 Hello and welcome everyone to this, our 13th meeting of the virtual seminar series on central banking and digital currencies. Our host institution this month is the BIS and with that I'll turn things over to our moderator, John Frost. Thanks a lot, Todd. So today we're going to hear a great topic. So we're going to hear from Zimon Meyer from Chicago on the joint paper with Will Kong on the coming battle of digital currencies. I think this is very timely given given all the debates that that we're having even even this week. We have 25 minutes for for Zimon to present. He's let us know that if we have questions, you can feel free to enter these at any time in the Q&A box in the chat. We'll then turn to our discussant, who is Jesus Villeverde from University of Pennsylvania, Wharton. Ten minutes for Jesus as the discussant, and then we'll have the opportunity for open Q&A at the end. And yeah, with that I'd like to turn straight over to Zimon to start us off and to present the paper. Zimon, the floor is yours 25 minutes. Yeah, thank you so much, John for introducing me thanks everyone for attending this and thanks for all the hosts here for facilitating this presentation for giving us the opportunity to present this paper this great forum. So let me get started so today I'm presenting my work with Zimon the coming battle of digital currencies and the motivation of this paper was partially some trends but partially also the panel discussion I saw on this forum like a few weeks back between Gary Gorton and Catherine Asenmache and so on and But the more topical in the motivation based on trends is the following in the recent years we have observed the rise of private payment systems such as Alipay, Paypal or Impessa. And these private payment systems have gained widespread adoption have alerted regulators in some countries. More recently, cryptocurrencies, stable coins and decentralized finance have shown the potential to cause further disruption to the financial or monetary system to give you some numbers. In November 2021 the cryptocurrency market per cap has surpassed three trillion US dollars obviously it's less now after the crash and stable coins, a specific form of cryptocurrencies which are packed to a fiat currency have emerged as a new form of private money and have somewhat grown important having reached a market cap of about 180 billion US dollars. These trends and developments have really attracted the interest of policymakers and regulators around the globe to give you an example of that in the context of the US. On the 9th of March 2022, President Biden signed an executive order on digital assets in which he urged federal agencies to more actively research digital currencies, their regulation, as well as the development of a digital dollar. Related to that, a growing number of central banks around the globe are actively researching CBDC, i.e. central bank digital currencies. The following map gives you an idea about the state of the CBDC initiatives around the globe. The fact that most of this map is colored essentially means that most central banks around the globe are at least researching the launch of their own CBDC, if not having already developed the proof of concept, a pilot, or even launched CBDC. One country that's pretty much ahead in these pursuits is China with its Irenminbio ECNY. Interestingly, the development of the ECNY, together with other internationalization efforts of China, has also fueled some discussions in the US. Some of the opinions in these discussions, certainly not all, also reflected the concern that with the ECNY, the Irenminbi could challenge the US dollar dominance. There's an article about that from early 2020 in FORKS, titled, Not a Cold War, China is using a digital currency in search of who unseed the dollar. Competition for fiat currency might not necessarily come from cryptocurrency, as we know them now. There might be also some large-scale private digital currency initiatives backed by large companies or big-tech companies. One example of that was Facebook's Libra, which eventually never got through, also because it faced, like, very much headwind from regulators. All of these transit developments raise many intriguing and important questions. For instance, how does this coming battle of digital currencies shape the future of money and currency competition, and should countries implement CBDC, and if so, which countries benefit the most and why? And what are the relevant trade-offs to implementing CBDC or to current digitization more broadly? And we also would like to ask, what is the role of cryptocurrencies, stablecoin, and these private payment providers such as PayPal or Alipay in all of these developments? And in this paper, we actually develop a framework that helps us think about these transit developments and helps us address these questions in a systematic way. With our framework, we also can rationalize recent events and trends in digital currency development, and notably, our key contribution is to provide a game-theoretic analysis of countries' strategies of digitizing their money. Let it be by upgrading their current pay system or let it be by launching CBDC. To give you a globe more idea of what we are doing, let me give a brief overview of our model. Essentially, we develop a model of dynamic currency competition between two national fiat currencies, A and B. Think of A as the strong currency or the reserve currency, i.e., the US dollar, and think of B as a relatively weaker, potentially strong, but non-dominant currency, i.e., the renminbi or the euro. In addition to that, there is one representative cryptocurrency, which serves as an imperfect substitute for these fiat currencies. And this representative cryptocurrency broadly describes also stablecoins, which are cryptocurrency back to a fiat currency, or can also provide other payment systems that resemble this type of currency. In our model, these three currencies then fulfill the three functions of money, i.e., the potential surface store of value, medium of exchange and provide liquidity service and unit of account. And cryptocurrency is hereby an imperfect substitute for the fiat currency. Notably, the cryptocurrency sector or the cryptocurrency convenience dynamically grows as cryptocurrency is adopted over time. As cryptocurrency sector expands and households substitute toward cryptocurrency, national fiat currencies face growing competition from cryptocurrency, and they then strategically react to this growing competition by digitizing their currency and by launching CBDC. And notably, there's also some strategic effects in that CBDC issuance by a certain country affects the other countries incentives to issue CBDC too. Let me give you