Monetary Systems in an International Context (#320)

Transcript

this is epicenter episode 320 hi welcome to epicenter my name is Sebastian coochie well it is still the holidays and we are still on break so for the very last episode of the year we're bringing you a panel discussion which took place at macro WTF which was a side event of SF block June week now if you're not familiar with the WTF collective they've organized two events so far at wandering Def Con in Osaka which was called defy WTF and then the

second event macro WTF during SF block June week and I'm quite sure they'll be organizing more events during you know major blockchain weeks in 2020 so macro WTF was all about the intersection between macro economics and crypto and Sonny was co-organizer so this particular panel is called monetary systems in an international context and it's all about reshaping our thinking around international political economies the panelists were John pique Hundley who's a professor of economics at Vanderbilt University back kim who is an investor at hashed j-kwon the inventor

of tender mint and steve alderman who's an economics blogger at inter fluidity calm sunny monetary at this panel and I thought it was an interesting conversation because I learned about existing problems and issues in monetary policy and economics and how economists are already projecting how these problems could carry over into the crypto space and in some ways as we'll see in the conversation already are starting to emerge in the crypto space and how that could affect things like monetary policy and stable coins and to a larger extent governance of crypto networks so it was really cool conversation I really hope you'll enjoy it now the audio on this panel isn't great because it was reported on a

camera but we did try to clean it up as as possible so that it's at least pleasant to listen to so I am now off on vacation I'm gonna be completely offline for a week at least that's the plan I hope I can make it but we'll be back here in January with brand new episodes on January 7th will release our interview with Charlie Shrem which was absolutely fantastic I'm so looking forward to putting it out but until then I want to wish you all a very happy new year enjoy the celebrations be safe but have fun and we'll see you back here in January before we go to the panel I'd like to tell you about our sponsor for today's episode and that is Peppa Peppa

is a community of content creators sharing short video content on crypto and entrepreneurship and what's really interesting about Peppa is the way that you show your love for content when you like something on Peppa you tip the content created with Peppa coins and when you want to take part in a conversation you show your interest by putting up pepper coins as well so I'm Peppo you'll find an interesting community of people sharing short 30-second videos they're sharing your thoughts on crypto they're sharing your thoughts on entrepreneurship and the community is growing it's still small but it's growing and the conversations are really interesting and I think really high-quality I always learn something when I'm scrolling through my Peppo feed so if you want to take part in this growing community you can

download Peppa for iOS or Android that's PE pio you log in with your Twitter account and they'll even give you some pepto coins so you can start tipping people and if you create content you can also earn Peppa coins as well and of course you can find me there my username is sub 2.0 sub 2 P o I and T 0 I regularly post content there and interact with the community and would love to see you there too and have a chat with you I'm Peppa we'd like to thank Peppa for the support of epicentre and with that here is monetary systems in an international context moderated by Sonny Agarwal so yeah the goal of this panel is we're heavily going to sort of explore a lot

of monetary policies what we've been talking about thus far but then what happens when it starts to come back into when you put it in an international context and so yeah for those who don't know me my name is Sonny I was one of the organizers for this event and I'm one of the researchers at cosmos and I've been kind of really been deep diving into the monetary Theory lately has been taking I took a course on Coursera called economics of money and banking which I heavily recommend everyone take and it basically just made me rethink everything I've been doing the last three years I which kind of inspired me to throw this event to kind of help me learn more hockey couldn't make it to the other odd this panel he was on the panel earlier this morning so

instead we have Jay and I'll let him introduce himself and sunny my name is Jay Kwan I invented tender mint co-founded tender at the company and worked on cosmos as well and along the way so I mean all of that started in 2014 and since then I've become more aware of what's happening to the environment and how there needs to be a global coordinated efforts to combat it I think or at least first consensus that it is a problem and I realized especially after Libra came out when Libra came out came clear that we're at an inflection point where crypto

currencies will become this it will become the new money and it got me worried because a consortium of for-profit companies should not be dominating our our monetary system and I think we need to really ask the question what monetary system do we need in order to promote better balance with the environment and and promote you know our communities that's why I'm here thank you I'm still drunk Connolly my specialties are game theory theoretical economics operations research axiomatic things like that I've been interested in ICT economics since about 2000

