Russian Sanctions

Mark Lurie:

Welcome to WTF Crypto, where we explore the crypto universe to understand what's really going on and how it affects you and your portfolio. I'm your host, Mark Lurie. And, as a caveat, nothing in this podcast is legal or investing advice. Today we're talking about international payment systems, especially with respect to crypto and what it means for crypto, with Peter Dittus, the former Secretary General of the Bank for International Settlements, one of the major international monetary institutions. Welcome Peter. Thanks for joining us.

Peter Dittus:

Pleasure to be here, Mark, with you. Look forward to talking.

Mark Lurie:

So the issue of the moment is Western sanctions on Russia related to the war in Ukraine. The West has imposed serious sanctions, and there's been a lot of worries that evasion of these sanctions will happen through cryptocurrency. But that hasn't really seemed to materialize. So, it seems really relevant to understand how these sanctions work, how that relates to payment systems, and what this means for the future of payment systems and for crypto more broadly. Perhaps nothing will have a bigger, long term impact on crypto relative to fiat, and thus crypto value, than how payment systems around the world evolve and what's used for in international flows of money within and between countries. So I'm really excited to have you here today and learn all about your thoughts on the matter. To start, I'd love to understand, for the benefit of our listeners, a little bit about your background and expertise and what makes you such a credible guide on this subject?

Peter Dittus:

Well, I've been working at the Bank for International Settlements for many, many years as Secretary General. And maybe, for who are not familiar with the Bank for International Settlements, it's an organization owned by central banks who was really founded after the First World War in 1930 to create, basically to facilitate the payments and settlements, the reparation settlements after the First World War. The German payments basically. And now fast forward, the BIS has evolved over the many years. It is still a major organization involved in managing reserves of central banks and facilitating payments and settlements, in particular through the payments and settlements committee at the Bank for International Settlements. So, long story short, it's a pretty relevant institution in that space.

Mark Lurie:

Okay. Makes sense. And so it's one of the major international monetary institutions and it sounds like it really has a lot to do with flows of money between countries, how central banks manage their reserves, and actually the reserves itself. And, and you're an economist by that background, correct?

Peter Dittus:

Yes. I'm an economist by background and my interest has always been in economics and in particular in financial economics related to central banking.

Mark Lurie:

Okay. Got it. Great. Well why don't we start then by just understanding a little bit about what's going on today with respect to Russia, and then we can zoom out. So it sounds like the West is imposing some pretty serious sanctions both on the Central Bank of Russia and on payments within and between. Can you just give us a little bit of context for what's happening there and how that actually works?

Peter Dittus:

In a nutshell, it's pretty simple. There are two things that are going on. One is the Central Bank of Russia has international reserves. And since those are mostly in dollars and in euros, obviously they are placed within central banks or banks, mostly banks and papers, government paper in the West in the major financial centers. And those reserves have been frozen as part of the sanctions. And perhaps to put it into perspective, this is pretty unusual. In previous wars, basically, international payments and reserves were treated as state property and were, with the exception perhaps of Iran and Afghanistan more recently, they were not affected really so that the payments could continue. So that is number one. The second one is that all the international payments rely on a messaging system and kind of email system, which is called SWIFT. And the SWIFT uses authenticated and secure messaging between banks to make payments effective, to alert about payments, and to give confidence that this payments are actually coming from the person that says where it's coming from and people can rely on it.

Peter Dittus:

So it's a little bit like an international email system. And the sanctions have now cut out a large number of Russian central banks from that email system, which means that the banks who are cut out of that system, they find it very, very difficult now to make any international payments. Now, just maybe to put it into perspective, of course the sanctions haven't cut out two of the major banks, BEAR bank and Gazprombank, which are those who are required for the West to make payments for oil and gas and gasoline. So those banks, they are not affected. So we have talked about the international banks, so the reserves are frozen. The international payments are, for most banks of Russia, are frozen. But you have to realize that this international, this SWIFT system is also used domestically in Russia. In basically every country it's used also domestically. So if the SWIFT system is really... If a country or the banks of a country are prevented from using the system, it also affects domestic payments.

Mark Lurie:

I see. Okay. Got it. And so there's an impact on globalization, there's also an impact on within-country economic activity. Okay, so there's three things I'd love to dig into each a little bit more. So the first is around central bank reserves. Can we back up one step more and understand why countries have reserves? Why does Russia have so many reserves? And why is it actually kept in the West?

