Luohan Webinar (10th)
Robert Townsend (MIT) on “Optimized Payment and Financial Infrastructure under Distributed Ledgers and Cryptography”
December 4, 2020, Friday
9-10:30 am (EST)
Technologies like distributed ledgers and cryptography have enormous innovative potential to transform our economic organization and financial structure. Much of this is not new, but innovations are more frequent and technology is evolving and improving.
On Friday, December 4, Luohan Academy hosted Robert Townsend (MIT) to talk about “Optimized Payment and Financial Infrastructure under Distributed Ledgers and Cryptography.” Townsend led the 10th Luohan Webinar, where over 50 scholars and experts from the community of Luohan Academy, including Bengt Holmström (MIT), Darrel Duffie (Stanford), Michael Spence (LSE), Tao Zhang (IMF), Zhiguo He (U Chicago), Lin Cong (Cornell), and others participate the webinar.
Prof. Townsend’s presentation illustrates the ex-ante design of financial and monetary systems, revealing blueprints for moving forward. Townsend illustrates the useful regulatory role of distributed ledgers and smart contracts for Central Bank tokens, namely coordination, information sharing, and avoiding disruption due to market segmentation. What is Central Bank Digital Currency good for and what likely it is not? Are there alternatives to using CDBC? Townsend further examines the shortages and problems that fast payments could bring. He highlights the need for information infrastructure, thinking of CBDC as a database. Townsend proposed a remedy of better financial infrastructure using DLT and cryptography, moving towards optimized economy-wide design payment systems and better policy using conceptual framework. The main idea of this system is the following:
- DLT: Market design for credit with insurance contingencies, to deal with liquidity shortages.
- Cryptography: Use homomorphic encryption and multi-party computation to deal with privacy issues and use assets on ledgers with smart contracts to affect the requisite transfers.
- General principle: Full implementation of solutions to mechanism design problems without a planner
In addition, Prof. Townsend offers a new view of monetary policy with transaction data from ledgers and CBDC to integrate the macro policy rate with the micro facilities. As financial infrastructure evolves with public or private innovation, we can anticipate a long-term change in the landscape of monetary policy as well.
Throughout the talk, Prof. Townsend emphasizes the genuine economic roles in solving fundamental problems, as opposed to the allure of the technologies. He provides alternatives for public sector provision of transfers and insurance, with the goal of providing insurance transfers in pandemics such as COVID-19 and other natural disasters for SMEs. Prof. Townsend reviews the goals of CBDC payment systems and offers a solution for dealing with issues of industrial organizations and big tech competitions in practice. He also proposes concrete action plans in emerging markets, such as Thailand, and the U.S. to implement an algorithm for assessment of financial infrastructure and payments systems. The specific applications he analyzes include the Townsend Thailand project, which integrates new financial technologies such as smart contracts and cross-border transfers into platform design and public sector provision, to ensure competition in market structure. For advanced economies, he proposes to build SME financial and information infrastructure for contracts with contingencies, securitization, and trade platforms.
Robert M. Townsend is Elizabeth & James Killian Professor of Economics at MIT. Townsend is also a Distinguished Research Fellow at the Becker Friedman Institute for Research in Economics at the University of Chicago and a Research Associate at the National Bureau of Economics. Townsend analyzes the role and impact of economic organization and financial systems through applied general equilibrium models, contract theory, and the use of micro data.
Luohan Webinar is a regular event of the Academy purported to provide a platform for world-class scholars to present their frontier research and exchange views on digital technology and digital economy, among other related themes. We believe that truth can only be uncovered through open and critical discussions.
Forthcoming webinars by:
Professor Raghavendra Rau (Cambridge), Dec 7, 9am EST
Professor Zhiguo He (MIT), Dec 15, 9am EST
Professor Jun Pan (SAIF), Jan 12, 8pm EST
Professor Francesco D’Acunto (Boston College), TBD
Professor Haoxiang Zhu (MIT), TBD
Past Luohan Webinar:
Nov 9, 2020, Neng Wang (Columbia) on “Implications of Stochastic Transmission Rates for Managing Pandemic Risks”
Oct 27, 2020, Sir Chris Pissarides (LSE) on “Productive Robots and Industrial Employment”
Oct 19, 2020, Xavier Vives (IESE), Elena Carletti (Bocconi University), Stijn Claessens (BIS), and Antonio Fatás (INSEAD) on “The Bank Business Model in the Post-Covid-19 World”
Sep 22, 2020, Xavier Vives (IESE) on “Digital Disruption in Banking”
Sep 8, 2020, Soumitra Dutta (Cornell), “Measuring Digital Economy”
Aug 31, 2020, Lin William Cong (Cornell), “Economic Data Science”
Jul 15, 2020, Alberto G. Rossi (Georgetown), “Robo-advisors for Investment, Consumption and Savings Decisions”
Jun 18, 2020. Victor Couture (UC Berkeley), “Measuring real-time movement and social contact with smartphone data”
Jun 5, 2020, Michael Weber (Chicago), “The Cost of the Covid-19 Crisis”
If you would like to give a presentation in a future webinar, please contact our Economist Dr. Xijie Gao (firstname.lastname@example.org ).