EP. 121 — The Future of Money with Eswar Prasad 

FACT-121-20210917-Prasad-RCv02-DYN.mp3

Speaker 1 [00:00:22] Hello and welcome to Factually. I’m Adam Conover, thank you for joining me once again as I talked to an incredible expert about all the amazing shit that they know that I don’t know and that you probably don’t know too. My mind is going to be blown. Your mind is going to be blown. We’re going to have a hell of a time together. Let’s start with this fun fact: did you know that nobody really knows what money is? Seriously. We’re all carrying it in our pockets, but none of us know what the hell it actually is. We know what we can do with it, but we don’t really know how to define it. I’ve listened to a lot of podcast episodes, I’ve read books, I’ve read articles that tried to explain it. If you corner economists, they will tell you that they know it has something to do with value and they know that something to do with trust and they know that debt plays some kind of role. But none of these explanations add up to a single concrete definition that stands up to every kind of scrutiny we apply to it. That is why we have an entire field of human inquiry called economics that is basically devoted to just trying to explain what the hell this shit is. What we do know for certain, though, is that money has changed a lot over time. It seems pretty solid and simple to us now. Sure, at many points in history, money has come in the form of coins or precious metals, but it’s also existed in the form of cattle (like, actual cows) and seashells and even strips of white deerskin leather. The money used by entire countries didn’t always come from a central bank run by the government because those haven’t always existed. In the 1800’s, much of the paper money in America was actually issued by private banks or individual states. Even something like the gold standard, where every bill corresponds to a piece of gold sitting in a vault somewhere; that didn’t even come along until 1816, when Britain fixed the amount of pounds in circulation to a finite amount of gold to stop inflation. And that lasted over a century, but then disappeared. We don’t have the gold standard in America today. So this idea of money that we grew up with: that the state issues money that exists in the form of a piece of paper in your hand with a signature of an old guy on it to prove its authority, that’s actually very recent. The future of money is quickly overtaking us. Money is about to become something else entirely. Take cryptocurrencies, for example. They act in some ways like money, in some ways not. There’s a lot of complicated math involved, and no one can agree on if they’re the future of money or a Ponzi scheme perpetrated on the foolish. Or look at mobile money: where in countries like China or Kenya, you’ve got entire economies that exist by people sending money back and forth via cell phones without the intervention of a bank or cash at all. Money, right now, is in a moment of transformation and transition more than at any time in our lives. To talk about it and tell us what the future of money holds, we have a fascinating guest on the show today. His name is Eswar Prasad. He’s an economist at Cornell, and he’s the author of a book called ‘The Future of Money: How the Digital Revolution is Transforming Currencies and Finance.’ If you are interested in money, crypto or just the future of life on Earth, I think you’re going to love this interview. Please welcome Eswar Prasad. Eswar, thank you so much for being here.

Speaker 2 [00:03:39] It’s my pleasure, Adam. Thank you very much for having me.

Speaker 1 [00:03:42] Tell me a little bit about yourself before we get started. What do you do? What do you study? What do you teach?

Speaker 2 [00:03:48] So I teach economics at Cornell University. I used to work for this big international financial institution, called the International Monetary Fund for a long time, but I always wanted to be a professor. Then Cornell came along and gave me this offer and so I’m now living my dream of being a professor. I largely work in issues related to international finance, which means exchange rates between currencies and capital flows across countries and issues related to monetary policy.

Speaker 1 [00:04:17] It was my dream to be a professor, too, but I backed off before applying to grad school. I wanted to be a philosophy professor and everyone was like, ‘Yeah, maybe you should do comedy instead, that might actually be an easier career path to get a job in than academia’ or than the liberal arts. But let’s talk about money. You wrote a book called ‘The Future of Money.’ What do you feel the future of money is? That’s a big question to start with, but let’s go for it.

Speaker 2 [00:04:45] I’ve written other books in the past. I had a book about the U.S. dollar, and then I had a book about the Chinese currency called the renminbi. But in the last three or four years, it became apparent to me that something funky was going on in the world of money. We’ve all heard about bitcoin, of course, but this notion that you might have money that was issued not by a central bank set up by a government but by some mysterious computer algorithm. That people could actually use this money and value it, sounded remarkable to me. So I started reading up on it and realized there wasn’t much to read up on. So I started writing about this because that’s the best way to understand what is going on. As I started writing about it, I also realized that there is much more that is connected to this: lots of revolutionary developments in the field of finance, which go under the broad rubric of ‘fintech;’ or new financial technologies. Most of us now use digital payments in some form or the other but this could have pretty big implications for not just money: but for the world of finance, for money flowing across countries, for central banks, for investors. So what was going to be a small little book turned into a 500 page tome that tries to show the connections between all of these financial technology developments and what it might mean for money, for finance and for all of us.

Speaker 1 [00:06:14] Wow. OK. Well, we talked about cryptocurrency on the show a little bit before. We did a past episode with Everest Pipkin that was our introduction to the topic. Folks can go listen to that. So first, I want to ask you: what are these other developments that you’re talking about? Before we return to cryptocurrency in this conversation, what are some of the other developments that are happening in the world of digital currency apart from crypto?

Speaker 2 [00:06:37] We should actually start with digital payments, which is actually a huge revolution that is taking place in many parts of the world. If you think about how you and I in the U.S. might pay for a cup of coffee: you could use a debit card or credit card or now you can use Apple Pay. If you want to split a dinner check with your friends, you can do it through Venmo. But for people in many parts of the world, they don’t have access to a banking system. They don’t have debit or credit cards, so it becomes a problem, dealing with cash. And it turns out that the other problem is that people don’t have access to banking services, meaning they can’t basically get credit. They can’t get access to places to put their money safely. So in some parts of the world (let’s take Kenya as an example), mobile phone based payment systems have become hugely important. There is a telecom operator that runs the mobile payment system called M-Pesa, which has become very important not only as a payment mechanism, but also giving people easy access to saving products and to ways to get credit. So that is a fundamental transformation. You have, of course, heard about how payments are very easy in China. There are companies like Alipay and WeChat Pay, which dominate the payment space in China. So if you go buy a dumpling or a piece of fruit from a vendor in Beijing or any province in China, you can basically pay for that using your phone. So very few people in China actually use cash anymore. So that’s one of the fundamental things that’s going on, the shift away from cash towards digital payments as a medium of exchange for transactions.

Speaker 1 [00:08:24] So this is really, really interesting. We’ve touched on that in this show before, actually, because we had the founder of GiveDirectly on the show, which is a charity that gives money directly to folks; to some of the poorest folks in the world, many in Africa. Those payments are done through cell phones, not through cash, but through the means that you describe. Actually, this is really interesting to me because an argument that I’ve heard a lot in the United States when businesses go cashless, when, say, the salad chain Sweetgreen (here in L.A. at least) is completely cashless. It’s only credit cards and people in the United States say, ‘Well, hold on a second. This disenfranchises poorer folks, because they might not have access to a credit card or Apple Pay or something like that, and they tend to use cash.’ But what you’re saying is, (and I know that this is the case) poor folks in Kenya are much poorer than poor folks in America. But in those spheres, cash is disappearing entirely. So those are two opposed points of view. What does that dynamic mean?

