Welcome back to another episode of our series focusing on cryptocurrencies. In this episode, we dive into conceptual complexities surrounding cryptocurrencies and how this might affect the financial system in future. To help us unravel this nuanced subject is Professor Eswar Prasad, a senior professor of trade policy and Professor of Economics at Cornell University, and a senior fellow at Brookings Institution. He is also a research associate at the National Bureau of Economic Research and was a former head of the IMF China Division. Besides his wealth of experience regarding traditional economies, he is also an authority on cryptocurrencies, which he explains in detail in his book The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance. In today’s conversation, we discuss broad conceptual ideas surrounding money and finance, such as the basic functions of money, the difference between outside and inside money, the limitations on creating wealth, how cryptocurrencies work, how cryptocurrencies may disrupt financial systems, why cryptocurrencies need trust to work, the future of cryptocurrencies, and much more. Tune in today to get insider information on cryptocurrencies with our special guest, Professor Eswar Prasad.
Key Points From This Episode:
- A brief outline of Professor Eswar Prasad’s professional background. [0:01:14]
- Professor Prasad explains what the basic functions of money are. [0:01:59]
- We learn if money is a commodity or a social contract. [0:02:33]
- The problems associated with fiat currencies. [0:03:00]
- What the concepts of inside and outside money are. [0:04:12]
- Factors that constrain the creation of outside money. [0:05:34]
- Whether mechanically constrained money is good for economies. [0:07:07]
- Learn whether commercial banks need deposits to make loans. [0:08:46]
- What the definition of fungibility is. [0:10:24]
- How and why reserves are usually maintained by a central bank. [0:11:19]
- What the differences are between physical cash and electronic money. [0:12:25]
- The anonymity associated with each of the payment methods available. [0:13:28]
- What the main functions of the financial system are. [0:15:14]
- Find out what the definition of shadow banking is. [0:17:01]
- How trust in the financial system is facilitated. [0:18:29]
- We find out if modern financial systems can be disintermediated by technology. [0:20:33]
- The potential effects that intermediaries can have on economies. [0:22:59]
- What Satoshi Nakamoto’s 2008 innovation was. [0:25:51]
- The resilience of the underlying system for Bitcoin is explained. [0:28:12]
- Learn about the three elements that make Bitcoin decentralized. [0:30:12]
- How the decentralization of Bitcoin can be overcome. [0:31:39]
- Learn about the value of blockchain and emerging validation technology. [0:34:07]
- The key reasons why cryptocurrencies have value. [0:36:14]
- Ways in which a decentralized system would be beneficial. [0:38:32]
- Outline of the downsides to decentralized finance. [0:41:01]
- Why trust is also essential to the long-term viability of cryptocurrencies. [0:43:03]
- What role unofficial digital currencies will play regarding monetary policy. [0:44:05]
- The influence that Satoshi’s innovation had on the development of a central bank digital currency. [0:45:49]
