Seminar Report
Moderator: Christine Lagarde, Managing Director, International Monetary Fund
Panelists:
Jeremy Allaire, Chief Executive Officer, Circle
Benoît Cœuré, ECB Board member, and Chair of BIS Committee on Payments and Market Infrastructure
Patrick Njoroge, Governor, Central Bank of Kenya
Sarah Youngwood, Chief Financial Officer, Consumer and Community Banking Segment, JP Morgan Chase
Digitalization is reshaping economic activity, shrinking the role of cash and spurring new digital forms of money and payments. The panel engaged in a lively discussion of the perils and promise of digital payments, focusing on the role of the private sector versus that of central banks.
Key Points:
· Meeting modern needs. Panelists discussed the state of the actors in the current financial system. Allaire argued that software provides a superior method of settling transactions. Digital currencies—which grow organically without central players—reflect the internet generation’s impulse to connect and interact directly without intermediaries. Njoroge explained that M-Pesa—a mobile phone-based money transfer, financing, and microfinancing service—had been a success in Kenya because it satisfied public demand for peer-to-peer payments, and was supported by high smartphone penetration. In addition, the central bank worked with the innovator to minimize the risks early on. Youngwood highlighted JPM Coin—J.P. Morgan’s newly launched digital coin—as a hybrid system that combined the security of the traditional banking system with the trusted transaction clearances of a distributed ledger technology (DLT). Hundreds of banks have partnered with them in this decentralized network. Cœuré remained convinced that the traditional banking system is here to stay, but also that fintech is one of the few areas in financial regulation where regulators can have a direct impact on consumers, as it affects all citizens at all economic levels. Regulators are necessary to ensure trust in the financial system and provide the backbone infrastructure.
· The future of finance. Panelists had diverging views on the future of the financial system. Allaire envisioned a system akin to the open network of the internet, with public infrastructure for digital transactions that anyone can access. In such a world, the traditional banking system, sovereign money, and even regulators would disappear. Cœuré stated that banks are already being disrupted, and the best of them are adapting. Regulators are not interested in favoring any actors, but prefer a diverse mix as competition fosters innovation and will create a more stable financial system. The future landscape will be shaped by a complex mix of social preferences, market forces, and political considerations. Consequently, regulators must engage directly with all stakeholders as the system develops.
· Trust and security. Njoroge stressed the importance of consumer trust. The sophistication of the base technology, and how well it would deal with extreme situations such as power failures are key attributes of a successful system. Allaire said that relying on code-based proof of transactions instead of fallible or corruptible human intermediaries would build a radically more private, resilient, and secure financial system. However, Youngwood noted that global financial institutions are still more trusted than governments and NGOs because they invest heavily in consumer protection, such as cyber security. Furthermore, she believed consumers would always place more trust in valuable human interaction and noted that there have been more instances of fraud in digital systems than anywhere else.
Quotes:
“The role of banks as providers of payment services is being challenged, and banks are going to have to adapt to survive, or possibly disappear,” Christine Lagarde
“Cryptocurrencies and blockchains are not just about digital payments…This isn’t just about whether we trust digital currency or cryptocurrency, this is about a fundamental redesign of the basics of how civic society will ultimately function.” Jeremy Allaire
“Payments is the sideshow… The really interesting question is, now that we have public infrastructures like blockchains, how can we start to automate and integrate economic actors around the world in innovative ways?” Jeremy Allaire
“What can be new and quite a concern is the fragility that decentralization can introduce in the system if not properly managed…Decentralization is very fine from a technology standpoint, but we have to make sure it doesn’t make the system more fragile.” Benoît Cœuré
Contributors: Aric Maiden and John Bishop
Digitalization is reshaping economic activity, shrinking the role of cash and spurring new digital forms of money and payments. The panel—including representatives from central banks and the private sector (incumbents and disrupters)—will discuss the future of money and payments, focusing on the role of the private sector versus the central bank. Should the central bank focus on providing the supporting infrastructure and regulating the market? Or, should it actively and directly provide payment services (such as by offering central bank digital currency)? What is the role of the state in ensuring trust in payment services? Does regulation favor banks or non-banks? Are private forms of money provided by non-banks substitutes or complements to banking services? Can the private sector build trust independently, such as through decentralized ledger technologies? What are the implications of these developments for financial intermediation, stability, consumer protection, and even privacy?