Peter Dittus:

Well, it's relatively simple. As a country, you have reserves because you have exports and imports and those are not a hundred percent synchronized. And then suddenly something may happen. A catastrophe. Your exports may not work. You may have sanctions imposed. So you want to have a reserve buffer. Every country has it. Russia is not very particular in that. And those reserves are obviously you need to have them in the reserves that in the kind of money that everyone exists is accepting. So if you have it in Egyptian denars, for example, that money is not widely accepted for payment internationally. This is why there's really a large concentration of reserve holdings in dollars, in euros, in yen, and in pound. And that means if you want to hold these currencies, you need to hold them with people who deal in these currencies. And they are in the major financial centers. They are the banks.

Mark Lurie:

I see. So Russia holds a lot of USD let's say, and other major reserve currencies, because they're used for trade and Russia wants to be able to pay for international goods and make sure it's domestic economy can buy things internationally that it relies on and needs, even if there's a weird disruption in the markets or the ruble takes a hit or something like that. And that's kind of the main actually goal-

Peter Dittus:

That's right.

Mark Lurie:

...of reserves that's

Peter Dittus:

That's right.

Mark Lurie:

Right. Okay. Got it seems like a strategic problem to keep those reserves in another country, but I guess you don't have much of a choice because the whole point is to use those for purchasing in other countries.

Peter Dittus:

That's true. And that of course depends very much of what are the international currencies that are accepted for payment. And in the past, the dollar had a pretty much of a monopoly position. The euro comes as a second. And as you block the usage of these currencies, other countries of course, are starting to have second thoughts. If those currencies that I have for a rainy day, I can't use when the day is raining. You actually, you think about what is the alternative? So the Russian bank, after the Crimea crisis, they have already diverted a lot of their reserves into gold. Actually other countries like China, India, Brazil, as some major countries, seeing what is happening now to the reserves of Russia, they will think very hard of what's the right place to hold reserves.

Peter Dittus:

And should we not just diversify reserves more? And, perhaps more importantly, a switch to other currencies for payment and invoicing? And you see that within between Russia and India, you see that between Russia and China, and you see this integration of the unified global financial system happening. You don't see it already, but you see it coming. It's pretty obvious.

Mark Lurie:

Well, it seems like one of these classic problems where you have network effects, right? And everyone uses US dollars.

Peter Dittus:

Exactly.

Mark Lurie:

So it's really hard for any individual to not use US dollars in denominating expenses. Right? Everyone wants the currency for their assets and liabilities to match so that they know they're not going to accidentally not have those line up what they owe and what they pay. And so it's really hard to get anyone to switch off. And that can take a lot of stress. And I guess it sounds like you think there's a tipping point at which that network effect is broken. And I guess the question is, is there any way to know when that tipping point is actually hit or is it just this kind of amorphous risk the network effect breaks, but we don't really know how much stress it can take?

Peter Dittus:

I mean, payment systems evolve very slowly. It's not just that you decide to pay or to hold reserves. There's a whole infrastructure built on it. Expectations, business relations, those don't change overnight. But I think what we are seeing now is pretty traumatic because the payment system, as you say, is a kind of a public good. Basically it's a corner solution. And the best thing, if there were no other, just economically, would be a unified system, a unified currency where everything is flowing in. And that was, for a long time, the case of the dollar. The dollar got the first hit when it went off gold in 1971. That was the first hit. And I think now we are seeing something more dramatic because the dollar is basically a public good. The dollar-based payment system is a public good for the world, which is controlled, not by and managed, not by the world, but by the US.

Peter Dittus:

And now the US is becoming, in the eyes of the rest of the world, how should I say, an unreliable partner because, at will, they, and you have seen this with Iran first, but maybe that was a sort of a people tended to forget this, but not everyone. But now basically US, a government has said, "In case it suits us, we are going to use our control over these international payment systems as a weapon." So they weaponize the international payment system. And of course, everyone around the world is saying, "Hey guys, this is not how it's supposed to work. This is a system we are all using. And we just realized there's only one person or one country controlling it. And they are not controlling it in the public interest. They're controlling it in their interest."