Speaker 2 [00:09:29] Now that’s a good point. There are some people who are going to be left out if we stop using cash. In fact, there is legislation in some states to prohibit merchants from refusing to accept cash. Some states, like Massachusetts, already have a law on their books and many other states have either passed or are considering passing such laws for precisely this reason. One of the problems is that in the U.S., as you correctly pointed out before, where you have access to a digital payment system: you need a bank account or you need to have a credit card and to get those, you need to have a reasonable chunk of money. The way things have developed in a country like Kenya or China is that you don’t need to have access to a bank account or a credit card. All you need is a mobile phone and that allows you to use that channel as a payment mechanism. So you don’t need to be at the mercy of these other companies. There is an interesting reason why payments at some level in the U.S. are so backward. We might think we’ve made enormous progress here in the U.S., but why is it that digital payments are so much cheaper, both for merchants and for consumers in the rest of the world than they are in the U.S.? Therein lies a story. If you think about how companies like Visa and MasterCard make their money, they charge pretty significant interchange fees. It’s a huge win if you’re buying a cup of coffee then you know that there is a fixed cost, that there’s a basic transaction fee that translates into pretty significant percentage. So why is it that you don’t have alternative payment systems coming up? One reason, of course, is that in emerging markets if you don’t have any payment system like a debit or credit card, there is a demand for this payment system. So something new comes along, it’s easier to gain traction. In the U.S, if you or I had to switch to a different payment system, maybe we might say, ‘Oh, why would I bother? I already have Apple Pay on my phone. I already have a credit card. I don’t need this.’ The credit card companies have been very clever. They’ve used their money in two very effective ways. One is they pay off politicians in the U.S: it makes it much harder for a new payment system to take root because these companies are politically, very powerful. And then these companies do something else: they bribe us. So when you go out and buy something with a credit card, you’re going to get some of it as a cash back or points. And so you might say when you go into a shop, ‘Hey, I want to use my credit card because there is something in it for me.’

Speaker 1 [00:12:08] Yeah, I get two percent cashback or I get airline miles.

Speaker 2 [00:12:11] I know, that’s cool. So effectively, the credit card companies have bribed us, the users, and they have bribed the politicians (although somewhat more subtly) in a way that makes it much harder for new entrants, in many of these developing economies, by contrast, there is no Apple Pay or alternatives. People use cash, but it’s not good for consumers to have to transact on so much cash. It’s not good for businesses. There are concerns about counterfeiting, about theft. All of that disappears if you have an easy digital trail to a digital phone. That’s why I think the rest of the world actually is ahead of us, especially countries like China, compared to what we have in the U.S.

Speaker 1 [00:12:51] So because we have this entrenched player (the credit card companies) that are making, one point five percent or three percent off of every transaction, and that’s an enormous tax that they’re putting on almost every transaction. For most things, I use is via my credit card or via Apple Pay, which goes through my credit card and so that’s an enormous tax. They’re able to use that money in order to retain that advantage. And by the way, that really hurts folks at the bottom of the pyramid, because if the credit card company is charging the vendor three percent, they have to raise their prices by three percent. Well, I don’t mind so much because I’m getting two percent cashback on my credit card, so it’s really only one percent for me. But the person who walks into the store and doesn’t have that credit card (or doesn’t have a rewards credit card, and is paying with cash), they have to pay that three percent surcharge anyway, even though they’re not getting the benefit of the miles that I am accruing. So it’s a really pernicious scheme that you’re describing. But in other countries that didn’t have that big vested player, that big actor already there to say, ‘Hey, we’ve got a lot of people who can’t figure out where to keep their stacks of cash, they’re getting robbed. They need to access digital payment.’ The telephone company is just able to say, ‘Hey, let’s just build a quick, easy payment system with  a low fee that that is easy for folks to access.’ Since their customer base is very poor, they’re not going to charge a whole onerous tax on this. So it just allows it to flourish in that way. Is that what you’re saying?

Speaker 2 [00:14:25] Yeah, that’s exactly right. So essentially, where there is a blank slate in terms of access to digital payments, these alternatives come up and it’s interesting how some of these come up as well. So if you think about the Keynan case that I mentioned, the telecom company realized that there were many people who were using mobile phone credits as a payment mechanism because people essentially transfer mobile phone credits from one person to the other instead of cash. So that’s when Safaricom, the company, realized that there was a business opportunity here. They could help themselves and help the people by essentially creating a more formal payment channel that you could use to transact cash rather than using the mobile phone credits.

Speaker 1 [00:15:09] Wow. So people are literally just saying, ‘Hey, I’m going to send you some minutes in order to pay you for this piece of street food,’ for this skewer or whatever it is. And the company was like ‘Oh, hold on a second. Let’s just allow them to to send money from place to place.’ Are there any downsides, though, to this payment system? I have to say when a mobile phone company that is serving a population in a developing country that has no access to banking, I can imagine that’s a very easy process to exploit. And a lot of people make a lot of money off of soaking poor folks for the very little money that they have. It’s a huge business here in the United States. I’m wondering, are there problems like that in Kenya or in China, abuses of this?

Speaker 2 [00:15:52] Things can go wrong, and an example of a country where things have not gone so well is Somalia. Somalia has been through a huge amount of civil strife and transacting in cash, it’s a real problem there because of the lack of good public governance: which means that government doesn’t work well. Safety is not easily assured, so carrying cash around is a problem. There are mobile operators that offer payment services there, but there is a risk that some of those are fly by night operators and there are potentially risks there that you could trust a mobile phone operator put a significant amount of money there, and then it turns out that money is gone because they are not regulated like a commercial bank would be. And of course, the other issue is that there is a tradeoff here. As with anything digital, you lose some degree of privacy. For most people, the ability to transact easily and safely overwhelms any notion of privacy. Living hand to mouth, privacy is not what you really care about. But certainly as economies become more developed, it becomes a problem. China is dealing with precisely this issue. The big payment providers (right now, there are two dominant ones) WeChat Pay and Alipay, practically every Chinese person has one of these or both of these on his or her phone and uses it for a variety of transactions. And these companies can soak up a ton of data. And these two companies have grown so large right now that they dominate payments. So this has made the Chinese government concerned about privacy. And that is, of course, a deep irony. One thinks about China as being a surveillance state, and the surveillance state is concerned that there are companies that have become more effective at surveillance and has started to crack down on them.

Speaker 1 [00:17:51] Hey that’s our data!

