#114. Richard Turrin: Cashless
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What's up, everybody? Welcome back to The Honest Drink. I'm Justin. If you've been enjoying the show, go ahead, rate, comment, and subscribe. All right. Today, we got a really fascinating show. We got a really interesting guest.

He is the author of the bestselling book, Cashless, China's Digital Currency Revolution. We talk about where China is as a cashless society. We talk about central bank digital currencies, namely the digital yuan. We talk about how Chinese digital payment systems compare to that of the West. We talk about crypto.

We talked about the credit system, the social credit system. What else we get into? And it was truly mind-blowing stuff. So it was a fascinating look at the intersection of finance, technology, and AI. So without further ado, please give it up for Richard Turin. I see you living in a world without eyes, a world in which you

All right, Rich. Good to meet you, man. Thanks for doing this. Hey, Justin. Cheers. Thank you for having me here on Honest Drink. Rich was telling me outside that he gets podcast requests and speaking requests all the time.

And he rejects most of them, but we made the cut. Thank you, Rich. That's very flattering. Thank you very much. Well, you guys earned it. Look, it's really interesting. I did check out your library of podcasts. They're beautiful. You do podcast and video, which I think is a big mistake for a lot of guys. But the production quality is wonderful.

The questions are wonderful. And the concept of three guys against one, that really turned me on. I'm like, oh, I got to do this. This is going to be a blast. You're like, bring on the challenge. Yeah, bring it on. Exactly. Well, we're not here to grill you. We're here to hang out. Wait, who said?

I'm ready. I've got a whole list of questions. The interrogation will start now. Let's take the book out, like starting with chapter one. Here's the book. You brought it cashless. I brought – it's not just I brought it. I brought a copy for you guys. And yes, I did write it. This is for us to keep. So this is for you guys to keep. And this is my book, Cashless, China's Digital Currency Revolution. It's the first and still the only book dedicated to China's central bank digital currency, the digital yuan.

And it covers the entire payment history where WeChat and Alipay essentially

Made us all go cashless. Who has cash in their pocket right now? Anybody? Nope. Four people. Haven't for years now. For years, right? So we got four. Justin was a kind of a late adopter. I was a late adopter. I mean, as recently as a show on the library, he was still carrying massive wads of cash in his pocket. Well, back then. Remember that? Back then, a little cash could still get you out of a pinch because, you know. What kind of pinch? I don't know. Just a little jam. A little jammy jam. Yeah.

Yeah, okay. Like he had to, like Justin had to buy like a new phone just so that he could do the QR codes for COVID. A little bit behind the times. Look, we're interrupting our guests. No, you're not. You know, I mean, look, I deal with tech Luddites every day and they make me happy. So, yeah. So, you know, so here's what I've got for you guys. I've got a book and I have what I call the cashless chop. Nice. Okay. I didn't know that. I thought it was the Injang. Injang. Injang. Oh,

Okay, so here we go. Here's the stamp, and it says cashless, and it says, thank you for reading cashless in both Mandarin and English. And here we go. And you guys are the official owners of a copy of cashless. So that's my author's special. Thank you so much. This is awesome. I mean, other people sign their name. Who signs their name? I mean, come on. You got the stamp this time.

I mean, how much more Shanghai, China can you get than a stamp? You know what's dope? There's like a big-ass QR code on the front cover. Oh, I think we're going to get into all of that. Oh, yeah. Well, thank you. That was a real...

Very, very clear design decision on my part because half the book is about QR codes and not half, but a big portion of the book is how we use QR codes in China and the West uses Apple Pay and Google Pay with NFC. And we'll get into that. But that was my call. I said, we got to have a QR code on the cover.

Well, look, Rich, there's a lot of ground to cover with this. And I love the idea. And I think we're coming at kind of a perfect time in crossroads right now to talk about China, to talk about technology, innovation, and finance. And it all kind of converges into one. And I think there's a whole story there that is definitely misunderstood by me, but probably misunderstood by most people.

So I really want to get into, like, really start from the basics. But before we get into all of that, I kind of want to just get you, get your perspective on how you've been doing, especially in the recent times living in Shanghai, because I feel it's always an interesting perspective for whenever I interview China experts, no matter what kind of industry. On one hand, I find that they're probably and most likely very impressed with

with China in many aspects. But then, given recent times, they're also kind of probably frustrated with a lot of things that have been happening here. So how do you kind of balance your life here and your outlook being an expat living here and, you know, being an expert on a lot of the tech and fintech here? Okay, so...

There are sort of two parts to that question, and I'm not sure whether they were spoken or not quite. So the first is really comes down to how is life under COVID or not? That's what I thought the first part of it. Because if you talk about China experts living in China being frustrated or unhappy. I'd love to hear that. Like, why are you here? Like, why are you still here? I'm here because I love it. And as far as living here, I've been here for three years now.

Without going home and that is hard. I miss my family. Um, and I will go home. Where are you originally from? Uh, mix. I'm half Italian, half us. So half of my, my, my older brothers are in the U S and my rest of my immediate family is in the North of Italy, near Venice, not too far from there. So, um, so I miss everybody. Cool. Um, so that part is a little rough. I won't, I won't lie. Um,

But I accept it. My hobby is hiking. The big question that people from the West ask is, well, why lockdowns? Why everything going on? And you will answer that question if I could take you hiking into these humble rural villages that have 20 people, 50 people, and they are in the middle of nowhere.