ix looking at cloud computing initially and then on internet and so on spent a sabbatical year at Microsoft Research in 2016-17 and got interested in photography biometrics systems design networks and so on and I really happy with these consensus protocols that I observed and so that led me to use skills I had in game theory to try to develop a new one and that's that's the geek project that was mentioned here and it's a consensus protocol called proof of honesty and now I'm here hi I'm Teague Waldman sometimes an economics writer I like the blog interpret it yeah and

sometimes in the theory and evelle a--perlier to my co-panelists I got interested in the stuff because you know the world is going to in a lot of ways are so many dimensions and I think that we need a lot of institutional innovation and mostly what interests me about blockchains is if they're sort of superficially technical systems but they're really fundamentally social institutions reified in a technical way that make a lot of things that are sort of pass it or opaque very visible and auditable and so that's the optimistic case for these things but there a lot of pessimistic users so um take one's discussion of Libra that

these technical architectures don't carry social virtue with them for free we have to build things that are good and I think it's a very open question whether what we are currently in the middle of doing will result in good things or not let's try to make that happen I am back I'm a robotics engineer by training turn crypto and I see hashes are crypto native cross border ambassador our view back over 50 companies including cosmos initially and we ambass especially in the Asia side are international companies that are building blocks in protocols some of them are public block chains and these

are touching some of the regulators on some of their monetary policy and how the impact some of their our e-commerce payments as well Sony reached out to me and to share a little bit more of us on the libras impact on care W so Korean government has been paying strong attention into crypto ecosystem because of the high penetration rate of crypto the survey shows that around third of the white color population has touched cryptocurrency at some point and in Korea about 90% of the payments are cashless so it's all electronic so it's a really easy environment for this kind of product to widespread and pick over possibly fear and care W itself you know as a country with the neighbors of our

strong economy such as Japanese yen RMB and USD it is highly impacted by some of their monetary policy changes but if you look at River and as Jay mentioned if it can actually reach that inflection point and reach the hope the potential it could be the another biggest monetary system that care W have to deal with so that has been a big addition for the government and a consistent cool so I guess I'd like to start by introducing one of the corner ideas that I've really been thinking about especially when it comes to the international monetary systems and I'm sure a number of the people on the panel might be aware of

this idea but just to give some background to the audience there's this concept called Rodrick start lemma or the the trilemma of the political economy proposed by a professor at Harvard in Rodrik and what he proposes is this Freud lemma you know we're very familiar with journalists here in the crypto space but the one that he proposes is about economics and politics and the three points of the system are he called I'll put in my terms I think some of his terminologies a bit odd but I would say globalization national sovereignty and democratic control over monetary policy and he basically says you have to choose two of three and so we have we've seen different regimes

where we have tried all three of these so gold standard is famously the most pop the one in which we choose national sovereignty and globalization where we have these fixed exchange rates between countries have I much of national sovereignty but now you don't have any sort of democratic control over decision-making then we have you can choose globalization and democratic control or you lose out on national sovereignty and this is sort of what Keynes proposed in his Bangor plan and also what the Euro kind of attempts to do not at the global scale but maybe at the European scale and then finally we have what's the Bretton Woods compromise or you know the post Bretton Woods says order where we have free floating

exchange rates we we need capital controls in order to maintain level of national sovereignty so with that in mind I guess my question is start off is are we in the right point on this trade up point currently the world that we live in is primarily focused on still in that Bretton Woods just like system where we give up on a lot of the nationalize they the globalization that is possible and we have some pockets where we're trying more large-scale federalism that the European Union you see this is where we're going to continuously to go or gonna see more pockets like that you are we gonna see things evolve like that I think we had to design assistance based on the facts

the facts of the environment is fact of the world is we shared to serve we share the air and if know the environment Gosewisch it affects all of us and many things affect all of us like political turmoil causes refugees so on or collapse astray or right so so there's something about the global I think that it needs to be taken out in order to pour for everyone who wants to participate voluntarily to globally enforce or incentivize certain things but on the other hand we don't know what the best system is we need decentralization experimentation so we also need States or local localities to have their own policies too so I think I

