Transcription
Heat. Heat. [music] [music] [music] Heat. Heat. [music] [music] Heat. Heat. [music] Heat. Heat. >> [music] >> Heat. [music] Heat. [music] Heat. Heat. Heat. Heat. [music] Heat. Heat. Heat up >> [music] >> here. >> [music] >> Uh good morning everybody. Welcome uh welcome to this uh session on where are we with stable coins past, present and future.
Uh thanks very much indeed for joining us. Um I'm Jerry Baker. I'm editor at large of the Wall Street Journal. Typically write about macroeconomics and geopolitics but uh like everybody have a an interest in this uh phenomenon this growth broadly of cryptocurrency and of course particularly uh what's been happening in stable coins. Got a terrific uh panel here with a range of uh perspectives and uh uh views on on this topic.
Um just briefly introduce them. Uh we've got uh to my immediate left Dan Katz, first deputy managing director of the IMF. Uh next to him, Jeremy Alair, co-founder uh and CEO of Circle of course, one of the big uh stable co big stable coin company. Uh to his left, Vera Seonge, who's co-founder of the liquidity and sustainability facility based in the UK. Oh, although with heavily focus on Africa, aren't you Vera? Yeah. Uh and at the on my far left, Su Yat, co-founder of Animoka Brands uh based in Hong Kong.
Um just to set the stage, obviously we've seen uh dramatic explosion in the use of stable coin uh just in the last few years. I think the numbers are latest data were that 33 $33 trillion worth of transactions in stable coin. Uh last year that was a 72% increase on the year before. I think over $350 billion dollars worth of stable coin assets. Now, uh everybody seems to expect this growth to continue. We've had >> [snorts] >> um a lot of focus, interesting focus on the regulatory environment. Genius Act of course passed in the United States last year. Other countries also uh establishing a uh a regulatory framework uh for dealing with stable coin. I suppose I think to me the most uh fascinating story we'll get into all aspects of this but the most fascinating story to me is the question of you know of what is the ultimate potential here. I know the sort of passionate the evang the evangelists for crypto generally um see stablecoin because obviously because as the name implies uh because of its uh its its stability as a real disruptor uh of the global payment system representing a significant challenge to existing financial institutions. um reducing friction in uh domestic and internet and especially in international transactions um with all the potential some think some of the people I speak to think that ultimately perhaps replacing uh traditional financial institutions in so many of these payment systems others think maybe the potential is is more limited so we'll we'll get into all of that and we'll get into uh a lot of the details but uh um uh once again thank you all for being here but so let me start with you Dan um we have seen as I said this ex this explosion of the use of stable coin in the last stable coins in the last few years. Um what's what's what's what have been the main drivers of that growth?
>> Um [snorts] well thanks Jerry it's great to it's great to be here. Um in terms of what's been the main driver for that growth I think that's actually a helpful framing for understanding the way that the evangelists as you put it and also maybe you could say the reactionaries uh uh uh look at it. So the $37 trillion of transaction volume I think is actually a little bit misleading because a lot of that transaction volume you know might be uh trading back and forth between AI agents and you know various other uh forms of of digital transactions which may not actually be that tied to economic substance. So I generally prefer to look at what's the total volume of stable coins uh that's been issued which absolutely has been growing but you know in context in the context of the global financial system $300 billion is still very very tiny.
Um so I I I don't think we quite yet know where this is going. Um you know what is clear though is that there are both you know very significant potential benefits from uh the deployment of stable coins you know across uh improvements in both domestic and crossber payments. uh in terms of financial inclusion uh I think that's often an overlooked uh uh benefit but a really important one and then of course that's uh you know offset by potential risks whether that's financial stability risk so as a result of runs on particular stable coins or whether that's a result of payment fragmentation that could silo liquidity or as a result of disintermediation disintermediating the banking system which I think is oftentimes the most severe risk that folks are are focused on and from an emerging markets perspective the threat currency substitution and very very volatile capital flows but it's really early days and so I think you know from the perspective of the fund and from the perspective of economic policy makers it's important to remain balanced to work to establish clear rules and frameworks and we've seen a lot of progress on that front uh but be very open-minded both of the benefits and the opportunities as this ecosystem starts to interact with the traditional financial system.
