WATCH: BOE Governor Says Global Digital Currency Should Replace the US Dollar – Rabobank’s Michael Every Breaks It Down

0
414

In this last week, Bank of England Governor Mark Carney made waves in the crypto industry by espousing, as a pillar of traditional banking, an alternative to the very system he heads. At a speech in the U.S., Carney put forward the idea of a “synthetic hegemony currency” – in other words, a central bank-banked cryptocurrency that could replace the U.S. dollar as the global reserve currency. 

Michael Every, experienced economist and Head of Financial Markets Research Asia-Pacific at Rabobank, would beg to differ. As a long-time expert on Asian markets, Every does not anticipate that the crucial, closed-off Chinese economy would adhere to the libertarian principles behind blockchain and cryptocurrency.

While Every acknowledges the need for a global reserve currency that does not hinge on any one country with unilateral power to manipulate money supply, and that particularly does not fall to the U.S. for regulation, he also points out that the up-and-coming powerhouse economy that is China is not likely to adopt a decentralized currency.

Without the participation of China, which is on the fast track to becoming the world’s most important, formidable economy, it is difficult to say that any digital currency can be truly global. Every points out that as the current global hegemon, the U.S. is unlikely to participate in any process that detracts from global reliance on the dollar. In the face of all these political obstacles, is there any way for the “synthetic hegemony currency” to come into existence?

Listen to the podcast version

Key Highlights

  • “Nowadays, every single day the U.S. is proportionately a smaller percentage of the global economy, depending on how you measure it, and a smaller percentage of global trade, and yet here we are with this one shrinking fulcrum around which everybody else has to rotate… [It is] extremely disruptive, and we’ve seen repeated cycles played out in history, and I would argue we’re on the cusp of another one now, where everyone suddenly realizes that America is out of sync with the rest of the global economy. Everyone who’s borrowed dollars very heavily suddenly realizes, you know what, it might be difficult to pay this back, and we head for an almighty bump, crash, and squeeze, which is going to be extremely painful… it underlines why there must be a better way to do this.”
  • “If the global economy keeps expanding, you have to expand your money supply, otherwise prices can only go down. Imagine if there was no more money than we already have in the world. As you keep growing, every year prices have to go down, and they go down and down and down and down until the price of a loaf of bread is 0.000001, which is just as bad as it going up 10 percent every year, because it’s very confusing right? So that won’t go away, that problem, regardless of the technology.”
  • “In China’s case, already the currency is so digitalized or you know, so electronic that very little cash is being used. If they do move over to a digital renminbi, which by the way is one of the world’s most controlled currencies in terms of where you can use it and how you can use it, they’re not doing that to liberate anything in the way that you think of cryptocurrency.
  • “The kind of volatility that I think is already baked into our current system, which I’m not a great fan of even if I’m saying it’s going to last a lot longer than people think, is such I can see 12 months from now when we have wild FX volatility, when we have the Renminbi vastly weaken where it is today… Well, we’re heading towards those kind of levels now, and it’s going to get a lot weaker than this. I think you will perhaps start to see some elements of this conversation coalescing among certain groups of countries.

See related article

Libra: Potentially a Welcome Edition to the Financial System

Full Transcript

Angie Lau: Welcome to Word on the Block, the series that takes a deeper dive into the topics we cover right here on Forkast.News. I’m Editor-in-Chief Angie Lau, and in recent days, we’ve heard talks of a global digital currency; one that could displace the U.S. dollar in its rightful global reserve status space in the global economy.

So, who said such a thing? Could it have been those cypherpunks? Those crypto enthusiasts? Maybe those libertarian developers? Nope. It was none other than outgoing Bank of England Governor Mark Carney himself. He spoke those very interesting words about the potential of a central bank-backed cryptocurrency, or digital asset, or something he called “synthetic hegemony currency” – essentially a global reserve currency backed by many instead of one. 

What did he mean by all of that? Well we’re here with Michael Every. He is Rabobank’s Head of Financial Markets Research Asia-Pacific. Trained economist Michael Every is joining us from Rabobank; this is one of the top 30 largest financial institutions in the world. So that’s quite a mouthful but it helps our audience really understand that as a trained economist at one of the largest financial institutions in the world… and to have a central banker like the Bank of England Governor coming out to say that potentially, “we need a multiple-backed digital asset in the global economy,” these are pretty heavy words.

