Webinar, Panel, Fireside Chat
The Future of Currency and the Global Financial System - Conference Call Series
- Global leaders are encouraged to adapt to a post-COVID-19 era focused on climate change, sustainability, and social implications, while industries shift toward rebuilding support, equality, and inclusiveness.
- Global central banks have resolved the liquidity crisis, shifting the immediate challenge to solvency and insolvencies which, alongside a massive and potentially sticky unemployment rate, will impact the economy through the rest of the year.
- The US savings rate currently exceeds 30% and 1970s levels, necessitating a huge fiscal deficit, though countries with debt-to-GDP ratios of 80%, 90%, or 100% face challenges in ramping up deficits.
- Fiscal deficits have become too large, prompting serious discussions on money printing despite historical disasters, potentially altering the landscape for investing, inflation, and digital currency values.
- The relationship between China and the US regarding currencies and trade requires time to resolve, with optimism for eventual stability despite complex realities and ongoing scholar discussions on monetizing fiscal deficits in China.
- The Chinese central bank remains cautious, has banned Bitcoin, and is introducing DCEP, an M0 digital currency interchangeable with paper money focused on payment systems, though it aims to reduce the duopoly of Alipay and WeChat Pay.
- China is likely leading in digital payment technology and will digitalize its economy post-pandemic using 5G and data centers, while the Chinese central bank intends to require reserves and apply leverage limits to payment companies to prevent money supply expansion.
- While 17 central bank experiments are underway for digital currencies, most focus on domestic payments rather than cross-border transactions, which remain within the wholesale world of SWIFT and multinational banks.
- Standard economic rules are shifting to view large deficits and money printing as normal, with central bank digital currencies intended to provide speedy, lower-cost payments, particularly in emerging markets where remittances are critical and banking systems are fragile.
- Mass adoption of digital currencies is considered inevitable by Michael, who warns that establishing them requires central bank credibility and strict management of the initial stock to avoid debasement, while Dr. Shen notes the US relies on private sector development unlike China's central bank-driven approach.
- Risks include financial system fragility from unregulated digital payments, the difficulty of questioning central bank credibility by printing money before establishing digital currency, and the challenge of managing a two-tier structure for retail access to central banks.
- The internationalization of the yuan is viewed as necessary and inevitable, with expectations that communication between the Central Bank of China and the Fed will ensure proper execution of these new financial paradigms.