Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Monetary Systems in an International Context

Episode Date: December 31, 2019

With global commerce and finance continuing to digitize, the world’s borders are seemingly becoming more fluid, even as physical walls are built. How does this globalization affect the sovereignty of nation-states and their ability to democratically direct their own economic future? In a panel moderated by Epicenter host, Sunny Aggarwal, we explore the interpretation of monetary policy from a global context, discuss the morality of impacting other nations, and the potential for new technologies to offer alternatives in a dollar-dominated world. The conversation includes Jae Kwon, CEO of Tendermint; John P Conley, Professor at Vanderbilt University; Steve Randy Waldman, Author of Interfluidity, and Baek Kim, Senior Associate at Hashed.Topics covered in this episode:A moral perspective on making monetary policy that is beneficial to one nation, and detrimental to anotherWho matters when determining externalities in governmental policiesThe possibility of a fiscal union without a monetary oneUSD stablecoins promoting the notion that the US should control the world’s monetary policyComparing the Libra to the EuroEpisode links: Dani Rodrik's Blog: The inescapable trilemma of the world economyEuro and Rodrik's TrilemmaInterfluidity Blog - Steve Randy WaldmanJohn Conley Macro WTF TalkSteve Randy Waldman Macro WTF TalkJae Kwon | TwitterSteve Randy Waldman | TwitterJohn P Conley | TwitterJohn P. Conley Personal WebsiteSponsors: Pepo: Meet the people shaping the crypto movement - https://pepo.com/epicenterThis episode is hosted by Sunny Aggarwal. Show notes and listening options: epicenter.tv/320

This is Epicenter, episode 320. Hi, welcome to Epicenter. My name is Sebastian Kudu. Well, it is still the holidays, and we are still on break. So for the very last episode of the year, we're bringing you a panel discussion, which took place at macro.wtf, which was a side event of SF Blockchain Week.

Now, if you're not familiar with the WTF Collective, they've organized two events so far, one during DevCon in Osaka, which was called defy.wtf, and then the second event, macro.wtf, during SF blockchain week. And I'm quite sure they'll be organizing more events during major blockchain weeks in 2020. So macro.wtf was all about the intersection between macroeconomics and crypto, and Sunny was co-organizer. So this particular panel is called Monetary Systems in an International Context. and it's all about reshaping our thinking around international political economies.

The panelists were John P. Conley, who's a professor of economics at Vanderbilt University, Bak Kim, who is an investor at Hashed, J. Kwan, the inventor of Tendermint, and Steve Walderman, who is an economics blogger at interfluidity.com. Sunny moderated this panel, and I thought it was an interesting conversation because I learned about existing problems and issues in monetary policy and economics, and how economists are already projecting how these problems could carry over into the crypto space. And in some ways, as we'll see in the conversation already are starting to emerge in the crypto space, and how that could affect things like monetary policy and stable coins, and to a larger extent, governance of crypto

network. So it was really cool conversation. I really hope you'll enjoy it. Now, the audio on this panel isn't great because it was recorded on a camera, but we did try to clean it up as much as possible so that it's at least pleasant to listen to. So I am now off on vacation. I'm going to be completely offline for a week. At least that's the plan. I hope I can make it. But we'll be back here in January with brand new episodes. On January 7th, we'll release our interview with Charlie Schrem, which was absolutely fantastic. I'm so looking forward to putting it out. But until then, I want to wish you all a very happy new year. Enjoy the celebrations. Be safe, but have fun, and we'll see you back here in January. Before we go to the panel, I'd like to tell you about our sponsor for today's

episode, and that is Pepo. Pepo is a community of content creators sharing short video content on crypto and entrepreneurship. And what's really interesting about Pepo is the way that you show your love for content. When you like something on Peppo, you tip the content creator with Peppo coins. And when you want to take part in a conversation, you show your interest by putting up Pepo coins as well. So on Pepo, you'll find an interesting community of people sharing short 30-second videos. They're sharing your thoughts on crypto. They're sharing your thoughts on entrepreneurship. And the community is growing. It's still small, but it's growing and the conversations are really interesting and I think really high quality. I always learn something when I'm scrolling