And where's their medical care? You know, and they're just so I deal with it. I'm not happy with it, but I live with it. And when I get pissed off because like I want to go home and I just say, well, look, think about them. So they got nothing that's going to bail them out if they get really sick because they're in the middle of nowhere.

So, you know, if this is the sacrifice that I have to make for them, I'm okay with it. Now, the second part of the question, tech. If you're a tech fan, just move to China. If you really like tech. And this is the very premise of my book, Cashless, which is that

China is a decade ahead in the adoption of tech and the implementation of tech, which is what really counts. And that China is providing a blueprint for tech adoption or for the outcomes of tech adoption in the West if the West is willing to open up and actually look at China.

Which currently it seems that's not very likely to happen anytime soon. Absolutely. You know, that's exactly it. It's just not very likely to happen. And with the gap between China and the U.S. growing, with the, you know, unspoken hostility between the two, it's sad. But that's the way it is.

But for my particular industry, which is the intersection of finance and technology, also artificial intelligence, industrial robots, when you look at this

entire set the sector, nobody comes close. So if you're into tech, this is the place to be because you're not writing about it from the perspective of, well, this is what I think cashless is good. Cashless is going to be like, I am cashless. I, you know, I know what it is, what it's, what it's about.

I know what it is to have QR codes everywhere or an industrial robot, which now they have industrial robots that are actually tied to the payment system. You know, so mind blowing stuff is going on here. That's still considered sci-fi in the West.

And then people – so it's funny for me because I have people asking, well, what happens to the banking system? What happens to X? What happens to Y if we go cashless? And I'm like, well, look at China. They already did. That's the example. A lot of times that's not necessarily a positive thing to say to a lot of people, right? Do you get that? Like people are like, yeah, but China is a surveillance country. Well, I feel like there's a resistance, right? There's this stigma and resistance everywhere.

And I think that's very interesting because I think from the long, big picture look at China and its history of innovation and technology, I mean, ancient China was known for inventing the calendar, gunpowder, you know, all these great innovations. Paper money. Paper money. FinTech, yeah. And then, you know, in the more recent history, it's got a – it changed. Now, obviously, it went through a lot of changes and –

It's gotten a reputation of being copycats, of not innovating but just copying, taking other people's ideas. But

That's also kind of shifting now in a way, and it goes back to what you said. I think a lot of kind of talks I have with a lot of people outside of China when I tell them, oh, look, like, you know, it's pretty advanced there in terms of technology. Like, the convenience of life is very high. And there's almost this kind of resistance to really believe it. Oh, absolutely. And it's so important to cut through that, that...

Page, what is it? I can barely read now. 18. In my book, I have the following three what I call straw men. And these are the three misconceptions that I have to get everyone over before I can have a reasonable discussion. So it's great that we tackle them now at the beginning of the podcast. And they are as follows. China copies and doesn't innovate. Number two, China.

It's different over there and not relevant to our experiences in the West. And number three, there is no internet privacy, so it can't be good.

So on the first one, I ask all reasonable people, you know, how many of you in the West right now have a QR code payment system in your pocket? You know, there are some who may have Facebook Pay, which has now adopted QR code payment from WeChat and Alipay here in China. But by and large, if you look at QR code payments and digital payments, China has

Didn't copy anybody on this. They made it on their own. So that's just one good example where the innovation was native to China. The second one, it's different over there. And that one really cracks me up because people really don't get that, you know, the banking system here was really founded on the Western banking model.

So, you know, if you go to a bank here, it doesn't look all that much different than your bank in the West. And so many things that happen here today are completely unremarkable to people in the West. And it's actually closer than most people think. It's not this disassociated, completely strange and different land where –

Everything is irrelevant to what happens. And then the final one is relevant for, of course, digital payment, which is there's no privacy here. And the answer is there's a lot of privacy here. And in fact, we now have, as of this summer, we have the strongest data protection laws in the world.

How is that? What are those laws? Oh, the laws that were passed this summer are basically the Data Protection Act that basically says –

okay, we've got data. We're going to classify it as under three levels. And the first level is, okay, open. You can sell it, do whatever you want with it. Tier two, which is semi-confidential. And then there's the third tier, which is, okay, this has to be domiciled in China and cannot leave, cannot be transferred. I'm making a mess of it, I know, but that's the general idea. So

We live in a world in the West right now where anybody who uses Google or any of the major big tech apps in whatever country, their data, nobody knows where it goes. It just goes onto the cloud and it goes across computers all over the planet. So,

China is actually on the forefront of tackling this, which is roughly called one of the points is data sovereignty. Who has a right to use your data? So data is not as open and non-private as people in the West make it to be. In fact, I would argue that data in the West is

through the network of data brokers, which are very active in selling your credit card swipes, in selling your position data, are in fact

as or more invasive than any kind of surveillance that China's got. And, you know, it's just a common misconception and it's just hard for people to wrap their heads around. I don't believe that we have really all that much privacy anywhere. And this idea that China is less private than anywhere else, I just, I don't know, I feel like your data is being sold left and right everywhere. And I like the point you made in a

a different talk, you were talking about the use of credit cards, which is so kind of ubiquitous in America and the West. Oh, yeah. And that's the hard part for people to really get their hands around. So look, here's the common narrative. Let's tackle this up front. China's new digital yuan, the central bank digital currency. Let me just explain what that means for people.

