks ago, we saw the stablecoin week. We’ve got the Genius Act, we’ve got the Clarity Act in America. We’ve been doing a number of consultations, responding to a number of consultations, with the FCA here. FCA is looking at stablecoins and then the Bank of England is doing consultation of systemic stablecoins later. And then we’ve got MiCA in Europe. So it’s going to be really interesting as to how it all plays out. I think from the UK perspective, from what I’ve seen, it’s quite good. We’re taking a cautious, but open-to-innovation approach and some of the cautions that we’re taking is, for example, if you’re going to issue a systemic stablecoin, there’s going to be limits on how much you can transfer to prevent a massive flight from traditional deposits into the stablecoin ecosystem, thus creating financial instability. So they’re kind of putting stops there.
PL: Where might that number be and who would establish that number?
PT: They’re about to consult. They’re about to consult on these numbers.
TM: So the interesting thing here is, we’re talking about stablecoins. Okay, there’s a novel element, which is the kind of cryptographic component, but this is narrow banking. This is effectively, in one sense, a bank that simply holds all of its reserves in risk-free assets, rather than investing those reserves in making loans to individuals or the household. So, as you say, in terms of financial instability, the question is, if stablecoins do become prevalent and they are backed in this narrow way by basically short-term government debt, then ultimately, all that money that could previously have been used to pay for mortgages or to fund investment in businesses, will now be sitting basically in government debt securities. And so there’s a question there about how do we then replicate the economic role of the current banking system in terms of creating credit, in terms of allocating credit and so on, and whether it will be the stablecoin issuers who basically take on this role, in which case they are just becoming banks again? Or we’ll have some other system. Maybe it will be the Bank of England or the government that starts to make decisions about where all this money is going to go and what sectors it will be invested in, and who gets access to credit, and so on. So again, I think the question here is, we’re still at the stage of almost the technology. Can we do this?
PL: Yeah.
TM: And the next question is, as Polly has said, is being discussed at the moment, is, well, we can do it, but what will the results be, and how can we make sure that we don’t, in a sense, throw the baby out with the bathwater in undermining the important kind of economic role that the current financial system has? And we do need to replicate the credit provision as well as simply using simply the transaction and the transfer of value as well.
PL: Setting aside the question of, is it technologically possible to create a global environment where this actually works as swiftly and frictionlessly as everyone would like, how likely do you see it being that regulation will actually make that possible, that it will be sufficiently robust for that to really come about?
PT: I think it’s already. I mean, there’s a lot of different types of crypto, right? But I think people are mainly focused on stablecoins at the moment. There’s a lot of money to be made by traditional finance. They’re all piling in. Stablecoins work. They’re already very widely used. I think, for the average consumer, what really needs to come into play is protections for said consumer. So stablecoin issuers need to show proof of reserves, they need to be audited, they need to be held to some kind of operational level. And this is part of our response to the most recent consultation on custody of crypto assets as well. I think, provided that is in place, then it’s up to the market as to what wins.
PL: But if they’re cross-border organisations, how do you achieve that?
PT: I guess you would have to fulfil the most stringent regulation, like the country, which is probably Europe at this point. So MiCA is probably the gold-plated standard, I would say. Tether, interestingly, has opted to not operate in Europe because they don’t want to come.
PL: They don’t like the regulatory environment?
PT: Well, possibly, possibly.
TM: But you raise an interesting question, as I said before, about innovations. Ultimately, that innovation is only going to be successful if it can make money for people introducing it. And the question mark with stablecoins is, how are they going to make money? And if they make money through reintroducing transaction fees or float in the way that, so Tether, at the moment, doesn’t need to charge transaction fees because it has $100 billion sitting in short-term US so Treasury securities earning four and a half percent and it’s paying zero to its depositors. Now, in the future, are people going to be happy to have their money sitting in a zero kind of access account while the, the financial intermediaries, the institutions are making four per cent or four and a half percent on that. So the question then becomes, when you have more competition, are those margins going to be competed away, and once those margins have been competed away, is there actually a value-creating proposition for the people who run these stablecoins, the companies that run them, that will offer a better service to the customer and also enable them to make money? And also, if we think about compliance costs, once you are properly regulated, are going to be pretty substantial. And then the question is, ultimately, we kind of move in that situation of you are just recreating traditional banking, but with a slight crypto sheen to it, which is a good marketing tool, potentially.
PL: Unless business responds positively and feels confidence in this, it will, it will all fall to the ground, won’t it? So I mean, how should business responses, as you say? I mean, some tech organisations are already using it, you know, to pay their staff. You can see how, if you’re in that industry, it feels a lot more like home to you than perhaps if you’re in a more traditional business. I mean, do we see much sign that business wants to adopt these, these…?
PT: Absolutely. I mean, all the big banks are looking at stablecoins, either issuing, facilitating. There’s a lot of money to be had in terms of off-ramping – helping stablecoins off-ramp back to fiat. Custody services. So a lot of traditional financial institutions are getting into it. I think what’s going to be really interesting is what’s going to win in terms of money rails going forwards. And I think this year is going to be quite pivotal. When I say money rails for tokenisation, so you’ve got your stablecoins. You’ve got tokenised bank deposits, which we haven’t really talked about, but that’s, that’s a player. Got CBDCs, potentially. That may fade a bit in the background because US are about to pass a bill, basically saying Federal Reserve cannot issue CBDCs, so that that might be out of the game.
PL: So the landscape is evolving really fast.
PT: It is. Interestingly, you also see companies like failing companies, they’re now buying bitcoin to try to raise their prices. You know, share price.
