SIMON JOHNSON: I think the
banking system in five or eight
years is going to be
profoundly changed.
The idea that you need to put
your money with a bank that
then takes some high fees and
commissions in order to let you
have your money back
in order to make loans
on the other side of it's
balance sheet-- that, I think,
will quickly become a strange
and somewhat antiquated idea.
I think there's going to be more
person to person transactions.
I think the way that
we make payments
is going to be really quite
different in the economy going
forward.
There will be banks,
but the role of banks
will change quite dramatically.
And I think the banks
that will do better
will be ones that are simpler,
the ones that are smaller,
ones that people trust
in the community,
and ones that are willing
to show what kind of impact
they have with your money.
Well, much more transparency,
much more accountability,
much more visibility so you
can see what not just banks,
but other companies are doing.
This is what we're going to
get with a decentralized set
of technologies that are loosely
referred to as blockchain.
You're going to have a lot
more visibility of who did what
and when.
And intermediaries
like banks are
going to have to
choose how much they
show to different stakeholders.
I think many of them are
going be forced to show a lot.
Perhaps you can
hide the identity
of the individual clients
so it protects your privacy.
That's also an important issue.
But showing the kinds
of activities you do--
and not just showing or
not just claiming it,
but showing in a way that can
be verified independently.
That's where the
sector is heading.
Well, change in the
finance system obviously
has to get past the
obstacle created
by a very powerful elite--
the largest banks
in the United States
and Europe and other places.
And here, the good news is
that the technology can be--
is being developed by
different kinds of firms,
by firms or other sectors,
by new firms, startups.
And the technology can be
used not just in finance,
but also, across other many
other applications, where there
could be some advantage
to a decentralized or more
distributed system.
So this is a wave of
technological development
that some people see as
similar to what happened
with the early internet.
Now it's true that the internet
has become more concentrated.
A lot of advertising runs
through relatively few firms.
But we've also
completely changed
the nature and the
structure of information--
how information flows
within our societies
and across our societies.
And I think that's
exactly what's
going to happen to finance.
So some powerful people
may end up in charge--
don't get me wrong--
but it'll be a different
set of powerful people.
Well, the big dominant players
are a problem, no question.
And they could also take
control of the new technology
and use it in ways that
just make themselves bigger,
absolutely.
But I actually think
this technology
has a better dynamic to it.
Regulation matters--
don't get me wrong--
but I see the potential here for
more decentralized solutions.
I see absolute potential for
bypassing intermediaries,
for making financial
transactions more efficient,
reducing the cost.
But also, making
them more transparent
and allowing people to
demand more accountability.
So that's a very
powerful dynamic,
and we'll see if I'm right,
but that will fundamentally
change finance more, I think,
from the technology side
than from the regulatory side.
Well, I think with regard to
technological development,
the government has to create
a permissive environment.
They have to allow innovation.
They must, of course,
be comfortable
that it's sensible
responsible innovation,
and that's a very important
role, for example, for MIT.
We're very engaged through
the digital currency
initiative at MIT's Media Lab
in understanding technology,
discussing with officials,
talking to central banks
about what would be
sensible and not sensible.
And trying to take a completely
neutral social point of view.
So I think if
governments can provide
that kind of environment,
that will be very helpful.
And if governments can
become good customers
for this new technology--
because governments
have many problems that
would be better solved
in a more distributed
or decentralized way.
So countries that embrace this
kind of approach earlier I
think will improve the
quality of government services
and create a new dimension
to that technology sector,
and a broader set of innovations
in their society dealing
with their problems.
So again, distributed solutions
for a distributed world--
that seems like an
appealing approach.
Well, if you're talking about
the American political system,
of course, it's
driven a lot by money.
And that's part of the
power of the big banks--
is they have a lot of funds
to contribute to politicians
at various levels.
The interesting thing about
the technology development
is it creates new fortunes.
And those new fortunes are
not necessarily in favor
of continuing with the same
existing structures, in fact,
many of the people developing
distributed technology will
do much better if that
technology displaces existing
forms of intermediation-- for
example, in the forms of very
large banks.
So I think we have some
tendency to inertia
in American politics, but
we also have a tendency
for new people and new fortunes
to rise up and challenge
the existing elite.
And how that plays out, of
course, remains to be seen.
If you step outside the
United States-- obviously,
the politics are
different everywhere--
but the same appeal
of technology--
who would refuse to adopt
mobile phones, for example?
That would be crazy.
Who would refuse to adopt
a more distributed approach
to finance?
Also, that will seem
soon to be crazy.
So standing in the
way of innovation
is never a good
political strategy.
And this is a big
advantage in this moment,
in this sector, that will help
bring some sensible change.
