Finding real value on the blockchain
Are systems such as money transfers and payments ripe for disintermediation? Sheila Bair, a former chairman of the US Federal Deposit Insurance Corporation (FDIC), thinks so, and blockchains and cryptocurrencies could be the technologies to do it. Consider the large business of transferring money between countries, for example. “Every time they try to transfer money to me or vice versa, I get these huge fees … banks make tons of money from payments,” Bair said on pp+bhis podcast, Put on tomorrow. “It’s communication. With a blockchain, I could just transfer it directly … and there would be no cost.”
In episode 4 of the series, Bair and Vicki Huff Eckert, a retired PwC USA partner who served as deputy head of PwC’s US technology, media and telecommunications sector, discussed the technology behind blockchain, the cryptocurrencies that exist because of it, and how regulators may need to respond. Blockchain, in short, is a decentralized technology that performs record keeping across a number of computers on a network that is on a chain. “So think of it as a transaction that gets recorded many times,” noted Huff Eckert. “This is very important, because it is the network that underlies Web 3.0, which is the next generation of the Internet.”
Blockchain allows for faster payments and requires fewer “middlemen” than traditional transactions do, which makes Bair look positively at its potential to remove financial frictions. But her enthusiasm for some of the assets traded on the blockchain – namely some cryptocurrencies, such as bitcoin – is a little less robust. “I think that companies that are developing blockchain for real-world use — payments, clearing and settlement … that’s a use of blockchain with concrete, real value,” she noted, “as opposed to a fancy, cleverly marketed new coin or token that people buy only because it is a fad.”
However, Bair envisions a stablecoin, where the value of the digital currency is tied to an underlying asset such as fiat currency. “It’s just going to be a central bank, a Fed-issued version of the dollar,” she said. “It should be dollar-for-dollar, backed in a real cash equivalent that can be easily redeemed when people want it, when they want to monetize their stablecoin and get a fiat dollar back.”
Certainly, broad buy-in of this technology will take control. “Don’t use the virtuous use of this technology as an excuse to turn a blind eye to fraud, manipulation, money laundering,” Bair warned. “Those who truly want credibility and acceptance of this technology … must work with governments and regulators to crack down on [its misuse].”
Huff Eckert agreed, albeit with a caveat. “You want to take the time to be thoughtful and put out regulations that you’re not going to regret in 20 or 30 years, or that could have significant damage to economies,” she said. “As crypto markets continue to grow, [the potential disintermediation of the banking industry] will be a much greater risk and will require regulators to move much faster than they are now.”
You want to take the time to be thoughtful,” Huff Eckert said, “and put out rules that you’re not going to regret in 20 or 30 years, or that could have significant damage to economies.”
Listen to the entire podcast here.