Peter Dittus:

And therefore everyone who is using that system will start to think very, very hard what the alternatives are and how they can make themselves independent of that influence and control of the United States. And maybe as an aside, we have already seen China developing, over the past years, China international payment system, Russia has evolved its own system. Now this system really never took off. I mean, they grew very slowly. But now, my expectation is that they're going to take off very, very fast.

Mark Lurie:

It's almost like a little bit of a nuclear weapon where you use it and you freeze another country's government reserves. You disable their ability to use the international messaging system to actually do payments internationally and domestically. And what happens is you, as a result, you get a concerted government effort to basically disarm your weapon so that you can't do that in the future. It's one of these things where it's good to have, and it gives you a lot of power. But if you use it, it's kind of game over it sounds like.

Peter Dittus:

It's exactly right. It's a weapon you can use really only once. And once you've used it, you will never be able to use it to the same degree again. And for the US, what will be quite important also is they will lose control or oversight of a lot of the financial flows. Right now, the US, the NSA has a, I would assume basically total transparency of international flows based on their insights into the SWIFT system. In the future, a lot of the flows will be outside of that system. Not very fast, but you will see it in the shares of international payments in US dollar and based on SWIFT declining. And to the degree that this is declining, the oversight over financial flows will decline as well.

Mark Lurie:

Super interesting. Okay. And this has really never been done through past wars. Central banks didn't free reserves they held from other countries? I that's like a, for some reason, a stunning fact for me. I didn't realize they agreed to keep hands off, even in the context of other conflicts.

Peter Dittus:

That was the typical way of operating. You respected the state property of other countries because it allowed you to continue to do business in some sense. And it also assured yourself as well, because you kept your options open. And it basically said, "Well, it's the war." But the war is basically, as people said, it's a continuation of diplomacy with other means and it was considered like that. It wasn't considered ,in the past, while these are the bad guys. These are the good guys. And it was basically wars happen, and like many things in the world happen, and we are all better off by making sure that international payments can continue to flow.

Mark Lurie:

So interesting. Okay. So now we have the US controlling global system and controlling global assets. They get a lot of little power into there by being able to observe everything and exercise that power in little ways. But now they've exercised it in a very, very big way. And so, that you think is driving other countries to seriously invest in alternatives, which may break the network effect. But there's also crypto here. So how do you think crypto plays into that vision of the future? Maybe first, how is it being used in Russia today, given the situation? And then how do you feel like that is going to factor into the future of these alternative payment systems around the world? Because it is itself in some ways a neutral payment system.

Peter Dittus:

Right. Now, I'm not the expert to tell you of how in Russia these days. I mean, I know Russia, well. I have there been often. But I wouldn't be able to tell you, apart from the friends I have, that they have Bitcoin and they are using it creatively. But of course you can imagine this is all peanuts. This is at the, my level or your level. This is nothing that is going to move the world.

Mark Lurie:

I mean, why not? Why is it not used on a bigger scale by Russia let's say? Right now, is there any fundamental reason they couldn't use crypto as an alternative payment system that exists today, given that they have this sanctions problem? Or is it there's just not enough liquidity?

Peter Dittus:

Well, it's relatively early days for that. As you say, as you've rightly said on the SWIFT system, it's a question of network effects. And right now crypto is not really a universe that's well-linked to the rest of the world. It's a small group and most people don't actually want to hold a lot of crypto. And if you want to facilitate international payment flows, you need a lot of crypto. So right now, if you wanted to use crypto, you need to find a way of getting out of crypto. As long as you stay within crypto, everything is fine. And if people accept crypto and then use it for something else, that works. But that is not a situation where we are in right now.

Peter Dittus:

So right now, if you want to use crypto, you can make the payment or accept the payment, but then you need to go into the Fiat world and convert it into something that someone else wants, dollars, euros, who knows? And that means you need to go through an exchange. And that is where the sanctions then hit again. It's very hard in a significant way to go from crypto to Fiat to evade the sanctions because the major exchanges will not be able to do that.

Mark Lurie:

I see.

Peter Dittus:

So I think there is a potential for crypto, but that is going to come into effect, in my view, only when there's a sufficiently large number of countries and actors in countries who accept the crypto and are happy to hold it. And so they must agree on which crypto it is. I mean, they're now more than 5,000. No, they are not serious. Most of them or many of them, but let's say if they agreed to use Bitcoin or Ethereum or Algorand, if they agreed on it, it would work. But right now, such a kind of natural settling down on what is the ideal cryptocurrency for payments of trade, that simply hasn't evolved yet.

