Digital cash and culture wars

This is an audio transcript of the FT News Briefing podcast episode: ‘Digital cash and culture wars’

Marc Filippino
Good morning from the Financial Times. Today is Friday, September 15th, and this is your FT News Briefing.

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Investors loved Arm during its first day on the public market and the European Central Bank is stuck between a rock and a hard place. Plus we’ll look at how digital cash got caught up in culture wars. I’m Marc Filippino and here’s the news you need to start your day.

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The British chip designer Arm had a great initial public offering. Its shares jumped 25 per cent yesterday to get to more than 63 bucks a share. The Japanese conglomerate SoftBank owns Arm. It raised almost $5bn from the IPO. That makes it the largest US listing in almost two years. Arm’s stellar opening day is expected to fuel confidence in the IPO market more broadly. IPOs for grocery delivery app Instacart and marketing software group Klaviyo are expected to provide a further test of investor appetite next week.

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The European Central Bank raised interest rates by 25 basis points yesterday. They’re now at an all-time high, but the ECB signalled that its tightening cycle may come to an end soon. Here to explain is the FT’s Martin Arnold. Hi, Martin.

Martin Arnold
Hello, Marc.

Marc Filippino
All right. So I think I’ve heard this decision referred to as being on a knife edge, maybe no less than a thousand times in the run-up to this meeting, because, you know, inflation is still running hot in the eurozone or hotter than the ECB would want. But also the economy is stalling. You know, what was the ECB’s thinking here raising rates?

Martin Arnold
So the ECB was being pulled in two directions. In one way, they were confronted with inflation that remains too high and looks like being too high for too long, as they said in their statement. But also they issued new forecasts which reduced the outlook for growth for the eurozone for this year and for next year. And clearly, the economy is weakening, which is going to reduce price pressures. But overall, their mandate is to achieve price stability, and that means bringing inflation down from above 5 per cent back down to 2 per cent. And that’s what convinced them that they still needed to keep raising rates.

Marc Filippino
Martin, we didn’t see a ton of market reaction yesterday. I mean, when I say that, I’m talking about equities because I’m looking at the Stoxx 600. Why was that?

Martin Arnold
Well, there was some market reaction because the euro fell quite sharply against the dollar. And that’s a signal that investors think that the ECB has reached the peak of rate rises. There was a slight rally in bond prices as well. I think there’s also mixed messages coming from the ECB because they are saying things like they think the level of interest rates now, if they keep them at that level, will make a substantial contribution to returning inflation to their target. So that’s a new message from the ECB. But at the same time the president, Christine Lagarde, said in the press conference they can’t say that they’ve reached the peak of rates. But it’s looking more likely, I would say, that the weakening economy will mean that this is the end of the ECB rate rises.

Marc Filippino
Martin Arnold is the FT’s Frankfurt bureau chief. He covers the ECB. Thanks, Martin.

Martin Arnold
Thanks, Marc.

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Marc Filippino
Now, central banks have been busy trying to tame inflation, but they’ve also been plugging away at developing digital currencies. These central bank digital currencies — or CBDCs for short — used to be a playground for policy and tech wonks, but the idea is getting more mainstream. And so are the concerns surrounding them. Here to talk to me about this is the FT’s banking and fintech correspondent, Siddharth Venkataramakrishnan. Hey, Sid.

Siddharth Venkataramakrishnan
Hi, how are you?

Marc Filippino
I’m doing well. So remind us, for those of us who haven’t been watching closely, what are CBDCs and how are they different from other digital currencies, right? This isn’t crypto, right?

Siddharth Venkataramakrishnan
That’s right. So a central bank digital currency is a central bank currency, much like cash or, you know, pounds and notes, but a digital version of that. So unlike a cryptocurrency that’s issued by a private company, it’s outside of state control and also different to the money you have sitting in a bank deposit or you might access through a mobile app. You know, this is literally a digitised version of that central bank physical cash.

Marc Filippino
Yes, Sid, I’m glad you brought up private banks. Why do we need a central bank digital currency, if private banks are already letting you make digital transactions?

Siddharth Venkataramakrishnan
So in some ways, the benefits are for the government more than for you and me or if you’re paying for something now. But you know, there are concerns from central banks around power being ceded to Big Tech companies or to fintechs over payments which would hamper their own ability to make monetary policy or to carry out transparency and things like that. And also the hope is that a CBDC would be a kind of universal payment solution, like cash is in theory. And so even if you have these payment systems like Apple Pay, which are not interoperable, then you’d still have a CBDC that could be used.

Marc Filippino
OK. So this would give everyone, in theory, access to a digital payment option. And it’s also a way for central banks to maintain power over the financial system. But that, in and of itself, has drawn criticism from some very visible people.

Ron DeSantis
(Applause) This is something where they want the Fed to control a digital dollar. And guess what will happen? They’re gonna try to impose an ESG agenda through that. You go and use too much gas, they’re gonna stop it. They’re not gonna honour the transaction because you’ve already bought more than what they think. You wanna go buy . . .

Marc Filippino
OK. So there we heard from Republican presidential candidate Ron DeSantis, who’s also the governor of Florida. And obviously, the things he hit on there are about too much oversight. There’s also like a little flavour of conspiracy theory there. There’s nothing out there about central banks stopping certain purchases, but what are some of the other concerns about CBDCs?

Siddharth Venkataramakrishnan
So a few very valid concerns about CBDCs — one being around how the CBDC could be told to do certain things or not do certain things. And that’s what Ron DeSantis has brought up there in the ESG agenda. I think that central banks haven’t really given a good answer to how they’re gonna ensure they don’t become political tools beyond saying policy-wise, we won’t do this. And one of the other concerns is around the issue of privacy and anonymity. You know, compared to cash, which is, by its nature, private and anonymous, a CBDC would only be as anonymous as, say, a bank account.

Marc Filippino
Given that there’s been all this concern around CBDCs, what does that tell you about the state of our financial system and how people interact with it?

Siddharth Venkataramakrishnan
I think it’s a pretty, pretty damning picture, to be honest. And it’s not purely CBDCs, but I think we’re in a quite precarious position which reflects, you know, just broader political currents. But also particularly around finance, there’s so much obviously a lot of things around crypto and people who maybe are not financially as literate or maybe are more financially exposed being dragged into risky, high-risk assets. I think at least people at risk of conspiracy theories and also scams because a lot of the people who are pumping out conspiracy theories are also trying to make money out of it and will push whatever product they can in order to make a buck.

Marc Filippino
Siddharth Venkataramakrishnan is the FT’s banking and fintech correspondent. Thanks, Sid.

Siddharth Venkataramakrishnan
Thank you very much.

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Marc Filippino
Before we go, US student loan payments are set to restart next month. And if your payments are starting up again, drop us a line. Tell us: how much will you have to pay each month? How are you feeling about it and how is it gonna impact your wallet? There’s a link in the show notes where you can record your response. We may play your voice message in an upcoming episode of the briefing.

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You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

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The FT News Briefing is produced by Kasia Broussalian, Sonja Hutson, Fiona Symon and me, Marc Filippino. Our engineer is Monica Lopez. We had help this week from David da Silva, Monique Mulima, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

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