a brief overview of our main results. In our baseline, we have currency competition only between national fiat currencies, and in this baseline setting essentially there are fierce feedback effects in currency competition, which on the downside lead to a vicious circle of depreciation and dollarization for the weakest currencies and on the upside leads to exorbitant privilege for the strongest currency. Now, when we add cryptocurrency to this baseline setting of currency competition, we find that the cryptocurrency sector essentially acts as a buffer zone amidst the battle of national currencies, thereby mitigating these feedback effects. As such, the rise of cryptocurrencies can actually benefit the weakest currencies as it hurts the stronger currencies and thereby reduces the competition weaker currencies may face from stronger currencies. As I said, the countries then react to the growing competition from cryptocurrency as well as from other national fiat currency by digitizing the currency, i.e. by launching or developing CBDC. And our model essentially predicts a packing order regarding initial CBDC development, whereby countries with non-dominant currencies but relatively strong currencies have the highest benefits or incentives to issue CBDC as they potentially could gain a first move advantage. The next in line in terms of incentives is the country with the dominant or reserve currency, and the incentives of this country with the strongest currency are twofold. On the one hand, if one launches CBDC early on, one can essentially nip the cryptocurrency growth in the bud and preclude future competition from cryptocurrency. However, once cryptocurrency and other digital means of payment have gained widespread adoption, also the digitization of the reserve currency becomes unavoidable. And last, countries with very weak or non-existing sovereign currency have very low benefits to adopting CBDC, and these countries are actually better by adopting crypto instead as a legal means of payment. We can ask whether these developments are a good thing, but what comes out of the analysis is essentially the rise of cryptocurrencies by competing or by constituting a competition for national fiat currencies incentivizes financial innovation. You could think of the rise of cryptocurrencies being some wake-up call that actually has the countries nudge to look into this currency, the digitization more closely. The last few years not much has happened. It was only since the rise of the cryptocurrencies. And we also extend our framework to study the role of stable coins or fiat-backed currencies in these developments, but also exploring potential regulation of stable coins. And in the context of the country with the strongest currency example given in the U.S., we find that with the appropriate regulation of stable coins, the U.S. can essentially capture a large part of the senior rush created from cryptocurrency or stablecoin issuance, and can de facto delegate the development of a digital dollar to the private sector. Given that time is scarce, let me skip the literature review and go immediately into a more detailed description of the model. So we essentially consider an infinite horizon model in which time runs discreetly with time increments DT and eventually we take the continuous time limit. The economy is populated by one representative overlapping generations household, which at birth at time T is endowed with one unit of consumption good, and this household or core T of this household would like to consume at time T plus DT. But the consumption good as such cannot be stored. So money emerges as a store of value. And in our model, money comes in the form of three currencies, which are all in fixed units supply and have an endogenous value in consumption goods, PT to the power of X, where X stands for the specific currency. In particular, there are two national currencies, A and B, whereby we regard A as the strong or dominant currency, and we regard B as a relatively weaker or non dominant currency. And in addition to that, there is one representative private cryptocurrency, which is not related to any of these countries. And this representative private cryptocurrency should describe the broader cryptocurrency market, including so-called stablecoins. Why we do not provide a micro foundation for that and be essentially stipulate that holding money entails some convenience yield. In other words, currency offers a convenience yield, which depends on the real value empty to the power of X of core T's holdings of currency X with real value. I mean, the currency holdings in terms of the consumption good, which serves us the number rare. So what happens here? At birth, the core T of the household invests her entire endowment into consumption good, because it would like to consume late, so these three things add up to one. And there's a convenience yield to holding currency X, A, B, and there's also convenience yield Y, which we did not differently from holding cryptocurrency C. Another element is that essentially unlike group to currencies, these fiat currencies will be subject to inflation in a sense that the sovereign levies an inflation tax of its currency holders. And this inflation tax is denoted by tau to the power of X. Why do we incorporate this inflation tax where this inflation tax leads them essentially to the should essentially provide a reduced form link between a country's economic or fiscal fundamentals and the strengths of its currency. In other words, when the country X economic fundamentals are weak, tau to the power of X is high and the inflation of currency X is high so currency X is weak. So that's the rationale behind. The household in our model is a price taker and maximizes at each point in time essentially the sum of his consumption and the convenience yield to holding money. And going through the optimization is actually obtained equilibrium condition to which simply states that the sum of marginal convenience and the expected return to holding any currency must be equal across currencies. In other words, we also assume that there's some imperfect substitute ability across currencies, which is captured that this function V is essentially a concave increasing function. And let me emphasize at this point that while we model essentially the economy as one of an overlapping generation representative household. We also would like to emphasize that this household shouldn't necessarily represent many identical currency individuals, but it can also represent many individuals in across different locations that have potentially different demands for any individual currency. And that's also consistent with some individuals having no demand for let's say