Speaker 2 [00:17:53] Yes and this is a big issue in every country, not just in the U.S.. Who has rights to those data, who controls the data and what do they do with it?

Speaker 1 [00:18:02] Yeah. I find that the more you think about that, the more you do start to see some of the original advantages of cash. Honestly, the main reason I carry around cash now is so that there are certain services that I use, that I want to tip the person. I’ve done a lot of work on my own show and on this podcast about tipping and the historical roots of tipping and it’s an imperfect system, but there are still cases in which I’m receiving a service and I want to make sure that the person I am interacting with is paid a little bit more. I don’t trust, necessarily, that tip button in the app to make sure that person is going to get the money because a lot of these companies (Instacart and companies like this) will take a tip and then actually charge it against the person’s wages so they don’t receive the full value of the tip. So one of the reasons I keep cash is specifically because I know when I give this person $10, they will receive $10 and no one’s taking a percentage of it and no one is tracking that I’m giving it. I know because I handed it to them. There is that security of cash that can start to disappear a little bit when we’re talking about digital currencies. No?

Speaker 2 [00:19:11] You’re a man after my heart, Adam. I still keep a stack of $5 bills and $10 bills to tip my Uber drivers and my Instacart delivery people. Because there is something about getting cash that I think, perhaps even creates a human connection. The tangible element and the surety that the person has the money and that nobody else can intervene is certainly a big thing. But here again, there is a downside. Of course, cash is being used and is being increasingly used, not for these sorts of legitimate purposes, but largely for illegitimate purposes. A lot of money laundering, a lot of illicit activities are financed through cash. And then one might argue, paying a babysitter or a in there in cash and those people not reporting that revenue to the government is not a big deal. Many of these people, your high school babysitter probably is not going to be liable for any taxes anyway. But in many countries, even in the U.S., there is a concern that activities fueled by cash are part of what is called the shadow economy. These are perfectly legitimate activities, but that escaped the eye of the government and therefore escape the tax net. So another advantage of moving to digital payments is that once you have a digital trail, it becomes harder (not impossible, but much harder) to disguise transactions and keep it in the shadow economy. So the government could more easily collect revenues, which you may or may not consider a good thing.

Speaker 1 [00:20:42] That’s a whole other episode. By the way, if you’re carrying around a lot of cash, there’s a reason taxi drivers get stuck up or robbed. It’s basically a safe driving around; having a large amount of cash creates a security problem as well. So there’s advantages and disadvantages here. I do want to ask you, though, a lot of what we’re talking about is the digital currency that we’re all familiar with. I look at my money, I log into my bank account, I have an app on my phone. I can send money using an app from me to you. What you’re describing in Kenya and China is a more efficient or maybe sort of supercharged version of the same thing. But I also know that you’ve spoken and written a lot about the idea of a digital dollar and I want to ask, is that something different than what we’ve been talking about? Because when I’m looking at my bank account, I’m like, ‘OK, this still corresponds to a dollar bill that’s sitting around somewhere.’ In my head, that’s how it feels. But is there some other transition that is going to happen? And if so, what?

Speaker 2 [00:21:56] Yeah. Here is where I get to put on my professorial hat. If you think about cash, this is money created by a central bank that is in physical form. But most money in economies right now is digital. As you correctly pointed out, your bank balances are not pieces of paper sitting in a bank vault somewhere. They’re just digital traces out there. Most money is transacted through digital forms that do not have any physical implications at all. So central bank issued money is, again, one form of money that also coexists with money created by banks. And this is an odd thing that  it’s not often thought of. We think about banks as just places where we put our money and then we can take out loans. But when a bank issues a loan and creates a corresponding deposit, it actually creates money. So in fact, most of what we economists think of as ‘borrowed money’ that fuels economic activity is really created by commercial banks rather than the central bank. But we all love our cash, and this is why a central bank digital currencies (or CBDCs), which is the digital dollar that you mentioned, comes into play. In many countries, there is a concern that as these digital payment systems start taking hold, central bank issued cash will become irrelevant. And that’s not such a good thing because you want people to have the option of a government issued currency rather than just a privately issued currency.

Speaker 1 [00:23:31] By privately issued currency, you mean a cryptocurrency or something along those lines?

Speaker 2 [00:23:35] A crypto currency or a currency issued by a bank or a digital payment form of some sort

Speaker 1 [00:23:44] Facebook credits or whatever, yeah.

Speaker 2 [00:23:45] Exactly, or Amazon credits. The concern is, that if we start getting a little worried about these companies that are issuing that currency, we may lose faith in them. We cannot use it for payment and then if there isn’t a government should backstop, you face a crunch time because suddenly payments to the economy don’t work. So some countries like Sweden, for instance, are experimenting with a CBDC, a central bank digital currency. In that case, it will be the e-krona. The krona is the Swedish currency. So the e-krona,

Speaker 1 [00:24:14] I know that because it was just a crossword puzzle clue for me. The Swedish krona was a crossword puzzle clues. So I just learned this three or four days ago. I’m sorry, please go on.

Speaker 2 [00:24:23] OK, well, next year, the e-krona will be the solution to the crossword puzzle because it’s coming. So the e-krona will basically be a backstop: if the private payment systems failed, you still have access to a central bank that is a government issued payment system. But in a country like the U.S., there are still about five to six percent of individuals in the U.S. who are unbanked, meaning they don’t have access to a bank account or debit cards or credit cards. And as we discussed earlier, these people could be disenfranchised if you don’t have cash. Also cash is inefficient in some ways, as I mentioned, it’s difficult for merchants to have to deal with cash and  to take it to the bank. It’s very unsafe and so on. In the US, there is a move towards at least considering a digital dollar. Now the US is actually somewhat behind, relative to the rest of the world. There are a huge number of countries: Japan, China, Sweden, the eurozone, India, Brazil, all of which have either started or plan to start CBDC trials. The first central bank digital currency in the world is already in operation, where you might ask? It’s in the tiny island nation of the Bahamas. This sand dollar, as it’s called, is the world’s first official digital currency. The idea there is that if you have digital currency, basically you’re going to give people access to a central bank account. So rather than keeping your money in a commercial bank account, you can keep money in a central bank account. Use that for transactions, and the central bank doesn’t charge you any fees. It doesn’t charge you any required any minimum deposits. So now, so long as you have a mobile phone and an app, suddenly you’re in business because you can use digital payments even if you’re the poorest of the poor. If you’re in one of the outlying islands in the Bahamas, you now have access to a digital payment system. So you can think about a digital dollar as basically enfranchising people, giving very poor people even access to a digital payment system. You do need a mobile phone or some sort of access to the internet. Without that, there would be a problem. So there are still concerns in terms of digital access, financial literacy and so on. But a digital dollar could actually bring more people into the digital payments system.