>> so let Jeremy let me ask you um so sort of almost to flip that my opening question on its head about why have we seen this explosive growth. I mean to Dan's point, okay, the transaction number is one thing, but the actual total value of stable coins is another, 300 billion, which again, as Dan says, is is a drop in the bucket, not only of total obviously financial assets, but actually even of of crypto uh of of total crypto assets. So to sort of flip the question around maybe, you know, shouldn't we seen a even faster growth? Why aren't people adopting stable coin more? And you know presumably again from your perspective you you firmly expect them to do so and and how is that going to unfold?
>> Well I mean look I I it depends on your definition of fast. Uh you know we've seen USDC grow over 80% a year for multiple years straight. Uh we saw in Q3, our most recently publicly reported quarter, we saw transaction volume in USDC grow uh 580% yearonear.
Um you know uh across so many other metrics, the amount of uh uh USDC flow across blockchain networks also growing at at huge uh at huge growth rates. What's interesting for us though is um this gets into the the the the original question which is um you know when when we think about this really from inception when we designed this in the first place we think about general purpose general architecture money for the internet fully reserved uh uh very safe fully reserved now we're getting credential frameworks to to provide for that that safety in a digital cash instrument that uh can scale from a transaction that might be between one AI agent and another AI agent that needs to consume digital tokens uh for 25 cents uh all the way up to a a bond purchase that might be a billion dollar bond purchase settled internationally and everything in between. And so when I look at the use case proliferation that we're seeing it's extraordinary. We are seeing use grow in uh in crossber trade settlement. We're seeing use grow in trade finance. We're seeing the biggest e-commerce uh platforms like Stripe and Shopify adding USDC payment acceptance at at uh in in their own platforms. We're seeing the biggest remittance companies and neo banks adding USDC as a way to store value, as a savings vehicle, as a payment system capability. The biggest payments networks in the world like Visa and Mastercard now using USDC as an internal settlement infrastructure. uh the biggest asset issuers and asset managers like Black Rockck and Apollo issuing private credit products on chain or uh or other fund products on chain where the primary way that you create and redeem these new securities is with things like USDC.
Um, and then obviously, um, in in peer-to-peer transactions, I think one of the one of the one of the things that I think people often mistake is there's a lot of USDC and stable coin in general that comes in and out through these big u aggregators like a Binance or a Coinbase or others quote unquote crypto exchanges. But what's interesting about these platforms is that yes, people are using them for trading and investing, but they're also using them for savings. If you look at a a platform like Binance with over 300 million users, 20% of their users are in Africa, far higher penetration of users in Africa than the banking system in Africa. And people are using it primarily as a dollar substitution mechanism, as a way to store value, make peer-to-peer payments, etc. And so the the use cases are are growing in every sector of the of the economic system. And with the regulatory clarity uh I think um that's that's breaking out all around the world. We expect that to uh to accelerate as well.
>> Well, you moved us nicely on there by talking about Africa to to Vera. Um the vast bulk I think it's true so far of the of the stable coin activity we've seen is obviously fiat currency backed and in particular US US US dollar backed. But Ver I know you you've been particularly in a in Africa working on alternatives. Can you can you tell us how that sector of the market is growing?
>> Yes. No, I think uh thank you very much. I want to come back to the 33 trillion number and and and it's not clear to me that one needs to dismiss it just because the money velocity is increasing because that is what 33 trillion is. It's the money velocity. Yes, the base is 300 billion which is already a big number uh when you talk about how quickly it has grown. But in Africa in particular, I think there are four, I think, positive use cases for it, which is one of the reasons why it's growing so fast. The first one is just about transaction cost and arbitrage. And so far, for the last, I would say 15 years, one constant agenda item on the G20 has been reduce the cost of remittance transfers. Remittances are more important to Africa than aid uh uh has been. actually cumulatively over the last 3 years remittances have tripled compared to overall development assistance. So this is how important it is. However, for every dollar that is uh uh sent out onto the continent, you have 0.06 or let's say if it's a $100 uh $6 of payments uh uh costs in and transactions which is quite expensive. In addition to that, if you're transacting over the weekend, then you have to wait for Monday, right? So there's so if you're a small business uh transactions person those three or four days sometimes on the continent is actually five days in terms of uh sending resources with uh stable coins it takes minutes uh uh and and it cost a dollar. So one of the beautiful things about the Genius Act is really that you know it has now created a regulatory framework for stable coins but the the big beautiful budget was going to start taxing remittances by $5. So you're going to add already 6% you're going to add another 5% with stable coin you can do that. The second thing uh that is important for stable coin is of course the hedge against the uh uh inflation in in many of our countries post uh co we've have we have about 12 uh to 15 African countries where inflation was above 20%. And so essentially you know the fastest way to uh poverty increases is inflation. And so what you want to do is what stablecoin is doing is providing people with a safety net with a safe uh uh account. 6.5 billion uh uh people uh globally do not have sorry 6.5 1.5 billion people globally do not have access to a bank account. 650 million people on the uh African continent. With a smartphone you have access to a stable coin. So you can actually save in a currency that is not uh uh exposed to the fluctuations of inflation and making you poorer. So that's another big contribution uh of the stable coin.