Mark Lurie:

I see. Interesting. So as a payment system, it isn't... As a reserve currency, it doesn't have the network effects such that people are denominating their transactions in it. And thus, as a result, you can't really use it as a standalone payment system because you still have to then go back into whatever currency is being used for actually denominating goods and services. And for that reason, it doesn't really work as a payment system without having the network effects for an international currency that people would actually hold. You kind of need one for the other it sounds like.

Peter Dittus:

That's right. And the question is, what would it be? And I mean, there are lots of countries working on central bank digital currencies. China has one which is pretty much advanced and works pretty well, but it's not a cryptocurrency. But they're also working on one for the One Belt One Road initiative and the Eurasian region, with the trade flows within this region increasing, you could imagine that, in particular now that everyone sees that SWIFT is really to be taken with a grain of salt and with a lot of precaution, you could easily imagine that they would agree on an alternative, which could be based on the China international payment system, but it could also be based on the Russian version, or it could be based on a crypto in the region.

Peter Dittus:

They could adopt an existing crypto. Or it needs some, as you said before, it needs a network effect. And so you need a kind of, since it's not a natural driven process, it's a kind of decoupling from the SWIFT system, it needs some government and major eco discussions, gas companies, petroleum companies who said, "Well, we are willing to accept X, Y, Z," and agree with the major customers that this is the way they conduct business.

Mark Lurie:

I see.

Peter Dittus:

But as in payment systems, these things don't happen overnight. This will take some time.

Mark Lurie:

Okay. Got it. And just out of curiosity... So in order for crypto to become a reserve currency, it would need to be used for international payments, which means international goods and services would be denominated in it, which means governments would want to hold reserves so they could support the purchase of those goods and services. The most obvious types of goods and services are things like gas. And it sounds like in order for something to break the network effect, the US dollar, whether it's crypto or something else, it really has to be used by a few key industries to denominate purchases. And that's the point at which you could see a big shift in reserve currencies. Does that sound right?

Peter Dittus:

That's right. And I think we are going to see that happening. I mean, when you look at the energy exports of Russia to let's say India, China, Pakistan, they are being re-dominated as we speak. Let's say from a Western-centric perspective, "Wow, this is just over there," but let's not forget, I mean that this is more than half of the world. And maybe in GDP, but in people when GDP rising and military power rising. So you can see that the epicenter is shifting and we are seeing that the payments are shifting as well. So I think it's a process. It takes time because payment systems are very sluggish to evolve. But with the current sanctions, that gives a big boost to any alternative to the dollar and the SWIFT-based system I see.

Mark Lurie:

So interesting. Okay. So we talked a little bit about crypto, but could you give us a little more context for what the alternatives are arising in Russia, China, elsewhere? What are the alternative payment systems? Because ultimately it sounds like there will be a multi-payment system and multi-reserve currency future, of which crypto will be just one, and really has to compete in that ecosystem. And so I'm really curious what these other payment systems look like in these countries that Russia and China are starting to stand behind.

Peter Dittus:

Well, the payment systems that are currently on stream, which are within the One Belt One Road area, and in Russia, they look pretty much like the SWIFT system. So they have formatted messages. They are standard formats, which any payments experts knows MT102, MT103. These type of standard messages. And the issue is how many banks, how many actors are linked to those systems? And in the past, given the network effects, people were very reluctant to put on additional payment systems in addition to SWIFT, because the SWIFT messaging system was so efficient and everyone was on there, there was really no point. Right now, these two other systems that exist, they don't need to be created. They exist. And they link a lot of banks. Domestically definitely, but also internationally already. And now within this, let's say, sanctioned trade area if you want, these individual connections to individual banks they will suddenly have a huge incentive to sign up to those payment systems.

Peter Dittus:

So I'm pretty sure that within, by the end of next month, every bank in Russia will be part of the Russian payment system, which, because those who have used SWIFT so far, they can't use it any longer. So in Russia, the domestic business will be entirely transacted in the Russian payment system. And given the weight in international trade of China, I'm pretty sure that lots of countries may, and lots of banks, maybe not in the US, but in other areas of the world... I mean, China is very present and in many countries, that in banks, whether it's Nigeria or whether it's Argentina, are suddenly going to sign up to the China international payment system. And then they have an alternative.

