 the wonderful introduction. So thanks for the wonderful introduction that's really very kind and thank you very much for having me be part of this seminar. I can only re-emphasize what you just said Rafa, this wonderful seminar series and really interesting papers to be being presented all the time. I'm not sure that that's the most interesting one here, but I'll try to make it interesting today. It's joint work with Taoyun He was also here and let me share my screen to get going on this. Okay so here we are. Okay and if there are clarifying questions in between by all means throw them in, but you know I'm very much looking forward to the discussion by Martin, very grateful to him that he's willing to do this. The title of the paper is Parallel Digital Currencies. Okay Zoom here. I can see the full screen already. Can you still see me and hear me? So it says Zoom crashed on my end. Everything is perfect. I can see the slides, I can see the mouse moving and I can hear you. I cannot see your picture. Okay so we got, Parallel are you still there? Yeah I'm back again. So it just said Zoom crashed. I have no idea why. We lost the slides. The slides are also gone. Let me restart this here. Okay so I hope you'll be fine this time. You know there's one of the charms of doing these online presentations. Okay so it's joint work with Taoyun and we call it Parallel Digital Currencies and Secure Prizes, but in many ways you could take out the word digital here as you're going to see there's nothing particularly digital in this paper. But we do think that the issues that we talk about and we actually think you'll change the title of the paper as a result. But as you're going to see, as we're going to argue the issues that arise here, you know they have arisen maybe in other countries before you know with Parallel currencies too, but in the future these issues will be much more salient also in you know in highly developed countries and with digital currencies I think there's going to be more salient and that's why we have the digital there. So that was all motivation at least and so it's a bit of a forward-looking paper in that sense. There's an increasing variety of privately issued digital currencies now alongside the official currencies, Bitcoin, Ethereum, Arda, stablecoins, what have you. Some companies started accepting cryptocurrencies and some companies like Tesla, Flipflop back and forth whether they accept Bitcoin or not and so forth. So this is all getting sorted out. Central bank digital currencies come online right and maybe central bank digital currencies will be easy to use in other countries as well so you also might see possibly you know the e-dollar being used more in Europe or vice versa. DM is not the one that may come to pass right so once DM is introduced and everybody is using the Facebook and the version of Facebook right now it's the version of DM right now it's going to be tighter the dollar so it would be version of an e-dollar circulating elsewhere but you could imagine other versions where they go back to the original concept where it's you know introducing digital versions perhaps where it's backed by you know several currencies of bonds or some other concepts out there. Technology is simple and so once the technology is that simple you would imagine that this is going to go to go broader than it already has okay. Now money has a couple of roles right so these are currencies these are monies and traditionally we emphasize three roles we emphasize that this is a store value it's not a very good store value typically so we say are you much better off investing in bonds so let me take store of the value of the table here but then money serves as a medium of exchange and as a unit of account. I've written a couple of papers that focus on the medium of exchange issues that arise with cryptocurrencies so this paper here is strictly about the unit of account role of monies and more precisely we ask what happens when firms price in these currencies rather than official currency. Now you might say that that's a little silly you know it's but I mean look forward right I mean that's that's what we wanting to do in fact you know maybe that's a little coy but nonetheless there's a firm already that's pricing one of these currencies rather than the official currency and that's ethereum so if you're on if you if you try to run off these one of these smart contracts on ethereum what you have to pay for is gas and gas is priced in ether it's not priced in dollar um no the price aren't particularly sticky there if you check but never mind less pricing there definitely in ether you could say of course you know what what else would you expect it's on the ethereum blockchain but I mean maybe that's one of the impetus is how the pricing in these cryptocurrency other currencies could arise okay so that's the question that we asked maybe it's never going to come to pass but we better think about the future in particular when you think about central banks and so forth being faced with these rising digital currencies and that's what we do in this paper what we do is we take a new Keynesian model with one closed economy with multiple currencies so we have had the multi currency multi country multi currency models before here's a single country with multiple currencies that's a distinction and what then immediately comes up and that's going to be the central part of the talk in many ways is how do you formulate the tailor rule for monetary policy um should you target all sectors or should you target only the dollar sector well that's a decision um should you target any price inflation or only dollar inflation so these are the these are the two two possibilities and there's a you know um there I guess there are four combinations here in principle and if you're going through them and they'll show you how that makes a difference okay so now the first thing is this here and this here is really um caracan wallace so I should give all the credit to them but it's a result that I don't know we should be aware of them um and then the stochastic version of this here is manually pick and um let's see I just okay sorry about this um and we kind of rediscovered that if you like in my pay with uh uh on some simple bitcoin economics and chilling oolig so it's always you know so but the moment you have two different monies there's an exchange rate in determinacy and in the stochastic version of this model it manifests itself that exchanges become random walks and and and there can be these exchange rate shocks that rise without any other source of uncertainties now you could argue that that's not the case for a stablecoin and so forth but that's that's going to be the key new shock here if you like compared to standard new Keynesian model that we're going to emphasize and analyze and with that the relative