Michael Every: Extremely heavy. I mean, just to try to put it in context for viewers, it’s kind of like going to a Jewish wedding and asking for a pork chop. It’s, you know, it’s just not really the done thing, particularly when it’s at a Central Banking conflab, organized by the U.S., on U.S. territory. So you turn up saying you give a speech basically saying “Guys, you know, the U.S. dollar, you’ve had your day in the sun. We think we should replace you with something else.” It’s quite remarkable. And in fact, even before we go any further with the conversation, what I’m curious is, did they know in advance he was going to say that? Do you really think they gave him clearance or did he just surprise them because I really, politically, can’t work it out.

Angie Lau: You know, that’s what’s interesting. He was invited; the luncheon was at Jackson Hole; his audience were the world’s… all the central bankers in the world; and this was really Jay Powell’s event. FOMC Central Bank Chief, this was his event and yet, you know, we had Mark Carney coming in on Friday, it was August 23rd, came into a luncheon, and spoke those words of saying: The international monetary financial system is broken and we need a new system.

Michael Every: Yeah, and you have to say he’s not wrong, but there’s a time and a place to say it, and, you know he showed some real chutzpah by turning up there and saying what he did.

Angie Lau: He talked about synthetic hegemony currency. What is this, theoretically?

Michael Every: Well, theoretically this isn’t actually something new. That’s the first thing we have to say. Maybe the format in which he’s talking about doing it is something new and is technology-based, and we’ll come back to that in a moment. But the concept of having an artificial currency, which is actually like an amalgam of many others, goes all the way back to the post-World War Two period. In fact, if you know your economic history, you’ll know that John Maynard Keynes, one of the greatest economists of all time, he floated the idea of a global currency called the bancor, which would have been the one currency that everyone around the world uses to get rid of the kind of currency volatility that we deal with in markets at a profit or lose from all the time. 

So that idea itself isn’t new. What Carney was suggesting is that we use technology to make it happen. And I’m not going to profess any point here to be the technology expert. I’m here for the other side of the balance sheet, if you will, to talk about the currency side of it. But just because it’s easier to do physically with the technology, doesn’t mean that you manage to deal with all the other real-world barriers, which were exactly the same ones that we were dealing with all the way back in 1945 when the bancor was shot down by none other than the United States of America, which is where Carney’s just given his speech, so… 

Angie Lau: It’s very, is it ironic? It’s very timely, however, because we do find ourselves in a global economic environment where pretty much the fact that the U.S. Dollar is the global reserve currency… every nation is tied to the monetary policy of the United States. That inflexibility is really what’s causing this volatility, right?

Michael Every: It’s a large part of it, absolutely. I mean when the U.S. was this big and the global economy was only that much bigger, you could live with it. It didn’t make that much of a difference, really. Nowadays, every single day the U.S. is proportionately a smaller percentage of the global economy, depending on how you measure it, and a smaller percentage of global trade, and yet here we are with this one shrinking fulcrum around which everybody else has to rotate. And when you’re doing your accounting, you’re doing it in dollars. When you’re doing your international trade, most of it’s still being done in U.S. dollars. When you’re looking at stock market valuations, it’s usually dollars you’re thinking of. When you’re talking GDP, you know, let’s not get too technical, but everyone knows what GDP is, you’re talking dollars most of the time. 

So we’re all doing it as like a lowest common denominator if you will, so we all understand what language we’re talking, because you’re talking sterling, I’m talking dollars, they’re talking Euro, they’re talking yen; how do we even compare apples with apples? But we’re only using one kind of apple for one kind of tree in an increasingly large orchard. So yes, it is a difficult situation. 

To talk to the volatility part of that, remember that it’s not just about how you’re accounting. It’s not just how you’re transacting; it’s two things. It’s what cost are you borrowing at? So say for example, everyone’s having to borrow in dollars because international trade is transacted in dollars, so therefore your trade commodity finance is done in dollars. And then the Americans decide,you know what, our local economy is looking pretty hot. We’re going to raise interest rates. Well guess what, you’re Country X trading with Country Y on the other side of the planet, and suddenly you’re finding your borrowing cost to do economic trade between these two places is being dictated by what’s going on in America on the other side of the world, but I couldn’t even find you on a map. Literally, in some cases. Of course, that’s extremely disruptive. 

