Andreas Park PRO
Professor of Finance at UofT
Andreas Park
Presentation for Lakehead University's
Third Age Learning Initiative
What is a blockchain?
What is a cryptocurrency?
What is Decentralized Finance?
decentralized finance =
provision of financial services without the necessary involvement of a traditional financial intermediary
in practice: new financial infrastructure that will be a common resource
payments
stocks, bonds, and options
swaps, CDS, MBS, CDOs
insurance contracts
\(\vdots\)
Source: Harvey, Ramachandran, and Santoro (2020)
Risks and open problems
What lies ahead?
Fall 2021 description
previous description: "New financial infrastructure"
NB: underlying language "Move" is explicitly designed for financial contracts
Source: Croxson, Frost, Gambacorta and Valletti (2021)
cellphone data from 2018 (NewZoo), inflation from 2020 (World Population Review)
DIEM = "new financial infrastructure"
Source: BIS Working Papers No 880 "Rise of the central bank digital currencies: drivers, approaches and technologies" by Raphael Auer, Giulio Cornelli and Jon Frost
CBDCs are on their way
The Bank of Canada's Contingency Plan (Feb 2020):
Consider Issuing CBDC if:
Will they?
Veneris, Park, Long, Puri (2021): BoC is in a legal position to issue a CDBC and there are several legal paths to do so
Can they?
Possible CBDC architectures
Source: BIS Quarterly Review, March 2020
Disintermediation through CBDCs: the common view
BoC analysis (August 2020):
Disintermediation through CBDCs: the evidence
Disintermediation through CBDCs: the evidence (part II)
BoC paper May 2020 (Chiu, Davoodalhosseini, Jiang and Zhu): "[...] a CBDC that competes with bank deposits as a means of payment can compel banks to raise the deposit rate and expand bank intermediation and output. The model [... for US] suggests that a CBDC [...] can raise bank lending by 3.55% and output by 0.50%. "
Federal Reserve Board research by Anderson, Du, and Schlusche (2021): when large U.S. banks lost access to roughly $1 trillion of below-market-rate funding because of the 2016 reform of money-market mutual funds, these banks did not cut back on lending.
Duffie and Krishnamurthy (2016): "By lowering frictions in the payment system, a CBDC should improve the efficiency of money markets and lead to increased lending."
My reading of the evidence:
Final Thoughts
Evolution
CBDCs
Source: Letter to Janet Yellen, Chair of the Financial Stability Oversight Council (FSOC) https://www.warren.senate.gov/imo/media/doc/FSOC%20Crypto%20Letter%2007.26.2021.pdf
“[…] the need for a coordinated and cohesive regulatory strategy to mitigate the growing risks that cryptocurrencies pose to the financial system”
Blockchain = Web 3.0
metaverse =
marriage of the digital and physical world
Web 4.0: The Metaverse and Non-Fungible Tokens
Qualitative description of risks
Source: Cambridge Bitcoin Energy Consumption Index https://cbeci.org/
@financeUTM
andreas.park@rotman.utoronto.ca
slides.com/ap248
sites.google.com/site/parkandreas/
youtube.com/user/andreaspark2812/
By Andreas Park
This is the slide deck that I used in a presentation for UofT Alumni on June 10, 2021.