price between the sectors becomes a state variable that introduces rich sector dynamics that's also not part of some of the other recent new Keynesian papers out there for other reasons but here it comes due to the exchange rate shocks and then we get the we get these results right you can think through okay what's the dollar what does the dollar depreciation do let's say right but also it's we're going to the linearized we can flip the sign and it's an appreciation okay so we're going to get reallocation between sectors maybe that's not surprising we get depending on monetary policy does we get a short and temporary agate recession but we get a more persistent recession with the monetary policy only reacts to dollar inflation so the so the nature of monetary policy is really important here and then you know that gets mitigated by flexibility of prices changes and depending on the size of the sector and so forth you know in the paper we also go into the endogenous currency choice but that's a that's a different dynamics altogether so let me and there's there's some issue that we need to fix there anyway so let me let me not dwell on that one okay here's some literature allow me to skip the literature in the interest of time this is except for this here this uh you know I want to make a plug for him uh Nicholas Castro Cianfuegos PhD student from the University of Chicago we did these sectoral shocks and uh and had a new Keynesian model of sectoral shocks and so the dynamics there is somewhat similar to the dynamics here and you know I I mean of which more kinds of success in getting this paper published let's just put it that way okay so here's the model and it's probably you know for this short presentation maybe written down a little richer than is really needed at the end of the day you know it's enough to just think of a dollar sector and one sector that's priced in different currency it's written down in general form here because we have these general formulas and the general formulas are really cool so it's it's kind of better to start with the general version but at the end of the day you know it's it's enough to just think of one parallel currency for the for the dynamic results that we have okay so there's one currency that's the official currency of you know that the center bank is under control so let's think of that as the dollar and then these parallel currencies and you know I'm going to talk about as if this bitcoin but of course it could be ada it could be ethereum it could be the euro it could be the e1 you know so something else that's also being used in that country as a means of payment so thus there's going to be a price of currency j in dollars so for these cryptocurrency we talk about the price but really it's an exchange rate right now the exchange rate of the dollar for itself is just one and then you can also get to the relative exchange rates of different currencies to each other so you fix you know in this for most part of the paper you fix a set of firms that prices in currency j um you know i mean that's a you know it's it's not different than the typical assumption you can't imagine that firms fix prices right so but here they have to choose here they pick a currency and that's where that's where much of the action comes from we could also think through a model where firms fix price into different prices but then you have to talk about you know how easy is this exchange money and so forth that will be different paper and we don't doing this here so um so there's a measure of firms vjt think half right i mean half and dollar half in bitcoin the prices in currency j and then you can construct the usual things you can construct the sector price index the general price index the general price inflation and finally the sectoral relative price right and so you can look at the you can convert the price level in bit that's in bitcoin let's say the pjt would be the price level in bitcoin converted to dollar that will be the dollar equivalent of the price level in the bitcoin sector and divided by divided by the general price index and that would be giving you the the bitcoin sector price relative price level likely if there's now a dollar relative price level because the pt here the pt that's in the denominator aggregates across all these sectors okay so here's a picture of this right you have a dollar sector bitcoin sector could be an ethereum sector a dm sector and so forth um and this extension here and i'm not going to talk about for today all right the rest is very standard i just threw up these slides i mean there's nothing surprising here but you know just for the sake of completeness i want to go through this right there's lifetime utility people like consumption and liquidity if you want to pick put money in utility function here and labor supply and dislike labor supply i suppose they have this consumption bundle that's just csa as usual a budget constraints there will be bonds and you know the exchanging money is no issue so you might as well just stick to dollar denominated bonds if you had some friction in the exchanging monies you know that would be an issue and and that's it and liquidity is just the sum of all the individual equities measured in dollars you have to convert the monies into dollar here firms very standard cop douglas they you know you get the cul-vill um fairy you know allowing you to reprise every theta j you know with probably um one minus theta j you can reprise with probably theta j you have to keep to the current price but the stickiness may depend on the sector right so ethereum reprises its its gas i think you know on a on a probably less than a second basis or something so that's probably very flexible whereas the dollar sectors may be more more rigid so it's probably reasonable to think that once we have that that these could be different heterogeneous and that that throws up other difficulties usual firm maximization problem subject to demand i think the one thing that i want to emphasize about demand here is that demand comes from aggregate output right it's not it's not the it's not the um the currency specific output that matters for demand but overall demand as it you know and that just comes from the utility specification okay so then you take that model um i mean it's it's basically very standard new kinds of model except that we have these multiple currencies and we linearize and when you linearize you get this equation for exchange rates and exchange rates you know have to satisfy this equation and in fact it you know there's there's no reason to think that that's predetermined here or you know depending on something else some exchange rate shock arises right if you look at um i mean this is this between any pair of currencies but maybe the easier way to write this is if you look at the exchange rate relative to