Peter Dittus:

And if SWIFT for one reason doesn't work or isn't good for them, China may also insist actually on using the Chinese system and maybe agreeing for major trade flows to denominate them in UN. So I think we are seeing, as a result of... I mean, that's my expectation. I can't guarantee, but that's my expectation as a result of what we are seeing right now, this nuclear option having been used on Russia, we are going to see a very rapid development of alternatives to the current global system.

Mark Lurie:

And what does the China payment system look like? Could you unpack that a little bit more? Because it seems like, Russia is, talks a big game, but it's actually not that big of an economy relative to the West and to China. China is really the big counterweight. So it strikes me that if there's a payment system that's going to compete with the US, put crypto aside, it's likely China's, right?

Peter Dittus:

Well, that's pretty obvious. I mean, if you look at GDP, I guess Russia is perhaps a twentieth of the United States. It's like Texas basically in economics. Also militarily, there's a lot of discussion in the United States, but militarily their expenditures are about a 10th of the United States. And they are definitely maybe a 15th of NATO or 18th. So it's very small actually. And China is pretty big in all respects as an economy and militarily. So you're right. The big game is really, it's not Russia. And I don't understand really why we are so focused on Russia. The big game is China and the alternatives to watch is really what's happening in the China-dominated economic space and therefore... And the China payment system it's really like the SWIFT system. I mean, there's nothing very different. It's just an alternative. It uses the same type of messaging it's using. It's really... Imagine it's SWIFT, but run by China. That's the best way of thinking about it. So-

Mark Lurie:

So the CBDC they're working on, is it separate, or does it lay into their payment, their SWIFT alternative?

Peter Dittus:

They're working on two things. One is on a CBDC, but it's not blockchain-based, and that's really for domestic use, for mostly small payments. That's a system that's on stream. It's running very effectively and it works pretty well. And it's pretty easy. If you have been to China and you have used We Pay or Ali pay, the CBDC of the Chinese, it's basically those two private companies, they are now being gradually replaced by the central bank currency of the People's Bank of China.

Mark Lurie:

But that's actually, that's run on central servers? It's not run as a blockchain?

Peter Dittus:

No, it's run on central servers.

Mark Lurie:

Oh.

Peter Dittus:

So it's really like Ali pay or We Pay. It's run it completely transparent, really, and totally visible to those who run the central service of what's going on.

Mark Lurie:

But not to the public. So the ledger is essentially private, but very, but-

Peter Dittus:

The ledger is private.

Mark Lurie:

I see. But perfectly visible to the authorities, just not to the public.

Peter Dittus:

Exactly.

Mark Lurie:

I see.

Peter Dittus:

Exactly

Mark Lurie:

Interesting. Okay.

Peter Dittus:

So it's not very different from Ali pay or We Pay before, that was all also run on private servers and they are as visible to the authorities as any Google search or any of that stuff is visible to the NSA in the United States. So I think there's not a big difference really, in that respect.

Mark Lurie:

Do you see China CBDC as becoming a big part of its economy, or do you see it as a little bit of a sideshow relative to its SWIFT alternative?

Peter Dittus:

I think it's becoming domestically, I would expect in a few years time, China, CPTC will be the number one show in China. It will have replaced basically most of the alternatives. And everyone is going to use it in China. So that will be mostly retail payments, but also for domestic payments. I think this will become very big. The China international payment system, that something different. That's really a messaging system between the big banks in this world. And the question is to which degree is that system going to devolve, be evolved beyond what is a messaging system like SWIFT, which is basically between banks? To which degree is it being opened to HR companies, to oil exporters, to oil importers, to electronic companies? That is pretty early days and I wouldn't be able really to guess how this is going to evolve. The only thing I'm pretty confident about is that this China international payment system in the One Belt One Road region, and in those countries where China has a big foothold, that system is going to become pretty important.

Mark Lurie:

I see. So One belt One Road is essentially China throwing almost like... Or money on the order of trillions at countries in the region for in infrastructure and minds and various projects so that it can better trade with China. And I guess if you're investing trillion dollars, then you can require, you can ask people to denominate it in your currency and use your system, and people are happy to oblige.