group the currencies, while other individuals have some demand for group the currency. We also would like to emphasize the setting is flexible in a sense that it features also monetary neutrality so these returns can be interpreted broadly, they could potentially also incorporate some interest rate earnings you could earn if you hold a specific currency. Now, let me introduce group the currency essentially, we have stipulated that group the currencies have a convenience yet why, and the unique thing or the unique thing about group the currency this model is that the convenience of group the currencies, or put differently, the group the currency adoption grows dynamically over time with dynamic feedback and network effects, which leads then to the exponential rise of these group the currencies over time on average, as we have witnessed, let's say in the last 10 years. So essentially, the convenience of group the currency grows, the more people isn't adopt this group the currencies. So if group the currency adoption today is high, then we expect there's lots of development going on in the sector. So group the currency price tomorrow will be high and adoption will be high and then there's some dynamic feedback facts. We also allow that fraction of the group the currencies are part of the group the currencies are essentially backed by fiat currency. And in this way we essentially account for fiat backed of and fiat backed stable coins, such as us dollar coin, in particular, we allowed fraction CTA of the entire group the currency market cap is backed by currency a why currency a well currency a should represent the US dollar, and most of these group the currencies stable coins if they are back that all their backed by US dollar assets. Last step on in the model explanation is essentially what how do we think about CBDC and currency digitization. So there's many specific designs of CBDC is put out there and many of you have here like excellent papers or specific designs of CBDC is the trade off and in particular the implementation details. We would like to stay away from all of this. The only thing we essentially stipulate is that if country x digitizes its currency, for instance by launching CBDC, but possibly also by other means, then the convenience to holding currency x, denoted by C to the power of x increases. That's the only thing we assume. So in particular country x launches CBDC at time tx. And before that, the convenience to holding currency x is low. After that, the convenience to holding currency x is essentially high. And developing CBDC is like a long term project. It's akin to like some R&D. You have to go through a lot of trials and errors until you're successful. We also account for that by assuming essentially that the time at which you launch CBDC successfully is a random time, but you're more likely to succeed in launching or implementing CBDC, the more investment e to the power of x you dispense the more effort you exert. So countries exert some effort and at some point essentially they are successful in launching CBDC capturing that it's like a very long term high R&D intensive project. And why does the government implement CBDC? In our model essentially the government maximizes a time rated average of its currency usage adoption. So essentially in loosely speaking, the government implement CBDC so as to boost the adoption or usage of its currency. And this could in reduced form essentially account also for geopolitical considerations, financial stability considerations and so on. For instance, if your currency is more adopted, then by market clearing it in our model means that other currencies are less adopted, which means higher adoption of your currency gives you more power in essence gives you more power maybe to regulate gives you more control gives you more geopolitical power and so on. So like this could essentially related this objective could be related to all types of considerations. So this is the model set up. It's in a nutshell, and let me go essentially now through few of our results and proceed as long as time submits we start by analyzing essentially the dynamics that dynamics in our model is essentially that the adoption of these cryptocurrencies grows over time. So over time in the beginning, not many people know about cryptocurrency, not many people hold it, but over time, more and more people hold some cryptocurrency to store of value or for liquidity services, and the convenience to holding cryptocurrency due to these network effects grows exponentially essentially. So what we take away from this is essentially that the currency value of the strongest currency is unambiguously harmed by the rise of cryptocurrency. As cryptocurrency grow also substitute away from both currencies but this harms relatively more the country with the strongest currencies. Another takeaway is essentially that currency be the weaker currency faces both competition from currency a the strongest currency and competition from currency C. Now, when there is more group to currency adoption currency a becomes weaker. So currency be faces less competition from a but more competition from C and depending on how weak currency B is, it may actually benefit from the rise of group to currency. And we see this when we plot this essentially the currency values a and B currency value of a decreases with why currency value of B can be ham shaped in with respect to why and currency value C increases as well. Another key observation our model is that group to currencies are only adopted if national fiat currencies are weak, either regarding their convenience or because they have a high inflation. And in particular, what this implies is that group to currencies emerge in dodging is to fill a vacuum in the currency space, and particularly the weakness of these national currencies would facilitate the growth of the group to currency sector. My next point is essentially as cryptocurrency adoption grows over time both countries face increasing competition from cryptocurrencies and lose a little bit of adoption of their own currency. Now countries strategically react to this growing competition by digitizing the currency and by launching CBDC, which is in our model captured by the effort e to the power of a for country a and e to the power of B for country B. One key result of our framework is essentially that as long as currency B is not too weak country B always has higher incentives to issue CBDC or put it in less normative terms country B or currency B benefits more from the digitization of their currency as there is a potential first move advantage to be gained. Country a has weaker incentives, but the incentives of the country a are essentially derived from mostly