>> Can you give us a sense of of what the takeup is so far in Africa? I'm I'm assuming >> you have a lot of take up in the countries where inflation so and and and I think stable coin also in some sense is almost a directional way of looking at monetary policy and restrictions on capital controls where you have higher capital controls. Any country that has higher capital controls has uh stable coin use quite high. So we have the three biggest stable coin users on the continent today are Egypt, Nigeria, Ethiopia to some extent South Africa but South Africa is because businesses are using it. And this is the last point that I was going to make is is actually also small and medium enterprises. The large bulk of stable coin use on the continent is below a million dollars which means it's mostly SMMES transacting on it. So it's a huge inclusion and financial inclusion as you said uh too.
>> Yeah. So what what what's your sense of the both the the the immediate potential the short-term potential of of of of the growth in stable coin and and and ultimate potential? I mean where does this go? I mean, I [snorts] guess I'll take it from the lens from the entirely virtual economy, which is kind of where we're sitting, you know, between video games and digital assets purely. I mean, the state of crypto broadly went from, you know, like six, seven years ago to, you know, about 3 to 400 billion to basically three trillion. And so, that's very much a proxy as well as those economies grow in themselves, not just the rise of Bitcoin, but the entire crypto economy. Of course, use of stable coins grow as well. And I think the very initial use of stable coins was this onoff ramp as well. It was kind of really if you think about it the bridge to the real world not just as an RWA but literally oh I have assets that are worth something in the digital world that are entirely virtual so to speak and now how do I bridge it to I can you know buy something in the real world and do that and that actually stable coins really sort of sort of perfected that model at start and was also >> and I'm right that has that has up to now been quite a significant uh component of the certain stable coin >> it certainly has been a significant component for the initial growth but I think it's much more significant today because the other thing that's also happened and especially during uh we saw this in places with you know some of our products in places like Philippines and Indonesia there was basically mass adoption of places where they needed to make virtual income and virtual income can be made through activities that are done in those digital worlds right they used to call it the metaverse metaverse is kind of out but the point is that people are still making money in those environments they make them in these digital assets in crypto tokens they may be you know not real however they would then trade them out into stable coins and then next thing you know because they have a wallet they've got bank account of some form where they would normally get back because you know $5 isn't worth a bank account but $5 is a lot of money in places like the Philippines. And then what's interesting also is this financial inclusion that actually introduces a form of financial literacy.
>> And I I think it's interesting because you know um for those of who've been around for a while I think it's a little bit synonymous of looking at media consumption in the internet back in 1995 and 96 right the growth is rapid but in relative media consumption compared to TV and newspapers it seems very low. I think with stable coins and broadly with digital assets we're kind of at that stage right $3 trillion is a big figure but at the size of you know the stock market and generally speaking it's still a tiny tiny fraction which I think represents that opportunity. Um the other thing of course is that um we think of this also as the asset class of the youth. So it's not just developing it's also for young people. If you look at South Korea the majority of people under the age of 30 now exclusively deal in digital assets of some form or fashion. sometimes they don't even care about stocks which is why people are talking about tokenizing stocks themselves and so what is that bridge right um so I think the growth of stable coins is going to grow not just because of the demand in the physical world better faster cheaper all the arguments that we're seeing here just on on the topic of unbanked I mean you know we're used to t plus2 um sometimes t plus 7 depending what it is uh but in places of these countries you need um you know you basically you need it there in the second because you know why do we have payroll systems that pay us on a monthly basis. We think that's normal because we've got credit systems around. But in those places, um you need to have your payroll on a daily basis and stable coins is one of the best uh best use cases for that. So, it's a it's growing from there. Jeremy, um we're all obviously um now completely used to the idea that artificial intelligence uh uh you know, is is not only the adoption of artificial intelligence is not only now um pretty well uh universal, but we're expecting obviously the dramatic acceleration of it in a increasingly short kind of time frame. Can you tell us how that how how stable coin what what role stable coin could play there and how how AI will affect stable coin?