Speaker 1 [00:26:53] I want to make sure I understand properly because a lot of this conversation gets to the question of ‘what is money,’ which is a very difficult question to answer. And not what I have you here to ask about, although maybe we’ll get there. But when you talk about a digital dollar, you’re not really talking about something that is a different form of currency than our current dollar. You’re talking about a way that the central bank might make digital currency, in the same way that I log in to my current Capital One checking account (not my actual bank for anyone who wants to hack me) on my My Capital One app and see my digital dollars there. A central bank might create a way for everyone to have access to digital currency in that way by creating an account for them at a central bank. When they want to inject, say, money into the economy, they can just say, ‘Hey, let’s distribute money to people via the central bank’s digital account,’ rather than doing it in a more old fashioned method. Is that about right?

Speaker 2 [00:27:59] Hey, you’ve hit upon a very important aspect of central bank digital currencies. But first, let me just clarify that you’re absolutely right. It turns out that central bank digital currencies can take different forms, but the way they could make the most sense is to have what are effectively accounts at the central bank or digital wallets maintained by the central bank. It turns out that these digital wallets can actually be even held by third party providers who can check your credentials and so on. So it turns out that even a regular bank, let’s say, a branch of Wells Fargo (which is not my bank). But let’s say you could walk into a Wells Fargo bank and say, ‘Look, I could put my money in an account with you, which pays me an interest or I can have with you a central bank account that I can use for transactions where you will not charge me any fees because the central bank mandates it to be so and where I will earn no interest.’ So it’s just like money, except it’s in digital form.

Speaker 1 [00:28:56] I’m getting it now, so the same way that a central bank (or actually the Treasury in our case) issues dollar bills that anyone can use and that are a store of money. You can hold them in your hand, in order to make payments work throughout the economy. Then you can go put them in a bank if you want. In this case, the government would say, ‘OK, everyone in the country has a digital wallet that you can store digital dollars in, and you can put those in a bank if you want or you can use them for payments. But we’re creating this system that anyone can use to really fluidly pass money around digitally.’ And that’s the essential different point. Am I getting it?

Speaker 2 [00:29:32] That’s exactly right. Now there are possibilities, you talked about giving people money. Let’s take something like the coronavirus stimulus payments, right?

Speaker 1 [00:29:42] I want to talk about this.

Speaker 2 [00:29:44] This was a big hassle during that period when people really needed money and there were some people in pretty desperate circumstances and the circumstances got even more desperate because the money that was supposed to come to them: some of it was sent in the form of checks, debit cards which got lost in the mail, which got delayed and so on. Now, certainly one could think about making sure that people are eligible to get payments. But so long as you can find a way to ensure that eligibility, now you have a very easy way to do what for us economists used to be something of a dream: something called helicopter drops of money, which is basically what happened without a stimulus payment is. Basically you give everybody a chunk of money. Of course, you can say that the truly rich – I’m not one of those, and maybe your one, Adam, but if you’re not, one could still get some of this money. Someone could set some sort of income threshold, maybe by linking it to IRS information. But everybody gets a chunk of money in their accounts that they can now go out and spend.

Speaker 1 [00:30:47] We’re actually covering this in my new Netflix show, ‘The G Word,’ which is going to come out next year. We’re talking about this exact problem because the government in the coronavirus (and by the way, please correct me if I’m wrong, I’m saying all this to make sure I got it right) wanted to inject a ton of money into the economy during the coronavirus shutdown. Big corporations and the banks literally have fed accounts and the Fed is just able to put money in those accounts say, ‘Hey, you’ve got a whole bunch of money now, go distribute it.’ Private citizens don’t have that. So instead, they had to give it through (like you said) mailing checks to people via the IRS or through the unemployment system, which is a really slow state based system where people have to call and they get the busy signal. It’s so difficult. If we just all had accounts like you’re talking about, when a horrible disaster happens and the government needs to say, ‘Oh my God, nobody can work. We just need to give everybody two grand so people don’t die and the economy doesn’t grind to a halt.’ They could just boom, do it, and not have to do it through all the – Or what about the small business loans? You wouldn’t have to do it through all this application of the PPP loan, et cetera, you would just have an account. Is that the idea?

Speaker 2 [00:31:52] That’s correct. I mean, it’s not that the process was completely inefficient. Those people who had direct deposit accounts with the IRS got the money pretty quickly, but that still left millions of people who had difficulties getting this money. So, yeah, I think a central bank account would make it a lot easier. But there are other interesting possibilities as well. One problem with the government giving people $2,000, is it’s not sure what they will do with it. So let’s say the government gives you, Adam, $2,000 and you have enough money and you say, ‘Oh, heck, this $2,000 is good, but I don’t really need to spend it right now. Let me just put it away in my regular bank account because I’ll save it for some other time.’ That’s not so good because the whole point of the stimulus is not only to help people, but also to make sure that some of this money ended up flowing to businesses, created jobs or at least maintained jobs and increased the economy’s demand, so it prevented economic activity from freezing. So with this digital dollar, suddenly there are new possibilities. You could say ‘I’m going to give everybody 2,000 units of this money, but these units of money are going to be special. If you don’t spend them in the next six months, it’s gone.’ So digital money creates all these possibilities that you could design expiry dates. In fact, I think there was a senator. I hate to say the name here. It may have been Ted Cruz or somebody who suggested that they should in fact be expiry dates on money. And it’s not such a crazy idea, because the problem with these stimulus packages always is that some people end up saving it, so it has much less of an economic impact than you would expect. So you can do funky things like that with digital currencies. The other thing you could do, with cash and that is one problem: which is that cash has a zero rate of interest, which means that $100 today is $100 next year.

Speaker 1 [00:33:49] Or less because of inflation.

Speaker 2 [00:33:51] Inflation can eat away at the value of that money. But when the economy is tanking, having $100 to today, it is still $100 tomorrow. That is not such a bad thing. One thing it would like to do to encourage people to spend and for businesses to invest is to say, ‘If I had $100 today and I don’t spend it, it’s going to become $95 next year.’ That gives you an incentive to spend. And if your money isn’t digital, what could the central bank do? It could say, ‘Hey, you keep your money in this account. If you don’t spend it, it’s going to decline in value.’ So suddenly now you have a negative nominal interest rate, which I love, and this is not a far fetched notion. In fact, there are some countries in Europe that were facing a problem. Japan had the same problem of deflation. That is, prices are falling. You might think falling prices are a good thing, but there is a problem with falling prices, which is even worse than inflation. If you know that your TV is going to cost 10 percent less next year, you might say, ‘Let me just wait for a year.’

Speaker 1 [00:34:58] Yeah, I’m not going to buy it.