to compete with cryptocurrency or other countries CBDCs and the incentives of country a displayed in panel a are essentially follow this to peak chain. What is the rationale behind this. Well, if country a were to launch CBDC early on, it would essentially nip future group to currency grows in the but and conduct some killer acquisition or killer adoption of the group to currency technology. In other words, the first peak of the incentives of country a derived from a potential to nip the group to currency grows in the but there's some group to currency kills on a launch of CBDC by a country with a strong currency early on, which includes any future group to currency crops. However, once the group to currency market has gained sufficiently high adoption and why is high, then the digitization of currency a becomes unavoidable and this explains essentially the second peak. Similarly, we essentially would like to relate a con as the strengths of a country's currency to the incentives to develop CBDC, which is similar to what we have done before. In this graph, Pi B essentially quantifies the strengths of country B's currency in a sense that when Pi B is large currency B is weak and then Pi B is low currency B is strong. And now we look at the average effort which captures the incentives or the benefits for country B to launch CBDC as a function of Pi B and we see that there's an inverted U shape. What does this mean? When currency B or when the currency is sufficiently strong, the incentives to launch CBDC are relatively low. When the currency B is sufficiently weak, then the incentives to launch CBDC are low too. But when currencies B strength is at intermediate levels, then there's a peak and the incentives to launch CBDC are relatively strong. And this gives rise to a packing order. In particular, this packing order regarding initial CBDC issuance states that countries with strong but non-dominant currencies have the largest incentives to launch CBDC and their currencies benefit the most. Again, because they could potentially gain a first move advantage. The country with the strongest currency, the US dollar, the US visits US dollar, is the next in line in terms of incentives to launch CBDC. And last countries with very weak currencies such as El Salvador have very weak or very low incentives and do not benefit much from launching CBDC as their currency is weak regardless. At this point, maybe I would like to mention that this inverted U shape regarding some innovation we notice from the economics literature and that's kind of like a little bit similar. If the currency, the degree of currency competition is very low because Pi B is high, then there's not much effort. If the degree of currency competition is very high because Pi B is low, there's also not a lot of effort. But if there's intermediate level of competition, then we get also the highest efforts to digitize money. So this is like reminiscent of some classical results in innovation theory. So the packing order we suggest is kind of also consistent with the state of CBDC initiatives around the globe. We see countries like China having already launched a pilot regarding CBDC issuance, remarkably large scale pilot, whereas the US still lacks a bit behind. Also China, also Canada and also the eurozone, where I recently heard that the digital euro is about to come in four years by Panetta. Now we also would like to ask is currency digitization or CBDC issuance, strategic substitutes, or is it strategic compliments. And to do so, we look essentially at the change in A's incentives to digitize the currency if Pi successfully launches CBDC. Likewise, we look at the change in country B's incentives to launch CBDC, country B's the weaker country, if A, the strong country launches CBDC successfully. We find essentially the following. If the country with the strongest currency issues CBDC, then the weaker countries incentives to launch CBDC decrease, giving rise to strategic substitutability. Why is that? The weaker countries incentives to launch CBDC derive mainly from the desire to gain a first move advantage. So if country A, the stronger country already launches CBDC, it clearly writes out such a first move advantage. And second, it is interesting that if country B, a country with maybe relatively weaker but non and non dominant currency launches CBDC, then it can either increase or decrease the incentives of the country with the strongest currency to launch CBDC, so that CBDC issuance can be strategic substitutes or strategic compliments, depending on the circumstances. Particularly if the launch of CBDC comes from a sufficiently strong country B, then it challenges the dominance of currency A and is more likely to increase A's incentives to launch CBDC. And these tradeoffs kind of feature prominently in policy debates. It's not clear how the launch of the Chinese Renminbi will affect the dominance of the US dollar and there's essentially opposite views on that and there's also opposite views of that, whether the US should react to the launch of CBDC by other countries. On the pro side, early 2020 Forbes says essentially calls essentially for action to actively research a digital dollar, reflecting the concern that the ECNY might challenge the USD dominance. And related to that President Biden signed this executive order, in which he also called federal agencies to look into this digital dollar. On the other hand, we have Darryl Duffy who thinks differently in a sense that ECNY probably has no danger for US dollar dominance and while he is pretty much in favor for CBDC issuance, he definitely wanted some caution that a digital dollar should be definitely well considered and well planned. So let me almost come to the end. Essentially, the story of our paper is that our script occurrences are adopted over time and their convenience grows. National currencies face competition from these script occurrences and are essentially forced to digitize the currency by launching CBDC. Similarly, when countries launch CBDC, then they also put some pressure on other countries to react as well, which further increases essentially the overall incentives to develop CBDC. So essentially, in the model of what is happening, that the rise of these script occurrences acts as a catalyst for financial innovation. In the beginning, these script occurrences grow and script occurrences and stable coins as such can already be seen as a financial innovation. So you could say there's already some positive effect on financial innovation and payment innovation, but it does not stop there because this competition in the currency space also urges countries with any type of currencies to digitize their currency. And overall, what we can