Central bank, meaning that this comes, this new digital currency comes directly from the central bank and is backed by the central bank. It's no different than paper money. The narrative is very simple that central bank digital currency is spyware.

and is disastrous for privacy. And where is that narrative coming from, the spyware? Like who's promulgating that? It's predominantly coming out of the West. There are some people within China who are uncomfortable with it as well. That's

That's clear. But what's really interesting is that people from the West in particular, because that's my audience. You know, I live in China, but I don't have I have some China followers and China audience. But most of my my audience is from the West. So what happens is these people, they they're terrified of the concept of digital currency, digital yuan.

What's interesting is they do not understand the levels of privacy that they currently have with their existing digital payment. That they're already comfortable with. Yeah, and that's sort of the funny thing. So if I talk to somebody and I say, well, what level of privacy do you have when you go and you use what's called tap to pay on a credit card and you buy a coffee at Starbucks? Do you have the assumption that you're anonymous?

"Frick, the card's got your name on it and it's being swiped." No, clearly Starbucks knows who you are and how much you paid, right? So you get into this discussion where, oh, then did you know that from Starbucks that credit card swipe

goes to all of these other different places, including a credit rating agency, including the bank, the receiving bank, the paying bank, the processor, the fintech that's involved. There are about six. You can list a level of six of them. And what's really funny is all six of these companies are basically in the data sales business. In fact, you know, and you laugh, you say, well, my credit card wouldn't sell me out. And you really have to go. There's a great internet site for MasterCard.

And they basically have this beautiful site and it's all about their data analytics. And it's basically insights on, you know, two trillion credit card swipes every day. You know, you can buy it all. Now, you can buy anonymized data. But the point is, you're the concept that somehow your digital payment system is completely anonymous and without privacy issues in the West.

is false. And of course, when we look to China and we look at people who use WeChat and Alipay, well, when you use WeChat and Alipay, it's a great system. I'm not knocking it.

But the reality is you know that your data is sucked into these systems and is used. That's just how it is. So what is privacy? Understand what your privacy is prior to central bank digital currency, prior to the digital yuan, before –

Like the status quo. Yeah. Understand what you got before you say, oh, all these things are spyware. They're all bad. No, really, you got to have a more nuanced discussion on it. Yeah. So, Rich, it sounds like, number one, there's a lot of bias because, you know, people are in different places, right? So if you're in the U.S., you're not on the ground in China, you don't really know what's going on.

And you're just going to, you know, it's unconscious bias. People jump to conclusions that are probably different angles that people are taking because they don't want maybe China to succeed or it's just kind of like ignorance, right? Yeah.

For, I'm curious, right, just to kind of unpack this a little bit, because essentially what we want is like to build some transparency. It feels like the system in the US is pretty, you know, well known, right? So if you wanted to go online or, you know, ask people, you could kind of see the chain of information, the level of privacy, like there's quite a bit of transparency, whether it's good or bad, at least you would know what level of exposure you have.

It feels like in China, there's probably less people that are knowledgeable. You, of course, are one person that maybe people in the West kind of, you know, rely on. How transparent is, you know, kind of the machinery here in China where you could kind of

than compare apples to apples, right? To see like, okay, for different levels of data privacy, how it compares between the US and China. So you could get like an objective view of what things look like. As far as, let's start with straight credit card payment in the West versus WeChat Pay and OnlyPay here. That's wide open. There's no

There's no secret that when you make a payment with WeChat Pay or Alipay, that contributes to your credit rating because China lacked... It's hard for people in the West to understand this, but China...

really lacked a comprehensive personal credit rating agency system. Well, they skipped the whole credit card stage entirely. Yeah. So what WeChat Pay and Alipay did was they said, well, we'll make payment, but we'll also figure out how to judge whether you're worthy of loans. Nothing different, nothing nefarious, just credit rating system because that credit rating system never – it technically existed, but it had a very small slice of the entire population involved. Right.

So the fact that WeChat Pay and Alipay monetize your data through a credit rating system, through loans, through sales of your purchase history or use for advertising and other purposes is well known. And that model is not particularly different than the Western model.

Google or Apple or whatever who Google and Facebook are the best examples because they monetize whatever you put on Facebook or whatever you do on Google to make advertising revenue. And you go to Facebook and 90 percent, 90 something percent of their revenue is selling you. You are the product. So that's not particularly new. So to make that Apple's

And Apple's comparison between China and the West, it's not particularly hard. We've got ample information on the West, and we've got ample information on WeChat Pay and Alipay. Now, if we look at the monetization of that, do you have any data around how big that industry is as a proxy for the level of or the lack of privacy? So like in America, let's say it's a

you know, $200 billion industry of selling your personal data. And then in China, it's an X billion dollar industry. I do not. That's a very astute question. And that's not something I have off the top of my head. But I think you could use as a proxy for that.

the size of the internet companies themselves, their value. Because other than Apple, if you look at Google and Facebook, their revenue is advertising revenue. So if you add their values up and then you start looking at the big ones here in China,

The Western market is still more valuable for that than China is for now. Yeah. Yeah, well, I just want to add in one thing because it sounds like right now we're kind of steering it in a way where it's like –

West versus China, anti-China for digital currency and stuff like that perspective. But I think it's global. I think everybody is very anti-digital currency, like central banking digital currency in general. Can you speak on that a little bit? You're talking to a former crypto guy. Are you still into crypto? I was never really that into it. You were talking about crypto quite a lot. Yeah.

