Austan Goolsbee: belief

Transcript context

…Grandma calling on the Fed line you might prefer to managing all these stablecoins, and Grandma emailing her rep or Grandma’s AI emailing the rep saying, “Hey, I couldn’t get my stablecoins back because the private supplier screwed me. What’s the Fed going to do about this?” That’s not a fun phone call, either. That’s not a fun phone call, either. I agree with that. To the extent that there are non- . . . In a way, it’s back to our thing of what’s a bank and what’s not a bank. Your argument is, in some sense, stablecoins are shadow banks, and the disintermediation of community banks or the like will create a lot of upheaval, and there will be a lot of jockeying in a world like that, and I agree. The thing is, the risk so far associated with cryptocurrency makes me nervous. Again, I want to reiterate, I’m just at a Reserve Bank. We don’t set policy on this. Congress has to set this policy, and in conjunction with the Board of Governors, Washington sets the policy here. I find the prospect that the stablecoins — if we’re going to go back to the free banking era in the United States, they end the Second Bank of the United States, and we go through decades where anybody can start a bank. If you go look at the free banking era, it is an era of massive numbers of bank failures and recurrent financial crises. The Panic of 1847, the Panic of 1857, and close to panic in 1860, massive numbers of recessions in the flavor of a person shows up, starts a bank. They’re supposed to be backed by the equivalent of treasuries, but they start the bank, print their own money, and get out of town. That seems problematic to me, to be in the space. Anything where you’re going to have cyberattacks and fraud, associating the Fed’s name with it, we just need to be careful. In a way, the Fed will always be the fuddy-duddy of the financial system, and that’s how it should be. You might have seen my colleague at the University of Chicago, Eric Budish, had this paper about, let’s call it the blockchain in centrally controlled versus not centrally controlled — not controlled but central oversight crypto versus non-central oversight crypto. It’s just a theory paper, but it goes off of the idea that everybody collectively agrees to history, what happened, and who made a transaction. That’s the essence of what’s happening on the blockchain, and the potential attack, that if you could get 50 percent plus 1 of the miners or of the blockchain to say, “No, no, there was a transaction, and all of that coin is actually, they sent it to us for nothing,” you could get 51 percent of the instantaneous flow, and that would allow you to snipe-attack a giant stock of crypto. That’s a very interesting paper, and it’s — Oh, I know that piece. It’s great.…

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