Extremely disruptive, and we’ve seen repeated cycles played out in history, and I would argue we’re on the cusp of another one now, where everyone suddenly realizes that America is out of sync with the rest of the global economy. Everyone who’s borrowed dollars very heavily suddenly realizes, you know what, it might be difficult to pay this back, and we head for an almighty bump, crash, and squeeze, which is going to be extremely painful.

Now that’s a financial market story, not a technology story. But it underlines why there must be a better way to do this.

Angie Lau: But listen, it’s a financial story that is motivating people to dive into the technology story, which is cryptocurrency, which is blockchain. Let’s talk about the crypto aspect of it, right, because you know, in parallel to all of this is emerging cryptocurrency and the talk of a stablecoin, which if you think about it, reflects and behaves very much like what Mark Carney talked about, which is synthetic hegemony currency that is backed by many, whatever that fundamental backing of that currency is that reduces the volatility and allows people to engage in a different system that is more flexible and more real-life in terms of how they live. 

We’re seeing that migration of liquidity in Argentina. We’re seeing that migration of liquidity even in China and the U.S.. Having said all of that, do you think at some point the two worlds will converge, and we’re going to find ourselves in this very interesting space where this story that has been growing in blockchain and cryptocurrency in the past 10 years is now at a place where it’s converging with the likes of Mark Carney?

Michael Every: Well, that’s the key question. That’s why we’re talking. 

Angie Lau: Yes, that’s why we’re talking.

Michael Every: I have to say, to cut a long story short, the answer is probably no, which is not very sexy for a long important question like that. But let me try and explain why: because many people would say when you look at the kind of volatility we’re talking about and we look at the technology dynamic you’re talking about and how much sense it makes, it’s got to happen.

Right? It’s got to happen. Well, history suggests not. So does – and excuse the slight segue here – so does philosophy. 

Okay, let me start with the philosophy and then the history and then we’ll talk about technology. What’s money? What is money, what does it actually mean? And this goes all the way back to the ancient Greeks. Do we find value in something we assign to it? Or does something inherently have value? Now, if you believe something inherently has value, traditionally –

Angie Lau: It only has value if somebody’s willing to pay you or agree that that is the value, and then you both agree that in exchange you have something of equal value.

Michael Every: Exactly. And there’s the philosophy. Because we are two independent human beings with our own conceptions of the world, both agreeing – relatively arbitrarily if we look at human history and what we’ve used as currency – this has value, whether it’s beads or shells, or of course, I was referring to gold. You know, what people would say: gold inherently has value because it’s in the ground and there’s a limited supply of it. And this is part of the immediate problem. This has to be something that literally doesn’t grow on trees, because if we say “Look I see value in leaves.” Hey, fantastic. The first time one of us goes through an orchard, we’re all pretty rich.

Angie Lau: Okay, so two things about that. So when we talk about cryptocurrency, and we’ll talk about the classic, you know, the Godfather of them all, Bitcoin, there is a limited supply. Could you say the same thing about the U.S. dollar?

Michael Every: You couldn’t. And of course we live in a world where we have an unlimited supply of U.S. dollars, because the dollar used to be pegged to gold.

Angie Lau: Correct, but it is no longer, and so the criticism has been, “Well, you can print money until you’re out of trouble, and you have just given my son and his children and his children’s children the bill,” right? That’s essentially what we’re talking about here.

Michael Every: I don’t disagree and I’m trying to see both sides of this. So I’m very sympathetic to that side. Equally, and I spend a lot of time arguing about this with people, if you look at the long-run history again, what you can see is: during periods of time where we take the alternative approach which is to say, okay, this – and I’m holding up my hands here pretending this is gold, I wish I had a nice big lump of gold like this, rather than the tiny little silver dollar – when you say this actually really has value, and there’s a fixed supply, whether it’s bitcoin, whether it’s gold or whatever, that comes with genuine real-world side effects. 

And what are they? Everything becomes zero-sum. If there’s only one gold piece in the room, you’ve got it or I’ve got it. You’ve got it and I want it. How do I get it? Mmm. Well, on the one hand we can say, “well, you trade for it.” Fine, and I’ve got it, you haven’t got it. Which is not going to do much for your money supply because you haven’t got it.