Peter Dittus:

I mean, it's already happening. But it's going to happen on a much larger scale. When you look at... It's public. It's not, this is not hidden. But if you look at the investment projects that China is doing in the region, major port in Pakistan, which will be extremely important for China with a direct rail link up to China. There's a direct rail link from China to Germany Bain, which is operational, where a lot of the direct electronic imports are actually coming already now, which is why the shipping time is pretty fast now. You don't need to wait for the containers to come. A large part is coming on train already. And this is increasing basically every day.

Mark Lurie:

Interesting. Okay. One more, I guess, procedural question. How does one... Right now we just have SWIFT. How does a Chinese version of SWIFT and a US version of SWIFT interface? So then how do you actually send money from a Chinese bank to a US bank?

Peter Dittus:

Well, it's very simple. SWIFT is a society which is based in Belgium and which is not really directly controlled by the United States. Even though they can't really do anything against the United States for all practical purposes. I'm not talking about legal niceties. I'm talking about what's really possible. If you want to send a message from bank to another, you need to be on the same system. S.

Peter Dittus:

O if someone wants to deal with an American bank, you need to pay, you need to do it by a SWIFT if it's on a regular basis. Or this bank could also sign up to a second system. Why not? The China international payment system, if there's a lot of business on there, and this business is linked to being part of it, suddenly lots of people will find it very interesting. If in particular, once a larger part of Chinese exports gets denominated in UN, and the natural system for doing business is the SIPS And everyone is on there that met us in this Chinese-dominated space, I guess, American banks, if they are allowed to, they're going to sign up to both systems.

Mark Lurie:

I see. And so then you'll have probably some sort of correspondent banking network where US banks that aren't on the Chinese system have a partnership with a US bank who is on the Chinese SWIFT system, and they message to that bank.

Peter Dittus:

Exactly.

Mark Lurie:

And they message that bank and then that bank messages China and vice versa.

Peter Dittus:

Exactly.

Mark Lurie:

Interesting.

Peter Dittus:

And of course, if you're not on the system and you do one transaction or very few transaction, I mean, there's nothing that prevents you from using telex like it was in the past. I mean, it's not that you are not on the system that you can't do business. It's just very unusual and very hard.

Mark Lurie:

I see. Okay. And this version of the world assumes the US doesn't change anything on their side though. Right? And so what's the US's reaction as China has success in wearing down the US dollar's network effect by building up [Z1's 00:38:22] network effect?

Peter Dittus:

Well, I'm very curious to see what the US is going to do. Obviously I hope the people in charge have thought about the ramifications of what they have been doing in sanctions on Russia. I'm not very confident that they actually have, because from my knowledge, neither the Federal Reserve nor the European Central Bank were actually consulted before those measures were taken, which lends me to believe that this was taken more on a strategic military level, this decision, and then the central banks were asked to make it work somehow.

Peter Dittus:

So I'm not sure that all the ramifications and the knowledge of how payment work and what might be involved as a kind of a follow-up effect of using a nuclear option payment system that this has been carefully thought through. So, I don't know obviously, but I'm very curious to see how the US is going to react to challenge that is going to emerge now in a much stronger way than it was before.

Mark Lurie:

Interesting. You know there's a old quote. I'm not sure who actually said it. I'm not sure if it was Winston Churchill or ABBA even, or someone else who said, "Americans can always be counted on to do the right or the wise thing after exhausting all the alternatives." And so it strikes me that it may be possible that as soon as it's really slapping them and us, in the US, across the face, we wake up and we realize we have to deal with this issue. And we have to make a concerted effort to, at least in the kind of Machiavellian view of the world, maintain our power. And so I guess it sounds like we just haven't gotten to that point yet probably.

Peter Dittus:

Most likely, yes. I have been working the past in China and with China and I'm still doing that. And actually I was suggesting if they wanted to really be effective in countering the US domination of international payments and reserves, they would be well advised to make available an national payments infrastructure. And at the same time commit to never use it for sanctions.

Peter Dittus:

Now this commitment of course can be broken in these times of these type of things, they are time inconsistent. But once you have realized that you are blowing your own influence if you're using it, I think you want to use it only as a very, very last resort when you are with your back against the wall. And I'm not sure that the current situation from a US perspective is really can be characterized as a US being with the back to the wall. It's rather the US is sort of has some geopolitical interests, which are pretty far away from the US and which are peanuts compared to US major interests. So I'm not sure it was so wise to use that option right now.

