 Good afternoon Welcome to future tents Yeah, we got a full house today. So good. This has been sold out for two weeks. What a hot ticket If you if you got your if you got your purse on the on the chair next to you Clear it off because I think we're gonna be we're gonna be standing room only So yes future tents is the citizens guide to the future it's a partnership among The New America Foundation Arizona State University and the online magazine Slate and I will be one of your two Cruise directors today. I'm Joel Garrow I'm a fellow here at New America, and I'm also in the College of Law at Arizona State and I'm a co-director of this operation and Tori Bosch will be who is here somewhere is there she is is the Editor of the future tents channel on Slate that hit a new mark last month with five million hits in one minute What and we're very proud of her Let me explain what we're doing today This is about the coin of the realm So this is not an event about Bitcoin per se, right? Bitcoin is just the first of these of the species If it disappeared tomorrow, I don't think many of us would be tremendously surprised But we suspect that it might be Replaced by something else that might be adapted anybody here remember Alta Vista the first search engine of any okay? Bitcoin might be Alta Vista, but that's okay because Google might be in the wings And so that's what why we think it's important to be here today to find out what does this mean to the future of sovereign of sovereign Countries and the currencies a little housekeeping This is being live streamed and as you can see we've got video cameras here. So all of this is on the record When it comes to Q&A if you are chosen to share your wisdom, please wait for the microphone because again everything's being live streamed When it comes your turn to talk, please remember to tell us who you are And if you insist on tweeting I have been informed that the hashtag is Cryptocurrency and actually we do encourage you to do that. Thank you very much Let me introduce now Simon Johnson Simon is going to explain it to us like we're five what this is all about Simon is a professor of entrepreneurship at the MIT Sloan School of Management He is also a senior fellow at the Peterson Institute for international economics And a member of the Congressional Budget Office's panel of economic advisors He was the International Monetary Fund's chief economist and director of its research department Simon like I'm five Well, thank thanks very much for that introduction Thanks for the opportunity to speak today and thanks for holding the event Joel I think this is the very good timing and exactly the right place to have an event on on Cryptocurrencies and as you said, I think that the picture we should be looking at is exactly the broad set of cryptocurrencies And obviously there's going to be plenty of opportunity to sort of drill down into some of the specifics of Bitcoin itself but my main point to you in the 12 minutes or so that I have is that money is always and everywhere Mostly about politics and and cryptocurrencies are absolutely about what how they're viewed in Washington and other capitals Around the world and how governments approach and think about cryptocurrencies is going to have a huge effect on Precisely where this leads us and what is the economic and financial? impact and to try and get that point across and try and explain more about why cryptocurrencies I think are so important for thinking about the future Let me talk about the past. Let me talk about the history of money. Let me break it into into three pieces I want to talk about silver in the 1690s. I want to talk about gold In 1896 and I want to talk about M. Pessa, which is a money transfer system that's developed in Kenya over the past 10 years So first of all silver in the 1690s if you if I really had time if I had 14 minutes I'd go back to the 700s and really you know get you warmed up on that But let me cut start the story in the 1690s The 1690s the British or the English if you prefer at that time have a very problematic currency with an enormous amount of Counterfeiting it's silver is primarily silver in circulation, but everybody is shaving a bit off the silver taking a bit off the edges This is a completely unsatisfactory System and the government's having to go from time to time or so mostly it's about private counterfeiting The government at that time the official consensus is they need to do a recoinage What's a recoinage? You pull in all the silver and you remint it you make the coins again using the latest Scientific processes which are completely secret at the time the state secrets you put a milled edge on the coin And you tell people how much silver is in that coin and you put it back out into circulation and this works In fact the man you put in charge of chasing down the counterfeiters and Executing them beside Isaac Newton the physicist a very methodical guy, and I can tell you if he was Attorney General today We would not be having some of our problems in this country But what is this about it's about silver silver coinage this Western traditional which our entire monetary system has evolved It's about a relationship between the government and the private sector You bring your silver to the mint if you want to if you like the price and They will turn that silver into coin although give you the coin equivalent of that weight of silver It's the private sector if the private sector sides to hell with it I'm taking my silver to France, which is what they did actually because they didn't like the price Set by the the British mint subsequently the silver goes you're out the silver leaves the country the private sector is making these key Decisions about in this case the amount of money in the economy, which has a big knock-on effect But it's the interaction between the private sector and the government sector That's giving you money that constitutes money even in this pretty basic form So you say well, okay, I understand that Simon the government's been involved in this This you know been a long history and we've been up and down In various dimensions of this relationship Why can't the government just back off now? Why not let us have a system which is the proposal from cryptocurrency purely private this is going back to a much Reference point slightly idealized perhaps but go back to a much earlier system. There is no government. We're an Arctic. We're going to run This through our decentralized computer systems. No one can Arguably we'll talk about the details. No one can issue counterfeits. No one can debase it. That's that's the premise It's a physical fixed amount or a virtual fixed amount in this case. What's what's the problem with that? Well, the problem is partly that money is about sovereign authority and government governments have been built on Developing that power and that power to determine what's legal tender and what's not legal tender What you can use to settle all debts public and private, but it's also specifically absolutely about credit Now there's an interesting debate about also going back to the grocery revolution in Britain 1688 When exactly did the British state develop the ability to issue a lot of debt and to finance that debt? Through the private sector through people voluntarily holding that debt at reasonable rates of interest some people say it was earlier Some people say it was later. I don't think that matters very much for this discussion The important point is by the mid 18th century the British had established and the Americans learned this lesson very well This is absolutely Alexander Hamilton's key insight after the revolution that you can fund the government certainly in times of National emergency certainly in times of war you can fund it by issuing a lot of debt Paying down that debt in peacetime and the fundamental cornerstone basis of that credit system is your money and This leads us to gold of course because the US well The US had a bimetallic system silver and gold early in the Republic by the late 19th