the dollar for currency j it's going to be the exchange rate this period plus an epsilon t shock right and so now of course um if one currency rises that means the other currency has to fall so dollar appreciation dollar depreciation is bitcoin appreciation but there's this exchange rate shock that that moves these currencies okay all right so that's the in some ways that's a that's a that's a key new ingredient right that we have these you know maybe you call them caracan rollers manually pick exchange rate shocks in here that arise from this currency in determinacy right i mean at the end of the day you only need a certain quantity of money and how you split this across the currencies is indeterminate because these are you know so so you could shift this in a random fashion at any moment in time it has to be unpredictable right and so the oops this should be plus one here so the conditional expectation of this exchange rate shocks of course i equal to zero okay all right uh and then the rest is you know conventional well not quite i mean you have an sector on your canes in phillips curve okay so the inflation sector j this is beta times expectation of inflation sector j plus t plus one you have that the output gap but here okay so that's a thing that i emphasized on the previous slide it's the overall output gap right it's the output gap of the overall economy because that determines aggregate demand it's not the output gap in the sector j and then also you have these relative prices right and so if the dollar depreciates right then you have a relative price relative to the overall price level and that also matters for inflation as firms may then say oh you know we are much too cheap compared to the other firms that's maybe to catch up or to slow down or whatever they want to do and so thus you have this evolution of the relative price level and that also shows up in some of the other new canesian models now that that features several sectors the relative price level is moving dynamic as equation just standard this year's of course aggregate inflation now which is a which is an average about the individual relations okay so this is now the entire system and it's it's fairly rich right so i like to show this because you're having these weights right and these here are vectors right these are the sector individual inflations this is the vector of relative prices and they show up in the system and if you keep track of how this vector of relative prices evolve so the three equation new canes model now becomes a four equation model they need vectors rather than individuals okay now we go through some some theoretical results let me skip them in the interest of time and let me just go ahead directly to the tailor rules and then go through some some pictures here to show what happens okay when you think about the monetary policy and that's that the paper spent a lot of time and effort you know thinking that through what should the tailor rule focus on should it only you know should focus on aggregate inflation which is the inflation in dollar and in bitcoin i don't think the Fed is currently do this you know and it might look funny if they if they decided to do this and and so you might say no you know what the center bank maybe wants to do is just focus inflation only in the dollar sector so those are the cases here but there's a choice to be made and in particular if the if the if more and more firms price in a particular digital currency that's not the dollar maybe the first choice is better here so this is aggregate inflation whereas this is dollar inflation here dollar inflation okay and likewise with output right you could you could focus on aggregate output but if you think that all the bitcoin only spent on illicit goods maybe stabilizing the criminal sector is not of your foremost interest right and maybe you just want to focus on the on the dollar sector here so there's so this year's focusing on aggregate output this is also focusing on aggregate output but now just dollar inflation and this is dollar output so suppose there's a first there's another choice here which is aggregate inflation dollar output which we which we which we didn't include in the comparison so we only have these three versions of tailor rules this is going to be our benchmark and then then we ought to look at these things here are some parameters we made the stickiness in both sectors the same you know for the benchmark again we have we vary this in the various exercises that we do we have the size of the non-dollar sector being point two so it's asymmetric in that sense the dollar sector is small the non-dollar sector the bitcoin sector is smaller but certainly arguably much larger than it currently is okay and then we need to stand the deviation of exchange rate shock it you know but it's it doesn't matter for the impulse responses okay so here now impulse responses so let me show them to you so this is the baseline policy where monetary policy the tailor will focus on aggregate inflation aggregate output and okay and we want to look at a dollar depreciation so there's suddenly one of these karek and wallace manually pays exchange rate shocks and it moves it moves the dollar down relative to bitcoin now the exchange rate is not on this picture instead what's on this picture is a relative price and of course with the sticky price the first thing that happens when the when the dollar moves down is that the relative price of bitcoin goods you know they're becoming relatively expensive right there's one relative price and the price of the bitcoin goods or the you know crypto goods if you like in terms of the dollar goods so the dollar depreciates these other goods become expensive but because they're expensive right i mean you can you know the the the the dollar guys will say oh you want to catch up to the to the other sector and the in the crypto guys are saying you're going to catch up yeah i got a question so so it's like the usual thing here right where the the you assume the central bank's got the power to just set the the this this nominal interest rate well yeah yeah now what about what if you have all the other bonds you know the nominal payoffs and in terms of all the other currencies are those things all determined now or uh yeah i mean today i mean i mean we having i mean you know all the other nominal bonds i mean exchange rates you know i mean we think of that as being able to free leaks right the monetary side to this to the sole model as a standard and you can's world almost doesn't matter right but you can you can write it down right you can plug it back in and say okay what happens in the exchange at markets could you have bonds and so forth and we're allowing all those and and indeed you're completely right that we're assuming that the central bank here can fix a nominal interest rate