Speaker 2 [00:34:59] I’m not going to buy it. People around the economy say, ‘I’m not going to buy stuff.’ Suddenly, there is less demand. So firms start laying off workers and there is even less demand. You get into this deflationary spiral. Then suddenly, because of falling prices, all hell breaks loose. If you could offset this deflationary spiral by reducing the value of money not through inflation, but by basically knocking down the nominal value of money. Certainly, the government has a tool, and this actually would be a tool. I don’t want to overstate this because doing things like putting expiry dates on money and paying negative interest rates are crazy policy choices. But we’ve been living though crazy times.

Speaker 1 [00:35:45] What you’re describing – Everything you’ve said in the last answer is a little bit spooky to me. First of all, it’s unsettling. I get your point, about, ‘Oh, there’s so many possibilities,’ but these are unsettling ideas. The idea that OK, the government is going to give me money or money that I have is going to slowly go down and – Look, I’m the sort of person: I like experts and I like having some management people saying, ‘Hey, there’s a problem, and if we look carefully and take the right measures, we can prevent a financial collapse.’ I believe in all that kind of thing. But I start to get a little bit squished out by the idea of a bureaucrat somewhere going, ‘Oh, I’m worried about deflation. We’re going to suddenly have a negative interest rate and everybody’s money that they had in their digital wallet is going to start trickling away.’ And I do wonder about the idea of people might save the money, et cetera. But I’m a big believer in the idea that, ‘Hey, people know what’s best for them,’ right? And that we don’t want to be too too paternalistic. If we say we need to inject some money into the economy was just give people the money and let them make the best decision for themselves. That’s the idea behind charities like GiveDirectly and things like that. So what you’re describing is a system that gives the states a lot more control over money and what people do with it. And that’s something that, oof that’s a complicated, difficult idea. I’m not sure how much I like it. We got to go to break, but I’m curious what you think about this real quick.

Speaker 2 [00:37:09] There is a lot to be said about that.

Speaker 1 [00:37:14] What do you want? Do it. Let’s go to break and this will be a cliffhanger and we’ll come back and then you can answer that question. How about that?

Speaker 2 [00:37:19] Perfect. We can lead into a dystopian world and the answer that I come up with.

Speaker 1 [00:37:23] That sounds great. We’ll be right back with more Eswar Prasad. OK, we’re back with Eswar Prasad, we were just evoking a horrible future or a concerning future, where we were talking about the wonderful possibilities of digital money. But then we started going down a road where we’re talking about, ‘Well, it gives the state many more opportunities to control the money that we use. To make it trickle away if we if we’re in a deflationary situation,’ that kind of thing. And that’s unsettling and maybe kind of objectionable to some folks. And by the way, you know, I don’t always trust the United States government. Certainly, if I live in a country like China that has a much more authoritarian regime then I start to get a lot more concerned. So tell me about those parts of it. Are those things that we should be worried about with the idea of these central bank digital currencies?

Speaker 2 [00:38:22] So central bank digital currencies have many positive attributes, but there are things we should be worried about. As you will see from my answer, we should approach this not just from a technocratic perspective; but also from a societal perspective, because there are some pretty big social implications of the changes we are seeing. So first of all, I should be very clear that this notion of negative interest rates; reducing the value of money that I spoke about in your central bank digital wallets. That is a desperate policy for desperate circumstances. No central banker wants to be driven there. But as we’ve seen, there were some countries around the world that were put in such perilous circumstances that negative interest rates (negative nominal interest rates; that is not inflation registered, but nominal ones) that we had thought were improbable and wouldn’t work. Actually, they did work in many countries around the world: in Japan, in Sweden for a few years, but they create all sorts of distortions and nobody really wants them. So it’s just in desperate circumstances. You might want them for a little period. But there is another problem that you’ve hit upon, Adam, which is that we may end up (if we have central bank digital wallets and CBDC accounts) where the government has much more control over the economy and even central banks really don’t want this. Let me give you one example. Let’s say we all have central bank accounts where we can keep money just for transaction purposes, and then we start hearing about some financial troubles in the economy. We know that during the financial crisis of 2008/2009, some very reputable banks with rich traditions started facing severe problems. So we might all say, ‘Hey, this is a difficult time. Let me just as a precaution, take my money and put it in my central bank account. Because after all, that’s safer.’ If you had this happening: if you had a huge flight of deposits from the commercial banks to the central bank, the commercial banks could end up collapsing. Then you might end up having this very awkward situation where the central bank gets all these deposits and has to allocate loans in the economy. Nobody, including the central bank, wants that to happen but it is a risk. It can be managed. The Bahamas, for instance, has figured out a way to manage this. You just put a cap on the amount that people can put in their central bank accounts. So there are ways to manage these risks, but there is an even greater risk. I talked about expiry dates on money, you could do other things with money. You can very easily conceive of a scenario where you can link up money with UPC product codes and say that one can use central bank money for certain things, but not for other things. Let’s say a conservative government might say you cannot use the money that we issue for contraception or pornography or something. A liberal government (in the American sense of the term) might say you cannot use this to buy ammunition or arms. Now, suddenly, money starts becoming an instrument of societal control as well. I’m not saying we’re anywhere near this, but you could conceive of a world that is much more dystopian. Even if none of this happens, there is a more basic problem, which is that with cash, if I can buy you a cup of coffee, nobody really knows about it except the barista at that whatever coffee we go to. If the only means of payment we have are either a debit card, a credit card or a central bank account then somebody is going to know about it. The central bank can have some degree of privacy in basic transactions, but ultimately my view is that anything where it’s a digital trail, can in some form be unraveled, and that is something that we need to think about as a society. The eurozone actually conducted a survey of its citizens to say, ‘How would you guys feel about the digital euro?’ The number one concern that eurozone citizens had was about privacy. Sweden is undertaking CBDC experiments, and the central bank is very wisely recognizing that they cannot move on their own. Technically, they could institute an e-krona on their own, but they cannot do it without parliament approval because they know that unless society buys into this, there is going to be a big pushback. And I think we need to and will have that debate here in the US as well.

Speaker 1 [00:42:53] Yeah. You described really in the first to have all the wonderful, beneficial things that could happen if we do it right. But those are not really bringing human nature into it and not bringing in the fact that the systems that humans tend to design for ourselves are not so perfect and can be used by bad actors or use by inefficient governments can have security holes and things like that. And when you’re talking about the level of societal control that could be exercised through these, yeah, that does get worrisome. Again, say the central government of China that recently, for instance, (I just follow video game news, so I know about this) the government there exercises very tight control over video games. Whether or not you can buy video game consoles etc. They just put limits over children. I think children can only play online video games for a couple of hours a week now during certain periods. That’s a very large amount of control to have and if you’re having that control the currency level and you’re able to say, ‘Well, this currency works, but it doesn’t work on certain things.’ That’s a tool that I’m not sure that I want a government to have. I’m not sure about that. I’m not sure how I feel about it, and I certainly see the potential for abuse. The privacy issues are very, very big. It sounds like you’re talking about this as a future that, hey, we’re moving into and there are some good things that could result from it, but we have to be very careful about it. Is that your general take?