Mark Lurie:

Interesting. Yeah. I can understand why you say that. But I also, I definitely picked up on what you said about China's commitment, right? China commits to not using it unless they really need to. Well, Ukraine gave up its nuclear weapons in the early nineties because Russia committed to not invading it. And over time, these commitments tend to wane just as they have for the US. Right? And just as they probably will for China. And so it almost strikes me as, can any country really... Countries are political, right? And so can any country really commit to never using a financial weapon once it has it? I don't know that's ever truly credible. And so it almost feels like it would be a better move... If the goal is to seize power, you want your own currency and reserve currency.

Mark Lurie:

But if the goal is to prevent other people from having power, then crypto actually seems like the right option because then no country really can use it as a weapon even when their back is against the wall. I guess it strikes me as odd that... If China were really wise, maybe it would be pushing that and maybe people would be more receptive to that. Or maybe the US's response is fine. You don't trust us not to wield this weapon mass destruction, but we don't want China to have that same weapon mass destruction, so we're going to support and promote crypto because it's essentially neutral. It's Switzerland by design. Do you see that world playing out?

Peter Dittus:

Well, that's a good thought, which is one of the options that China is pursuing. I mean, they're working on a crypto version for the One Belt One Road area. They have done some tests with some countries just testing out things of how they would work. So maybe they're onto it. I'm not privy to those really strategic discussions. But as you say, I mean, it's pretty clear that if you have a weapon of mass destruction, financial or otherwise, you cannot credibly commit to never use it. But if you can agree on an international infrastructure, be it on payments or for something else, that no one controls and that is not exploitable by any of the major powers, and it's pretty obvious that this would be welfare enhancing for everyone, and crypto done rightly could herald such a new infrastructure in payments.

Mark Lurie:

Interesting. Well, I guess one big takeaway that I have from this discussion is that insofar as crypto does become the future, it's probably not just going to organically get there. It will only become a reserve currency in so far as geopolitics plays out such that the major parties want it for some reason to become a neutral reserve currency. In other words, it's unlikely to just happen on its own, which is something, we in crypto talk about a lot. Will it become a reserve currency? Sounds like we really have to understand the game of geopolitics to know or see when that happens. And it may even be a choice or a treaty of some sort, the result of major geopolitical shifts, not just some sort of organic economic movement.

Peter Dittus:

I agree with you that a purely organic movement seems pretty unlikely. I think given where we are in international relations, sort of a major international agreement worldwide to basically throw away your arms and say, "Let's have an international infrastructure that neither I, the US, nor you, China, or someone else can control," I think that requires sort of a lot of wisdom and of, let's say, one-on-one talk with a sufficient amount of mutual understanding and of understanding what's important in the world. I doubt that we are at such a stage. I have more the impression that the more we move ahead, the more sort of the common language is breaking down.

Peter Dittus:

So what I could imagine is that as an alternative, for example, to SWIFT you see a block of countries agreeing on such an alternative, precisely because it is not SWIFT. So it is with basically a kind of constitute, an element of another major economic block being formed. And it may be a very clever way of sort of creating an infrastructure for a group of countries, which truly is not controlled by anyone, but they are all using it.

Mark Lurie:

I see almost as if a group of countries want to separate themselves from the great power game. And in aggregate, they represent a pretty big economic and relevant economic force, even though individually they can't compete with the US or China.

Peter Dittus:

Exactly.

Mark Lurie:

Okay. Well, clearly we're not at a wise outcome in your views. There's still many, many options to exhaust before we hopefully get to wisdom. I don't know exactly what that wisdom is, but I hope we get there. And Peter, thank you so much for joining us and for sharing your incredibly deep knowledge with us. I feel like I've learned a lot about how this all works and how the world works. So I really appreciate your time. Thank you very much.

Peter Dittus:

Well, it was a pleasure talking to you, Mark, as always. Now I have just given my personal opinion and in some areas they may be well-founded. In others, they may be just opinions. Like you, I hope that wisdom is gaining the upper hand and not the dark forces as it seems at present, unfortunately.

Mark Lurie:

Yeah. Amen to that. And Peter, last question for you. If people want to follow you or read more about what you've written, how can they do that? How can they follow you and read more about your thoughts?

Peter Dittus:

The easiest way is to either look at my Linkedin page or website where sort of the major stuff is periodically put on there and people can see what... I mean, what I've done, and what I'm doing.

Mark Lurie:

Okay. Great. Well, thank you so much again for joining us. Really appreciate it.

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