Or, well, I can bash you over the head and take it, and actually you can see in the long run of history, periods during which mankind as a whole has been on a kind of gold standard, saying money is fixed, this is money and nothing else, tends to be much more violent. Because everything is zero-sum. You’ve either got to run a trade surplus with that guy and you get all the money and they haven’t got any, and then you’ve got the power over them, or you just go to war. You bash them, and you take it, and say now I’ve got it and you haven’t. Whereas if you go down this route of infinite money, which you basically have, you know. with the dollar today, the Federal Reserve can create a trillion dollars tomorrow if they wanted to (and they almost did during QE basically), so there you go. There’s money. It takes away that imperative to actually fight for limited resources because you can just flood the market with it. Now does that come with side effects?

Of course it does, because it can be highly inflationary. What’s anything worth? Because I can just have free money. Is that really free money? Of course, that’s a problem. But let’s not paper over the cracks, that philosophically, saying that this is a rigid fixed amount as there is with Bitcoin, for example, tends to correlate with violence historically, or correlate with trying to run trade wars – what we call mercantilism in economic history, which is, “I sell and I don’t buy, and all the money flows to me,” which was a very violent period of world history generally.

And even if you say that’s not a problem, Mike, the first one’s not a problem, the second one is not a problem. I’ll tell you what else it correlates with – volatility in prices. Because if you’ve got a fixed stock of money, whether it’s gold, whether it’s Bitcoin or whatever, something has to adjust. So prices might have to adjust down. So then you’d have deflation rather than inflation, and then suddenly you might get a little Bitcoin or gold – you find some gold in your back garden, lucky you – suddenly prices can go back up again. So if you look at the long-run history, when we have the gold standard, which we used to have, you can say, things have constant value, sure.

But the prices were not constant. You had like, up 10%, down 10%, up 8%… You try running a business on that basis.

Angie Lau: Well look, listen, that is the criticism. That massive price volatility swing is a massive criticism about the functionality of cryptocurrency at the moment, which is why technology is coming up with different ways to really answer that, right? You know, stablecoins. But let somebody else figure out however they want to market or talk about those things, and let’s talk about the application of technology here. That in an ideal world in which we have all of these technological tools around us, can we apply the best practices of monetary functionality to a global trading game?

Michael Every: Again, that is a great.

Angie Lau: That allows people to engage in a more fair, equitable way.

Michael Every: Well, I’m going to say no again. Look, I’m Mister No today. The reason being that technology is a facilitator of many things. Don’t get me wrong, right, it really is. The problem again here is still, number one, philosophical, which is where’s the right balance between saying this is fixed and this continues to expand? Because if the global economy keeps expanding, you have to expand your money supply, otherwise prices can only go down. 

Imagine if there was no more money than we already have in the world. As you keep growing, every year prices have to go down, and they go down and down and down and down until the price of a loaf of bread is 0.000001, which is just as bad as it going up 10 percent every year, because it’s very confusing right?

So that won’t go away, that problem, regardless of the technology, at least in my mind it doesn’t. But secondly, this is where we come back to the politics, which we were referring to with Mr. Carney giving that speech in America. We live in a world where we’re still dominated by the U.S. dollar. U.S. has the world’s largest army. U.S. still has the world’s largest economy. U.S. has a president who’s not afraid to use U.S. power in all different dimensions, so far short of military, I have to say, to try and maintain the U.S. hegemony. And you’ve got Mr. Carney turning up and saying well, how about we have a new hegemon? 

Now, look up the word hegemon in a dictionary. Whether it’s an electronic dictionary, you know, if you want to be technological, or you’re going to be old-fashioned and go to the shelf and pull down the Cambridge/Oxford or whatever… hegemons – they don’t tend to be benign, and there tends to be muscle involved in being the hegemon. I can’t think of many hegemons who have sat there peacefully, you know, apart from Mum and Dad maybe in your own family, giving gifts out, right?