>> Sure. I I I'd start with um maybe some basic which is you know when when when we got started working on this almost 13 years ago the the idea that got us very excited was that first that you could have kind of money as like a native data type on the internet. So you could have digital dollars just like you have digital music or or communications like kind of ba basic building blocks and that it would be programmable and and the programmability idea was uh through the advent or the proposal of the idea of smart contracts and 12 years ago 13 years ago that wasn't a thing. Now we have very mature computing networks these blockchain networks that uh are able to execute code.
Um, and what's powerful about it is that these smart contracts are um, they're publicly verifiable. So that's really important when you're dealing with uh, transactions amongst uh, unknown counterparties or for example when you're dealing with transactions between an AI agent and another AI agent. And so we now have kind of the the computing material to provide a kind of assured, verifiable, cryptographically verifiable way to conduct transactions. And so um that's powerful in a whole bunch of things. It's powerful for uh bringing more financial market infrastructure online and innovations in the way financial services get built and and delivered and rendered. But it's particularly important in this in this growing world of agentic economic activity. And so um you know right now what we're seeing is um this proliferation in new technology standards for um basically payment protocols for AI agents and payment protocols for AI agents that um primarily use stable coins uh uh uh as the as the actual medium of exchange. If you if you think about um you know uh AI agents that are making these high velocity transactions at very low cost to do work or or consume data etc like taking out your Visa card or firing up a bank wire or it's just completely absurd. Uh and so we need a medium of exchange that can scale down to [clears throat] fractions of a cent uh that has the money velocity and and speed of the internet that works openly globally interoperably any software or hardware connected device in the world that that may have AI agentic activity happening on it being [clears throat] able to transact and and critically you know with AI one of the big concerns is truth um not just hallucinations but also how do we know uh who is this AI agent acting on behalf of and how do I verify that it's its output and its work is is correct and so um what we're what we're really seeing is sort of the next generation of blockchain networks things like ARC which circle's building on there's other new blockchain networks are actually being designed specifically for agentic compute. They're designed specifically for the financial and economic activity of a world where three years, five years from now, one I [snorts] think can reasonably expect that there will be billions, literally billions of AI agents conducting economic activity in the world continuously on a continuous basis. They need an economic system. They need a financial system. They need a payment system. There is no other alternative in my view other than stable coins to do that right now. and that can keep up with that pace of technological change. And so that's a it's a it's a critical uh focus for us, but not just us, there's a lot of other folks that are interested in this and and contributing to the technical standards to to support this um upgrade to our our digital economic system.
>> Let's talk about if we can I just >> Yeah. Yeah. Please quickly interject just because Jeremy was talking about programmability and you know, Agentic AI. Absolutely. It's going to it's going to be huge. the program uh programmable aspect of basically money is actually I think the other part that's really revolutionary. The whole DeFi economy comes from the fact that you can actually program money.
>> Um and I and I think the parallel I think of it is a little bit like open source, right? For the first time in the world, you have a kind of open- source money that is basically reservebacked. But what you can now do is create products and services on top of it that weren't accessible before. And when you think about what the internet did in the early days, it provided that toolkit for media. you weren't a media professional, but now you could enter the world of media. You could be a kid. You could be a programmer. You didn't have to come from the world of finance. And I think it's very interesting when you look at the origins of a lot of the people in the crypto world. They don't originally come from finance. They come from many other industries, but they became sort of included in this world of finance. They learned about it and then they brought their own creativity, their own ideas to the space and say, "Hey, how about we do this or maybe we should do, you know, a prediction market or maybe we should do sort of something in gaming." they just integrated that and in a way previously because money was kind of locked in sort of traditional systems only experts could enter >> essentially you couldn't grow that space and I think the real incredible added opportunity is by open sourcing money you're bringing the entire global creativity which I think is the opportunity for economies as well to say you know what you don't have to have a finance degree but you can now dabble with this and then from there you can develop and then actually become more financially literate just in the same way that we used to call digital literacy a thing.
>> Totally This raises this again helpfully brings us on to the next topic I wanted to discuss which is the the policy environment and firstly the reg the regulatory environment and you know given these extraordinary innovations you're seeing we've had we had the genius act obviously last year um you know and I I wonder Dan if you could tell us what you know obviously these principal provisions were you know reserve you know required reserve backing um you know some sort of certain protections how is that from your perspective how is that working is it I mean often when you get a significant piece of regulation um it it it works in some respects and then you discover that there are whole areas actually which are either overregulated or underregulated. What's your sense of of the regulatory climate right now especially in the US?