PL: Yeah.
PT: It’s like, what happens there? And coupled with, kind of, Trump’s initiatives that kind of lends legitimacy. I’m not saying it’s not legitimate, but bitcoin is fairly speculative, I’m going to go with, but he’s saying: “Okay, we’re gonna have a federal reserve for cryptocurrencies.” Last week. He said: “401(k), you’re now allowed to, like, invest in crypto.” What happens when there’s a crash?
TM: Well, I mean, this is obviously that innovations frequently leads to speculation, excitement, bubbles, crashes, regulation and so on. I think one of the questions I would have, from taking a longer-term perspective, is very interesting what you were saying. You were saying that the banks, existing traditional financial institutions, want to get involved in this space because there is lots of money to be made there and that raises the question of, how much, where is this money coming from? Basically. Ultimately, it has to come from the consumer in some way. Maybe it’s more hidden at the moment. Whatever we think about the banks, they are regulated, there are limits to the ways in which they can make money.
PL: Yeah, there’s relative transparency about them.
TM: If we’re kind of saying that the banks are incentivised to adopt this technology, that must be because they see the ability to make more money in the long run than the current system. Which maybe means that what we see is the advantages for the consumer at the moment – the fact is instantaneous, it’s cheap and so on – maybe will not be such an advantage in the future, once you know the profit incentive comes in. And particularly if we are in a situation at the moment where we have the tournament, where everyone is introducing these, these new coins, they’re competing for business by basically offering them at below-cost rates, maybe not charging for transfers and so on. Ultimately, they’re going to need to turn a profit. And then we kind of have the idea, as we’ve seen in with Uber, with other big companies, if you can corner the market by basically running at a loss, once you have got that monopoly position, then potentially, there’s a scope for you to raise your prices when people, you know, don’t have another option, when you’re sufficiently embedded, and then there’s a question mark about whether that is ultimately in the best interest of the consumer. So that would be one question to think about, is, is kind of, where is the money? And if everyone thinks they’re going to win out of this, potentially, if we have, you know, efficiency improvements, if we can drive actual economic growth by being more efficient, by being more effective in terms of these transfers, that will create a surplus that can then be redistributed. But if it is just a zero sum game, either the banks and the people, the intermediaries, are going to make more money, or, you know the end users are going to but, but yes, anyway, let’s see how this works.
PT: There’s money to be made because you don’t have to pay interest on your holdings.
TM: So that’s money that’s being lost by the saver/depositor.
PT: But they save in terms of speed and transaction fees, cross-border transaction fees.
PL: Another question of how important that is to consumers, isn’t it, if we’re thinking about clearing banking effectively, ordinary banking, I mean, how significant is it? I mean, are people not goiing to be more concerned about am I getting a decent rate of return on my on my savings?
PT: Well, you wouldn’t invest in stablecoins for long term. I would, I think you would use it. I mean, you might. But as with different investments right now available, this, you might use stablecoins for some transactions. If you’re looking for higher returns, you would look at, like, it’s not going to give...
PL: It’s going to be a high bar for the consumer, isn’t it? Listening to what you, you know, you both talk about it. I mean, you know, financial education is at a pretty low ebb in the UK, as it stands. This is a whole other level, isn’t it, in terms of people’s personal financial situation? I mean business, perhaps better equipped to understand the pros and cons, and as you say, the speed of transactions – that’s got to be a big plus there.
TM: So just to jump back, for a moment, and then come back on to that. But this, this idea just we talked about in the beginning, the laws of money, and what you’ve kind of just described, is you would have one set of assets that would be your store of value. You would denominate, all these would be denominated, and transactions would be done in terms of a unit of account, might be the pound or the dollar. And then when you want to actually do a transaction, you would convert some of your assets into a stablecoin, and then you would transfer the stablecoin to someone else. And again, just to say that we had this idea that this idea that this is going to make things cheaper and easier, but now, of course, we’re introducing a whole bunch of extra transaction fees when it comes to converting our store of value into a stablecoin, so that we can then transfer it for free and then presumably the person who receives that stablecoin is then going to want to do something with that, which may well involve a whole range of other sort of actions. So again, very interesting that we’re almost breaking apart this unitary view of money and seeing that those different roles can be formed by different things. And in terms of financial education, then obviously a that’s going to require more computational power in terms of people’s understanding. We could also say that people, the best way of motivating someone to do something is often financial. So as the ability to make these decisions becomes kind of more central, then potentially people will be motivated and incentivised to pay more attention to it. So the example I would give historically is, if we go back to the 14th and 15th centuries, we have the, one of the few surviving records we have, is the papers of the Cely family, who were import/ exporters in mediaeval London, their account books will say that they received £100 for buying or selling a particular quantity of wool. When you look into the actual accounts, you might see that that £100 in terms of unit account value, might have been comprised, usually it was two thirds credit, so two thirds debt instruments. The third that was paid up front in cash would be paid for by a variety of different coins and each of them would have a specified exchange rate that would then add up to the sum, the sum required. So people have been capable of doing these, these things in the past. We might imagine, again thinking about technology, that you could have an app that would automate much of this process for people, so maybe this is a way that technology could facilitate some of these things.
PL: Do you know what I’m taking from this? What I’m taking from this is there’s a lot more to know, isn’t there? And I think we’re going to be sitting around the table again, aren’t we, talking about the next iteration? Because, as you say, it’s moving fast. But thank you very much. Fascinating conversation.
PT: Thank you very much.
TM: Thank you for your attention.
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