think you can't choose one or the other in terms of globalization whether that means a nation stays I think in a balance because you need both I don't like being told what to do I prefer to do what I like to do and the extent that I don't cause harm to other people that should probably be what I'm allowed to do but there are externalities if you can you can pollute the air you can miss label whoo there are all kinds of things that have enormous impacts on the rest of people even at the global scale the problem is that you can't really necessarily trust the central authorities to internalize those externalities correctly as soon as you focus power well then the power focuses on itself so it's not clear what the right thing to do is I think I think

the what I would try to do is is design things as much as possible so that individuals make decisions and don't cost externalities and reserve the minimum possible for the the higher authority and that's one reason I like crypto that yes I think the only technological thing that we have that's that's big right now that moves in the direction of decentralization AI machine learning Big Data universal connectivity IOT all of these things are instruments of centralization control and network externalities so I think we have hope it's somewhere in blockchain you know aggregate externalities of people within

state or global scale if we make monetary decisions that have extra knowledge ease on the economy of Korea for example is that an acceptable moral or is it okay to make monetary decision in state maybe have nationality what my government do is take care of me and at every level I want my government to do that I want my city government to take care of me as a city I want my state government to take care of me as a state I don't really want my government thinking about Alabama or New York that much because that's not their not their job they're looking after me there's a

duty of benevolence though I mean I would be upset if my government is doing really malicious horrible things that would upset my sense of ethics and morality but I think the first the first responsibility of any hierarchical unit is to take care of the people that it's it's over you take care of your family your cost you know it's not the job of my boss to worry about other companies he worries about this company so and then they're gonna made a point I think it's just a balance of power even in the Fiat role like not it doesn't work like we described that they take a cut of all the external entities making sure all the parties involved okay in the crypto landscape I think many of the projects are doing

this in a way that they can become bigger too big to be shut down rather than asking for so the admission into the system or acceptance I think regarding Libra since it's some one of the topic one thing that I thought was maybe wrong position was that they didn't even lunch yet but they just proposed idea but they made it to public early we're not becoming to be enough with the strong incentive alignment with all these partners before making it that this invites all later in the system of their social graphs and I think one of the good approach that I like is like one is like Tara it's a simple coin project starting in Korea built and Enderman and you know they

check out whole component and make it as a just a good payment product and now it's doing 500k sign users within three months with around two to three million dollar transaction per day and the government don't really see it as you know threat maybe yeah but you know if it reached the whole you know digital payment let's get that I mentioned which is ninety percent of the whole career it could be too big for it to be shut down so I like this kind of approach rather than thinking about all this intertwine power balance in the many of the coins are trying to do making self stable

against the US dollar doesn't quite moving it as the excursion were used all over the world or we essentially promoting be this idea that the US should controlled the United States in controlled monetary policy of the economy throughout the world in 2002 lozer is what was formed the reason you up you use in choosing the SPR I mean had a researcher on it was right there but one of the reasons the core reason was that you know even USD is a volatile and as you see with the US and China attention you know pegging to a single dollar a single monetary policy can be volatile offer the whole ecosystem and SDR is one of the most I think the most

stable currency bucket right now with the fear so it makes sense I deliver eyes also back to sto economy I'd like to answer your original question about Dani rodrik's dilemma I'm gonna be sort of the opposite of my neighbor a little bit although very much share the inclination towards decentralization as a design goal a little bit more pessimistic about the possibility that in the world that we live in externalities can be disentangled so a libertarian universe looks very nice to the degree that we can kind of localize the effects of our actions we should have Liberty where we don't hurt or adversely affect other people and unfortunately I think we are

in a time of great crisis and a significant part of that crisis is that libertarianism worked pretty well especially in the United States which was a big not very dense country when technology didn't bring us all together as much when our economy was a little bit less developed when there was a stronger notion of the local and I think that what we're struggling for right now and it's kind of a part of this is that when there are externalities we need to be enfranchised there's going to have to be some kind of a decision-making system beyond we have the Liberty to do what we want and we need to be enfranchised in that system and what Rodricks polemic points to is just a tremendous some tension between from an economic