>> Uh sure. So I I mean with respect to the US specifically I think it's it's quite early right. I mean certainly genius was a big step forward in terms of establishing some clear uh rules of the road but at the same time you know there are still a range of rulemakings that regulators need to go through uh to figure out how to appropriately calibrate um the the uh the regulatory framework and then critically you know I think I think the you know one of the key things is going to be the interaction between regulatory frameworks internationally and we have seen you know progress uh on the international front obviously ma in the EU and lots of other jurisdictions introducing their own frameworks. But if you really want to realize the benefits of stable coins, particularly from a crossber transactions perspective and of course you really need scale to generate a lot of the benefits that we that we uh that we realize could could be realized with um with stable coins. You need to have effective interoperability and so I think that's really the next regulatory frontier uh that uh that folks need to work on. But just kind of stepping back for a minute from the funds perspective in thinking about global economic growth and stability, you know, the reason why we need these clear regulatory frameworks is a concept that I think it's really important for everyone to keep in mind uh uh when thinking about this the these developments and that's competition, right? And so one of the reasons why I think there are such exciting uh potential use cases uh for stable coins um is the competitive dynamics that they will bring into the traditional financial system. And I don't I don't begin to know exactly what this is going to look like over the next decade and beyond. whether stable coin issuers will be the dominant provider of uh mediums of exchange or stores of value um or whether the technological underpinnings that um exist in the ecosystem will be absorbed into the traditional financial system. But I think it's critical that we allow this process to play out because ultimately it's consumers who are going to benefit from the efficiency gains that the market uh that the market will respond to. And that would also extend by the way um uh to uh to uh the role of currencies generally in the international environment. And so you know as as we've already heard as stable coins create the potential for additional uptake in uh you know jurisdictions that have weak uh fiscal and monetary frameworks you know for dollar for dollars or for uh you know other other currencies. that creates a competitive pressure on those countries themselves in order to improve their fiscal and monetary frameworks which I think is an important element that we shouldn't also also lose as we're thinking about concepts like monetary sovereignty.
>> Yeah. Verz, I mean that's obviously and and talk a little bit also about uh you know you talked in your opening remarks a little bit about um uh you know the role of the dollar but but but the importance of perhaps a dollization and I know you've been working on sort of alternative currencybacked um stable coin.
>> Yes. No, I think that's thank you and that's a very a very good safe uh segue. So the one of the biggest fries and and just to to to be clear stable coin is not crypto, right? uh at least a a fiat based stable coin which is uh backed by um some liquid currencies is is what we're talking about here and and I think if you look at the African continent we have over 50 countries we have uh the African continental free trade area agreement countries need to trade we have a lot of capital controls on on the continent and so it's very difficult to move around if you're trading and essentially part of that is about you know weak fiscal policies deficits debts and and and also monetary policy that sometimes is not always appropriately anchored. And what you can do with stable coins and what we're trying to do actually a group of us is design an African stable coin platform which essentially is backed by the SDRs and so sort of the underlying assets will become you know still uh fiat currencies US treasuries but then it begins to mirror Africa's trade with the rest of the world and if you take for example one of the advantages we're beginning to trade a lot in rim and bees right today we have to go through the dollar the intermediation cost and so if you can do a stable coin platform that has the SDRs of course have the seven largest currencies of the world then you begin to it does not impact on monetary policy because today what we have if you're in Nigeria the 59 billion is mostly USDC's and so there is already a monetary policy dislocation that is happening because even if the Nigerians are mostly buying I was just talking with the bank of uh industry they are mostly purchasing uh uh Brazilian machinery for agriculture but they're switching through the dollar and or Chinese machinery. And essentially what this kind of system will do is one it will push uh monetary policy to anchor better on inflation push uh uh fiscal policy hopefully to be slightly uh more prudent and then what happens is that you don't have the sort of dollar domination or which is what I think everybody's afraid of and it is true today 75% of the stable coin environment is with USDC's which are basically uh dollar denominated but the good news about it is also I want to say for Africa at least that the other part is not all fun and games. I think there are some drawbacks. One of the biggest drawbacks particularly in more in the crypto world is a little bit about transparency, AMLs and and those kinds of safeties. I think with blockchain we are able now to build in sort of truths to the system in Africa. We have talked for the last another 15 years about illicit financial flows and the fact that you know the mining companies take out the resources and we cannot appropriately uh fiscalize that. This is another way of doing that in a more appropriate way and actually really following uh the payments and the system. So I think for us it actually is an governance enhancer. It's a fiscal policy enhancer and well done. It's a monetary policy uh disciplinary tool.
