Crypto Regulation Is Necessary

Professor Paul Krugman details the history of financial regulation, including how it works and who it serves, and he discusses why he believes cryptocurrency shouldn’t be exempt from legal oversight.

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Topics include: How Regulation Works • Treat Exchanges Like Banks • Securities or Commodities?


[MUSIC PLAYING] - Financial regulation of one form or another was introduced pretty soon after anything resembling a modern monetary system was created. We had the first real sort of banking crisis in history in Scotland in the 1770s. And Adam Smith, in "The Wealth of Nations," talks about the need to regulate banks. And ever since, we've discovered that, as a gradually more sophisticated, more complex system, we keep on learning, from bad experiences, that you need various kinds of prudential regulations to make that system work smoothly without disaster. We have had long periods when there was private money that was issued by private banks, usually with the promise to convert it into gold coin if you wanted. But even that wasn't good enough, because it turns out that there were too many cases when banks didn't really have resources to honor their promises, too many cases in which a run on the bank meant that even though the assets were adequate, you couldn't sell them fast enough. So every system that has relied upon decentralized private money has ended up calling in the government to act as a backstop to make sure that bad things don't happen. And there's absolutely no reason to think that crypto, in any way, exempts you from that. [MUSIC PLAYING] The funny thing about regulation is that regulation is successful when you don't notice it. When bad things don't happen, that means that the regulation has worked. It used to be quite common for people to put money in a bank account and then have the bank go bust. In fact, there were even banks that were sort of designed to go bust. Wildcatting was opening a bank in a remote location where it would be hard to check them out. And people would accept their notes. And then the bank would disappear, and the notes would become worthless. The regulation says-- actually, the way it now works, your bank account is an incredibly safe place to put your money. It's incredibly safe partly because banks are supervised. They are required to prove that they have sufficient capital, required to prove that they have sufficient liquidity, which means not just that they have assets but that the assets are stuff that can be turned into cash quickly. The benefits of regulation are not simply that you don't lose money through fraud. You're able to live your life in a way that assumes that things are going to be at least more or less fair and honest. If we think about bank regulation, above all, what regulation does is, it sharply limits the frequency and severity of systemic collapse. So what regulation does is, it creates an economy in which, for the most part, people can get on with the business of producing stuff that other people want to buy instead of an economy in which everybody has to be preoccupied with, is this safe? Is the system just going to-- you know, are we going to have an operating-system crash for the economy, as a whole? So those are the hidden benefits of r...

About the Instructor

Since Bitcoin’s launch in 2009, crypto has offered the hope of a stronger, more democratic financial system. And it’s raised plenty of questions as it continues to evolve. Now experts and skeptics at the center of the conversation are sharing a straightforward look at how this ecosystem is changing. Learn the basics, dive deep into the world of blockchain and Web3, and get the breakdown on what you need to know now.

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Chris Dixon, Changpeng “CZ” Zhao, Emilie Choi, and Paul Krugman

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