But what I'm trying to say is that, you know. Look, I love talking to crypto people and crypto people are perhaps some of the most skeptical about central bank digital currency and are the most resistant because crypto people have a very firm belief that money should be free of government and free of control.

And, you know, we can get – that's a longer discussion. But because central bank digital currency is controlled by the government and is issued by the central bank, they loathe it. But do most people –

dislike central bank digital currency and the answer is no Most people don't even know what it is. So that's why whenever I talk about CBDC the first thing I do early in a discussion is to say okay, it's issued by the central bank. It's a digital currency It's equivalent with your your piece of paper and your wallet, you know It has certain properties that are from cryptocurrency, but it is not a

cryptocurrency. So that's always my first take. Okay, this brings me to what I want to get to, because I feel like we kind of got a little bit ahead of ourselves. Let's take it a step back and kind of give us the story of evolution of payment systems from the traditional payment systems that we grew up with and that everyone kind of knows the traditional paradigm, the status quo, and how it's evolved through the different payment systems and how we're arriving at

at Central Bank Digital Currency because I think we're assuming that a lot of people know exactly what we're talking about. And if I was a listener, I wouldn't. So I would kind of like to hear it from the beginning and how we arrived at digital currency. Let's start on my birth date, 1961, which is ages ago. So we go back to the late 50s and the early 60s. And you can go back to the first use of credit cards.

All right. And a credit card in 1961 was a plastic embossed card with numbers on it. And you put it in a machine and you had to actually –

Roll it. Roll it back and forth, right? That lasted up until the 80s, right? And then you had to sign it. And the person actually looked at your signature to see if it was the same as the card because the signature was considered a security feature at the time, right? You know, it's like funny to think about it now. Like sign the back of your card. So then what we have to think about is that after that card slip had been signed, it had to go for processing. And it had to go to a back office where –

Big room full of people had to sit there and examine it, see how much, put it on some kind of big mainframe data entry to some big mainframe somewhere, which said, OK, Rich owes $20 for lunch, you know.

And that's what it was in 1960 until you finally got broader digitization in the 80s, maybe even in the late, I'm not sure exactly. I think it was late 70s where you could go and actually swipe your card. You had the magnetic strip on it and you had the first real digitization of money or form of money being digital through these credit cards. So that's the paradigm.

So the paradigm in the West for money beyond cash and check is closely tied to the development of credit cards. Now, think about having rooms full of people going through your credit card bill, right? You have to charge for that, right? So there's a legacy feature to credit cards. And that legacy feature is essentially a high fee for using them.

And today we call that interchange fee. Merchant fees. Or merchant fee from the actual merchant. All right? So next step, and now hold that thought. Hold merchant fee and interchange fee. The next step, of course, in the 80s, we started to get swipable cards where we went to the little point of sale device. All right? So every merchant...

had to have a point of sale device, which was plugged into the telephone lines, had electricity, right? And it sat there and you actually didn't own it. You rented it from your bank. So you had fees for that. And that's essentially not unique to the West. China had that up until 2014. And 2014 is to me the next critical date because that's when WeChat Pay and Alipay launched.

So, let's sort of think about this. We're cruising along, right, in time. And we have in the West and to a certain degree in China have this credit card network or debit card. In China, we never really developed. We had it, but it was very low penetration credit cards. But we certainly in 2014, most people in 2014 had a debit card, a union pay card that they could use. All right. So,

Remember those interchange fees? Yeah. Well, in the West by 2014, we're starting to tap cards or maybe it had just about come out, but we're still swiping cards.

And we have a process by 2000 from the early 80s to 2014 that had become far more digital and far more sophisticated. The card companies are dumb. They make billions of dollars. They spend a lot of money. And what they had is end-to-end digital processing. By 2014, whoever said, I want to see the signature on the back of your card, right? Nobody. But what were we left with? We're left with a legacy card.

And that legacy is high processing fees. So we're still paying merchant fees of 3% and 4% or plus, depending on the card. Actually, it's interesting. The merchant fee you pay depends on the card. So if it's a debit card, it's very low. And if it's like an American Express Platinum, the merchant actually has to pay more money for the privilege of accepting a Platinum card, which is nuts. But anyway, point is only to say we're left with this legacy of high processing

fees for accepting credit cards, even though credit cards today are ubiquitous and just about as digital as WeChat and Alipay. What did WeChat and Alipay fundamentally disrupt? There was no longer a need for a point of sale device. So basically in 2013, you went to your noodle shop or someplace small. There was no way that they had a dedicated phone line

or a dedicated electric line to plug in a point-of-sale device. Gone. Suddenly your phone was your point-of-sale device and the connection was made so that anyone

with a smartphone could make or receive a digital payment. And it blew the debit card, credit card system in China right out of the water. Yeah. And what's the analog in the U.S. with Square and some of that stuff? Was that a similar time period? Yeah. Square was 16...

16 or 17, a little bit later, 16, I think, but I'd have to check to get the exact date. But there's a problem. Square is great. I use Square. I'm a Square client. I sell batch books or I'll sell a batch of 50 books, you know, in the United States and I have them printed and they come to me, the author. I said, sure. And how do I take the money? I take it with Square. You know what I pay on Square? 10, 12%.