through my pepo feed. So if you want to take part in this growing community, you can download PEPO for iOS or Android, that's P-E-P-O. You'll log in with your Twitter account, and they'll even give you some PEPO-Coin so you can start tipping people. And if you create content, you can also earn PEPO-Co as well. And of course, you can find me there. My username is Seb 2.0, Seb 2, P-O-I-N-T-Zero. I regularly post content there and interact with the community, and we'd love to see you there, too,

and have a chat with you on PEPO. We'd like to thank PEPO for those support of Epicenter. And with that, here is monetary systems in an international context, moderated by Sunny Agarwal. So yeah, the goal of this panel is we're heavily going to sort of explore a lot of monetary policy, which is what we've been talking about thus far. But then what happens when it starts to come back into when you put it in an international context. And so, yeah, for those who don't know me, my name is Sunny. I was one of the co-organizers for this event.

and I'm one of the researchers at Cosmos, and I've been kind of really been deep-diving into the monetary theory lately. I've been taking, I took a course on Coursera called Economics of Money and Banking, which I heavily recommend everyone take, and it basically just made me rethink everything I've been doing for the last three years, which kind of inspired me to throw this event to kind of help me learn more. Zaki couldn't make it to this panel today. He was on the panel earlier this morning, so instead we have Jay,

and I'll let him introduce himself. Thanks, Sunny. My name is Jay Kwan. I invented tendermint, co-founded tendermit, the company, and worked on Cosmos as well. And along the way, all that started in 2014, and since then, I've become more aware of what's happening to the environment and how there needs to be a global coordinated efforts to combat it, I think, or at least first consensus that it is a problem. And I realized, especially after Libra came out, when Lieber came out, came clear that we're out of inflation point where cryptocurrencies will become this, it will become the new money.

And it got me worried because a consortium of for-profit companies should not be dominating our monetary system. And I think we need to really ask the question, what monetary system do we know? need in order to promote better balance with the environment and promote our communities. That's on here. Thank you. I'm still John Conley. My specialties are game theory, theoretical economics, operations research, axiomatic, things like that. I've been interested in ICT economics since about 2009 looking at cloud computing initially and then on internet and so on. Spent a sabbatical year at Microsoft Research in 2016-17 and got interested in photography, biometrics, systems design, networks, and so on. And I'm really happy

with these consensus protocols that I observed and so that led me to use the skills I had in game theory to try to develop a new one and that's the geek project that was mentioned here and it's a consensus protocol called proof of honesty. And And now I'm here. Hi, I'm Pete Waldman. I'm sometimes an economics writer. I like the blog interfluid. I'm sometimes an Ethereum developer.

I think similarly to my co-panelists. I got interested in this stuff because, you know, the world is going to shit in a lot of ways. It costs so many dimensions. And I think that we need a lot of institutional innovation. And mostly what interests me about blockchains is that they're sort of superficially technical systems, but they're really fundamentally social institutions reified in a technical way

that make a lot of things that are sort of tacit or opaque, very visible and auditable. And so that's the optimistic case for these things, but there are a lot of pessimistic cases. So, Jayquan's discussion of Libra, that these technical architectures don't carry social virtue with them for free. to build things that are good. And I think it's a very open question

whether what we are currently in the middle of doing will result in good things or not. Let's try to make that happen. Hi, I'm back. I'm a robotics engineer by training turned crypto investor. Pash is a crypto-native cross-supporter ambassador. We back over 50 companies,

including Cosmos initially. And we invests, especially in the Asia side, international companies that are building blockchain protocols, some of them are public blockchains, and these are touching some of the regulators on some of their monetary policy and how they impact some of their e-commerce payments as well. Sonny reached out to me to share a little bit more about some of the Libra's impact on KRW. So Korean government has been paying strong attention into crypto ecosystem because of the high penetration rate of crypto.

