Mark Carney: recommendation

Transcript context

…As you know, there’s the Modigliani-Miller theorem. Maybe I, Tyler Cowen, can’t legally access the digital currency, but an intermediary will give me an equivalent service, if only through crypto. There can be a private layer that in essence gives me that access. There will be a private layer . . . The extreme version of that is private stablecoins, in which a form of crypto which is backed with — could be the central bank digital currency or Treasury bills and some other safe assets that mimic it. That’s possible. It doesn’t in and of itself, since it’s a private layer, isn’t of itself fully resilient. I use the example in the book of, effectively, the Bank of Amsterdam, which lasted almost a century — well, more than a century — was a form of stablecoin. They were offering the bank bills supposedly fully backed by the gold that people had deposited. Now, over time, they gradually ran a mismatch. That’s the danger with that structure if that becomes the core structure. Tyler, sorry, I didn’t quite finish my point earlier. I gave you one model which keeps the central bank digital currency at the top layer, the wholesale. I think there is a very legitimate argument of citizens and others to say, “Well, actually, today I can carry around cash. I have access to the ultimate safe asset. If we’re only going to be in a digital world, I should have a right to that safe asset as well. ” I think at this stage, at least for the limits of my imagination, the only way I can see directly around your issue is to limit the portion of my assets that I can hold in cash — sorry, central bank digital currency in this example — because otherwise, that instantaneous run risk very much does exist. You collapse the private money into public money in times of stress, so it is a real issue. If it’s wholesale only, the digital currency, or if my participation is limited, those are like limits on capital flows. Will the digital currency sell at a different price than say the dollar, the euro, the regular currency?…

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