So what I'm paying is I'm paying a credit card fee and then I'm paying on top of that credit card fee, I'm paying square on top. So what's really interesting is the credit card companies in the West, when you see fintech in the West, everything is built on the credit card system because they are a duopoly. They control electronic payments. So you pay even more. So it's like –

Because it's this ingrained system, it's almost like the railroads. So you still have to transport everything on these old railroads, whereas you should be able to completely bypass that, but they control all of the

That's exactly what we call it. We call it the payment rails. So the guys from crypto will talk about we are building new modern payment rails. And what WeChat Pay and Alipay fundamentally did in China was to build new payment rails, a new direction for payment to flow. And that hasn't really happened in the West yet. So-

When I read a great quote from former Treasury Secretary Paulson, okay, and he said, oh, well, you know, he went public. He said, you know, China's fintech isn't that great. America's fintech is second to none. And he's a nice guy and, you know, I don't mean ill will, but he really doesn't understand it because –

Your fintech is all built on these payment rails that were established in 1961. Okay, they were updated. But basically the payment system that you have now in the West is equivalent to what they had around 1995 or so. And in 20 years, it hasn't really updated. And what you saw in 2014 with the launch of WeChat Pay and Alipay was –

The government actually allowing WeChat Pay and Tencent and Alibaba, the two great tech companies, to become financial service companies, light versions of financial service companies, do payment work.

And you saw a complete disruption of the existing payment rails, which has not happened in the West yet. What kind of... Oh, sorry. Was that the revolution you're talking about? When you talk about in your book, the revolution is like doing away with a lot of the transaction fees and cutting the fat, trimming the fat? Look, absolutely. I call the revolution 2014 and the moment that Zhou Xiaochuan, then the head of the central bank...

who I call the father of modern fintech, made what is a breakthrough decision. He basically said, we're China, we have 1.4 billion people, we cannot continue to bank them with the current system. It is inadequate. It doesn't work for them. And what he allowed was big tech to become banks and to transmit, become payment transmitters. And big tech quickly became

disrupted the living daylights out of the payment system, which was fundamentally good for every Chinese citizen. So I have a question about the payment systems here versus the West. So you have Alipay and WeChat Pay that everybody uses. What's the sort of like profit margin or ways of these companies are making money off of these? Because in the West, it's all profit-based, you know? Yeah, and that's the killer. That's the best question. Ready? Look, folks.

Listen up real hard here. Ready? When I make a WeChat pay or Alipay payment, it is free. Person-to-person payments or person-to-business payments are all free. There is a 0.01% cost to moving money to the bank. And for certain retailers, it goes up all the way to 0.06%. Okay? So...

Compare that with Visa or MasterCard, which is anywhere between 1% and 5% in the United States, and it's lower. It's between 1% and 4% or so in the EU. Now, how does this translate in real numbers? So what it basically means is that payment was re-envisioned as a free service by people

WeChat Pay and Alipay. Now, what did we say before about free? When it's free, you are the product. So WeChat Pay or Tencent or Tencent, the corporate parent of WeChat Pay. Okay. And Alibaba, the parent of Alipay. They envisioned that they would use the data. They were dumb. They figured that, hey, we got financial data. We're going to be like Google, except we're going to do it with finance. Why not make it free?

But the real impact is tremendous. If you look at the cost of payments in the EU and the cost of payments in the United States, the cost of payments to society in the European Union is 1.7% of all GDP. Now, about 60% of that is retail payment. And if that's not bad enough...

In the United States, it's 2.4% of GDP and it's over 60% of, slightly over 60% is retail credit card, but retail payment. So,

These are incomprehensibly large amounts of money. And the cost of payment you're referring to, is it just simply going back to what you were saying that back in the day in which all this infrastructure and this financial infrastructure is still based on in the West was the credit card system and it required a lot of actual human labor to process payments and that also obviously incurred costs.

Is that the cost of payment you're talking about that we're still paying? Yes, it is legacy. It is a legacy thought. That is that in the legacy way of thinking is that you have to pay to pay.

You know, I mean, that payment is not a free service, right? So payment is a cost basis. And we almost don't even think twice about it. We grew up with that, so we don't think about it. Yeah, but that's, I go absolutely insane because people don't realize that every person, every coffee shop, every restaurant, every whatever takes their cost of goods and

adds their profit margin, and then adds 5%. For credit card, it's a hidden tax on all of society. I was having a conversation a few years ago with this pretty successful businessman in New York, right? It's someone I've known for a long time, much older than me. He's doing a lot of business, but he doesn't know much about China. And I was talking to him, and he was thinking about opening an online e-commerce business for China.

And he was asking me in terms of my personal experience on the ground of payment systems and how it works.

here and i told him about alipay i told him about wechat and for the life of him he refused to believe me that there was practically there's no charge for buying something he he and i told him and he would not believe me to this day he still doesn't believe me yeah it's it's he's like there has to be there has to there can't there has to be and he just was really stubborn about it

And as if I was lying to them. Yeah. And that's common. I mean, it's really hard for people to wrap their head around. Look, when I talk to people in the West, this is how I have to broach it to them. I say, okay, you think that you use a credit card for a lot of payments. And they're like, yeah, we use it for a lot. It's, I'm always, I don't use cash anymore. I'm cashless. I use it for a lot. And I say, okay, that's fine. I get it. Now,

the West, in the United States, let's go to the U.S. The U.S., if you look at the total credit card amount every year and you compare that with the United States GDP, right, it's one third. So that means credit card swipes are equal to one third of the U.S. GDP. Well, U.S. GDP is big. Okay, fine. Ready? If you look at that in China, the amount of

Mobile payments is four times the GDP of China. Now, embedded in that are goods, services, use cases, innovation, and other things that the West can't even conceive of.