conclude is that the rise of these script occurrences, including so-called stable coins as such can be seen as a catalyst for financial innovation. And it triggers or stimulates financial innovation both in the private and in the public sector. In the public sector, it would be the launch of CBDC. And finally, let me maybe come back to the role of these fiat-backed script occurrences and stable coins. In practice, many stable coins are backed to the US dollar and some of them, some of the largest ones at least, are partially backed by US dollar reserves. Obviously, we have seen a failure of a non-backed stable coin terror two weeks back, which essentially was not backed to anything. And the reserves of some of these backed and backed stable coins may include cash or cash equivalents of US dollars, examples of that, as I said, US dollar coin or Binance US dollar, which are number two and number three, I think at this point. And we can actually study the role of stable coins as we consider that fraction CETA of cryptocurrency market cap P to the power of C is backed by reserves consisting of currency A. And while I don't have time to go into this graph in detail, I would like to say that the fact that essentially some cryptocurrencies are backed by fiat currency of country A is a good thing for country A. Essentially, it raises the rise of cryptocurrencies, raises them the demand for currency A in some sense as currency A is a reserve for these cryptocurrencies. And in particular, the rise of stable coins backed by currency A, think of A as the US dollar, benefit the currency A, the US dollar, but harm the relatively weaker currency B. And we can also then, again, look at countries' optimal incentives or optimal investment to research CBDC or to digitize the currency. And we find that essentially that requiring by regulation a backing of stable coins can be seen as an alternative to developing their own CBDC. In other words, if the US were to regulate stable coins and require them to be backed, save 100% US dollar cash or cash equivalents, then the US could effectively delegate the digital dollar development. In the sense that the private stable coin issues do all the lack work, they create a digital dollar which is backed by the physical US dollars and export it to other countries potentially. This point, let me conclude. In this graph we study essentially a dynamic model of currency competition between national fiat currencies, cryptocurrencies, and in particular also between CBDC. Countries react to the growing competition from group to currency by digitizing the currency and strategically issuing CBDC. And particularly the strategic effects also depend on whether other countries have launched CBDC. The model essentially predicts a novel packing order of regarding initial CBDC issuance with countries with strong but non-dominant currencies, spare-heading the endeavors, followed by countries with the strongest currencies, and which are again followed by countries with the weakest currencies. Countries with relatively weak currencies can actually benefit from the rise of cryptocurrency, but as I have not discussed, might be prone to digital dollarization in the long run. And regardless, the digitization of money probably becomes unavoidable in the long run. Thank you so much for your attention. Look very much forward to Jesus' discussion and to any questions afterwards. Thanks a lot, Simon. So let's now turn to Jesus. Jesus, you have 10 minutes for the discussion. Okay, let me do this. Okay, everyone can see the slides. You can hear me. Very good. So let me enter into discussion of the paper. Just let me do something so I can track off the time. So let me briefly describe, summarize. Sorry. So let me briefly describe, summarize the environment of the model. So what Simon has presented is a model of dynamic competition among two national fiat currencies, a strong and a weak, representative cryptocurrency, and CBDCs. And in this paper, CBDCs are better version of the national fiat currency. They are somewhat somehow easier and better to use. The model is an OLG model in the tradition of Karek and Ualas, where money is used for trading among generations. And we have governments that levitate taxes and maximize the discounted value of seniority over time. And the solution concept that we deal with is a Markov equilibria. And this helped us to think a little bit about the evolution of these different currencies and the competition among them over time. The paper delivers five main results. So the first one, which is quite intuitive, is that cryptocurrencies harm the strong currency, but may benefit the weaker currency. So a way I like to think about this result is I'm the US government, I'm actually getting a lot of seniority revenue from issuing the World Reserve currency, the strong currency, that's what historically people have talked as the exorbitant privilege. And one second, I have. Okay, yes. So you say that the slides are not moving. And I know what is happening is because when I do the share screen on and the full screen on Apple it just doesn't work. Do you see them moving now? Yes. Now we see them. Yeah, no, that's the problem. You cannot really use. There is something between Zoom and Apple computers that they don't like each other. That's why I didn't want to put them in full screen before. Okay, so I was saying that the main result, the first main result is that cryptocurrencies harm the strong currency, but may benefit the weaker currency. And the argument here is very simple. Think about the US as having the so-called exorbitant privilege is getting seniority from issuing the main currency, the strong currency in the wall and suddenly you have Bitcoin or any other type of cryptocurrency entering into that market and that it's part of the seniority. And under some combination of parameter values, it may benefit the weaker currency because what you have is that there is a better comparative for the relative price of using the weaker currency goes down. The second main result is that the weak CBDC is a greater threat to cryptocurrencies. We use Bitcoin because we think it's a better alternative to US dollar, but suddenly we are going to have the e-Riembin B or the e-dollar, the electronic dollar, and that basically eliminates the reason to switch to a cryptocurrency. The third main result is that there is a pecking order of CBDC issuance. So the first country who wants to get into this business is the country that issues a weak currency, although not a currency that is too weak. The second one will be the US, the issue of the strong currency, and the third one will be the issuer of the countries that have really, really at the very bottom such as El