on the short term dollar denominated bonds and they do this by somehow manipulating this money demand function which admittedly here is a little trickier right because after all the money demand now depends on total liquidity so there is a so you know i'm let me sweep that another hack for now it's worth a thought right because normally we say oh that's you know one and the same thing but not quite right because this is other liquidity that's also part of the money demand right and but this is yeah this is standard new canyons in that sense um you know thank you so that's central bank that's a central bank tool it's a nominal interest rate off the dollar denominated bonds right they're not fixing the exchange rate for the other bonds here but just the interest rate on the other bonds okay what do you get well you get a very temporary output gap here in total output right but if you look at the individual sectors of course the dollar sector will will produce a lot more because they're relatively cheap and the non-dollar sector will have a recession because their goods are relatively expensive and then they're catching up and you see this in this real interest rate relative price dynamics here and the way this happens is you're going to have inflation the dollar sector um and you're going to have you know deflation is you know I mean in terms of the Bitcoin price in the non-dollar sector it's some shaped in the in the dollar sector and you know that takes that takes me longer to try to wrap my mind around this let me let me skip on this one here now you could change the policy rules right you could change the policy rules so these are the other three policy rules here that we're looking at you know where it's the the green is the blue is our benchmark that I just showed you and you have the dollar inflation agate output that's green and the dollar inflation dollar output and it changes the picture right I mean again you have this relative price that's pretty much the same throughout right but the output gap for these other monetary policy rules now becomes persistent and that's because you know the center bank only you know focuses on the on the dollar inflation maybe you should put on you should also do the fourth version of the first variant here but it's it's becoming maybe then a bit much it's interesting that the inflation the dollar you know that that's different right because and you can see why right so the previously the inflation the dollar was high why because the dollar sector had to catch up to the price of the Bitcoin sector but now if you have a center bank that focuses on dollar inflation only they don't like that right and and uh and so they're going to stop that debt in the tracks they're still raising normal interest rates why are they raising normal interest rates well because you have output exploding in the economy right you're having you're having lots of extra output so they're going to step up to the plate even though they and and thereby you know I mean that's sort of this mechanics here that's that's at least my logic here and thinking there's three even though you get a negative output gap you get a boom and and with that they step on the breaks for the dollar inflation so dollar inflation is actually negative here it's actually negative so you're getting deflation both in the dollar as well as a non-dollar sector here as a result and at least for our parametrization okay yeah just the three minutes okay yeah now very good so I'm I'm practically through so this is this is uh you know another look at these particular monetary policy rules these alternative policy rules in more detail here you know zooming in on the on the details here and in fact um you know I didn't emphasize this here something happens in the normal interest rate here if you go to the DIA or alternative normal interest rates actually drop here they rise and there they drop so you even get qualitatively different features in monetary policy output gap you know is now more persistent you get a more persistent dynamics for the for the output gap and um because here the normal interest rate drops right the inflation is now the deflation is now not quite as strong right you might even say well wait a second be a low in normal interest rate why shouldn't we see you know inflation in the dollar and I presume that can happen but remember we saw you also get this this um now I have to I'm I'm speaking too fast let me let me let me skip what I just wanted to say okay anyways so that's the zooming you know this now we have some variations in the paper we look at Hidrogenius rigidity and then you know if you have flexibility of price in the non-dollar sector that mitigates the output drop in that sector um you're getting getting some subtle impact on the output dynamics here um that is interesting to zoom in and stare on again this is all for the for the benchmark Taylor rule for the AIAO uh you know obviously we could also go through this all through the other ones it's also but then you have a plethora of cases so we didn't want to you know show this all um you can also look at different sector shares so here we are having you know uh different uh different rates of you know rigidity price rigidity so it's it's higher in the dollar sector than in the non-dollar sector but now what happens if you have a larger non-dollar sector that induces a deeper overall recession and that's you know in particular you know that's that's because you know if the dollar sector if you have this exchange rate shocks it really means that the other sector you know moves quite a bit so there are lots of results here that take some time to wrap your mind around anyways overall you know the point is that when when you have these firms pricing these other currencies they are there's a new shock coming up namely then these character Wallace um um uh you know type uh um manually pegged exchange rate shocks and and the central bank has to deal with that they're introducing you know movements between these sectors and depending on how the central bank reacts to that you're getting you're getting different outcomes and and the model takes you through the paces one can dig into this and try to understand what happens okay thank you so much thanks a lot martin or you guys to discuss martin you have 10 minutes thank you okay can you see the the slides we can see it will okay so um thank you very much for the invitation it's a pleasure to be in this seminar and to discuss this excellent paper by harrell so um i'm glad that harrell within the 10 minutes that he had he gave a very focused and presentation so that because my my my discussion is going to be more general um so uh what is um the big thing of this paper we see every day you know within the news that these uh digital currencies prices go up and down big time and for many of