So does anyone realistically think that this United States of America, this White House – and let’s presume that Trump wins re-election – is going to turn around and peacefully say, you know what? You’re absolutely right. It’s in the greater good of mankind for us to step back from this privileged role where every commodity in the world is priced in U.S. Dollars so we never have any exchange rate risk, where everything is nationally done to suit us on that basis. We’re unilaterally going to give that up and we’re going to hand over that power to an unelected little cabal of bureaucrats who sit in a white tower with some high-tech computers around them based in… you name the physical location, I don’t know, Island X or Country Y, where’s it going to be – and we’ll let them run everything and we’ll just be one of the gang.  Now again, I’ve been a bit of a poo poo so far and I’m sorry, but if you really think this White House is going to do that? I’ve got a bridge to sell you and I’ll sell it to you in Dollars or Euros or Bitcoins or whatever you want.

Angie Lau: That’s another show, Michael, that is another show to be sure. I mean, politics definitely is in play here, right? And what’s interesting is that one of the tools of the trade is saying that another weapon, or another system, or another game should be played and that’s certainly what Mark Carney talked about.

What’s interesting is that this is really reflective of what’s already happening outside the system. So what’s happening outside the system and what’s increasingly more interesting to not only just retail investors, the average mom and pops, but increasingly, institutional, more sophisticated investors who are trying to hedge against a system that hasn’t, we could arguably say not been fixed since 2008, that another system could potentially emerge a winner here.

Michael Every: Theoretically again, I can see it, but I’m going to be consistent, I’m afraid, in that while you can see the logic, and the logic is there, you have to understand the greater dynamic or the greater, more powerful logic, which is who has the guns and who has the prisons.

Angie Lau: So you’re saying no based on the political reality, which is… 

Michael Every: They can make it illegal tomorrow. They can say, for example, heroin, cocaine whatever, you know, some people like it some people don’t, they’re just illegal. You use them, you take a risk, you get found, you go to prison. You could do the same thing with Bitcoin.

Angie Lau: Absolutely, and we’re seeing that. We’re seeing that in the regulatory space. In the U.S., regulators are talking about it, we’re seeing what’s happening in Asia. However, what we’re also seeing is that as things clamp down in one part of the world, it’s like whack-a-mole, things pop up somewhere else, and it’s popping up here in Asia.

Michael Every: Well, you could say the same thing about the drug trade, to be honest.

Angie Lau: Well, it’s interesting that you connected the drug trade and monetary policy, because some would argue it really feels like the same thing. But look, the PBOC just came out and said, this year we’re going to have a central bank-backed digital currency.

Michael Every: Right, now there’s an interesting one and I have to segue here because that can be seen as a stepping stone towards this, but I actually think it’s something different. Because if you’re in China, it’s an incredibly advanced payment system they have. You don’t see people using cash, most people pay with their phones, etc. Now on one level it’s smooth and easy and convenient, I get that completely, and I was just in New York, you know, just the other day and the taxi driver had a whole, you know, wad of dollars in his pocket, and you look at the two and you think okay, which one’s the more advanced economy?

I have to say, equally, given what we know about data privacy and what control you can have over an economy with these digital transaction systems, I was thinking, which guy’s more free? And one’s beeping with his phone where everyone knows exactly what you spend, everyone knows exactly what you’re buying, where you are, at what time, versus a cab driver with a roll of you know, tens and fives and ones in his pocket and no one knows where he’s going, what he’s doing, etc.

So again, it’s philosophical and political, but in China’s case, already the currency is so digitalized or you know, so electronic that very little cash is being used. If they do move over to a digital Renminbi, which by the way is one of the world’s most controlled currencies in terms of where you can use it and how you can use it, they’re not doing that to liberate anything in the way that you think of cryptocurrency. This is no way libertarian. It’s about authoritarian control. If you don’t have any physical currency, if you get paid into your bank account like most of us do, you want to go shopping? It’s all got to be by your phone or via card. What’s to stop the government saying, “Okay, we now have negative interest rates.” For example, instead of your currency earning 5% every year – wouldn’t that be great – or 0.1% as we get now, it’s going to be minus 2%. And in fact for you, we don’t like you for something you said. It’s going to be minus 3% for you until you shut up. You, okay, you’re a businessman, it’s going to be minus 10% until you go invest in a project. On the project? Okay, you know, we’re going to make those funds available to you at 7% if it doesn’t have a social goal that we like, and at 3% if it does.

What do you have there? You have micromanagement of the economy via the digitization of the financial system through to the currency. It’s not libertarian, again. It’s the complete antithesis of what these guys are getting at.