So I wrote over here on my QR code enabled rental bank, boop. If I'm at the coffee shop, you know, I get my battery bank, boop, right? You know, the boop is the little QR code scan, right? That's how I guess I envisioned it on audio, right? That's fair, that's fair. But, you know, but the thing is all of these things are free in the sense that the payments are free, which means that, okay, a bike sharing network,

Oh, look, everybody around the globe knows that they run on razor thin margins. You say you want to do its credit card system and take a couple of percent off of that. Yeah, good luck. Right. You want to rent these little battery packs at your coffee shop. Well, what if they steal them? Very simple. Well, it's too quiet or whatever amount to rent it. But if you don't give it back, we'll get you for the whole 200 because we have. But but all of this is free, immediate digital stuff.

It enables services on a level that most people in the West are incapable of fully understanding. Okay. Well, but let's be fair for a second, right? Because I think we keep comparing digital payment in China to the credit card system in the West.

But in recent times in the West, they've also shifted. I think there's more and more people shifting away from credit cards. I know a lot of people who use their own digital. They have their own digital wallets depending on what type of services they use in the West. So how do those digital payment platforms compare to China? Like let's compare apples to apples. Okay. So we got to break the world down. All right. And we're going to break the world down to Asia, which is the world's largest –

user of digital wallets. So if I go to Philippines, I have GCash. If I go to Thailand, I forget. But Thailand, Indonesia, all of them have various competing versions of digital wallets that have re-envisioned payment along the lines of China.

Okay, so that's one part of the world, all right? And this is a developing world. So for them, and this is key for people to understand because it impacted China, the mobile wallets, WeChat Pay and Alipay were revolutionary for financial inclusion, for getting poor and humble people to bank, getting them cash services beyond putting money in a box and putting it under their mattress. So, okay. Then we're going to move to the world and we're going to go to the EU.

Where there are a few early payment systems that are breaking through now and trying to re-envision the concept of payment. And they do have lower fees than, say, a Visa or Master credit card. And there's even state-run programs now, SEPA programs.

I can't remember, payment area, something that's SEPA. And that's actually a free debit card network launched in the EU and maybe Switzerland and a couple other non-EU countries that are involved. But again, very limited. These are still new. It's not well distributed. And then the United States. And next year, the United States

is going to launch something called FedNow, which will be a form of account-to-account payment. In other words, I can pay you from my bank account to your bank account without going through a credit card, and that will be

If not free, very low cost. But again, all of these developments are behind China by many, many years, just shy of a decade. So what is PayPal? What is Venmo? Those are also digital wallets, right? Yeah, they're digital wallets. But if you – okay, so that's fabulous. If you're using PayPal, portions of PayPal are credit card dependent and you have fees.

Portions of PayPal are non-credit card dependent and you have balances that can reside in the PayPal account where you give them your money and they hold on to it and when you spend it, it's free. And then you actually have crypto wallets in PayPal. So PayPal is really interesting because it's the first sort of or the best, I think, example of a future kind of digital wallet that we will all have.

So I think our digital currency future is wonderful because I think we're going to have wallets where you can use crypto. I think we're going to use stable coins someday. We haven't talked about them yet, but that's another form of digital payment, mostly used in crypto world now, but we'll use it for retail payment someday. Credit cards and central bank digital currencies. So you're going to pick...

The type of money you use or the type of money you spend depending on what you want it to do. Oh, I'm going to use my credit card on this. Why? I want the miles. I'm going to use a stable coin on this. Why? Because that store likes stable coins.

Or I'm going to use a central bank digital currency for some other reason. So PayPal is probably the most advanced in the United States for taking us in that general direction, although it's not really achieved it yet. But most people who are using PayPal are still sadly paying credit card fee and credit card risk. So I have a question in terms of I'm sure many people who are not as savvy with digital currencies are probably wondering right now because of what we're saying.

What is the real big difference between, let's say, PayPal, Alipay, WeChat Pay versus CBDC? Sure. That's a really wonderful question. Why do we need that? Yeah. Okay. So you need it for a number of reasons because first and foremost, for developing countries, they need central bank digital currency because of financial inclusion. It basically gives...

humble people who were not able to access the traditional banking system, access to electronic banking services with or without an account. And eventually after they get a certain amount of money in their account and it becomes as big, they have to get a bank account. But the point is it gives them access to financial service. Well, what was restricting them from access before? What specifically? The banking system. So when you look at – so before – earlier on in our discussion, I said, you know,

If you looked at the banks in China, they're built really on a Western model. And that would be the same for Indonesia, Vietnam, and a lot of places. They imported Western models for banking. And that model says, who are you? How much money do you have? Are you a good credit risk? Why should I bother with you? KYC. Yeah. Know your customer rules. But it's also the underlying concept that it costs me money as a bank to maintain an account.

Therefore, I have to be ensured that you are worthy of me opening an account. Now, in a digital world with WeChat Pay, Alipay, Central Bank Digital Currency coming along, the concept of...

of you having, I don't really want to call it an account, but you having a digital presence is free. There's no cost associated, so sure we can give it to everybody or minimal cost, I think it's fair to say. What about overdraft fees? Isn't that a big thing too? Like that affects kind of the poorer class? Look, overdraft fees are, let me speak to the United States experience.