The survey shows that around third of the white-collar population, has touched the cryptocurrency at some point. And in Korea, about 90% of the payments are cashlets. So it's all electronic. So it's a really easy environment for this kind of product to widespread and take over

possibly if you are. And KRW itself, you know, as a country with the neighbors of a strong economy, such as Japanese yen, RMB, and USD, it is highly impacted by some of their monetary policy changes. But if you look at

RIVRA and And as Jay mentioned, if it can actually reach that inflection point and reach the high potential, it could be the another biggest monetary system that KRW have to deal with. So that has been a big attention for the government and the ecosystem. Cool. So I guess I'd like to start by introducing one of the corner ideas that I've really been thinking about, especially when it comes to the international monetary systems. And I'm sure a number of the people on the panel might be aware of this idea, but just to give some background to the audience, there's this concept called Roderick's Trillema, or the Trillema of the political economy, proposed by a professor at Harvard, Danny Roderick.

And what he proposes is this trilemma. You know, we're very familiar with Tritlamas here in the crypto space, but the one that he proposes is about economics and politics. And the three points of the system are he called, I'll put in my terms, I think some of his terminology is a bit odd, but I would say globalization, national sovereignty, and democratic control over monetary policy. And he basically says you have to choose two of three. And so we've seen different regimes where we have tried all three of these. So the gold standard is famously the one in which we choose national sovereignty and global. globalization, where we have these fixed exchange rates between countries, you have high amount of national sovereignty, but now you don't have any sort of democratic control over decision-making.

Then we have, you can choose globalization and democratic control, but you lose out on national sovereignty. And this is sort of what Keynes proposed in his bank plan. It's also what the euro kind of attempts to do, not at the global scale, but maybe at the European scale. And then finally we have what's the Breckenwood's compromise or the post-Breton Woods order where we have free-floating exchange rates. We need capital controls in order to maintain a level of national sovereignty. So with that in mind, I guess my question is, to start off, is are we in the right point on this trade-off point?

Because currently the world that we live in is primarily focused on still in that Breckenwood's like system where we give up on a lot of the nationalization, the globalization that is possible. And we have some pockets where we're trying more large-scale federalism like the European Union. You see this is where we're going to continuously go, are we going to see more pockets like the EU, or are we going to see things devolved like that? I think we have to design our systems based on the facts. The facts of the environment is the fact of the world is we share the Earth, we share the air, and if, you know, the environment goes with shit, affects all of us.

Many things affect all of us, like political turmoil causes refugees, so on, or collapses trade. Right. So there's something about the global, I think, that needs to be taken into account in order to, for everyone who wants to participate voluntarily to globally enforce or incentivize certain things. But on the other hand, we don't know what the best system is. We need decentralization experimentation, so we also need states or local localities to have their own policies too. So I think you can't choose one or the other in terms of globalization, whatever that means, and nation states.

I think you need a balance because you need both. I don't like being told what to do. I prefer to do what I like to do. And the extent that I don't cause harm to other people, that should probably be what I'm allowed to do. But there are externalities. You can pollute the air, you can mislabel who. There are all kinds of things that have enormous impacts on the rest of people, even at a global scale. The problem is that you can't really necessarily trust the central authorities to internalize those externalities correctly.

As soon as you focus power, well, then the power focuses on itself. So it's not clear what the right thing to do is. I think what I would try to do is design things as much as possible. so that individuals make decisions and don't cause externalities and reserve the minimum possible for the higher authority. And that's one reason I like crypto, that it's I think the only technological thing that we have that's big right now

that moves in the direction of decentralization, AI, machine learning, big data, universal connectivity, IoT, all of these things are instruments of centralization control and network externalities. So I think we have hope it's somewhere in blockchain. So just to question that a little bit, whose externalities are we measuring? Are we trying to, you know, aggregate the externalities of people within the United States or do we do it at a global scale?