Angie Lau: Totally get that, but in a global trade where even Mark Carney talked about the RMB as potentially offsetting the U.S. as a global reserve currency, how would a digital currency or digital RMB behave, act, be utilized in global trade?

Michael Every: Okay. Let me try to clarify that. I think what one needs to understand here is the key thing is that Carney turned up in the U.S. and really gave them a slap in the face, but he did not turn up and say “I think the Renminbi is going to be the next global reserve currency,” which is what a lot of people have been muttering about for some time. He’s talking about a digital representation of an amalgam of different currencies: the Dollar, the Euro, the Yen, the Renminbi.

Angie Lau: No, I get that part. But he also floated the possibility that, you know, if we’re not going to go with the U.S., another fiat like RMB could be, or a social hegemony currency. I think he brought up both and not together.

Michael Every: Sure, but the key point I want to make is the fact that he’s kind of skipping over, being realistic, the Renminbi as a Dollar replacement, is indicative of the fact that what China is already doing with this heavily digitalized currency where you go pay with your phone is not in any way compatible with it becoming international. So we mustn’t confuse the two. Just because the technology is slick and easy, can you actually do that internationally? Is the actual underlying Renminbi as a philosophical concept, because you can’t touch it, is it able to be used outside of China? Outside of Hong Kong? Can you use that in London, you know, to go shopping? No you can’t. They have real, very, very rigid controls on where you can and can’t use that money, and it’s basically inside and not outside.

So he skipped over that because he can see that this digitalization is not moving us towards the world.

Angie Lau: Well it hasn’t been programmed yet. It hasn’t been theorized yet. Yet.

Michael Every: It’s not gonna happen, I can tell you that. The chances of the Chinese letting control of their currency are, again, similar to this bridge I’m trying to sell you.

Angie Lau: Here’s what’s interesting about that, is that yeah, internally the control – I mean, we talk about capital flight, and so does China by the way, all the time. That’s the concern, and so the rules are extremely strict. They don’t want capital flight. However, it happens, and that goes back to human nature.

Michael Every: It will stop with digitalization. Because you can’t get it out at all. 

Angie Lau: So it can, or, the thing about digitalization is that it’s like water. It always finds a way.

Michael Every: Well, if for example, and again we’re purely talking in hypotheticals here. 

Angie Lau: It’s complete theoretics.

Michael Every: Let’s say that you move a virtual, completely digital Renminbi, where there are no physical Renminbi at all, within a state control banking system, which is what they have, which is all digital as well, there’s no way that you’ll be able to basically buy a cryptocurrency like Bitcoin, etc, etc. Because any transaction that is made along that particular electronic pathway would be blocked, and you know, you actually stop capital controls rather than liberalizing it, and I think the key message here is that technology can be liberating or entrapping, You know, for every device that sets us free, we have panopticon – 

Angie Lau: 100%. Technology is simply a tool of the human, and whichever side of the coin you’re on.

Michael Every: Whether it’s Bitcoin, or – 

Angie Lau: Whether it’s Bitcoin or not. 

Michael Every: But practically speaking, again, if we go back to this idea of the global currency, let’s try and re: both the theoretical and the practical. It’s got to have the Renminbi in it. You can’t not have the Renminbi. And yet the Renminbi, as I’m arguing, is using the same underlying technology that he’s talking about to limit its ability to go internationally. So how do you build up an electronic token, which is made up of a composite of Dollars, Euros, Yen, Renminbi, Sterling, etc. How do you do that, when the Chinese component wouldn’t be allowed to be moved outside China? And the nuts and bolts of that electronically, philosophically, politically, don’t add up.

Angie Lau: Could you have an internal digital currency and external one? 

Michael Every: Okay, so that’s a left-field question. I’m not quite sure how that would operate, because the ability to move from one to the other is the key question.

Angie Lau: Well, think about it, right? So internally, you’re very clear on the rules. But the rules right now is that you’re only allowed to export 50,000 Renminbi outside the country, right? Let’s say that’s the rule. So digitally then, that 50,000 RMB or whatever amount that is, then can be used to apply to the external system that you can freely use.