Overdraft fees are the single most regressive tax in the United States and are a sad blight on the banking industry that is frankly unforgivable in my view. And I was a banker for 18 goddamn years. Yeah, you were an investment banker. I was an investment banker, not a retail banker. But overdraft fees are horrific and in a digital world where digital payment is immediate,

And where I go to my WeChat account and I say I want to pay $1,000 in choir, but I only have $9.99 in my bank or other account, I can't make that overdraft fee.

So a lot of these overdraft fees are gone. And that's why the Western banking system loathes central bank. One reason why they loathe central bank digital currency and digital payments because it's going to kill a really good deal for them. And that's sad and it may sound cynical, but you can read a lot about it. Can you put into scale what the actual impact in your view is of overdraft fees? Look, I don't remember the real number. In the United States, it was...

12 billion a year. I don't remember. Just on overdraft fees? Just on overdraft fees. It was crazy large. Please don't quote me on 12. Look it up yourself. It was really, really big. It was billions. It was 2018-12, somewhere around there. And I'm sure that gets a lot worse when you take into account what class of people are actually paying those overdraft fees and how they're being targeted. It's all on lower income people.

And look, there's a lot written on this. This is not new. But let's go back to this question of why CBDC? Why? So if you're in a developing country, the number one reason is bringing financial inclusion to your population. Because you're bypassing a bank in that regards, right?

You are bypassing a bank to a certain degree. And then what happens for all of these programs when you have more than a couple thousand dollars, for example, on the card or on your central bank digital currency wallet, then they say, well, if you want to have more than

X number of thousand U.S. equivalent, then you have to open a bank account. So really poor people don't have thousands of dollars in Asia developing world, you know. But so what it is in China is it's up to around 10,000 RMB on these little – China has these little credit cards and they have little digits on them and a keypad. And –

Those are central bank digital currency payment cards. They do not require a cell phone. They do not require signal. They can be used for direct transfer of digital currency from one card to another or one card to a phone with no supporting technology. And that's fantastic because it closes the digital divide for China's elderly. Okay. So that's inclusion. That's all part of the financial inclusion picture.

But then we have to look beyond. Okay, so why, what's the incentive for the European Union, which is now a year and a half into its digital euro program? They're building one. God bless them. They're doing a great job. I cover them all the time and I can't say how wonderful a job they're doing. But so what's the EU's reason for doing this? Okay, for them it's to

improve the payment system to get it off of these credit card networks, to make it so that you have better freedom of payment and ease of payment, which they modeled essentially on crypto. But they want a better payment system. The third thing that it does is something that is very rarely discussed, and I'm going to bring it in here. And central bank digital currency is much less about

how you pay for your coffee, and much more about a future where machines will pay. So we're really at the cusp of a point where your car, let's take the machine most people know most, know best, right? Take your car. Your car will have a built-in digital wallet inside, and it will pay for gas. It will pay for electricity.

It will do things and interact with its environment all on its own. And you can program it for certain interactions. I don't want to spend more than $50 or 50 euro at a time to buy fuel or electric to replenish in my car. All right. So we have to be futuristic looking a little bit. We've got to think of central bank digital currency as being a really important part of digital infrastructure.

that allows for nationwide ubiquitous digital payment. You don't want to have your car drive up to a gas station and say, I only take Alipay, I only take WeChat Pay, I only take Visa, I only take MasterCard, no American Express, right? No, you want these machines to have a universally accepted, free of charge system

bit of national digital infrastructure that connects the entire nation. And that's mind blowing. Isn't that, but WeChat and Alipay is kind of like that though. WeChat pay and Alipay are not. And this is the reason why. So there's still a fee for using them to move money back. And I have the option to choose to use WeChat. So my yoga studio, I go to the yoga studio. We check it. We take Alipay. We don't take WeChat.

Yeah, it's not ubiquitous. It's not ubiquitous. So we're looking at a future where machine pay. So what are the big motivations for central bank digital currency? Okay. Number one, financial inclusion. Number two, to make a better, more robust payment system.

Okay? What makes it – but what exactly makes it better and more robust? It's better because it's free and more equitable for people and it's more robust. The government would argue that their nationwide systems are somehow better or – that's a tough one. I admit. I'll give you – Gotcha. You got me on that one because look, Visa Master – Less volatile or what? No.

They would, they would. Okay. So here's the argument. I got it. I'm back on track. Thank you. As our payments go digital, we rely wholly on two companies. In the West, it's Visa and MasterCard. And in China, it's WeChat Pay and Alipay. And should any of these networks fail or have a problem, our entire economy is crippled. We need a third payment option so that

Should anything happen to these others, they become compromised. We have greater redundancy. So, Rich, I have a question. So essentially we're building, like if we go back to like the road analogy, right? So if we build, like right now in China, like WeChat has built sort of a highway system and it gets to most places, but not every. And Alipay has done the same thing. And using that, you know, the government here is,

going to build like another, you know, highway system with roads and because of the government, they can, you know, they can build it into Shangri-La or Lijiang or the mountains, whatever it is, right? Kind of metaphorically. What, what can you walk us through what that process looks like? Like, what is it actually like, what do they actually have to do to build up these systems? How are the banks involved? Like when you're building this whole new network,

what is it like from a concrete project perspective actually look like? And I mean, of course, it sounds like the government wants to maintain control as well, right? Not just from a redundancy perspective, but I want control over my currency. All governments want control of their currency. And one of the things that I didn't mention before was the European Central Bank building the digital euro was very clear. They want

people to use the digital euro and not use cryptocurrency. They said we are at risk.