Salvador. And there's also a fourth and fifth results. One is that there's the financial innovation is higher in the country with a weaker currency and that kind of makes sense. China cannot get a lot of this exorbitant privilege of the US, so there is a more incentive in China to come up with better financial arrangements. And stable coins may favor the strong currency and here the reason is to issue a stable coin, you need some dollar backing, which indirectly increases the demand for the US dollar and then it makes it a little bit stronger. So I always like to talk about these papers on currency competition going back, of course, to this lot, who's F.A. Hayek, and in the nationalization of money, which is a book that I always encourage people to read because I really think it was 40 years ahead of his time. It was published originally in 1976, although here I'm quoting the version from 1999 from the collected works. Hayek thinks about a lot of these issues, not in a mathematical way, it's a verbal model, but nonetheless a very interesting one. And he has this great quote, where he says, I have always found it useful to explain to students that it has been rather misfortune that we describe money by a noun, and that it will be more helpful for the explanation of monetary phenomena if money were an objective. And he basically says, because in that way we are going to have different monies or we are going to have different assets with different degrees of money, and we can really think about how these assets compete with each other. And this is in some sense the main lesson that you get from this paper. In this paper you have all these different types of monies that compete among themselves, and that of course makes up for a wonderful paper and I great read and I really enjoyed going over it over the last few days. And in addition to it, the results of the paper are very intuitive, as I think I was able to summarize before. And something that I like a lot about the paper as well is that the authors are always very nuanced in their statements and they try to highlight the strengths of the model and venues for possible improvement, which is actually really very nice. So what type of, you know, trying to build and try to be constructive on things that I think would make the paper even better, I have basically three main comments. The first one is that in this paper, a CVDC is model as a better fiat currency. Basically, the authors think about the CVDC as a currency as a fiat currency that has a convenience yield that is hiker. On the other hand, the CVDC is a costly technology is a rival is random and you know there are good motivations for these two hypotheses, which are quite sensible. On the other hand, one could be worried that they also present a best case scenario of for what a CVDC is. Okay, so yes, a CVDC is easier to use. I just got to my cell phone to my iPhone and I use an app to pay with my CVDC, but on the other hand, there are no issues related with privacy concerns within the paper. If I have a CVDC suddenly the government fully knows what I'm doing in every single moment of my life. There is no issues related with financial stability, which is something that I have worked a lot with Linda Shilling, Harald Ulick and Daniel Sanchez. There is no considerations of political economy and how the fact that suddenly the government is going to be involved in this very large set of transaction can change the incentives of everyone within the system, and there is no commitment to these problems. And in particular, this worries me quite a bit because something that people don't quite seem to fully appreciate is that with a CVDC the government can change its mind overnight, go to the accounts of absolutely everyone in the wall and with just pressing a button, making or assets or currencies disappear and we actually have seen the Chinese government doing something somewhat similar during the last few months. So let me put my hat as an econometrician for a second and try to highlight that it's likely that all those factors are going to correlate with being a weak currency to begin with. So why does the Chinese currency is considered weak in international markets? It's not that China is a poor country or is a small country. What makes a lot of users very concerned about the Chinese currency is this. This is a photograph about the type of cages that were set up in Shanghai during the recent lockdown and the total and I will say rather reckless disregard of anything that resemble the rule of law. So if I'm a big investor, I'm thinking about where to put my money or even if I'm a retailer investor and I'm thinking about how to allocate my currencies. It's not as much that I care about the convenience yield of a currency and worried about the Chinese government tomorrow completely defaulting on its obligations or more importantly changing the rules of the game. And that's why the Chinese currency is a weak currency and just by making it digital currency is not really going to change the situation. Now, the good thing is that this type of correlation with being a weak currency could be incorporated into the paper. I could imagine an extension where yes the weak country, the weak currencies introduced has a higher convenience yield, but maybe there is some probability of a default. And given that at the end of the day, the paper is going to deal with a numerical solution that probability of default is something that is quite possible to deal with. And that will be a really, really nice extension of the paper, which I have not really seen in any other papers so far. So that will really make the paper very interesting. Yeah, thank you. The second comment is that the paper jumps between being a paper on applied theory and a paper that has a little bit of quantitative theory but not too much. So on one hand, the model is very, very definitely crafted to allow for a lot of theoretical analysis in the tradition of applied theory but at the end of the day as we saw them in the presentation, one needs to also do a little bit of numerics. And I think that if the alphas could push the paper, push the numerics a little bit more, think a little bit more carefully about what these parameters mean, think about what some of these quantities mean, that will add a lot to the appeal of the paper. Now I know that some of these parameters are going to be difficult too much to the data, some of these things are about the stuff that we haven't really seen. So it's not that here I'm going to be looking for a super tight discussion of parameter values, but I think that spending a little bit of time on that will really, really help the paper a lot. And my last comment is that as I was saying at