If we make monetary decisions that have externalities on the economy of Korea, for example, is that an acceptable moral or is it okay to make monetary decision of the United States and maybe have negative nationalities on the economy, what I want my government to do is take care of me and at every level I want my government to do that I want my city government to take care of me as a city I want my state government to take care of me as a state I don't really want my government thinking about Alabama or New York that much because that's not their not their job they're looking after me there's a degree of benevolence though I

mean I would be upset if my government was doing really malicious horrible things that would upset my sense of ethics and morality But I think the first responsibility of any hierarchical unit is to take care of the people that it's over. You take care of your family, your boss, you know. It's not the job of my boss to worry about other companies. He worries about his company. So.

And then, you're going to make a point. I think it's just a balance of power, right? Even in the Fiat role, like not, it doesn't work like. We described that they take kind of all the externalities, making sure all the parties involved are okay. In the crypto landscape, I think many of the projects are doing this in a way that they can become bigger, too big to be shut down, rather than asking for some of the admission into the system or acceptance. I think regarding Libra, since it's someone of the topic, one thing that I thought was maybe wrong position

was that they didn't even launch it, but they just proposed the idea, but they made it too public early. without becoming too big enough with the strong incentive alignment with all these partners before making it that this info is all laid out in the system of their social graphs. And I think one of the good approach that I like is like Terra

it's a stable coin project starting in Korea, built on tendermint. And they abstract out whole component and make it as just a good payment product. And now it's doing 500k sign users within three months with around $2 to $3 million transaction per day and government don't really see it as a threat

maybe yet but if it reached the whole digital payment landscape that I mentioned which is 90% of the whole Korea it could be too big for it to be shut down so I like this kind of approach rather than thinking about all this intertwin power balance in the crypto landscape

How about the many other stable coins, for example, you know, a reaction presentation from CELO or the letter, many of the stable coins are trying to make themselves stable against the U.S. dollar. And by promoting it as the currency for use all of the world, are we essentially promoting this idea of that the U.S. should control, the United States should control the monitoring policy of the economies throughout the world? And so is that one, so what was there, I guess, what was one of the reason that you you're using the SBR?

I mean, I had a researcher of Terra, Nicholas, right there. But one of the reasons, the core reason was that, you know, even US is volatile. And as we see with the US and China attention, you know, pegging to a single dollar, single monitor policy can be volatile for the whole crypto ecosystem. And SDR is one of the most, I think the most stable currency bucket right now with the Fiat. So I think it makes sense. also back to SDR Cartney. I'd like to answer your original question about Donnie Roderick's philemma.

I'm going to be sort of the opposite of my neighbor a little bit, although very much share the inclination towards decentralization as a design goal, a little bit more pessimistic about the possibility that in the world that we live in, externalities can be disentangled. So a libertarian universe looks very nice to the degree, that we can kind of localize the effect of our actions. We should have liberty where we don't hurt

or adversely affect other people. And unfortunately, I think we are in a time of great crisis, and a significant part of that crisis is that libertarianism worked pretty well, especially in the United States, which was a big, not very dense country, when technology didn't bring us all together as much when our economy was a little bit less developed,

when there was a stronger notion of the local. And I think that what we're struggling for right now, and crypto is kind of a part of this, is that when there are externalities, we need to be enfranchised. There's going to have to be some kind of a decision-making system beyond we have a liberty to do what we want, and we need to be enfranchised in that system. And what Roderick's prelemma points to is there's a tremendous tension between, from an economic development perspective, you want a global system, for sort of standard economic reasons, has a lot to offer. But from an enfranchisement,

perspective, you really want things to be local. And so the Bretton Woods compromise was after the experience of the awards that came from a similar period of globalization followed by backlash of people who felt like they no longer had communities or essay or left out and a retrenchment towards a much more national world. And I think we're reliving exactly the same struggle, exactly the same events, we'll need to have in the short term exactly the same set of outcomes, which is to say we've gone through a period of, in Roderick's to limit, neoliberal technocracy, where we've been part of a global economy

from which we've been disenfranchised, from which we haven't had any meaningful democratic input, and we've rejected it, right? Trump is a rejection of that, Brexit is a rejection of that. All of the various anti-liberal authoritarian who are rising up around the world are basically people trying to sort of take back

