A panel Wednesday featuring JPMorgan and Circle was set up by Christine Lagarde as a face-off between incumbent and disruptor.
The managing director of the International Monetary Fund designated roles for each person on her panel of four. In the incumbent corner: two regulators and JPMorgan. In the other: crypto fintech company Circle. The topic: “Money and Payments in the Digital Age.”
“They have each agreed to a particular game where they have been assigned a role that resembles what they do in life,” Lagarde said.
Lagarde set the stage by pointing out that cash is diminishing, mobile is on the rise and person-to-person (P2P) payments have become a gigantic market, especially in China but with very strong showings in Kenya and Europe as well.
Circle CEO Jeremy Allaire was quick to draw the thread between P2P and crypto.
Payment systems like WeChat and Alipay, he said, are simply a better user experience, but cryptocurrencies reflect an impulse that’s endemic to the web.
“I think it simply reflects the impulse that users of the internet have to connect directly and interact,” he said.
Sarah Youngwood from JPMorgan’s consumer and community banking division spoke for the bank. In her first comments, she said, “I think it’s very important: We love competition. Competition makes us better.”
The theme Youngwood returned to repeatedly was the need for regulation. “We welcome the competition as long as the activities of the competitors get regulated, and it’s solving customer issues,” she said.
Youngwood highlighted JPMorgan’s work creating a consortium of banks to offer an alternative to Venmo, called Zelle, which had $119 billion in payments in 2018. She also spoke of JPM Coin as a consortium project.
It’s worth noting here that Lagarde also asked the panel to agree that they weren’t there to discuss bitcoin. For his part, Allaire preferred to emphasize the possibilities of putting a sovereign currency on a public blockchain infrastructure.
“The classic centralized clearing and settlement systems,” he said, “we think will go the way those things have gone in the way of media and retail.”
Allaire said that if sovereign money went onto the internet in a way where people didn’t need a third party to hold their assets safely and they could trade with anyone on the planet quickly, then “they wouldn’t want to go back.”
Once that happens, he said, everyone will want to use the most stable currencies, which will mean reserve currencies. That, he predicted, will threaten governments that don’t have reserve-status money.
He pointed out that people already trust public infrastructure for sharing information, in the form of messaging and the internet. “An open internet model I think will ultimately be felt by the end users as a superior model,” Allaire said.
In math we trust?
“Banks are technology companies,” Youngwood argued, but they are companies that have a track record of providing transparency and security that customers expect.
Allaire argued the same trustworthiness can be provided with cryptography, and once people can trust math everything that needs to be verified can be checked by anyone with access to the internet.
He took this a step further and argued that the threat model for open-ledger networks is nation-state-level adversaries. That’s a much higher level of security than most banks can claim, he argued.
This argument didn’t quite seem to land with his fellow panelists, however.
Lagarde expressed doubt that consumers would want to check the math. And Youngwood moved in on the most famous cryptocurrency of all.
“There has been more fraud in bitcoins than virtually any other form of payment that has existed,” she said.
Allaire didn’t argue that point.
“Bearer instruments are really attractive to people who want to steal things,” he said. But Allaire didn’t want to overemphasize payments. “Payments is actually the sideshow. Payments is going to disappear,” he predicted. He was more interested in the automation and integration enabled by digitizing and decentralizing.
But it was the European regulator, however, who raised perhaps the most haunting concern about the future that Allaire was painting.
Benoît Cœuré of the European Central Bank’s executive board said he was concerned about “the fragility decentralization can introduce in the system if not properly managed.”
Cœuré asked the audience to think back to 2007, which is ironic since many cryptocurrency advocates point to the same time period as the industry’s impetus. Cœuré saw it differently.
“We come from a crisis that was created by risks being thinly spread across the system,” he said, saying that regulators were then told that spreading out risks as they had made the overall system more resilient. However, he told the crowd:
“It proved not to be.”
You can watch the entire panel discussion below.
Panel image (left to right: Christine Lagarde, Benoît Cœuré, Sarah Youngwood, Jeremy Allaire and Patrick Njoroge) courtesy of Circle