us it's just like kind of amusing uh thing to follow uh for people who have their money on them it's it's more important but we at least i have always wondered what are the do these price changes have any economic consequences besides this amusement uh and speculative um uh issues and what uh harrell and here do is to envision a world an environment in which these swings in the price of digital currencies do have uh economic consequences and that is a um an important insight i think they are by uh resides importance of this paper now there are many uh when i was when i read the the title of the paper i was thinking well how many ways which different ways could this have real consequences and i think they they pick up the most important one which is um a situation in which these currencies start playing uh the role of unit of account um in which case the issues of nominal rigidity and so on start to play play around so what exactly is in this paper so there are three main ingredients the first one is that these digital digital currencies are and and the dollar the dollar also are there are perfectly substitutes in their role as means of payments that is in their transaction role um the second main ingredient is that their units of account that is to say they're each good or basket of good is or groups of goods uh are priced in different currencies right so some goods are priced in good and in good points others in good points others in dollars uh so there are different units of account in the economy one per digital currency say um and the third main ingredient is um sticky prices what is the the New Genshin uh component of the paper now why when you put these three ingredients together uh why do you get uh a lot of action well the first ingredient gives you in the terminacy of exchange rates so um following the the hurricane Wallace uh famous result uh these these exchange rates are all going to be in the terminate uh they're going to follow random walks so these these are like sectoral shots but maybe in consequential unless you have items ingredients two and three ingredients two by ingredients two ingredient two um these prices are uh setting different uh units of account they are priced in different currencies and by ingredient three you have sticky prices so these these random walks in nominal exchange rates become uh at least in the short run shocks to reelection rates that is to say whenever you have an innovation or random uh change in uh expectations um what is the change in a nominal exchange rate becomes a change in a reelection that is to say the change for example if the price of the phone is in in bitcoins and the price of the of the pair of shoes is in dollars when the dollar bitcoin exchange rate changes the relative price of uh a shoe uh in terms of um whatever i said burger uh changes so these these shocks begin to have real consequences so my general comments are essentially three uh the first one uh it has to do with i have two about how likely is the only uh here world um going to be and i think that the history of um uh the monetary history of the world kind of suggests that there is a kind of a gravitational force towards uh single currencies at least uh within each country and uh in international transactions that that uh tendency is now called the dominant currency hypotheses and um uh for example in the united states we use only the dollar uh it used to be more chaotic uh you know before the creation of the of the fed and even earlier than that before the creation of the us national bank used to have a bunch of different dollars around the country and that was kind of a nightmare and it is a nightmare because again when these currencies are used as units of account and prices are sticky um any change in exchange rates it's a change in relative prices and living in the world in which relative prices are changing all the time it is it's a nightmare uh anybody who has lived in a high inflation economy with relative prices are changing all the time uh knows how how difficult that is for shoppers and and and uh also sellers so i think there's a gravitational force towards a single currency that pushes us i think away from the uh public uh kia world um especially if uh central banks start issuing their own digital currency because if they start issuing their own digital currency then you have a stable currency that has zero risk right now we have stable currency but these are very risky stable currencies right right the contract with someone you want to use your wallet next day and the guy just run away that that is not going to happen if you have um say a dollar or a euro the other uh aspect of the really kia world that i would comment on is this assumption of a hurricane wireless environment uh because it requires that all currencies are kind of susceptible um and they're clearly not now you cannot go around your life using all the bitcoins now the question is is that going to be true in the future and i think that that is going to be unlikely uh to begin with i think we are going to continue to pay our taxes dollars um uh and um so that by itself creates a big source of non-sufficiency to pay 35 percent of our income in taxes uh but it's very unlikely that the problem is that this hurricane wireless it relies on a knife edge uh condition which is that they are perfectly susceptible once you move away for perfect sustainability you can have big swings in exchange rate but those big swings in exchange rate are not going to be non-fundamental they're going to be fundamental the non-fundamental source of um aggregate uncertainty goes away so my suggestion would be to maybe for for the next paper it would be to explore the the issue of uh non-sufficiency to ability of across currencies you know do away with the hurricane wallace in determinacy and go to the case of impermanence as people begin and there is a reason uh for that which is something that harrell didn't touch upon but his paper explains very very well which is that um in his model uh or in their model i could say we have two authors here if you have aggregate shots like preference technology shots etc um the the real effects of those shots is the same as in their model is the same as in in an economy with a single parent's now if you have imperfect stuff people are looking uh to the extent that these shots generate changes in exchange rates they are going to have uh aggregate shots from the mental aggregate shots like preference and they're going to have sectorial effects and those sectorial effects can have uh can have their can lead to the result that aggregate shots in the ulic here model have different effects than in the uh standard one currency model so i think this this aspect of their model is something that is kind of completely unexplored right now and i think it keeps room for for a new