the beginning, the paper uses an overlapping generation model. In particular, in the recent formulation of he and Chris Namurthy, which is a very nice way to do these things, all the models of money at a very simple setup that illuminate a lot, but one will like to think a little bit of have a little bit of a sense of how the results are robust to some different environments, like a search environments on type of Lagos right environments on type of turnpike environment. I think that extending the results to turnpike will be relatively straightforward and Simone I think mentioned that during his presentation. But I would like to, you know, if we were going to think in a slightly different environment will will all these ideas go through and if the paper could make that point I think it will make the reader much much more satisfied. Let me stop here because I just got to my limit one second ago. Very useful. So I'd like to now open up the floor to the participants, and please feel free to jump in I see we don't have any questions yet in the Q&A, but for those who are on as participants, please feel free to raise your hand and I'll call on where we'd like to speak first. Who'd like to break the ice. I'll do it. Okay, Ricardo was first. Yeah, so a general question so about them. It always makes me a bit uneasy. When people want to study currency substitution, and then the degree of substitutability to the currencies is hardwired in utility functions. Why did you take that route? A lot of the extensions that Jesus was mentioning are buried in that utility function. You know how worried I mean you call them convenience yields it could be you're worried about rule of law could be anything. I mean, and you're looking at this like long dynamic transitions, and that's kept constant and what is it. And then we have you know, taking advantage of the decreasing returns on each separate module you know I'm saying. Yes, I mean you could you could do something. Okay, so you see a point I mean even if you did something reduced for me. Maybe better to have some like a fancy aggregator. Of course, I would still complain about, you know, the parameters of the aggregator constant but but at least you know something more along those lines. Yeah. Yeah, so no that's a very good comment and like was expecting to get this obviously from the audience in this way. Yeah, so like, we don't microphone this things this utility function well and like that's definitely also as mentioned in Jesus discussion. It would, it would be definitely something we would like to explore in the future. Like it would make things. I guess I'm not sure that it would like easily come back to the money in the utility function if you for instance were to use your framework and logos and write to microfunded. But indeed like we would like to check the robustness in this direction. We expect the results to go through, but we still have to look at it. Maybe I'm more than breaking the ice now but so the follow up is, I mean this device of having money utility function. It was believed for a long time that for you know once the currency regime is in place. You know the nuances of the micro foundations of that might not matter for little blips on monetary policy. But now we're using that to talk about monetary regimes. It makes me more uneasy. I mean, so all my I'm concerned even about the former but in this context and even more, you know, that's all. No, no, no, so I think that this is a very good point I have not thought about this because especially when we're talking about changes that indeed like it's unclear that the functional form will still be the same as before. We're just calling essentially for micro foundation and definitely by taking this point. I have not thought about this. We don't account for that unfortunately in this current version. Okay, so I see that Todd had a question as well we'll call on Todd and then Scott Henry. So Todd. Yeah, yeah thanks. How do you want us to think about the dollars in the model is this currency is this M one doesn't include government debt. And I'm trying to think about because when I think about these different things in practice, if you know if I think about what Bitcoin is competing with what are the sources of the government's in practice it seems like those aren't always perfectly aligned. Right. You know the senior revenues is coming from from the currency, and perhaps, you know from the interest rate on the government debt and Bitcoin or stable coins even might be competing more with with bank deposits. So how should I think about that. A very broad interpretation of the dollar would be the most applicable one in that sense. So you want to sort of all of these things together. I mean it should be. We say we envision here like a very broad interpretation for instance of the US. I mean of the currency as such, which also would include like all of these cash equivalents you mentioned. Yeah, okay. Yeah, so also in this dimension the paper for somewhat short and providing some probably satisfactory micro foundation. Yeah, okay. Yeah, I was thinking of it as being different from the micro foundations question that might be interesting to think about, you know, just the distinctions between different types of dollars, and where cryptocurrency is competing. And again to what extent that's where the government's worried about senior revenue and to what extent it's having other effects on the economy. I mean it could be like something maybe to add to just not sure whether one could convincingly make this point but I'm always thinking about it also it can possibly also it's somewhat competing this US dollar denominated assets. And probably in some way would also like essentially aggregate all the holdings in terms of US dollar then it would somewhat, because you switch out of US dollar denominated assets towards something encrypted and would indirectly also eat into the senior rush. Yeah, okay, okay. It's like kind of very difficult to say also in this current stages of descriptive currency is very difficult to to pin down, but it's a very well taken point. Okay, thanks. So next we have a question from Scott Hendry and I was going to read it out but I see that Scott has just been promoted to a panelist so he can, he can say the question itself. Good morning everyone it's Scott Andrew with the Bank of Canada so I had two questions actually the first one is about whether or not there's any real network effect going on in the currency model of the payment system so are the citizens of country a bias towards using currency a or CBC a the way they would be in the current double sided network that exists in payments. The secondary question is wondering whether the presence of