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There's a difference between what you call DPI (which I called payment system) and central bank money. A CBDC is both, Pix and UPI are only DPI sans central ban

by c7b 2y ago

There's a difference between what you call DPI (which I called payment system) and central bank money. A CBDC is both, Pix and UPI are only DPI sans central bank money (so neither is a CBDC). My point is that you can get all of the benefits of having DPI without needing to incur any of the headaches that come with central bank money (financial stability risks, holding limits, private sector opposition,...). I'm all for DPI, I'm just questioning the bundling with central bank money.

alephnerd 2y ago
I agree with your skepticism about CBDC, but it takes little to no effort to implement your own CBDC, and in the small chance that they did somehow take off, then you have a platform you can export to other countries. > I'm just questioning the bundling with central bank money In most countries excluding the US, EU, UK, and Canada, the Central Bank also sets financial regulations and provides the infra backbone for fintech, and in some cases still own commercial banks. By having central banks attached to these projects, it helps build a testbed so private sector players can then extend on. Most countries aren't like the US where private sector investors are open to investing in innovations, so it would fall to the Central Bank to begin testing and implementing these products.
- c7b 2y ago
  > By having central banks attached to these projects, it helps build a testbed so private sector players can then extend on. Again, you can get all of that without needing a CBDC, just have the central bank build and run a regular payment system. It gets substantially more complex once you make it a CBDC, making the chance of success even smaller. For what gain? You actually introduce some tangible risks for the financial system, the fact that it's regulated doesn't eliminate that. See eg [0]: "Threats to financial intermediation in steady state arise mainly in situations where the central bank balance sheet expands, and triggers adjustment mechanisms that lead to more costly or less stable funding of the banking system, while in crisis times run risk may increase." The typical way to address those risks are holding limits, which add operational complexity (you need an overflow logic, you need a draft logic if you want to enable payments greater than the holding limit), and put some limits on programmability [1]. [0] https://www.imf.org/en/Publications/WP/Issues/2024/10/11/Central-Bank-Digital-Currencies-and-Financial-Stability-Balance-Sheet-Analysis-and-Policy-556246 https://www.imf.org/en/Publications/WP/Issues/2024/10/11/Cen... [1] https://ieeexplore.ieee.org/document/10628652 https://ieeexplore.ieee.org/document/10628652
  - alephnerd 2y ago
    I'm not disagreeing with you. CBDCs are dumb from a financial standpoint. > Again, you can get all of that without needing a CBDC Yep. Pretty much. > For what gain? Because if X country is doing it, Y country should do it as well, and then export the associated infra to a less developed country. By the 2020s, it became a completion between Chinese vs Indian consultancies (ay least in Africa) You have to remember the Cryptocurrency bubble was going strong until 2023 when the FTX scandal happened. Hiring a team of 20-30 engineers isn't that expensive for a moonshot that makes it easier to negotiate if that moonshot somehow actually has an impact on global finance. Of course, most moonshots fail, but it still doesn't hurt to have something back of pocket or build some infra if needed.
    - kaiwenwang 2y ago
      Hello, the things you're talking about (previous comments, not just this) are interesting career-wise. If I studied Computer Science (long-term I do not see myself programming forever) and only have internships related in that area, how would you recommend getting into this field?
      - alephnerd 2y ago
        > If I studied Computer Science (long-term I do not see myself programming forever) and only have internships related in that area, how would you recommend getting into this field? Just keep studying CS. Climb up the ladder to Staff SWE, PM, or EM; and execute and lose hair from there. As Pastuer said, "fortune favors a prepared mind". Most hot thinkers today were hetrodox a couple years ago. You make more money remaining in tech and then switching in your late 20s to late 30s into policy. You can also make more realistic and less ideological policies that way. If you have a protonmail, let's catch up. But tbh, the policy space sucks. It's not worth it (in DC, Beijing, London, or Delhi). If you are smart and lucky enough to break into policy but are also someone who's Mom and Dad don't have a liquid net worth below $750,000-1M in all those countries, you won't make it irrespective of country. Class breaks all nationalistic barriers, and public school class people like you and I won't make it without luck or money (and we can make the latter in the private sector) P.S. love your blog. Similar boat.