Speaker 2 [00:44:20] That’s absolutely right. At the technical level and at a policy level, there are many advantages to CBDCs. And let’s face it, it’s going to happen. I think very few of us are going to be using cash in the future. So I think the way would steer this is to not say, ‘Oh my God, we should be terrified and not let CBDCs come into existence.’ But let’s put in place the right kind of safeguards, so that at a technical level we can make sure that central banks don’t start having to do the work of commercial banks. That central banks can assure us at least a basic level of privacy in our transactions, even if they want to make sure that the currency in digital form cannot be used for money laundering, terrorism financing or such nefarious activities. We want to make sure that there are safeguards in place, that the government cannot start using its money as a tool of societal control. So these are all things we are going to have to think about as societies and ultimately legislatures will have to get involved. This is not going to be a purely technocratic issue. There is an interesting twist in the context of China, though which I just want to mention. In China, as I indicated earlier, there are these two big payment systems: Alipay and WeChat Pay, that run the payment systems in China that dominated and hoovering up a lot of data. The Chinese central bank has started digital currency trials, and they’re making the interesting pitch to people: ‘Hey, if you use our currency, we’re going to be much more cautious about collecting the data. Besides, you should trust us with the data more than these companies, because after all, we don’t want to use the data for commercial purposes, whereas Alipay and WeChat Pay are going to exploit this for commercial purposes. So you should trust us more than you should trust those companies.’ Having this come from a government that has a tendency to tightly surveil and manage its citizens, it’s an interesting irony.

Speaker 1 [00:46:17] Yeah. Well, I’m sure many Chinese citizens do trust the government more than they trust those corporations, but many, many citizens have reason not to. Yeah, there is an irony there. Well, look, I’m sure there’s a lot of people listening to this screaming at us because we have barely talked about cryptocurrency yet. I think a lot of cryptocurrency boosters would see crypto or at least promote crypto as being the antidote to this problem, that if we have a decentralized currency that is just sitting on many people’s computers using cryptography then de facto; the state cannot control what you have used it for and is much more like cash, while having all the advantages of a digital currency. What do you say to that? I also know that you wrote an article called ‘Five Myths about Cryptocurrencies,’ so I’d love you to walk us through those as well.

Speaker 2 [00:47:06] So bitcoin, which started off the whole cryptocurrency revolution, was a fantastic concept. The idea that you could have a medium of exchange that allows you to conduct transactions without revealing your actual identities (that is, using just your digital identities) and to do this in a form that did not involve intervention by a government or central bank, or any official agency or a trusted institution like a commercial bank. Many people may not trust commercial banks, but we still keep our money in them to a large extent. So this notion of trust to public consensus was really very attractive. The problem is that it has not worked for what it was designed to do. It turns out that bitcoin is a lousy medium of exchange, and it’s very expensive to transact using bitcoin. In fact, this year, the average transaction fee has been somewhere around eight to nine dollars on one transaction. It takes about 10 minutes to complete the transaction because of the way they work.

Speaker 1 [00:48:11] So you’re buying your coffee would be cold by the time your bitcoin transactions done.

Speaker 2 [00:48:16] Yes, and it turns out that it’s not truly pseudonymous. Pseudonymous means allowing you to transact with just your digital identity. It does so that where bitcoin meets the real world: so if you were to pay for something and get a package delivered, the address could eventually be linked to your bitcoin digital address. But I think the irony here (and this whole discussion is rife with ironies), is that while bitcoin has proven to be a terrible medium of exchange for transactions, it’s become a store of value. So this is a purely digital object that has existed just on computers. It’s created just by computer algorithm. It has no intrinsic value because it cannot be used very efficiently as a medium of exchange. But people trust that it’s going to have value. Why does it have value? People in the bitcoin community will tell you the following. The reason it has value is that it is going to be limited in terms of how much it’s going to be created: there are ultimately going to be only 21 million bitcoins that can be created.

Speaker 1 [00:49:20] There’s a scarcity.

Speaker 2 [00:49:21] About 18.5 million had been mined so far. So it’s scarce, just like gold is scarce. The question is whether scarcity by itself is enough to create value. As an economist, I think just because something is scarce, does not mean it’s going to have value. It needs to have some fundamental use. Even gold has some basic uses. Fiat money, on the other hand, (that is printed by central banks or governments) can be printed at will and in infinite amounts and bitcoin and cryptocurrency advocates may say, ‘Why should we trust that something like this will preserve its value when the central bank can go and print any amount of money?’ There are reasons why it seems to have value still. Number one, people still trust (at least) the U.S. government and some other governments. And second, the government can require that certain payments (such as tax obligations) can be paid only using the legal tender, which is the fiat currency. Therefore, it has value. I worry about bitcoin. Having said all of this, three years ago when I started working on my book, if instead of wasting time writing my book I had actually gone out and bought bitcoin, I’d be a much richer guy.

Speaker 1 [00:50:31] If you were then able to sell your bitcoin, right? That appears to me to be part of the problem; that bitcoin has its value because everyone believes in the value of it. But then if people start selling it, then the value of it drops. And so you have all these bitcoin billionaires, with a billion dollar of bitcoin, but aren’t able to get it out because if they sell it and try to convert it to dollars, they’ll tank the whole market. The more you think about it, the more your brain starts to fold in on itself trying to figure it out.

Speaker 2 [00:51:01] That’s right. I had no prospect of being a bitcoin billionaire. Maybe a ten thousandaire, at most. But you’re absolutely right, these markets are not very liquid. The reality is that three to five years from now, the value of bitcoin could be some crazy amount like a million dollars per bitcoin, or it could be zero. Both of these, in my view, are equally likely because if people suddenly start worrying about bitcoin and a few people try to sell large amounts of bitcoin, that value would plunge to nothing. But the technology is a marvel, and I think the technology has set off something really fundamental. So I spend a couple of chapters in my book talking about this issue, and that’s phenomenal, because one of the things that is really a problem right now in the world is access to digital payments and not just digital payments within countries, but across countries. For workers, say, from Mexico or AP, who want to send their money back home if they’re working in the U.S., that transaction is very expensive. It takes a lot of time. It’s difficult to keep track of. It’s not just economic migrants: companies that export and import, even financial institutions that are sending money across borders find it horribly inefficient. So these new technologies can actually help in terms of providing more efficient payments. Now, in addition to the problems of bitcoin, I mentioned the other problem for something that you use for transactions is that you need to have stable value. The value of bitcoin bounces around like crazy. If you take a bitcoin: one day you can have a very fancy meal with whatever bitcoin you have and the next day that bitcoin is worth just a cup of coffee. That’s not a great medium of exchange. So there are new cryptocurrencies that have come up that are called stablecoins. So the stablecoins basically use similar technology to make efficient payments, but their value is anchored because they hold reserves of money and turns out the money they own is fiat currencies. So Facebook, for instance, wants to issue its own cryptocurrency and their promise is that the value of each unit of their cryptocurrency, which they want to call the diem. Each unit of the diem will be backed up by a U.S. dollar. So you know that if you buy diem, Facebook has set aside a dollar so that the value of the diem relative to the dollar will remain the same. Now, Facebook says, ‘I’m going to give you a trade payment mechanism.’ Now, do I trust Facebook really to maintain privacy of transactions? Probably not. But you can see much of the world,  countries with currencies that are not very credible or governments that are not credible. Where Facebook is so easily accessible, people might say, ‘Hey, I trust Facebook a lot more than I trust my own government. Let me start using Facebook.’ So now that currency could start becoming used within countries and across countries, it could be used for good purposes or bad purposes. So there, too, there are potential improvements to be made in payments, but a lot to worry about.