>> I've got a few more questions from me but so please I'll have we'll open it up to questions from the floor in a second. Jeremy, one one very lively debate that's going on right now in the context of regulatory policy environment is um the question of interest of of of interestbearing stable coin of of interest pay payment on stable coin. This was been actually here at the forum uh this at the meeting this week. a topic of lively debate with perhaps not surprisingly banks uh expressing great concern about the possibility of of interest being paid on stable coins. I think I saw Brian Winhan, Bank of America CEO saying that that could lead to a massive flight of bank deposits uh into stable coin. What's your and we [snorts] can explore the implications of that sort of the monetary policy implications and other things of that but what's your where where are you on that and what do you think do do you think he's right that this you would see this you would see a very dramatic uh shift out of uh traditional bank deposits if that were to happen.
>> so there are a few I think key issues here I think there's the sort of the the the law and policy issue there's the actual kind of data about what you know what's here and then kind of how how does this go forward and I think embedded in all of this is sort of um in my view sort of taking a first principles approach to how we're designing an an an internet native financial system which is sort of how we we think about things. So, so maybe just to to touch on each of these, I I think um the first is we have a law, the Genius Act, in the United States, and we have laws in Europe, Mika. We have laws in Japan uh for stable coins. We now have laws in the UAE, >> uh Hong Kong, uh uh Singapore imminently, and in many other places. In every single one of these jurisdictions, stable coins are prohibited from paying interest.
>> [snorts] >> That is because stable coins, payment stable coins, and in fact the the law in the United States defines a payment stable coin as a cash instrument that is a payment token that is used as a form of of uh of of payment and settlement. Right? That this is the the fundamental definition and I think it's the correct definition and that's the work of the FSB. That's the work of the G20. That's the work of central bankers who've looked at this and said we see this as a payment system innovation. this needs to have the safeguards of kind of cash level money and uh and and really that was the regulatory uh design that came out of a lot of work five years of work that work went into the development of the stablecoin bill which eventually became known as the genius act in the US and that is the law and I think that's very good and I think that's the right law um now the the the sort of a second piece which is you know uh stable coin issuers such as circle are prohibited from paying interest but we generate income We make money uh from reserves and other revenue sources and we build partnerships with lots of companies. We have a partnership with Coinbase. We have partnerships with Binance. We have partnerships with Visa. We have partnerships with so many different companies. And we have uh you know we have economic arrangements with these firms and they may decide based on income that they generate from us that they want to incentivize people to use stable coins which are are so-called rewards. I think the discussion has been, you know, really banks are not happy that, you know, uh, uh, companies that are involved in promoting the adoption and use of stable coins are paying rewards. They're saying, "Hey, isn't this just a way to provide a a substitution for a bank deposit? And isn't that going to suck all the deposit base away from banks? It's going to basically undermine the ability for banks to have uh, you know, money to actually have a base uh, in order to give credit. It's going to draw away credit from the real economy. And when we're in a stress condition, the economy is going to implode and we're going to have no credit and it's going to be a huge recession. I mean, that's the the kind of uh you know, reductio adabsurdum kind of logic that flows through.
>> Is it absurd? >> It's it's totally absurd uh in in my view. And it's totally absurd for a couple of reasons. I think the the the first is that you know um you know rewards around financial products exist. Those rewards around financial products exist in every balance that you have with a credit card that you use. They exist around so many other financial products and services that we have and and these reward these rewards are actually very important. They help with stickiness. They help with customer traction etc. They are not themselves like these huge monetary policy dampeners. The second is just the historical fact which is that this is exactly what was said when uh government money market funds emerged. The exact same arguments were made. government money market funds are going to draw away all the deposit base and uh and as that happens there will not be lending and so we have I don't know what the aggregates are now it's been around 11 trillion of dollar money market funds that that grew in in various different uh circumstances but that has not stopped uh the ability for lending to happen is that lending itself is moving away from the risk-taking of banks a huge amount of lending is moving towards uh private credit. Uh uh last night uh a very important capital markets uh participant was pointing out that the vast vast majority of GDP growth in the United States, if you look at through many many cycles, the vast majority of GDP growth was funded by capital market formation around junk bonds. So private credit issuing junk bonds >> capitalizing the buildout of the American technology uh advancements, not bank credit. Now, this I'm jumping around on a lot of topics here, I realize, but I think um the the bottom line from my perspective is we want stablecoin money to be cash instrument money, credentially supervised, very very safe money. And then I think what we want to do is we want to build models for lending that build on top of stable coins. And that's, you know, DeFi is an early example of that where people are borrowing and lending these. And I believe we can create very very efficient credit delivery systems built on these very the the sort of digital cash type forms of money. And these credit delivery systems actually can be safer, more transparent, more efficient, more inclusive, and more globally available than what we have with bank credit today. And so this is a a a change in the architecture of the financial system that will play out over decades. Um and and I think we need to kind of pres preserve that uh that structure.