by c7b 2y ago

alephnerd 2y ago

I agree with your skepticism about CBDC, but it takes little to no effort to implement your own CBDC, and in the small chance that they did somehow take off, then you have a platform you can export to other countries. > I'm just questioning the bundling with central bank money In most countries excluding the US, EU, UK, and Canada, the Central Bank also sets financial regulations and provides the infra backbone for fintech, and in some cases still own commercial banks. By having central banks attached to these projects, it helps build a testbed so private sector players can then extend on. Most countries aren't like the US where private sector investors are open to investing in innovations, so it would fall to the Central Bank to begin testing and implementing these products.

c7b 2y ago
> By having central banks attached to these projects, it helps build a testbed so private sector players can then extend on. Again, you can get all of that without needing a CBDC, just have the central bank build and run a regular payment system. It gets substantially more complex once you make it a CBDC, making the chance of success even smaller. For what gain? You actually introduce some tangible risks for the financial system, the fact that it's regulated doesn't eliminate that. See eg [0]: "Threats to financial intermediation in steady state arise mainly in situations where the central bank balance sheet expands, and triggers adjustment mechanisms that lead to more costly or less stable funding of the banking system, while in crisis times run risk may increase." The typical way to address those risks are holding limits, which add operational complexity (you need an overflow logic, you need a draft logic if you want to enable payments greater than the holding limit), and put some limits on programmability [1]. [0] https://www.imf.org/en/Publications/WP/Issues/2024/10/11/Central-Bank-Digital-Currencies-and-Financial-Stability-Balance-Sheet-Analysis-and-Policy-556246 https://www.imf.org/en/Publications/WP/Issues/2024/10/11/Cen... [1] https://ieeexplore.ieee.org/document/10628652 https://ieeexplore.ieee.org/document/10628652
- alephnerd 2y ago
  I'm not disagreeing with you. CBDCs are dumb from a financial standpoint. > Again, you can get all of that without needing a CBDC Yep. Pretty much. > For what gain? Because if X country is doing it, Y country should do it as well, and then export the associated infra to a less developed country. By the 2020s, it became a completion between Chinese vs Indian consultancies (ay least in Africa) You have to remember the Cryptocurrency bubble was going strong until 2023 when the FTX scandal happened. Hiring a team of 20-30 engineers isn't that expensive for a moonshot that makes it easier to negotiate if that moonshot somehow actually has an impact on global finance. Of course, most moonshots fail, but it still doesn't hurt to have something back of pocket or build some infra if needed.
  - kaiwenwang 2y ago
    Hello, the things you're talking about (previous comments, not just this) are interesting career-wise. If I studied Computer Science (long-term I do not see myself programming forever) and only have internships related in that area, how would you recommend getting into this field?
    - alephnerd 2y ago
      > If I studied Computer Science (long-term I do not see myself programming forever) and only have internships related in that area, how would you recommend getting into this field? Just keep studying CS. Climb up the ladder to Staff SWE, PM, or EM; and execute and lose hair from there. As Pastuer said, "fortune favors a prepared mind". Most hot thinkers today were hetrodox a couple years ago. You make more money remaining in tech and then switching in your late 20s to late 30s into policy. You can also make more realistic and less ideological policies that way. If you have a protonmail, let's catch up. But tbh, the policy space sucks. It's not worth it (in DC, Beijing, London, or Delhi). If you are smart and lucky enough to break into policy but are also someone who's Mom and Dad don't have a liquid net worth below $750,000-1M in all those countries, you won't make it irrespective of country. Class breaks all nationalistic barriers, and public school class people like you and I won't make it without luck or money (and we can make the latter in the private sector) P.S. love your blog. Similar boat.