Speaker 1 [00:54:11] Yeah, I mean, the more we talk about this – Part of the pitch for cryptocurrency, I believe was supposed to be that, ‘Hey, you don’t have to trust the government because it’s cryptographically secured. The trust is technological.’ You can trust a cryptographic system where (I don’t know the terminology) it’s like an open source software. You can go read the code if you want. You can see how it’s constructed and therefore you don’t need to trust some third party. But the more you talk about it, you just always do. You need to either trust that when the government says ‘This note is legal tender,’ that is correct. Or you need to trust that the anonymous person who built bitcoin did it in such a way that is going to cause it to be a stable source of value, and you have to trust the bitcoin exchange that you use. I had a friend who bought a bunch of doge coins in literally 2014, as a joke. He was just like, ‘Yeah, I got a couple of Dogecoin. It’s funnier than Bitcoin, so I got some.’ And when Dogecoin started started spiking, I asked him, ‘Hey, what happened to your doge coins?’ And he went and checked and it turns out that three years prior, without him noticing, the place that he bought them from turned out to be a massive fraud that disappeared and stole everybody’s dogecoin. It was a famous case of disappearing money. So all of his Dogecoin’s, which would have been worth twenty thousand dollars at this point, had all disappeared. So he had to trust somebody and he trusted the wrong person. You have to trust Facebook. You have to decide where you are putting your trust. Are you going to put it in the anonymous hoard of bitcoin boosters? Or are you going to put it in the U.S. government? Or are you going to put it in the overall performance of the stock market in the economy, you ultimately are having to make some sort of – Is money nothing but trust at the end of the day?

Speaker 2 [00:56:06] Trust is a crucial concept underlying money because if you don’t have trust, it doesn’t work. In the long arc of history, it’s an interesting development because, if you go back to the creation of money: a lot of money, initially, was issued just by private merchants on the strength of their reputation. Or because they had their currency backed up by stores of commodities or precious metals and then governments started creating their own money. That money was not hugely trusted because governments could use just money printing to finance their operations. So central banks were created to basically generate trust in money. So the central banks would be the guardians of faith and that basically wiped out all that privately issued currencies, by and large. So now we’re coming back to a stage where there is some declining confidence in private banks and government banks, and now you have this approach of trustless exchange. But the blockchain technology, again, I think it’s going to be transformative in different ways. The remarkable thing about this blockchain technology that underlies bitcoin; is at one level, everything is transparent. So you can go out and see every transaction that has been done with every unit of bitcoin, and it is posted on a public digital ledger that everybody can see. You can’t see the actual identity of the people transacting. Like I said, it’s only digital identities. But that is where it actually it gives the system a lot of security and creates some degree of trust, because this public digital ledger is maintained on multiple computers. So if you tampered with one of them, it will immediately be noticed that something funky is going on. But having said that, as you pointed out, there are some risks because there is nobody to go to if there is a problem. So if you accidentally send money to let’s say the digital Eswar is sending money to the digital Adam and I put in the wrong digital identity for you. There are some inbuilt checks that make it less likely that this will happen, but if it happens then the money’s gone to wherever I accidentally ended up sending it to. If you happen to lose what is called your private key, which is sort of basically a password to your bitcoin wallet, it’s gone. Nobody can retrieve it for you because it’s not like you can go to the bank and reset your password. It’s gone. If it turns out that there are some flaws in the software, you can’t go out and easily get it fixed. The idea is that since it’s all open source, eventually somebody or the other going to come out and fix it. But before it gets fixed, a lot of things can go wrong. So this is where the other fragility of cryptocurrencies lives as they become bigger. There is a possibility that there might be some technical flaw that is uncovered and then everything goes ‘poof.’ So to my mind, it’s all very fragile.

Speaker 1 [00:59:04] And there’s also the problem of ‘what is the basis of the value?’ If you go to the Reddit page for a cryptocurrency, you will see people saying, ‘Hey, let’s boost it up. To the Moon. Let’s all believe that this is worth a lot and keep pushing.’ And that pushes the value up. But that is quite evidently a booster campaign. It’s trying to create something out of nothing because there is no inherent value in it other than people’s belief in it. It’s interesting because it reveals that that is  where the value comes from, is people’s belief that it’s valuable. But there’s no inherent underlying utility that makes it valuable and that makes it look like it’ll disappear. It has the potential to disappear at some point in the future if everyone stops believing in it, which could happen, right?

Speaker 2 [01:00:07] It could happen instantaneously. History is rife with examples of these speculative manias, and even in the U.S.. We had this crazy tech boom just a couple of decades ago where companies that had no profits (and this is still the case to some extent) said that, ‘Oh, we cannot use the old models to value companies. These companies would have such fast increases in revenues that that’s going to be enough to generate higher stock prices’ and we know how that ended and there have been many, many other speculative manias in the past. So given that many of these cryptocurrencies don’t have any intrinsic use, these to economists at least, have the classic implications of speculative manias. Although in this case, there is the added element of technological coolness. This technology underlying bitcoin, like I said, it’s really a marvel and there is this notion that anything with such cool technology must surely be worth a lot.

Speaker 1 [01:01:09] And it’s also very accessible to a lot of people. One of the things that really impresses me about cryptocurrencies is that it’s given so many people a feeling that they can be a part of something that is both futuristic but is also financial. It’s not like the folks at Vanguard or even Betterment are going to the average person saying, ‘Hey, I can help you turn one dollar into two dollars and help you understand investments.’ They’re really targeting the rich person. Whereas cryptocurrencies are saying, ‘Hey, come join, jump in. It’s going to be fun. The water’s fine and you can be a part of this cool brand new thing.’ Some amount of utility gives people a good feeling to be a part of, at the very least. But how long will that last?