development perspective you want a global system sort of standard economic reasons has a lot to offer but from an enfranchisement perspective you really want things to be local and so the Bretton Woods compromise was after the experience of the wards that came from a similar period of globalization followed by backlash of people who felt like they no longer had communities or sa are left out and a retrenchment towards a much more national world and I think we're reliving exactly the same struggle exactly the same events we'll need to have in the short term exactly the same set of outcomes which is to say we've gone through a period of in Rodricks to limit neoliberal technocracy where we've been part of a global economy from which

we've been disenfranchised from which we haven't had any meaningful democratic input and we projected it right Trump is rejection of that exit is a rejection of that all of the various anti-liberal authoritarians who rising up around the world are basically people trying to sort of take back more organic communities from this neoliberal technocratic version of the world but we can't actually go back to local to sort of the part of the trial of the triangle that is where enfranchised in our nation's disentangled economically we have the democracy in the markets but not the globalism because we're much too entangled so crypto in my view the reason one reason to be interested in it it's one way or another we have to figure out democratic institutions that

will get us to the global democracy side of the triangle where we do have a global economy because we can't help it but where we have a meaningful kind of democracy that and franchises all of us it doesn't have us feel like we're falling behind that we're left behind like we're crushed we're oppressed were ignored and we just have a limited time as a species to figure out how to organize a meaningful global system in which we feel and franchised and the institutional development aspect of crypto the the idea of being able to build new kinds of institutions new kinds of voting systems and organizations I think optimistically might play a crucial part in that

in the meantime until we get better institutions working to retrench into a more national world it's the only way we don't tear ourselves apart so I used to be a libertarian I got better that's a disease of you but no I mean I like your program I wish the concern I have is this that the more local you are the smaller your group bigger you say and the more likely it is to reflect your preferences so I'm not saying that you can reduce problems to your group but I say to whatever extent you can that's the preferred option now the problem with global or even large kinds of voting is so this is what economists have no friends because we know about impossibility theorems there's a heir own possibility there and Lewis there's

Saturn wait there's impossibility preference aggregation it just turns out that as you seem an abstract exercise you really cannot in in any reasonable way to satisfies any reasonable set of conditions let people express preferences in a way that doesn't really come to disaster it's not possible I mean I wish it was I really do and I would love to have a global government that was good and nice and beneficent but the theory says no and I think the empirical evidence is not so strong either I actually agree with everyone here when I say I want some global aspect of economy I'm not saying I want

a global government that where I'm bound to I am only promoting voluntary associations and I think basically by enabling people to create their own monetary systems and to have competition afiyah we will be able to create a system that balances the needs of local and monetary needs as well as global coordination by having competition of many global models and allowing people to freely associate I think we will come up with the best set of balances all right just one more thing the reason why I believe it's so strongly look like my dad lost his job or the company that was working or folded because of the IMF

crisis due to the way that the you know interest rates were changed by the and then the housing crisis to affect my family the same so at this point I don't want to be bound by any fiat currency I would rather die than be held to decree that says I have to use this money because I don't support this money system I don't support the dollar I don't support the wars that were waging I want to stop using it so Steve I mean a lot of your talk was about how the system like you know the slavery system that Fiat creates is somewhat beneficial still running a well-functioning society so what would you say to J for example about like could we ever have a like you know one of the topics here is the

Hayekian D nationalization of money is that ever possible in a world in which fiat currency exists in which the government requires taxes in one currency governments have a tremendous advantage at defining would get to be the sort of high network effect currency because they uniquely have the ability of the capacity to create that obligations ex nihilo from nothing so anything can kind of be monetized we can coordinate on cigarettes or gold or whatever for a while but the reason why states are really good at it is that they can make something desirable by Fiat by saying you have to be taxes in it

you know it's a little bit like Facebook I hate Facebook and want to see it erased from the earth because certain make that plain but it's really hard to deal with because they have this tremendous network effect and social networks really do have value associated with the network effect so fiat currencies are currencies in general have a tremendous network effect there's a tremendous benefit to having one that everybody uses so given that governments have this capacity to make the thing that they issue to give an advantage to the thing that the issue as a currency become a court a currency coordination point they have a tremendous advantage and those things want to be big I don't really see a role for kind of as a