century It had shifted for various reasons onto an entirely gold standard and then the election You think yet? We have arguments about politics of money and central bank policy in the United States today We and we do we worry about what Janet Yellen is going to do on what basis That's nothing compared to the presidential election of 1896 and and 1900 where the fight was specifically Directly about whether you should reintroduce silver To expand the money supply and expand credit that was William Jennings Bryant's claim to fame That was the cross of gold speech of the Democratic Convention 1890s for the head of the 1896 election expand the money Provide more credit to the system fighting about who gets credit the allocation of credit is Absolutely central to the political process and central to what the government needs to think about now again The cryptocurrencies are trying to abstract when I say look we don't like the credit system We don't like and I'm entirely sympathetic to this view. We don't like what has happened to our very large International complex banks. We don't like what's happened to Government debt and the management of government debt We don't like the entire system of credit perhaps or even fractional reserve banking that has been built around The monetary system that is between money and credit intertwined with both Look, I I'm second to no one in being critical of our current system and the power within our current system But but I am urging you To think about the what the backlash is going to be because if you really could As Joel said either now or in the future have a cryptocurrency which is completely aside from the way we run credit now You are taking an enormous Instrument of power away from the government away from the people who currently exercise it currently participate in that that's that's enormously challenging of course they're going to react and and they're going to react with some legitimate concerns legitimate concerns about Who uses the money about money laundering about illegal? Transactions as well as having their own motivation, which is maintain a current system, which is works very well Well, it works. Well well enough from their perspective Relative to the cryptocurrency alternative whether it works. Well, again, I think we'll discuss there's many reasons to be dissatisfied So I guess I'm a little concerned when people say people from from from the Bitcoin community or the people other people say look We're not interested in the political discussion sign We're not interested in representation in Washington or making our arguments and other capitals. We're just we're just out of the system We are constructing our own viable Payment system I can pay you you can pay me in a way that bypasses completely all the official mechanisms all the banks all the governments. I Honestly, I mean look back over the history for yourselves. I don't think you can do that I think that the point of exchange from your virtual cryptocurrency into goods the government is going to have a lot to say about that They're gonna have a lot to say about the taxes. They're gonna have a lot to say about Issues of legality and illegality. This falls entirely within What most people regard as the legitimate mandate of government in the modern society? So look, I'm all in favor of challenging the system. I think this is very healthy and I think it leads on to better things But are the crypto currencies going to win by just ignoring the politics and saying we set up our own system. It's perfect We're just going to go about our business and ignore the politics I don't think so and that leads to that my my third and final point which is about Impessa so Impessa is a money transfer system that exists in Kenya Run through so you can transfer money through the mobile phone system through Safari comm it works very well You pay a transaction fee. It's a low fee. It's much much better than what existed before in terms of Ability to transfer funds within the country particularly from big cities back to villages Nobody I think this is the couple of important points from this experience Nobody understood or anticipated how big the demand would be for this kind of money transfer at low cost very big pent-up demand To bypass the banks and bypass and not have to carry cash on the minibus going back home Or find some somebody to carry the cash for you all the other ways of transferring money very problematic second thing is it was made possible by a An unusually but you might say surprisingly favorable regulatory system actually the central bank said go ahead and experiment We'll see what happens central banks generally don't do this central banks in other parts of East Africa have not done this Impessa is both very successful in Kenya and I think Unfortunately not yet taken up enough in other and other places including other parts of East Africa. It's a great opportunity people trust the system and You know, it's this is not a cryptocurrency This is you're putting you giving your money to the phone company your phone company is holding a hundred percent reserves in commercial banks They have a full amount on deposit and they're Transferring the funds to an agent in the village who's giving it to the people you want to transfer it to this is not a cryptocurrency But it does speak to the fact that people want to be able to make payments more cheaply at what they regard as lower risk If the cryptocurrencies can do that Can deliver on that promise? There are many many countries around the world that would benefit massively from this There are many transactions including transactions across borders where we pay far too much in transaction fees So that promise of cryptocurrencies I think is a very appealing promise where they can deliver is another matter and that delivery is going to depend on whether you can reach an accommodation a Political regulatory accommodation within the countries in which you want to operate. That's how Safari com did it Sure, you can have a store of value you can have Transactions in anything you want you can buy and sell old masters paintings you can buy them for delivery Offshore on the tarmac of the Geneva Airport. They it's all stored there for you. No problem at all Can you create a money? Can you create something will be used to transfer value to make payments to replace? Credit cards to replace cash Payments like that's the bigger question the cryptocurrencies are pursuing and that's where bitcoiners has got our attention And I think that bitcoin is demonstrating some very important aspects some positive some More problematic and we'll discuss both today But you have to take on the politics and the people who want crypto currencies succeed have to engage with the political agenda They have to explain why this makes sense They have to reach an accommodation with government Which is going to be difficult because you're challenging the system and you're challenging the credit system around which modern governments are structured And I don't think cryptocurrencies are going to be consistent with or build up Banks as we know them today. I think they're a bypass. That's the motivation that that's the goal and I have no problem with that I think I think Joel ultimately what we're going to do is end up with some system that will reduce the transaction costs that the official system Which is very oligarchic right now and and very much Embedded with that with the way government operates is going to have to change Look, this is a great pressure point and that's to the benefit of everyone Do we end up exactly with crypto currencies as currently envisaged? I'm not sure like like you We'll see where we'll see where this goes, but this pressure and this fight is going to be political It's going to be technical. It's going to be about the economics sure It's going to be about the structure of the financial system, but mostly it's going to be political And that's why I'm looking forward so much to what we're going to discuss today. Thank you very much