Speaker 2 [01:01:52] Well, that’s exactly right. Part of the allure of this revolution that bitcoin is set off, is the notion of democratizing finance: that it’s completely open and permissionless and censorship resistant. What this means this that anybody can get access to bitcoin. Nobody’s there to stop you from getting access to bitcoin. You don’t need anybody’s permission and nobody can be restricted from using it. And this is a very powerful concept, that this does not involve any sort of government control at all. And if you add to that this element of technological coolness, because this is a wonderful new technology that I think has proven to be an irresistible combination. But the problem, as with many of these Reddit examples like the run up in GameStop stock, for instance that you mentioned, the less savvy retail investors are the ones who could get really burned. There are certainly people like the Winklevoss twins who may have a huge amount of investments in bitcoin, but they’re going to make out OK, even if the value of bitcoin falls to zero. They have enough money and other assets. But the retail investor who says, ‘Let me put all of my life savings in bitcoin, because look, the price has been pricing all this time, yet it can go only one way: up.’ Those are the people that one worries about in the context of these speculative mania.

Speaker 1 [01:03:16] Yeah and once you realize that in order to keep the price of bitcoin up – If you’ve got a lot of money in bitcoin, you want the price of bitcoin to keep going up. The way to do that is to increase the mania for bitcoin. And that explains why bitcoin people or cryptocurrency people are such huge proselytizers where they’re telling, ‘Oh dude, I made so much money. All you got to get in on this, let me hook you up,’ et cetera, it almost starts to look like a massively decentralized Ponzi scheme in a way. Ponzi scheme is the wrong word. A pyramid scheme, in a way because you need to get other people excited about it for the value to keep going up. But eventually, the worry is that the music stops and the whole thing falls apart, and people who are able to cash out in time do well. But everyone who was the last person on the bottom of the pyramid or the last person to get in is going to lose their money, is the concern.

Speaker 2 [01:04:12] Yeah, that’s right. I think for all of us, there is the fear of being left out of a really good deal because who knows, bitcoin may turn out to be the real thing. And as I mentioned, if I had bought bitcoin three or five years ago, certainly I’d be a somewhat wealthier man right now. But that is what draws people in, the feeling that you’re being left out of an easy way to make money. I mean, who can resist the allure of making easy money and buying bitcoin seems like such an easy way to make money, and many people have made money. They’re letting their neighbors, their friends know that they’ve made money and for precisely that reason they need to keep the mania going.

Speaker 1 [01:04:52] Yeah, but at the same time, there’s such a mania for bitcoin, but everything is so overheated right now. The stock market has doubled in the last year as well. So I don’t know. It’s really wild times out there, but I don’t know. This whole conversation is blowing my mind about what money is in the first place, and the need for trust in it. But decentralization, though, as being the pitch for what is so great about cryptocurrencies; I understand its allure and the democratization of it, but it does make me think, ‘Hold on a second.’ In the past, as you said, merchants would issue their own currencies and no one can stop them from doing it. Or there were currencies that were  inherent stores of value like some trade good that is really highly desired ends up being a de facto currency because you can always sell it for for such and such an amount. This was the world hundreds of years ago, where we had a completely decentralized currencies that were just based on whatever people wanted to use. And we went towards a world where things were more centralized, both because the state had power it could exercise but also because it made things more efficient. And so when I look at crypto and all these decentralized currencies, it makes me wonder, ‘Hey, are we just in the middle of a moment where this stuff is brand new?’ And so it’s super decentralized, just like the early web in 1999, when anyone can make a website. And now, 20 years later, hey, if you’re not on Twitter or Facebook or YouTube, no one’s going to watch what you do. In 20 years, are we going to look around and go, ‘Oh wow, that crypto decentralized currency moment was really exciting. But of course, everything centralized really quick in a couple of companies and a couple of governments. And here we are at a new future.’ That to me, looks inevitable. Does it look that way to you?

Speaker 2 [01:06:42] Yeah. One of the good things, from an economist point of view, is that these cryptocurrencies are providing competition. They’re providing competition to government issued currencies, which in principle should make governments more disciplined, in terms of how much of their currencies they issue and under what conditions they issue it and so on. Back in the internet world of things, as you pointed out, there is also the risk of market concentration; which means one or two players start becoming very important. The great thing about the internet, the great thing about cryptocurrencies is that in principle anybody can set a cryptocurrency and see how valuable it becomes. But if you have a corporation like Facebook or Amazon stepping in and issuing its cryptocurrency, its cryptocurrency is certainly going to get a lot more traction and it’s going to become an even more powerful corporation as a result. So there is a fine balance here between saying that the new technologies allow for easy entry of new innovators, more competition and so on. But it could equally well lead to a lot more market concentration. So I think this is one of the big risks that we face out there, that we go from competition towards even more centralization towards a few corporations or a few issuers of currencies that have even more power.

Speaker 1 [01:08:06] Well, the thing that this conversation is really underlining for me is that this is a really exciting time, when we’re talking about money. There’s a whole lot going on and there’s a lot to follow and a lot to track. How do you recommend that people keep up to date with all of this? I mean, there’s so much to think about in process. How do people get involved in figuring out what the future of money is?

Speaker 2 [01:08:31] Hey, there’s no better place to start than my book. That’s a perfect segue. The book actually talks about all these developments in finance. It has a couple of chapters that will tell you exactly how bitcoin works: the benefits, the disadvantages and talks about other cryptocurrencies and the world that they have unleashed in terms of creating new technological developments. It talks about central bank digital currencies and how those, again, could have a lot of advantages, but could end up creating some potentially dystopian scenarios. So it’s all been explained without any equations, any tables. It’s all in plain, simple language. My undergraduate students were able to comprehend all of this. In fact, they were very tough editors, they made sure that everything was spelled out very clearly. So I hope that the book will make everything crystal clear.

Speaker 1 [01:09:24] Well, if you want to pick up a copy of the book, you can go to factuallypod.com/books for our special bookshop, where you’ll be supporting not just this show but also your local bookstore. Or go walk down to your local bookstore and buy a copy. Eswar Prasad, Thank you so much for being on the show. It was incredible talking to you.

Speaker 2 [01:09:39] Hey, Adam, that was really fun. Thank you.

Speaker 1 [01:09:47] Well, thank you once again to Eswar Prasad for coming on the show. His book, once again, is called ‘The Future of Money,’ and you can get it at factuallypod.com/books. I want to thank our producers, Sam Roudman and Chelsea Jacobson. Our engineer, Ryan Connor. Andrew W.K. for our theme song. The fine folks and Falcon Northwest for building me the incredible custom gaming PC that I’m recording this very episode for you on. If you want to leave a comment about the show, you can send it to factually@adamconover.net. I do read and sometimes reply to your emails. I love to get them. Please let me know what you’re thinking. You can find me online at adamconover.net or @AdamConover wherever you get your social media. Until next week. Thank you so much for listening. We’ll see you next time on Factually.