general purpose currency for lots of little things interacting with one another I want to caveat that on this sort of institutional side because I think you know I I don't actually disagree all that much with my neighbor I think it's critically important as much as possible to create notions of locality self because our larger affiliations are oh we're always going to be unhappy with them to some degree and within smaller communities one way that you can kind of bind together give sort of sinews and blood to a smaller community is by having the community sort of describe patterns of how economic value flows and those can be expressed as something like a complementary currency so I can see a world in which there are lots of quote

deep nationalized money that are kind of the scripts or tokens of local or intense or very you know small not necessarily very small but small relative to the nation-state communities but I don't think we're going to get to a world of kind of competing monies for general-purpose commerce okay so you did mentioned earlier about you know maybe we can build the Democratic tools to like make a global governance possible to extent you know I think the best example case we have today is the euro zone and we do you know they successfully created monetary union but they have unbent unable to create a

fiscal union and what makes us think that we can do that in a global sense if we can't even do it in the European sense and like when it comes to Libre for example we can't even get the European countries that share like a European Union to pool risk to issue common bonds how can we get these multinational companies with like competing interests to do so well I think we probably shouldn't I mean the reason that Greece and Germany don't have a common term to come in fiscal policy is that Greeks are not Germans and they have not only behaved differently they have different preferences they wish to behave differently and the policy that's right for the Germans is not right for the Greeks and so there's a reason to have separation between the fiscal policies you think it's possible to create a

long-term sustainable monetary union if you don't think well like I say I did there it's always a balance right there's the externality there's the network externality benefit of getting together but then there's the loss of personal preference and choice if you do that and it so it's a balance you know there's not a there's not a single right answer it's my personal opinion I'm still learning this that that the EU should not have had the Euro that the the benefit of a single currency is not you know that great you can construct other means on top of individual states currencies and and make it all work the reason why I think we need something

global is primarily to deal with things that are naturally global such as dealing with the environment you know there should be a global system or incentivizing the planting of trees and carbon sequestration and not suggesting that this system needs to be forced on everyone but States or towns for example and participate voluntarily if they so choose to I think if we find the right model that has the right legitimacy the right transparency accountability that makes our decisions then I think people will choose to fund it in a conflict environmental issue what happens when those like state don't want to

participate like they're they don't want to sacrifice economic productivity for environment like if you're large-scale there's a dilemma where we're all going to any board to do them but no one wants me the one fixing those you need to do something or thinit court not so much an enforcement from the top and we're like from the cheers so for example you can have a union of peers that say well we're going to not trade with this partner until they adopt something sensible so as Steve said I think yeah currency having the governance of the cover the nation's forcing it has big power and keeping everything within the same network effect but I also agree with RJ and also watch a shirt remind me of some

idea like just one idea that I was like coasting around with my friends around you know today are super rich or even just like maybe 1% or kind of free from jurisdictions enters their financial wealth or their activities and I think with the cryptocurrency in it and we see a lot of crude oils in a lot of conferences they're very global and they're kinda strict it away from the national IDs and also to control so in the future like some people say that you know this governance brings people from decentralized communities into more backed like nomadic communities so maybe this you know wealth accumulating up in the virtual wall like cryptocurrencies I could lead to next generation of dolls that

represent you know like Ana voluntary nationalities that is aligned within the ones that are shared similar interests and maybe the this and the nationalization of money yeah some of us are starting a project called Virgo and it is to create an association of technologists but also economists and so on in order for us to not only decentralize our social media communications our financial systems and our governing systems but ultimately so we can answer questions like what should our monetary system be and solve for things like global warming it's not a tech centric you know we're not we're starting at as no as a people centric organization and in project so please

join us at Virgo org you'll see a manifesto and links to a forum all right yes so much thank you for joining us on this week's episode we released new episodes every week you can find and subscribe to the show on iTunes Spotify YouTube SoundCloud or wherever you listen to podcasts and if you have a Google home or Alexa device you can tell if to listen to the latest episode of the epicentre podcast go to epicenter TV slash subscribe for a full list of places where you can watch and listen while you there be sure to sign up for the newsletter so you get new episodes in your inbox as they're released if you want to interact with us guests or other podcast listeners you can follow us on Twitter and please leave us a review on

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