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On the company’s investor day call, Schulman said PayPal is gearing up to be “the digital wallet for global CBDCs.”

From PayPal CEO says the payments giant wants to be ‘the digital wallet for global CBDCs’:

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China is already years, billions of dollars, and (at least) hundreds of engineers ahead of the U.S. in its efforts. And the implications of China successfully making its version of digital money the standard for transactions globally are—as you might imagine—troubling. With control of that infrastructure, China would have visibility into commercial flows well beyond its borders, as well as an unprecedented tool for monitoring individuals’ activities wherever they are.

From China Is Winning the Digital Currency War With the U.S. — The Information:

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Physical currency probably will be phased out in time in Britain, as it has largely been in other countries such as Norway, but it will take time to help some people to get to the point where they are happy to pay digitally. It may require a bigger version of the five-year Digital Switchover campaign that began in 2007 and prepared people for the move from analogue to digital TV.

From Rise of digital payments cannot mask that cash is still king for millions | Business | The Times.

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When we are thinking about where the worlds of Bitcoin and cryptocurrencies, “smart” “contracts” and distributed ledgers will go, it can be helpful to find historical analogies that can provide a shared narrative to facilitate communications between stakeholders and provide foundations for strategic planning. But it’s important to find the right analogies and, even more importantly, to derive the right lessons for them. For example: people discussing Bitcoin will often refer to the famous “tulip bubble” in 17th century Holland. But if you study this episode, what you discover is not a mass market mania but speculation by a small group of rich people who could well afford to lose money. And you will also see the creation of a regulated futures market that played a role in the financial markets that created Dutch golden age which meant that within a few years, balances at the Bank of Amsterdam became a pan-European currency and as noted in an interesting paper from the Atlanta Fed last year, the florin (the unit of account for those balances) played a role “not unlike that of the U.S. dollar today”.

I am very interested in learning from a) history and b) smart people so I set up a room to discuss the topic on Clubhouse. (I have to say this transformed my view of Clubhouse, because I was blown away by the quality of the discussion that ensued and how much I learned in such a short time. Truly, arguing with smart people is by far and away the fastest way to acquire actual knowledge.)

A similar event, Britain’s 19th century railway mania, was the subject of some discussion in this room. I agree with Nouriel Roubini and Preston Byrne’s observation that that the cryptocurrency mania of today “is not unlike the railway mania at the dawn of the industrial revolution in the mid-19th century”.

(If you want to read more about this, I wrote this detailed article about it a couple of years ago and in fact noted a decade ago for Financial World magazine about the incredible scale of the mania. The first railway service in the world started running between Liverpool and Manchester in 1830 and less than twenty years later the London & North Western railway had become the Apple of its day, the biggest company in the world. This boom led to a colossal crash in 1866, which in turn led to a revolution in accounting and auditing.)

My good friend Maya Zahavi, drew the parallel between railway mania driving the introduction of accounting standards that led to new global capital markets in Victorian times (which in turn led to new kinds of regulation and institutions) and the world of decentralised finance, “defi”. I think she is right. I have long held the view that while cryptocurrencies themselves may or may not have a future as money, the evolution of digital assets that are secured by the underlying networks (“tokens”) points towards new services, markets and institutions that may well lead to a better financial sector. This general view, that digital assets (“tokens”) are where the future will be forged, was reinforced earlier by a new paper published in the Federal Reserve Bank of St. Louis Review in which Fabian Shar explores the evolution of markets based on these new instruments that sit on blockchains of one form or another. He looks at three models for “promise-based” tokens: off-chain collateral, on-chain collateral, and no collateral.

• Off-chain collateral means that the underlying assets are stored with an escrow service, for example, a commercial bank. There are also several examples of off-chain collateralized stablecoins. The most popular ones are USDT and USDC, both USD-backed stablecoins. They are both available as ERC-20 tokens on the Ethereum blockchain. DGX is an ERC-20 based stablecoin backed by gold, and WBTC is a tokenized version of Bitcoin, making Bitcoin available on the Ethereum blockchain.

• On-chain collateral means that the assets are locked on the blockchain (in a smart contract).

• When there is no collateral, counterparty risk is at its highest. In this case, the promise is entirely trust-based.

On-chain collateral has several advantages. It is highly transparent, and claims can be secured by smart contracts, allowing processes to be executed in a semi-automatic way. A disadvantage of on-chain collateral is that this collateral is usually held in a native protocol asset (or a derivative thereof) and, therefore, will experience price fluctuations.

