Summary of the Conversation between Paul Krugman and Hélène rey on Blockchain, Crypto, and the Future of Currency
This conversation centers around the risks associated with cryptocurrencies, the potential benefits of Central Bank Digital Currencies (CBDCs), and the future role of the Euro in a changing global landscape. Hear’s a breakdown of the key points:
1. risks of Cryptocurrencies:
Quantum Computing Threat: Both Krugman and Rey express concern that the emergence of quantum computing poses a meaningful threat to the security of many existing blockchains, as it coudl break the public key cryptography they rely on.This could lead to a “run” on vulnerable currencies.
Lack of Legal & Governance Framework: Rey highlights the lack of clear legal underpinning and governance structures in the crypto world.It’s unclear who is responsible and how funds will be recovered in the event of a hack.
Hacking & Obligation: Krugman points out the crucial difference between a hack on a CBDC (like a euro CBDC) and a hack on a private cryptocurrency. With a CBDC, the central bank (e.g., ECB) would likely cover the losses. With a private crypto, the loss falls entirely on the individual.This creates a significant stability risk.
Krugman’s Realization: Krugman admits he hadn’t previously considered cybersecurity and hacking as major risks to the global economy, despite decades of studying economic risks.
2. Advantages of Central Bank Digital Currencies (cbdcs):
Stability & Security: cbdcs, backed by central banks, offer a level of security and stability that private cryptocurrencies lack. The central bank assumes responsibility for losses due to hacking or system failures.
Accountability: Clear legal frameworks and governance structures would be in place for CBDCs.
3. The Future of the Euro & Europe:
Europe’s Proactive Role: Rey hopes Europe will be more proactive in shaping its future, drawing on the ancient principle that Europe progresses through crises.
Strengthening the Euro: rey advocates for strengthening the Euro, notably in the context of a changing energy landscape.
New Commodity Markets: She believes the Euro could gain prominence in commodity markets related to electrification and the new minerals needed for green technologies, moving away from the dollar’s dominance in traditional oil markets. Investment in the Future: Rey stresses the importance of investing in human capital and future technologies, despite high debt-to-GDP ratios.
* Europe as a Value-Based counterweight: Krugman views Europe as a crucial “backup” for the values that are being eroded in the United States.
In essence, the conversation paints a cautious picture of the future of cryptocurrency, emphasizing the risks and uncertainties, while highlighting the potential of cbdcs and the importance of Europe taking a leading role in a changing world.