>> Very do you want to weigh on this? Yeah. >> Yeah. I want to come in quickly in Africa again and and and I think it it is true for some developing countries. A lot of our bank deposits are government paper and short-term deposits. So banks don't lend as much and so there's a huge ili liquidity problem on the continent and what we're hoping that uh stable coins will do is provide a little bit more liquidity and velocity of money for that uh uh businesses to happen. So it's almost uh like your junk bond sort of releasing the economy and deepening. I think we heard today even in Europe that you know there is constraints in building uh capital markets. One of the constraints for building capital markets on the continent is precisely the liquidity in the system which stable coins we begins to fix. And so but I think actually and and and one of the reasons why stable coin has come so fast and it's huge adoption is because the banks themselves took too long to get to central bank digital currencies that everybody has been waiting for for as long. And my sense is over time what we will see is maybe a closer relationship between the circles of the world and the banking system. I think there is because again this is really a payment system. There is still going to be a lot of the monetary policy uh functions that remain with central banks and and where we should be. It's not saying you know one is going to take away the other is how are we going to create a system. I think the Genius Act, MAR and everybody else is beginning to say and that's why we're saying it's a payments uh settlement system but then there's the whole collateral management central depository systems that the banks will still continue to do and I think we do need to find you know where is that bridge um so that the rails sort of collide I think that's the argument.
>> maybe just as a as a as a closing statement to this argument also is that you know the liquidity isn't just domestic of course the liquidity is global just how the internet distributed information to the world to consume Now you can do commerce with literally the entire world. There about two to 300 million people around the world that have stable coins that are US dollar denominated. Every American, European, Asian business can now transact with them relatively stably and safely, right? They don't have to worry about local currency. They don't even worry about I mean those people can't sign up with a PayPal or Venmo account, right? They don't have a way of having a credit card and you can now do business with them, right? So both ways, right? So I think I think that's the added added dimension as well that adds much more liquidity to the entire space.
>> Thank you. We have time for some questions. Please uh uh this is your opportunity to talk some of these experts. Uh gentlemen at the front. Would you stand up please and identify yourself and you've got a microphone there.
>> Sure. Sure. Um my name is Pierre Garmeny. I'm the managing director of the European Stability Mechanism. So this the lender of last resort of Europe. I would like to congratulate all the speakers and you uh for for the very insightful discussion um and I I have a question to which I don't have the answer but what struck me most from all the points was this issue of instant payment uh instant settling uh and liquidity and uh if I remember correctly uh the [clears throat] money supply is is the amount of money air and the velocity at which it circulates. So my question is to to which I don't have the answer but it would be important to to think of it would be the following with all these instant payments and settlements don't we have money supply that grows tremendously and if it grows tremendously uh because of the velocity uh will that have an impact on inflation on monetary policy.