paper which i think is going to be uh also easier for people to to kind of digest because of the three things perhaps the most controversial is the perfect flexibility and in this model the time suggested here is uh i'm doing away with that okay so i'm out of time so let me uh conclude uh this paper uh as i said at the beginning i am ending right basically where i started uh gives an answer to this question that we all have um are these standards of Elon Musk just an amusement park that we read in the news and we laugh for five minutes and that's it or do they have uh real consequences and this paper it's very serious very rigorous provides a very rigorous environment in which these shocks uh have real consequences so i think it's a paper that has a very important uh insight and then from from the most practical point of view um if you are familiar with the standard banking model this paper is really working the part i mean the authors make it they're working the part in principle is a very complicated model because it has multiple sectors multiple currencies it heterogeneous stickiness and so on but the authors write in such a way that it's very very very easy to read so um i think it's a paper that is uh highly recommended to read if you are interested in this uh in this literature okay i'm going to stop here let me see if i can and share my screen yeah thanks harrell do you want to respond right away and then we go to questions by the audience yeah sounds good so let me start maybe tell you would also want to add something so thank you thank you martin that what that's an awesome and very friendly discussion truly appreciated um i mean you mentioned many things let me let me maybe um you know put my finger on two so one is the the dominant currency paradigm and isn't there some natural tendency in the country to just use a single currency because dealing with two currencies you know is a bit of a mess and you know these network effects the dominant currency paradigm and so forth and you know maybe that's the dollar internationally in any particular given country maybe the national currency i'm sympathetic with that argument and i agree that maybe the words that we have in this paper don't come to pass the only question is are we going to be sure right and the reason that perhaps i'm less sure is you know um think about think about smart contracts for example right i mean so purely i mean one version of these network effects is an argument that that that i've seen with purely many many years ago right if one firm prices in currency a you also want to pre-pricing currency a because you know they are sort of cross-effects so if ethereum for example with ethereum you get these smart contracts maybe decentralized finance that's running on these decentralized blockchains and on these cryptocurrency blockchains emerge really as a powerful force and then once you have this decentralized contracts there wouldn't it then be natural to start paying your workers in ethereum right or if if there's dm1 maybe there's going to be dm2 that's going to be in in with an backburn international portfolio and it's sitting on everybody's app and maybe it's just going to be easier if you go and pay for it and knowing how much you have for people conceptually to pay to pay occasionally in that currency maybe for younger people for older people to compare so all i'm saying is it's possible that the dominant currency paradigm will rule out the voice that we have here but we should be worried about it at least a little bit right we kind of thought that we're devoting some research into it and it may you know maybe the void is founded and then we better be prepared the other question is about the exchange rates and imperfect substitutability and that's a great suggestion as we revise the pay we should think about where the imperfect substitutability makes our results go away i suspect not but i confess that i haven't sort of fully thought that through i think the main thing that i want to answer though here is that we do see exchange rates between currencies fluctuating a lot i mean official currencies we're seeing a lot of nominal exchange of fluctuations immediately translating into real fluctuations and there are thousands of papers written trying to understand where these fluctuations are coming from and if i understand my international finance colleagues well you know it's it's just super hard to say you know why suddenly the dollar prechates and why it depreciates i mean so you know you know that dollars and euros aren't perfect substitutes yet yet there are enormous exchange fluctuations that are really really hard to pin down to fundamentals and now maybe so i think so i think the problem doesn't go away the question is just does it require some other change in the model if imperfect substitutability would already invalidate the character and what is um one really peck-type chalk and and that that's just something that we have to think through i think it's an excellent suggestion thank you thanks for pointing that out tau you do you want to add something maybe i don't know uh no but thanks thanks martin for a very excellent comment okay yes so um we already had a a couple of questions that in the q&a and that have been answered on the go maybe we can come back to them later for now let's collect a couple of questions by the panelists um actually let me pose one very quickly and then go to charles and then go to katrin and so so i just wanted to very briefly add a clarification question what exactly is the sort of the nature of sort of the the exchange rate process for the digital currency that you have in mind and sort of how does it relate to you know what what cryptocurrencies do like uh you know being fixed supply or have a pre-determined supply schedule just to tie that better to to digital currencies which i recommend not taking out of the title but actually taking more seriously in terms of the microeconomics of this um just just a quick clarification yeah yeah thanks i mean again it's important to emphasize that this paper here is strictly about the unit of account portion right i mean some of these questions arise about the medium of exchange right i mean so in our world for example it could be the case that all the transactions are done in dollar nonetheless half of the firm's price in bitcoin or the other way around so one has to be one has you know so um so that's a distinction that i want to draw now it's it's an interesting question once one goes indeed to the liquidity side i mean again the money stock in the new canes and models and you know sort of treat us an afterthought much of that literature right woodford wrote a couple of chapters and ever since you know it's kind of ditched in 90 but 95 percent of that literature and so so we're in that company if you like but it's a fair