Huw van Steenis On What Central Banks Will Do Next (Odd Lots, 32 min listen)
Continuing the discussion on Central Banks, Huw van Steenis, ex senior adviser to Mark Carney and incoming adviser to the CEO of UBS, dives into how policy will change in light of Carney’s speech at the Jackson Hole Symposium we previously discussed at Macro Hive. Van Steenis explains that the payments space is the battleground between banks and tech – the latter aggressively aiming to overtake the former. Carney rightfully suggested in his speech that the US dollar should be less significant as a global currency and could be replaced by a central bank-run digital currency similar to Facebook's Libra. However, in a world of negative rates, bank profitability is squeezed and they simply don’t have such tech budgets, whereas VC-backed fintechs can sustain losses for 3 to 5 years. Furthermore, regulation is far from ready for a wide roll out. Towards the end of the podcast, van Steenis emphasises the need for Central Banks to step up their understanding and application of tech to make hefty regulatory processes leaner and cheaper.
Why does this matter? The combination of low to negative rates and tech disruptors are transforming the banking model as we know it. Negative rates work in a myriad of ways and hit banks’ top line, but at the same time commission income for wealth managers increases. It will be key for banks to maintain a lean model and M&A might become prominent.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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