The trading of digital assets, if it were to take place in the existing market infrastructures, would be interesting enough. But this is not where we are going. We are heading into the defi era where there is an impending explosion of business models, institutional arrangements and transaction complexity which, when it settles, leave us with a new financial world. There are good reasons to welcome this: defi offers the promise of much reduced costs in financial intermediation by both removing middlemen and automating them, it opens up the possibilities for new financial instruments better suited to the new economy (instruments built for bots to trade, not for people to understand) and (and most importantly, as I wrote previously in Forbes) and more transparent market with accountability as part of the infrastructure.

This, I think, is the narrative that I find most plausible. But what are cryptocurrencies “paving the way” for? I think it is for cyryptomarkets that trade in cryptoassets: cryptocurrencies with an institutional link to real-world assets. These are markets made up from money-like digital bearer instruments or, for want of a better word, “tokens”. As I have written before, it is not the underlying cryptocurrencies that will be the money of the future but the “tokens” that they support. As the St. Louis Fed’s paper concludes, and as I wrote here in Forbes in January, defi may potentially contribute to a more robust and transparent financial infrastructure. In the long run, I think this is (and the lessons from history are clear) will be much more important and lead to much greater structural change (and therefore opportunities) than cryptocurrencies.

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The anticipated Libra stablecoin, now rebranded as Diem, is due to launch this year. The cryptocurrency is largely responsible for pushing central banks into thinking seriously about digital currencies. Diem could bring many benefits to current payment systems as well as potential risks to the financial system. Christian Catalini, chief economist at the Diem association, discusses the launch of Diem, outlining the stablecoin’s key features and uses, the regulatory response and associated risks.

Diem Pre-launch Discussion – YouTube:

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But the opinion of Jay Clayton, the chairman of the U.S. Securities and Exchange Commission (SEC), counts for a lot more and he is saying the same thing: in time, everything will be tokenised.

From The Future Will Be Tokenised:

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The US Treasury Secretary Janet Yellen recently told a US Treasury roundtable that cryptocurrencies held promise, but were too often used for crime. She warned of an “explosion of risk” from criminals using digital technologies. Now, as it happens, I had very kindly been invited to that roundtable and I listened to her talk with interest, particularly her comments about the “digital divide” and the problems of financial inclusion. 

Andrew Hinkes wrote a very interesting paper on the subject of coercive contempt for private keys for the Northwestern Journal of Technology and Intellectual Property (Volume 16, Issue 4, 2019). He poses the question as to whether coercive incarceration is an effective sanction in this context. In the case of a criminal who has hidden a private key, they may well be happy to wait out a contempt sanction (eg, going to jail) and then immediately access their stored wealth using their secreted private key, provided they are willing to tolerate temporary deprivation of liberty and to bear market and technology risk.

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Private capital markets, which overshadow public markets in value and growth, are dogged by inefficient, opaque processes. Now they look set to experience a step change through tokenized assets and digital platforms powered by distributed ledger technology.
The biggest opportunities lie in private debt, equity and real estate, given their relative inefficiency compared with public market infrastructure.

From For Digital Assets, Private Markets Offer the Greatest Opportunities | Bain & Company:

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Jeff Currie, the global head of Commodities Research at Goldman Sachs

From Odd Lots: Goldman’s Jeff Currie on the Silver Squeeze and the Coming Boom in Commodities on Apple Podcasts:

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Everything I learned about commoditie I learned from Trading Places, which is by far the most educational movie about Wall Street ever made, so I’m not qualified talk about the recent shenanigans in the silver markets. Jeff Currie is, however, because he’s the head of Commodities Research at Goldman Sachs. In a fascinating podcast that touched on a few things that I do know a little about (eg, William Jennings Bryan and the “cross of gold”) and spoke with real insight about the historic role of silver. With respect to the activity in the silver market, he expressed great scepticism about the ability of the robinhoodies to move the silver market (which is 300 times bigger than GamesStop) and explained how it would require very clever co-ordination of firepower — which I suppose is not impossible in a world of bots and message boards — to make anything happen.

He also made the point that the silver market is actually pretty small compared to other commodities markets, which operate rather differently to other financial markets because of the relationship between physical delivery and the symmetry of long and short positions. From my inexpert position, it sounded that whether speculators would be able to hold market-manipulating positions (shades of the Bunker Hunt brothers) is a matter of some speculation. A rise in volatility did occur, but it’s not clear what it means in the longer term.

(Not all commodities markets are the same of course! Currie made the point that the gold ETF market is around $150 billion. If you ended up taking physical deliver of all of the that gold, you could put it in your shed. By comparison, the Oil ETF market is currently about 180 million barrels. If you end up with those on your hands you have a problem, which is why the value of oil temporarily dipped below zero last year.)

But back to silver.