question and how does it work and here maybe you know quick answer might be to point to this paper that evolved with linda on some simple bitcoin economics where there's a center bank that worries about the price level and then there's a cryptocurrency and who knows how the supply is determined maybe on demand that would be dm maybe just a fixed supply that grows over time at a fixed rate like bitcoin or maybe some other pattern but the center bank has to then basically undo the shocks that that does to the price to the price level right so i mean i just referring to that result that at my paper linda you have suddenly more cryptocurrencies come in and you get a quantity theory equation and the center bank is worried about keeping the price level constant what it has to do is take dollar out right and and so there are these monetary policy side consequences of these fluctuating supplies and cryptocurrencies but but again as in all these new kanji models all this you know money stock issues are are sort of after thoughts once you know the normal interest rate policy of the center bank and and that's what we do here as well that probably doesn't fully answer the question but that was maybe a start i guess you're right maybe you should take the digital a little bit more seriously in the paper i want to push that a little further because it seems to me like you really do say that the unit of account is really the can you hear child's i can't hear him well am i not clear now hold a second let me try it making it louder hold on no i'm it's as high i'm as high a level as i can be try to get closer to your mind maybe is this better yeah you can hear you though okay let me take a less sexy uh interpretation this is a story about brazil or a high inflation country in the old days where part of the uh economy is tagged to dollar prices and part of it is tagged to domestic prices um no worry about the money but but that's not part of your story anyway it's worrying about two different segments of units of accounts and how should monetary theory be done in such a world what have i missed well you're absolutely right so i mean that's why i also mentioned initially that you could take the word digital oh it's right it's it's um i you know took me a while to understand what dollarization means sometimes it means literally the dollar circulating as piece of paper as medium of um you know as a as medium of transaction but um but you're right that many times when you talk dollarization it's just about pricing you know you might lose your local currency to make the actual payment you know i heard that during turkey during the high inflation episodes you know rental contracts and for expensive goods were all priced in dollars but when you had to actually pay you you transact the Turkish lira so so yeah it's it's that um it's that world if you like right and in the central bank in that world you know how does it worry about the about the sector that's pricing in dollar in that case what we what the the reason that we think this but this so we know this phenomenon right it has been there it has been bedeviling countries what we argue is that this may be an issue that now arises for countries without high inflation all of that because digital currencies are just so easy to come by and introduce and having all the versions and offer their own attractions right especially into young people that want to play with all these smart contracts and all the possibilities so so so yeah you could say let's just let's just take that literature and apply it to that situation um we are not aware but there may be papers that that do new Keynesian analysis on the Brazilian economy uh of the type that you described but our analysis applies there as well absolutely Catherine you're next yeah thanks so I would also side with Raphael and arguing for keeping the digital and my argument would be if you think of the Buonamia um um James Landau paper so they have these bundling of information services and and digital currencies which means that say if you purchase something online on facebook or facebook tokens or whatever so I think that was the worry when Libra was launched and so now it will be a different model but I think that was the model that shook up central banks that you have certain environment where you purchase things with certain currencies so I think it could be irrelevant even without hyperinflation but then I think you would have to ask yourself as a central bank um as you do which which price index are you stabilizing and under stabilizing something that is also relevant for country outside your jurisdiction so if you go for these crypto stabilization rule is it really something that's only interfering with you so I think in the end um there are many more questions coming up than what you answer in your model I think adoption is one question and then maybe in a two-country world these um spellbacks and these things so I know that's far beyond your model but it may be more interesting in looking at smaller number of currencies and all these interactions between say two currencies in an economy so I think you should keep the digital so that's the upshot yeah thank you Catherine that that's super nice and and you're raising really important points here right so one could extend this to an international world but maybe the cryptocurrencies also use in other countries so then if you stabilize agate inflation would have impact on the other countries because of that right that's an issue and I fully agree with what you said and I think we should emphasize this more right it used to be that the currency competition was about relative inflation rates right in an high inflation country you wanted to use a low inflation currency but that's but now with the cryptocurrencies we have another dimension of of competition you know the kinds of things you can do with a currency can you write smart contracts on it how easy is it to transact how easy it is it is it to you know to do all kinds of things how you know do you have an app that can be used with that right and so they are there are so the additional dimensions that now come with currency competition that that I think we need to pay attention to and and that's I think where you complete right I think the Libra you know made got central banks suspect and you'd see where that's where this is going thanks so it's four before six we we we discussed before that we could go a bit over time obviously whoever has to leave thanks a lot for attending and we we actually we had a very nice set of questions in the Q&A that Taojin has been answering let me before coming back to the panelists take two because they're quite of related and read them out to you so one is have you tried in Daojin's choice of unit of account however your results change and the other one is what if the if the