more organic communities from this neoliberal technocratic version of the world. But we can't actually go back to local, to sort of the part of the triangle that is we're enfranchised in our nation states disentangled economically. We have the democracy and the markets, but not the globalism, because we're much too entangled. So crypto, in my view, the one reason to be interested in it is one way or another, we have to figure out democratic institutions that will get us to the global democracy side of the triangle, where we do have a global economy because we can't help it,

but where we have a meaningful kind of democracy that enfranchises all of us, it doesn't have us feel like we're falling behind, that we're left behind, like we're crushed, we're oppressed, we're ignored. And we just have a limited time as a species to figure out how to organize a meaningful, global system in which we feel enfranchised, and the institutional development aspect of crypto, the idea of being able to build new kinds of institutions, new kinds of voting systems and organizations,

I think optimistically might play a crucial part in that. In the meantime, until we get better institutions, we're going to retrench into a more national world because it's the only way we don't tear ourselves apart. So I used to be a libertarian. I got better. It's a disease of youth. But, no, I mean, I like your program. I wish, the concern I have is this,

that the more local you are, the smaller your group, the bigger you're saying. and the more likely it is to reflect your preferences. So I'm not saying that you can reduce problems to your group, but I say to whatever extent you can, that's the preferred option. Now the problem with global or even large kinds of voting is, well, this is why economists have no friends, because we know about impossibility theorems. There's the arrow impossibility theorem, there's satir weight, there's impossibility of preference

aggregation. It just turns out that as is even an abstract exercise, you really cannot in any reasonable way that satisfies any reasonable set of conditions, let people express preferences in a way that doesn't really come to disaster. It's just not possible. I mean, I wish it was. I really do. And I would love to have a global government that was good and nice and beneficent. But the theory says no, and I think the empirical evidence is not so strong either. I actually agree with everyone here. And I don't think... That's not a lot.

No, that's what I'm trying to say is when I say I want some global aspect of the economy, I'm not saying I want a global government where I'm bound to. I am only promoting voluntary associations and I think basically by enabling people

to create their own monetary systems and to have competition of fiat, we will be able to create a system that balances the needs of local and monetary needs as well as global coordination. By having competition of many global models and allowing people to freely associate,

I think we'll come up with the best set of balances. Just one more thing. The reason why I believe it's so strongly looked like my dad lost his job or the company that was working for folded because of the IMF crisis due to the way that the interest rates were changed by the... and then the housing crisis too

affected my family the same so at this point I don't want to be bound by any fiat currency I would rather die than be held to a decree that says I have to use this money because I don't support this money system I don't support the dollar

I don't support the wars that were raging I want to stop using it so Steve I mean a lot of your talk was about how the system like you know the slavery system that fiat creates is somewhat beneficial still running a well-functioned society. So what would you say to Jay, for example, about, like, could we ever have, like, you know,

one of the topics here is the Hayekian denationalization of money? Is that ever possible in a world in which fiat currency exists in which the government requires taxes in one currency? Governments have a tremendous advantage at defining what gets to be the sort of high-network-effect currency because they uniquely have the ability, have the capacity to create debt, obligations from nothing. So anything can kind of be monetized. We can coordinate on cigarettes or gold or whatever for a while. But the reason why states are really good at it is that they can make something desirable by Fiat, by saying you have to pay taxes in it. You know, it's a little bit like Facebook. I hate Facebook and want to see it erased from the earth because you sort of make that plain. But it's really hard to deal with because they have this tremendous network effect and social networks really do have value associated with the network effect. So fiat currencies or currencies in general have a tremendous network effect. There's a tremendous benefit to having one that everybody uses. So given that

governments have this capacity to make the thing that they issue, to give an advantage to the thing that they issue as a currency, become a currency coordination point. They have a tremendous advantage and those things want to be big. I don't really see a role for kind of as a general purpose currency for lots of little things interacting with one another. I want to caveat that on the sort of institutional side, because I don't actually disagree all that much with my neighbor. I think it's critically important as much as possible to create notions of locality for ourselves because our larger affiliations are always going to be unhappy with them to some degree.

