Oleg Tsyvinsky, professor of economics at Yale University named after Arthur Okun, part-time professor at NES, researcher at the National Bureau of Economic Research, in an interview with Kommersant, spoke about the prospects for the development of cryptocurrencies and their impact on various sectors of the economy and the policy of the regulators. Key changes in this market will occur with the entry of institutional investors, while banks will have to abandon high fees for transfers.
– How will the spread of cryptocurrencies and digital currencies, which are now being developed by many central banks, affect monetary policy?
– Monetary policy is interesting, but it is a very small part of what is happening around cryptocurrencies. In general, it is worth thinking about cryptocurrencies not only as currencies, but also about what opportunities the development of blockchain provides. It is clear that now everyone will release digital versions of their currencies – Russia, China, and, quite possibly, the United States. I do not think that this will fundamentally change the existing monetary system so far.
– What will be the impact of the release of state digital currencies on the banking system? There are fears that banks will lose part of their business.
– May be. But money and the bank are two different things. Money allows us to make settlements and create savings. Banks have many other functions. In particular, for example, this is the function of reducing the asymmetry of information. If you take a loan from a bank, then its main function will not be to give it to you, but so that you do not go with this mortgage loan and buy yourself, for example, a car.
Digital currencies, which will be issued by central banks, will be the main competition, first of all, to payment systems.
The currencies that are launched by the government will behave very differently than private currencies. Although, you can also make a private currency by pegging it to the dollar or the ruble.
– That is, get a stablecoin.
– Yes, making a stablecoin well and correctly is quite difficult, but quite possible. If you look at the banking system in the United States, which was before the creation of the Federal Reserve System, there was a huge amount of private currencies. By and large, any bank could issue private currency. There was competition between currencies, some currencies remained, some currencies went bankrupt, and then the federal reserve came and the dollar appeared as one of the main currencies. There is a currency, for example, which is issued by the International Monetary Fund (SDR). Therefore, I do not see here a radical change in the world system from the fact that there will be a means of payment or currency that is issued by banks.
Now you have not only cash, you also have an Alfa Bank or Sberbank card, and sometimes it is convenient for you to use currency – dollars or rubles, and sometimes a credit card. The same will happen when the digital ruble is introduced. From the point of view of settlements between banks, there may be a different situation. Because perhaps it will reduce the cost of sending money. This is already happening with Bitcoin.
In general, cryptocurrencies are important because they reduce transaction costs.
For example, now the commission for a money transfer of a migrant from Bangladesh working in Saudi Arabia can eat up to 20% of the amount, and it is quite simple to do this with the help of cryptocurrencies. It is quite expensive to withdraw money from a foreign card in Russia or from a Russian card abroad. American Express, for example, charges a 3% commission, but with the advancement of financial technology, that commission is unlikely to survive. In fact, the fact that government players want to enter the cryptocurrency market is one of the signs that the market is normalizing.
– Nevertheless, the cost of cryptocurrencies is still extremely volatile, this is a significant risk for the same transfers. How do you see the development of the situation?
– We already see that volatility has dropped significantly compared to the time when cryptocurrencies first appeared. In general, with the growth of the market, we will see that the volatility will decrease and become as low as the volatility of the dollar. It is also quite large, the volatility of the ruble is quite high, which is not clear to everyone. When gold ceased to be a reserve asset, the volatility of gold was very high. For quite a long time it was not clear whether gold could be taken as a reserve asset. And then it turned out that gold is a good way to hold savings or denominate other currencies.
– What must happen to the cryptocurrency market to be considered “civilized”?
– This is already in a sense a civilized market. Because Bitcoin is roughly the 14th currency in the world. What states are doing in the field of digital currencies is already one of the steps, the second concerns the development of regulation. There will be more of it and this is very good for cryptocurrencies. Those transactions that are now not entirely legal, gray, will become mainstream. We are already seeing that the opportunities for arbitration have diminished significantly. Two years ago, you could get a huge income through transactions between different exchanges. Now this is just compensation for the risk – that the payment will not go through, that you will not be able to pick it up, and so on.
In addition, when we talk about cryptocurrencies, many people think only about bitcoin, but in fact this is a story not only about currencies. By and large, a blockchain is a record of the memory of something. One of the functions of money is to record transactions, who bought what, this is all recorded in a huge ledger. This is now done electronically. The same will happen in many other industries. And we will see that the cryptocurrency market is actually only partially the market for classic currencies, classic cryptocurrencies, and in general it is a market for blockchain technologies.
– They are trying to use cryptocurrencies to attract funding, but many initiatives here have failed.
– Cryptocurrencies make it much easier for companies to raise money and actually go to an IPO. In general, if we talk about investments, the key thing is the ratio of income and risk. For cryptocurrencies, the income is higher, but so is the risk. This ratio of income and risk is called the Sharpe ratio and it turns out that for cryptocurrencies it is not much higher than, for example, for the stock market. That is, this is another confirmation that this is, in principle, a more or less normal asset.
– Should it be easier to diversify your portfolio in the case of stocks than with cryptocurrencies?
– Yes it’s true. There are indices in stocks, which makes the buying process easier and cheaper.
But in cryptocurrencies, we also see that institutional investors are starting to form indices. This allows attracting retail players and small investors.
The second area is about improving security, and this is where new asset storage solutions are emerging.
If you want to buy directly, for example, corporate bonds, then this is also not so easy – instead you can buy a bond mutual fund or a bond index, which is much easier. But the biggest development will be in terms of institutional clients. Because it is clear that cryptocurrencies are a completely different asset, it correlates very little with all the factors that determine the value of traditional assets, so such an asset should be kept in a large portfolio.
– Stricter regulation so far leads to the movement of activity to countries with softer conditions, how to develop a “legal” market in such conditions?
– It is important to divide: there is a sector of cryptocurrencies as such, and there are sectors that are associated with blockchain technologies. These are completely different things. It is important to create a level of regulation that would, for example, avoid terrorist financing, money laundering, and so on, but, on the other hand, would not crush completely competitive companies that can make decisions on the blockchain.
– In which sectors can blockchain technologies be really in demand?
– There are a large number of sectors that will be undergoing significant changes due to blockchain. As part of our research, we evaluated nearly 2,000 high-cap cryptocurrencies. We see that a huge number of cryptocurrencies are not related to cryptocurrencies as such at all. These are actually just boring, uninteresting sectors and technologies from the hype point of view. For example, in container shipping. This turns out to be a very difficult matter, because at each port you have to fill out documents, you can lose them, this is all very ineffective, it is difficult to track. Blockchain makes this entire workflow much easier. These are all things related to smart contracts. A smart contract is, by and large, an operating system that allows you to do many things automatically.
It is very difficult to say exactly what will happen, but we see that entire sectors are changing, for example, agriculture. Obviously, the changes will affect the payment system, in its current form it is simply ineffective.
This is also everything related to healthy eating: when you come to the store, you pay 50% more for farm kefir and want to know if it was really made from better quality milk. Cryptocurrency also provides new opportunities for monetization – for example, if before IBM or Maersk created logistics technology, they could pack it as a separate company and sell it, now the same can be done to small companies through cryptocurrency.
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