other currency is a CBD seen without a specific policy rule using the same unit of account however with a convenience yield that instills markets to price them differently so right so sort of and then there were also other questions related to sort of the micro economics of how firms choose work how they they choose their their their how how you choose the invoice and currency and that certainly goes back to to Martin's comments so maybe yeah so let me let me jump with this in Taoyun by any you know anytime you want to jump in you know I mean please you know I shouldn't just you know avoid that you talk so that would be terrible let me let me maybe talk about the first one about the currency in Daojin's currency choice so we do have a section the paper that addresses this and it's it's you know where the firms have some individual preference that's random between pricing one currency or the other but then also because of the stickiness that that there's a certain value you know if it's less sticky maybe it's it's better to price in that currency or maybe it's more valuable right now there's that section actually you know we discovered an issue recently that needs to be addressed and also the interest of time I didn't have time to present that here but but yeah it's absolutely an interesting issue to think about and maybe also going I mean we you know the network effect is something that will be interesting to study but we don't have that in the paper at all even this in this currency choice issue so it's just an individual choice and may have a preference one or the other the second question I must confess I didn't fully follow so this is that if the currency is a cbdc versus cash is that the issue I mean it could be another cbdc of course right so if if the e-dollar gets used for for pricing in Europe right I mean our model would very much apply but maybe I missed the most of the question Taoyun maybe I mean again Taoyun maybe you want to add something to that or to any of the other ones yeah but my understanding is that the convenience you just remove the randomness exchange rate thus they are just imperfect substitute there are still some subtle difference because they are the same currency but they are either in different payment channels so that will remove some of the randomness in the exchange rate in our paper so yeah yeah perhaps different convenient yields would would introduce a trend in exchange rates I would imagine right and maybe that's that's a solution but we haven't fully looked at that okay thanks so actually I see a raised hand by by Chris Cameron an attendant but I don't think you can actually unmute yourself so maybe you posted your question in the chat in the or you can Chris can I hear you know yes can you hear me oh yeah we can hear you actually fantastic yeah so I'm actually what passes for an economist ever at maker dow we issue the fourth largest stable coin by market cap and I just wanted to chime in and say that a lot of this talk about future we actually have hundreds of millions of dollars of financing already being invoiced in at least our stable coin and probably others so I want to say thank you so much for starting this line of research and it touches on a lot of subjects that I lose sleep over at night about fixed exchange rates changing suddenly and also just want to say if you or anyone else needs help finding data on how this is happening right now please feel free to reach out oh that's fantastic I jump on that immediately Chris can you send me an email to huhlig at uchicago.edu I would I would love to be in contact about this I mean this is sure thank you so much yeah sure and I'll leave my email in the chat for anybody else that is interested okay thanks next is Rod Rod Garrett yeah hi hi Harold great presentation I was just going to jump on I guess this bandwagon of encouraging you to emphasize the digital aspect because I think this is going to be really important as you say and what my question relates to is is or I guess it's more of a suggestion is I'm thinking about the fact that a lot of the forms of currencies might be in the form of stable coins and so there are therefore subject to risks associated with improper backing you know run risk and that sort of thing and so I'm wondering if if if that sort of shock would feed in differently than the sort of conventional type of exchange rate fluctuations that you're thinking about yeah absolutely I mean if you think about I mean you know let's let's say we think about the stable coin that has a 1% chance of going belly up and we have certainly seen this particular for the algorithmic stable coins right and some of the other ones I mean who knows how they're back I don't want to get into all the legal battles there that are out there but yeah imagine imagine you have a stable coin that's you know not fully cleanly accounting supervised to just put it in those terms right then if you buy these stable coins actually there shouldn't be stable right there should be appreciating in value because there's a risk that suddenly they go down right and then on average the exchange rate should be stable that's true in expectation but you would weigh you know the gradual appreciation with a drastic depreciation and when the stable coin if that stable coin is used as pricing for large parts of the economy then I guess it wouldn't be worried much about the gradual appreciation which is also shock here right I mean you would be surprised that it didn't go belly up right but that surprise happens most of the time sometimes it does go belly up and that would wreak havoc in this world right if it used for pricing for large parts of the economy that would wreak havoc and obviously you know call the central bank interaction immediately right so that could be one source of the shock and maybe that that says that in order to avoid the real impact of that you know especially for the large stable coins such as GM you should be extra careful in making sure that they're really stable right to avoid that excellent question thanks okay many thanks I at the moment I don't see a raised hand and all the Q&As have been answered but we're already in overtime so again I want to thank I want to thank you know Harald and Tajin I want to thank Martin the organizers and also all the panelists in the audience great talk great discussion thanks a lot and now I'm going to pass it back to Jonathan who will announce the next seminar of this series thank you again to Raphael Harald and Martin as well as all of you for participating today you'll be able to find the slides and the link to the youtube video on our website cbanddc.net we'll now take a summer break and hope you will join us again on September 24th when the federal reserve board will host our next session so I hope you enjoy the rest of the day and have a good weekend bye