Join the conversation: #DigitalPayments
Moderator
Christine Lagarde
Managing Director, IMF
Chistine Lagarde is a French lawyer and politician who has been the Managing Director (MD) of the International Monetary Fund (IMF) since 5 July 2011. Previously, she held various, senior ministerial posts in the French government: she was Minister of Economic Affairs, Finance and Employment, Minister of Agriculture and Fishing and Minister of Trade in the government of Dominique de Villepin. An anti-trust and labour lawyer, Lagarde was the first female chair of major international law firm Baker & McKenzie, between 1999 and 2004.
Panelists
Jeremy Allaire
Chief Executive Officer, Circle
Jeremy Allaire is Co-Founder and CEO of Circle, a crypto finance company with products used by individuals and institutions around the world. Allaire has more than two decades of experience building and leading global internet software platforms and online service companies. He is also currently a member of the IMF’s High-Level Advisory Group on Finance and Technology. Before founding Circle, Allaire founded and served as CEO of Brightcove, an online service aimed at disrupting the traditional video distribution industry, which grew to become a global public company used by top media and marketing organizations in more than 60 countries. Prior to Brightcove, he was a technologist and entrepreneur-in-residence at General Catalyst, a Cambridge-based venture capital firm. He also co-founded Allaire Corporation, a pioneer in web publishing and online database technology, which he also took public and was later acquired by Macromedia where he served as CTO and helped make the Flash platform the most widely adopted software in the history of computing. Prior to his involvement in the internet industry, Allaire was a student of international political economy.
Benoît Cœuré
Executive Board Member, and Chair of BIS Committee on Payments and Market Infrastructure
Benoît Cœuré has been a member of the Executive Board of the European Central Bank since 2012. He is responsible for International and European Relations, Market Operations and the Oversight of Payment Systems. He is also the Chairman of the BIS Committee on Payments and Market Infrastructures. Previously, he served in various policy positions at the French Treasury, including Deputy Director General and Chief Economist from 2009-2011. Cœuré is a graduate of the École polytechnique in Paris. He holds an advanced degree in statistics and economic policy from the École nationale de la statistique et de l’administration économique (ENSAE) and a BA in Japanese. He is an affiliate professor at Sciences Po in Paris. He has authored articles and books on economic policy, the international monetary system and the economics of European integration.
Patrick Njoroge
Governor, Central Bank of Kenya
Patrick Njoroge is Governor of the Central Bank of Kenya (CBK). He joined the CBK after a 20-year career at the International Monetary Fund (IMF) in Washington, DC. Prior to his appointment as Governor, Njoroge was Advisor to the IMF Deputy Managing Director where his responsibilities included assisting in overseeing the IMF’s engagement with a large cross-section of IMF members. He has also served as Deputy Division Chief in the IMF’s Finance Department and IMF’s Mission Chief for the Commonwealth of Dominica.
Prior to the IMF, Njoroge worked as an economist at the Kenyan Ministry of Finance during 1993-1994 and as a planning officer at the Ministry of Planning in 1985-1987. He has a PhD in Economics from Yale University as well as an MA in Economics from the University of Nairobi. Njoroge’s professional and research interests lie in macroeconomics, economic policy, international finance, development economics, econometrics and monetary policy.
Sarah Youngwood
Chief Financial Officer, Consumer and Community Banking Segment, JP Morgan Chase
Sarah Youngwood has been the Chief Financial Officer of Consumer & Community Banking at JPMorgan Chase since April 2016. Previously, Youngwood served as the head of Investor Relations for JPMorgan Chase. Youngwood also spent 14 years in the Financial Institutions Group within the firm's Investment Bank. In addition to experience managing relationships with specialty finance, hedge fund and asset management clients, she also has proven knowledge of the firm's businesses and products. She sits on the advisory board of the Wall Street Women’s Alliance, which is dedicated to creating a culture that enables women to advance to c-suite roles in the financial industry. Youngwood received a combined undergraduate and master's degree in finance from ESCP Europe -EAP and spent 6 months at Stanford Graduate School of Business. She lives in New York with her husband and three children.