>> okay very I'm glad very glad you asked that question because we were going to come on to monetary policy PV equals M or whatever. So go on. Yeah, Jeremy, you want to answer that? I >> I'll just give my my quick take. I actually think it's the opposite. I actually think that I I call it the new physics of money. And so the basically uh just like the marginal cost of storing and moving a piece of data is effectively zero. Uh we can now move infinite data at the speed of the internet at zero cost or the marginal the marginal cost of publishing software in the world is is zero. uh and now with AI producing software the marginal cost of actually producing software is effectively zero. So we have these these collapsing marginal costs and on these networks the marginal cost of storing and moving value of any form whether it's a digital dollar or a tokenized bond effectively goes close to zero. Now there may be intermediary [clears throat] uh tasks that introduce costs but fundamentally the physics of money becomes the physics of the internet and what that means is actually you need a smaller monetary base uh uh in order to achieve a dramatically higher amount of of [clears throat] economic velocity and so I I actually think [snorts] this is a this is a a credential and and and monetary theory question is is unresolved. I think about this a lot which is uh hypervelocity of money is is potentially a very good thing in terms of money velocity kind of as a as a mechanism to uh transmit economic activity uh could be a a real driver and growth enabler. Um I think risk supervision in that is very different. So that's an unknown how to do risk supervision in something like that. Um but I actually think the monetary ba base is is is lower. But I do think over the long run this this will affect how interest rate policy setting happens. So interest rates are designed to affect money multipliers. Money multipliers creating money velocity. So I actually think this this will change the calculus that central banks have to use as they think about the the interest rate setting mechanism uh because of the nature of the this new physics of money. As I think about it, these are these things need to be studied obviously by perhaps folks like you and and your team. Our chief economist thinks about this uh uh as well and obviously we're still small uh but but growing rapidly. So we we are thinking about it a lot.
>> Dan, the impact of all this on monetary policy must be of great interest to the International Monetary Fund. What's >> Yeah, absolutely. So we're one of these groups that are working on these issues uh that Jeremy's quite right need to continue to be studied. And just to pick up on a few of the points that Jeremy made in terms of the interplay between the velocity of money and inflation, you know, the classic equations I would say are really designed to to measure the balance of demand and supply for money. Um and what's interesting about the about uh the impact of uh digital assets on uh the velocity of money is it's really more of a supply driven function increase in the velocity rather than a demand driven uh increase which you would which if there was a a uh an imbalance between demand or if demand was higher than supply that's where you would uh tend to see inflation and so I I actually think Jeremy could quite be right that actually we'll ultimately end up with a smaller monetary base and not have uh you significant uh inflationary pressures as a result.
Um more generally in terms of the operation of monetary policy um look I think it's very difficult to say today where things are going. So much will depend on what happens across the entire ecosystem, how banks compete with stable coins and how stable coins more generally get integrated into the financial system. But I would observe that um that for central banks actually updating their operational frameworks is a is an exercise that they go through quite regularly. In fact, in the United States and in Europe in the over the last decade, we've had fundamental transformations over the way that the central bank actually conducts monetary policy from an operational perspective. And so this is something that central banks, you know, are already thinking about and will continue to think about and we shouldn't, you know, wet ourselves to a particular framework that's frozen in time. We have time for one more question if anyone >> I would just answer very quickly that essentially for us on the in the emerging market world it is actually about efficiency. I think in when we talk about Europe we're talking about you know accelerating real time gross settlements. That's what we're trying to do. So I I don't think it's a it's contradictory and so I agree with with with you it's it's a little bit at least Africa has been 5 days of settlements whereas Europe is 1 hour and so you're saying should we stay at 5 days because and and I I think it's it's we we're hurrying to efficiency.
>> So yeah just because there is interest in another question very quickly uh miss if you would stand up please and identify yourself.
>> Hi everyone [snorts] I'm Dishi a global shaper from India and an entrepreneur.
>> I just have uh two questions. Um we know the stable coins have proved the utility as a uh settlement and liquidity instrument in the tokenized real estate market. But I wanted to understand how viable it is in terms of commodity tokenization especially when it is volatile and how does it work in terms of um hedging when commodity backed um assets are u relying on stable coins?
>> All right I'm only gonna we were so short of time only allow one of you to answer whoever wants to answer that question. Jeremy I mean [snorts] basically tokenization of other assets um whether it's a gold or oil or some other commodity is happening uh but you need to marry those with stable coins for actual cash uh settlement and you need to marry those with traditional market structures that people use for hedging so options and derivatives markets etc. And so what we've seen is an explosion in onchain markets that are all stable coin based uh markets like hyperlid where basically people are building tokenized instruments for basically providing derivatives on every single form of commodity and asset that's in the world. And stable coins are the collateral the relative margin and and the and the and the liquidity for that. And so I I actually think market infrastructure to support tokenized commodities is is maturing very very fast and stable coins play a key role in supporting that. We are unfortunately out of time. Uh thank you all very much. The title of this uh session was where are we on stable coins? I think our excellent panel has answered uh that question uh both in terms of where we are now, what the potential is, what the various challenges are and I think generally speaking um a very good overview of what is a rapidly evolving subject. So ladies and gentlemen, please join me in thanking the panel. [applause] Heat. Heat.