commercial bank money would change any of the setup here. A lot of the discussion is around thinking about it solely as central bank money. And I'm wondering whether that just as a is a tweak or whether it changes anything fundamental. Thanks. Yeah, so the first question yeah these network effects are kind of why not explicitly modeled they're kind of there. And even the first question I thought it's like two questions so first of all you, does the model account for instance that some citizens would have like, let's say, does the model account for that US citizens have a high demand for US dollars but no demand for Chinese yet. That's what I at least understood like that would be accounted for by this representative household in reduced form. Second one network effects happen via kind of the inflation in the model like inflation tax how we've put it. The more people hold a specific currency, then the currency kind of appreciates, and then there's less inflation so you're another individual is more willing to hold this currency. So that essentially this would be an endogenous network effect, but it's not again not a microphone network effect you could think of via some search and matching model, which could make the results even stronger in that regard. So the second question was commercial bank money that I think was related to talk case this question as well. Well, like we don't account for the next explicitly, but I would think it would fit in there kind of like it's very we have to think about it yeah. So maybe something religious God and maybe talk question is, we see for several in our Sabbath. So the big band. They are also the global band usually like city band is the biggest one, the HPC, they have branches in El Salvador and that they can issuing the insight money in both US and El Salvador as well. So then the question might be maybe more involved and also more interesting when the global bear, which exists in a lot of emerging country, and then mix up with the issue of issuing CPC along the cost countries bill over dimension. So maybe this, maybe Scott, one of the thing he think, I guess, I guess that's what was two of these questions were in this line, I feel. I was saying, even though it's like not the best answer probably just question that like, it would require some additional modeling and some additional account like the current setting like doesn't account for that at all. But let's say if we merge the government and like the banks of this of the country so essentially then if you add up the senior rush. Something may be different is for the US government, the Fed cannot issue currency in El Salvador. Yes, but global bear it can because it can operate in both El Salvador and the US and they can issue some insight money. So it makes the interaction might be more involved and also interest. I just said a very simple point. I think it's what Scott might be happy mile for his second question. Yeah, that was a little more complicated version that you put forward Russell, but it's good nuance to it. Thanks. No, it's definitely about taking this point like kind of beyond the scope of this current version we have no thought about it but probably would be interesting to explore in this direction because I mean I saw the answer like this sense you couldn't get better you could that's the question like how would these global banks do this insight money creation which currency is nominated. Like if you do if HSBC as a branch in El Salvador, can you have a US checking account. So I'm conscious that some people will have a hard stop at the hour. So we agreed on the word is that those who have time would like to stay on and talk to see one a little bit longer. I guess that Zeeman does still have a few minutes. I'm limited time. I think that's another hand raised by Roberto Ennis. Very good. So I will let you guys continue and I think that Jonathan will take over and moderate. So yeah, let's go on and then let Jonathan take it from there. Go ahead. Thanks so much. Thanks so much for hosting. Nice presentation Simon. Can you guys hear me. Yeah. Okay. No, I am this is really quickly it's not really a question but following up on Jesus and and maybe Ricardo to. You know this came up with when you talked about which one is the dominant, you know, like in a way it really matters how you micro found things because then that kind of Jesus point was well that may matter for what happened to the to the CVDC in that country, you know, depending on what the micro foundations for the initial domain. So I think that's kind of a really fruitful area to think more about you know, but it's just reinforcing what was Jesus and and. And Ricardo. Yeah, so like it did. Yeah, so we were indeed planning like to dive into this micro foundation also following the standard frameworks like was right for instance. Yeah, thanks for the comment. Thank you. Great presentation. Okay, maybe I will take over as the moderator at this point I think there's another question. There's one question the Q amp a as far as Larry is not here anymore but he's basically asking for, maybe there's also a incentive for central bank, not to offer CVDCs to non residents. And such as to baby you need to enforce KYC in a foreign market. So, have you kind of thought about these considerations. Yeah, that's a very good point. Okay, so like, the model cannot speak to that, unfortunately, because we don't take much of a stance on any CBDC design and implementation, which also includes whether you make the CBDC publicly available to non residents or residents. And I think to that the model essentially like we have a one representative household, which represents, which is a can be seen as a global household represents citizens around the globe, but we don't draw essentially the the borders between the countries. But it could be this could be incorporated on the other hand like then, and still we don't take a stance on the specific CBDC sign. Maybe like more from the policies that I would always be interested I mean to hear like. CBDCs seem to be like in the beginning at least they should be mostly for national use. As far as I understand. Okay, thank you smart. I don't know if there are any final questions comments. Maybe let talk include a session. Okay, so thanks Simone for a great presentation thanks everybody for participating. I'll just put in a quick plug for our next session, five weeks from today on June 24. Charlie Khan is going to talk about expiring CBDC and loss recovery. Steve Williamson will be the discussant and will Roberts is going to be our host. And have a good evening or day or morning wherever you are. Thanks everybody. Thanks everyone for attending and thanks for inviting me to present the paper.