Media Partners
Moderator: Christine Lagarde, Managing Director, International Monetary Fund
Panelists:
Jeremy Allaire, Chief Executive Officer, Circle
Benoît Cœuré, ECB Board member, and Chair of BIS Committee on Payments and Market Infrastructure
Patrick Njoroge, Governor, Central Bank of Kenya
Sarah Youngwood, Chief Financial Officer, Consumer and Community Banking Segment, JP Morgan Chase
Digitalization is reshaping economic activity, shrinking the role of cash and spurring new digital forms of money and payments. The panel engaged in a lively discussion of the perils and promise of digital payments, focusing on the role of the private sector versus that of central banks.
Key Points:
· Meeting modern needs. Panelists discussed the state of the actors in the current financial system. Allaire argued that software provides a superior method of settling transactions. Digital currencies—which grow organically without central players—reflect the internet generation’s impulse to connect and interact directly without intermediaries. Njoroge explained that M-Pesa—a mobile phone-based money transfer, financing, and microfinancing service—had been a success in Kenya because it satisfied public demand for peer-to-peer payments, and was supported by high smartphone penetration. In addition, the central bank worked with the innovator to minimize the risks early on. Youngwood highlighted JPM Coin—J.P. Morgan’s newly launched digital coin—as a hybrid system that combined the security of the traditional banking system with the trusted transaction clearances of a distributed ledger technology (DLT). Hundreds of banks have partnered with them in this decentralized network. Cœuré remained convinced that the traditional banking system is here to stay, but also that fintech is one of the few areas in financial regulation where regulators can have a direct impact on consumers, as it affects all citizens at all economic levels. Regulators are necessary to ensure trust in the financial system and provide the backbone infrastructure.
· The future of finance. Panelists had diverging views on the future of the financial system. Allaire envisioned a system akin to the open network of the internet, with public infrastructure for digital transactions that anyone can access. In such a world, the traditional banking system, sovereign money, and even regulators would disappear. Cœuré stated that banks are already being disrupted, and the best of them are adapting. Regulators are not interested in favoring any actors, but prefer a diverse mix as competition fosters innovation and will create a more stable financial system. The future landscape will be shaped by a complex mix of social preferences, market forces, and political considerations. Consequently, regulators must engage directly with all stakeholders as the system develops.
· Trust and security. Njoroge stressed the importance of consumer trust. The sophistication of the base technology, and how well it would deal with extreme situations such as power failures are key attributes of a successful system. Allaire said that relying on code-based proof of transactions instead of fallible or corruptible human intermediaries would build a radically more private, resilient, and secure financial system. However, Youngwood noted that global financial institutions are still more trusted than governments and NGOs because they invest heavily in consumer protection, such as cyber security. Furthermore, she believed consumers would always place more trust in valuable human interaction and noted that there have been more instances of fraud in digital systems than anywhere else.
Quotes:
“The role of banks as providers of payment services is being challenged, and banks are going to have to adapt to survive, or possibly disappear,” Christine Lagarde
“Cryptocurrencies and blockchains are not just about digital payments…This isn’t just about whether we trust digital currency or cryptocurrency, this is about a fundamental redesign of the basics of how civic society will ultimately function.” Jeremy Allaire
“Payments is the sideshow… The really interesting question is, now that we have public infrastructures like blockchains, how can we start to automate and integrate economic actors around the world in innovative ways?” Jeremy Allaire
“What can be new and quite a concern is the fragility that decentralization can introduce in the system if not properly managed…Decentralization is very fine from a technology standpoint, but we have to make sure it doesn’t make the system more fragile.” Benoît Cœuré
Contributors: Aric Maiden and John Bishop