Michael Every: Okay, well, I think I can answer that question now I’ve had a moment to think about it. You really pulled one out of left field there. Let’s just take the word “digital” out and just talk about saying, have we got two currencies. Have we had that in the past? Absolutely. And we have had them – in China we have CNY and CNH, onshore and offshore. We’ve had that in other currencies including the Thai Baht in the recent past, and if you look back at other communist countries, genuinely communist like the Soviet Union in the old days, they had the internal Ruble and the external Ruble, effectively.

The interesting thing there is, when you have one to the other, generally, the reason that’s done is the exchange rate between the two is completely unrealistic. And internally, you say my money is very strong and it’s worth XYZ, and externally nobody wants it. Which is why you have to set an artificial exchange rate, and the only people who transact at that level are diplomats or people who are forced to transact at that level, and it’s actually used as an arbitrage to gain revenue for the country.

Now that may sound a little bit technical, but effectively what I’m saying is, if you’re saying “I’ve got an internal currency, and I’ve got an external currency,” that’s a sign of weakness, not of strength, whether it’s digital or not digital. And the world, I would imagine, you would hope would be moving towards and Mr. Carney is alluding we’re moving towards, is where there are no barriers. Where effectively you no longer have these volatile shifts in exchange rates because we’re all on one money, the same way in California or New York or Hawaii or Texas or Alaska, it’s just the dollar, you know, prices are just, salaries are just, you don’t have these other underlying problems. That’s more what I think he’s alluding to, and an internal versus an external doesn’t get us any closer. 

Angie Lau: Are you surprised how quickly talk of cryptocurrency/blockchain, that is not even a teenager yet, has evolved even in the mainstream at the highest echelons?

Michael Every: I am, but at the same time we live in an environment where things go huge very, very quickly. I mean, I can remember when Netflix was actually just borrowing DVDs by the post, remember that? You could get a couple of DVDs per week or per month and then post them back and that ain’t the Netflix of today, is it. 

Angie Lau: What are DVDs?

Michael Every: Exactly. It’s amazing how quickly things are changing, and I don’t deny that you’re seeing a lot of intelligence and a lot of money, if you could excuse the pun, being thrown into this. But until we can work out a way to get all the key players in the world agreeing to this standard, effectively what we’re doing is just fragmenting things more rather than bringing them together. And it’s still, as I said, I’m gonna stick to my point, it’s still philosophical in terms of what’s it going to be and it’s political in terms of who’s going to control it and who gains from it.

Angie Lau: Well, it has to be a philosophical debate and I’m so glad to hear your side of the debate because the philosophical drive of cryptocurrency and blockchain really comes from the thought that decentralization, that taking control away from the few to the many is actually where true decentralization, true economies should lie. That is a continuation of a debate that goes beyond us and beyond this room. Before I let you go, where do you think this conversation will go next year? What, as you, let’s say in 12 months from now take a look back, how would the PBOC, Mark Carney’s remarks, the global trade system, the outcome of the U.S.-China trade wars, and then technology, where are we going to find ourselves in this digital conversation?

Michael Every: Ok, so we’re looking at the whole schmear. Well basically, I think we can meet halfway on this, in that the kind of volatility that I think is already baked into our current system, which I’m not a great fan of even if I’m saying it’s going to last a lot longer than people think, is such I can see 12 months from now when we have wild FX volatility, when we have the Renminbi vastly weaken where it is today, which has been a long-standing call if you remember our chats from the old days. Well, we’re heading towards those kind of levels now, and it’s going to get a lot weaker than this. I think you will perhaps start to see some elements of this conversation coalescing among certain groups of countries.

So again, it might be that more libertarian, free-flow ethos that you’re talking about, but it isn’t going to be global. I don’t think it will involve China. I think quite the opposite. I imagine China will be on the other side and with a very regimented centralized view. And possibly the U.S. itself doesn’t involve, but I can imagine some other countries are starting to think “Okay. There’s something to this. We need to coalesce into a particular kind of grouping that works for us in a very, very turbulent global backdrop.” That’s a possibility. At least voices, I think, will be discussing it. That’s something we can agree on.

Angie Lau: Well, let’s make an agreement and meet again. The next turn of events, let’s see where this debate will evolve into. Thank you, Michael Every, for that, and thank you, everyone, for joining us on this latest episode of Word on the Block. I’m Editor-in-Chief Angie Lau. Until then.