Risk Talking To Understand Cryptocurrency, First Understand Money
Jul 27, 2022
Perry Mehrling, a Boston University professor and author, dives into the evolving definitions of money amid today's financial chaos. He discusses how central banks' experiments and the rise of cryptocurrencies, particularly stablecoins, challenge traditional monetary systems. The interplay between money and credit is dissected, revealing the dollar's dominance and the implications of cryptocurrencies in global commerce. Through historical parallels, Mehrling provides a critical look at the future of crypto and its sustainability in an ever-changing economic landscape.
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Elasticity to Discipline Shift
- Financial systems' elasticity allows rolling over debts easily in good times, but the pandemic response led to elasticity giving way to stricter discipline.
- Crypto, as a newcomer, fails first in this shift since it lacks central bank backstops and robust settlement mechanisms.
Stablecoins Link Crypto to Dollars
- Stablecoins bridge crypto to real dollars but lack sufficient reserves or central bank support to guarantee redemption.
- Selling crypto assets to meet redemptions pressures crypto prices downward, linking stablecoins' health to broader crypto asset stability.
Crypto's Two Bank Runs
- Crypto experiences two bank runs: one within crypto switching between stablecoins, another from stablecoins back to real dollar deposits.
- These runs expose inadequate backing of promises and create withdrawal pressures akin to historic wildcat banking.
