Bitcoin is booming. We are going to look at cryptocurrency and or
Bitcoin in terms of a currency to transact. Believe it or not, we've sold 17 cars, Bentleys
and Rolls, with Bitcoin. Musk is driving so much of this market. It's fascinating. There's been a lot of news
about digital currencies lately. Companies like Tesla, Square and PayPal have been
getting into cryptocurrencies in a big way, with big, billion dollar bets on bitcoin specifically. Whether all this turns Bitcoin into a viable
currency instead of a speculative investment or a store of value remains to be seen, but there's a
growing number of governments around the world who aren't going to wait around. The Bank of England is looking into its own
digital currency. Sweden's central bank is testing an E-krona and
emerging economies have introduced pilot programs. In 2020, about 60 percent of the world's 65
central banks surveyed said they're running experiments on CBDC. That's up 18 percent compared to 2019. Advocates say digital money can make cross-border
payments easier, promote financial inclusion and payment system stability. But there's also a host of serious risks. Surveillance and privacy issues could arise if
the central bank is able to monitor every transaction. You know, it is being implemented
across the world. China's experiment is very large scale. When the world arrives in Beijing next winter for
the Winter Olympics, they are going to be using the new digital RMB to shop and to stay in hotels
and buy meals at restaurants. The world is going to see a functioning CBDC see
very soon, within the coming year. A central bank digital currency, or CBDC, is a
digital form of a country's currency operated by the central bank. Similar to cash, the central
bank would issue its digital currency to allow people to make everyday transactions. Big-name investors and big-name companies are now
pouring money into bitcoin. It's adding mainstream credibility to the
famously volatile digital currency. Citibank recently said Bitcoin could become the,
quote, currency of choice for global trade. All of this is forcing the Fed to get more
serious about the digital dollar. The U.S. also faces pressure from competitors
like China, which has been ahead of its own digital currency development. China is actually very much driving, I think, a
lot of the agenda around central bank digital currency. They've been testing their version of a
central bank digital currency, the DCEP, which stands for digital currency electronic payment. China has been researching how it could create a
digital yuan. The country has set up massive pilot testing in
major cities in the past. On February 4th, China's central bank also set up
a joint venture with SWIFT, the global system for financial messaging and cross-border payments. Many governments, including the U.K., Sweden,
Hong Kong, Australia and the U.S., are all exploring ways digital currency could work. The European Central Bank is working with the
European Commission in experiments to consider the benefits of a digital euro. It'll decide whether to launch the digital euro
in mid 2021. Sweden, which has one of the lowest usage rates
of cash, launched a pilot program for its digital currency known as E Krona in 2019. And in Hong Kong, an experiment using digital
currency to settle cross-border transactions between Thailand is being expanded. In terms of human and institutional engagement, t
he United States is certainly behind the scale and the scope of what
China is doing, what Europe is doing, what Singapore and other individual nations are doing. But, you know, I've never felt that being first
or second is what's important here. It's not about being there first. It's about doing it right. Central bank digital currencies would operate just
like the money you see when you check your bank accounts online. The digital dollars would be
issued by the central bank and held directly in a citizen's digital wallet. Instead of printing physical money, the central
bank would use electronic coins or notes. The digital wallet would be accessible through
smartphones. Governments could also decide whether they want
its citizens to create a direct account with its central banks or operate the digital currency
through existing financial institutions. It is my understanding that many governments in
Europe and also in Canada, they have considered their first option. They really want to feel more like the direct
relationship with the person because they have experienced this need during covid to distribute
a lot of funds to people. And they literally didn't know where they hold
accounts, how to reach them. China's digital yuan is not based on blockchain,
the digital ledger technology underpinning cryptocurrency such as bitcoin. Put simply, blockchain is a permanent record of
transactions linked an order, or a chain, to act as a timeline or a ledger. And in bitcoin's case, it's purposely
decentralized. Central bank digital currencies can be blockchain
based or not, depending on the design. China's digital yuan works very similarly to its
existing commercial digital payments, like Alipay and WeChat Pay. Users download digital wallets on their phones
where they can store their funds. This generates a QR code, which can be scanned by
payment terminals and shops to pay for things like food and retail items. They have that ecosystem where WeChat and Alipay
enabled the use of the digital yuan. They had the ability for people who are already
quite comfortable with that way of transacting. One benefit central bank digital currencies could
provide as lowering the cost of cross-border payments. It's still five percent or more, on
average, to send money from one country to another, because of our antiquated correspondent
banking system and the inefficiencies in our payment system. That really especially hits
people on the economic margins who are maybe working overseas, trying to send money back to
their families. CBDCs can also promote financial inclusion similar
to the success of M-Pesa, Kenya's mobile payment service. Still, there's debate on how this would
play out. I think there is a huge debate around, for
example, are you going to be required to produce a ID and say proof of address to use central bank
digital currency? Today, I don't need to show ID or show proof of
address to receive a cash payment. There's a lot of risks associated with central
bank digital currencies. If we solely rely on digital currencies and there
is a massive power outage or a hack, it could jeopardize the entire system. A single point of failure, say our grid goes down
or the Internet goes down or something catastrophic happens. You don't really have a backup if you're fully
digitized. Most central banks say that it's likely CBDCs, if
implemented, will coexist with other forms of currency. There's another big concern that a
central bank issued digital currency could cause a bank run during economic instability. Central bank issued digital currencies give
people another place to store money. These kinds of digital currencies would be
considered extremely safe assets. After all, they are being held with institutions
like the U.S. Federal Reserve, which isn't going out of
business anytime soon. In times of economic uncertainty, people may be
more likely to pull their funds from commercial banks, and quickly, then stockpile the safe
digital currency stored at the Fed. This can make the financial crisis more unstable. Privacy can also become a huge issue, depending on
how the digital currency is designed. There is a danger that we might end up creating a
central honeypot of data. So I think we need to be really careful not to do
that. Payment data is really sensitive. We don't want to gather a lot of it in one place
and we need to think very carefully about how that data is protected and whether or not someone
needs to collect that data at all. In August 2020, the Federal Reserve Bank of Boston
announced a multi-year collaboration with MIT to research central bank digital currency. The research project would explore new and
existing technologies to build and test a hypothetical digital currency platform. We are very much still in the research phase of
this, and I think it's going to take at least a few more years of research to really sort through
some of these problems. Our plans are to release our first prototype as
open source code this upcoming summer of 2021. And along with that, a white paper which
describes a lot about what we've learned. On February 24th, 2021, Fed Chairman Jerome Powell
said the U.S. central bank will engage with the public on the
digital dollar this year. This is going to be the year in which we engage
with the public pretty actively. We have a functioning financial system and a
banking system. We need to be careful with our design of the
digital dollar and that we don't create something that will undermine that very healthy
market-basedfunction. I think it's going to happen sooner than that, and
the reason is because of this competitive challenge from China and also this
rapidly-growing cryptocurrency space, and the fact that we are in a pandemic still. And I think you're starting to see ideas like
universal basic income and stimulus payments become a more regular feature of our economy.