And within smaller communities, one way that you can kind of bind together gives sort of sinews, and blood to a smaller community is by having the community sort of describe patterns of how economic value flows, and those can be expressed as something like a complementary currency. So I can see a world in which there are lots of, quote, denationalized money that are kind of the scripts or tokens of local or intense or very, you know, small, not necessarily very small, but small relative to the nation-state communities, but I don't think we're going to get to a world of kind of competing monies for general purpose commerce.

Okay. So you did mention earlier about, you know, maybe we can build the democratic tools to make a global governance possible to an extent. You know, I think the best example case we have today is the Eurozone. And we do, you know, they successfully create a monetary union, but they have been unable to create a fiscal union. And what makes us think that we can do that in a global sense? if we can't even do it in the European sense.

And like, when it comes to Libra, for example, we can't even get European countries that share like a European Union to pool risk to issue common bonds. How can we get these multinational companies with like competing interests to do so? I think we probably shouldn't. I mean, the reason that Greece and Germany

don't have a common fiscal policy is that Greeks are not Germans. And they have not only behave differently, they have different preferences. They wish to behave differently. And if the policy that's right for the Germans, is not right for the Greeks. And so there's a reason to have separation between the fiscal policies.

Do you think it's possible to create a long-term, sustainable monetary union if you don't bring fiscal union? Well, like I say, it's always a balance, right? There's the externality, there's the network externality benefit of getting together, but then there's the loss of personal preference and choice if you do that. And so it's a balance. There's not a single right answer.

It's my personal opinion. I'm still learning this, that the EU should not have had the euro, that the benefit of a single currency is not that great. You can construct other means on top of individual state currencies and make it all work. The reason why I think we need something global is primarily to deal with things that are naturally global, such as dealing with the environment. it. You know, there should be a global system for incentivizing the planting of trees in carbon secretration. And I'm not suggesting that this system needs to be forced on everyone, but states or towns, for example, can participate voluntarily if they so choose to. I think if we find the right model that has the right legitimacy with the right transparency

and accountability that makes the right decisions, then I think people will choose to fund it and associate with it. So you say that, like, you know, the top of states to do this voluntarily. participating in there. When it comes to like environmental issue, what happens when there's like states that don't want to participate, like they don't want to sacrifice economic productivity for environment? It's a large-scale prisoner's a dilemma where we're all going to any boards are doomed but no one wants to be the one to fix it. So you need to do some sort of enforcement enforcement. Not so much an enforcement from the top, but more like from the peers.

So for example, you can have a union of peers that say, well, we're going to not trade with this partner until they adopt something sensible, for example. So as Steve said, I think Fiat currency having the governance of the nations forcing it has big power in keeping everything within the same network effect. But I also agree with Jay and also what Jay shared remind me of some idea, like just one idea that I was like posting around with my friends around. you know, today are super rich or even just like top maybe

1% are kind of free from jurisdictions in terms of their financial wealth or their activities and I think with the cryptocurrency and we see a lot of crypto wells and a lot of conferences, they're very global and they're kind of abstracted away from the nationalities and also the fiat world.

So in the future, like some people say that, you know, this crypto governance brings people from this centralized communities into more back to like nomadic communities So maybe this wealth accumulating up in the virtual world like cryptocurrency side could lead to next generation of Dow's that represent, you know, like kind of voluntary nationalities that is aligned within the ones that have shared similar interests and maybe the nationalization of money. Some of us are starting a project called Virgo and it is to create an association of technologists, but also. economists and so on, in order for us to not only decentralize our social media, communications,

our financial systems, and our governance systems, but ultimately so we can answer questions like, what should our monetary system be and solve for things like global warming? It's not a tech-centric, you know, we're starting it as a people-centric organization and a project, so please join us atvergo.org. You'll see a manifesto and links to a forum. All right. Thank you guys so much. Thank you for joining us on this week's episode. We release new episodes every week. You can find and subscribe to the show on iTunes, Spotify, YouTube, SoundCloud, or wherever you listen to podcasts. And if you have a Google Home or Alexa device, you can tell it to listen to the latest episode of the Epicenter podcast.

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