We feel that we are at risk that people will de-euro and go to crypto unless we provide them with a better service and a better experience with payment. If they want that digital payment experience, if we don't give it to them, they're going to get it someplace else. So it's created out of fear in that sense. Absolutely. And it's really fascinating to see that. Not less so in case of China because China is already cashless.

But in the Eurozone and to a certain degree in the United States, it is fear of cryptocurrency and losing control of the currency networks. And crypto people are happy about that. They're like, yeah, that's great. We want to lose control. Be careful what you wish for, right? So it is partially that fear. Now, look, I didn't answer your question. Let's take this. Let's go back, roll back and take this from the beginning.

What is a central bank digital currency and how do we build one and where is China right now in? Get a timer out in one in two minutes. Okay So the most important thing to understand about a central bank digital currency and this is a lie that you hear repeatedly about

You're going to have an account at the central bank. No, false. Anytime you see that, it's not right. The central bank does not want you as a customer. Number one, central bank digital currencies are tokens as are Bitcoin and other cryptocurrencies. So you don't have an account. You do have a digital wallet where these tokens accumulate. Now,

The design for a central bank digital currency is exactly like the current cash money transfer system that we have now. Let me tell you how cash works because it's the easiest to visualize. The treasury or the central bank, depending on your nation, prints money. They have pallets full of money, trucks full of money. They drive these trucks full of money to your commercial bank.

Commercial bank loads it into tellers and ATM machines and you go to the bank and you pick it up. That's considered two tier. The first tier is the central bank printing the money and distributing it. And the second tier is your bank distributing it to you.

Two tiers, right? You don't go to the central bank and say, give me, where's your central bank ATM machine? Yeah, they don't take retail consumer. Yeah. You don't walk into the treasury. You don't want like 500 million people knocking at the central bank store. Yeah, and that's really hilarious because the first thing I, look, I write about the

about the crap that people write about central bank digital currency. And the first thing is you will have an account at the central bank. Can you imagine the PBOC with 1.4 billion accounts? You know, it's just, it's kind of like funny. Can you imagine their call center? Yeah.

That's great. I love that. I have to use that someday, right? So number one, two-tier central bank digital currency, meaning you get your digital currency from your bank. Your relationship with your bank is unchanged. And the most important part, ready, wait for it, the KYC, the know your client, your personal data stays where?

with your bank. What does that sound like? Do you have a Visa, MasterCard or MasterCard or Union? Same shit. Same shit. All right. All over again. So the concept that, oh, the government's going to, oh, it's just, it's just such BS. So anyway, so where are we here? The Chinese government has designed a beautifully state-of-the-art two-tier central bank digital currency. It is in trial phases.

The first part of the trial, a year and a half ago, was making it work between the commercial banks and the central bank so they could pass it back and forth between themselves. And then in Shenzhen in September, August of 2021, or 20, I'm really a lot, 21, they started passing...

out central bank digital a few of the trial banks started passing it out to citizens so they could start using it so we've got trials that have been around for about 18 months plus i'm really remiss at the dates right now but what they are doing is as follows and this is really really important central bank digital currency is not cryptocurrency

When you use central bank digital currency, you expect it to work everywhere, first time and every time. Now, let me make a comparison. When Bitcoin was launched, they said, here's Bitcoin. You figure out how to use it. So now you can choose the wallet you want in the Bitcoin environment. You can choose from certain banking services. But all that had to be developed.

That was on you to develop. A central bank digital currency can't say, oh, here's the central bank digital currency. You figure out what you're going to do with it. So they have to make sure and build the entire network out so that it functions on a bus.

So that it functions obviously at a store. That's the easiest one. But they have all of these. They literally, the PBOC has tens of thousands of use cases. And each one of them is like a box that has to be checked off. It works to do this. Because you can't fully launch until you have access.

The ubiquitous ability to use this currency everywhere. Is that too ambitious? Not at all. They can do it. It's mostly connecting to the banking networks and it's mostly connecting to the individual devices. So China has an advantage.

And the advantage is we use QR codes. So at the cash register, okay, if you go to my coffee shop, they scan QR codes today. Central Bank Digital Currency app in China is a QR code. So they don't need to buy new machines to do the QR code. They have to do the back office plumbing to connect the bank to

to that QR code system so that it can process it. The key thing for people to understand is that central bank digital currency is the national currency. That's it. It's, you know, you've digitized money.

So in your best estimation, when would you expect it to be fully launched in China, the digital yuan? That's a really interesting question and semi-political. Not in China politics, but in U.S. and geopolitical context for China. Why is that? In my book, Cashless, I then –

about 18 months ago, wrote, well, there's two paths that China is going to take. Well, one, they're going to push this out and launch it fast. And the other path, which I turned out to, which turned out to, which I said was going to be likely and has been likely, is that China is going to roll out very slowly. Now, two reasons. One is, of course, the meticulous. I keep on saying they are meticulous. They're going to test everything. They're going to make sure it works.

They are the first country launching a central bank digital currency. The eyes of the world are on China. If they launch this thing and they screw up or it doesn't work in some small village somewhere, there's going to be newspaper people there. They lose face. And China loves testing things anyway. Yeah, so that's obvious. But the other reason is that the United States has already put forward –

bills and laws to sanction the central bank digital currency. In fact, there was- China's central bank? Oh, yeah. It doesn't exist yet. And so when they- But is it only China's central bank or all central bank? Only China so far because this is the only- But not the EU's. Yeah. This is the only one that's come up so far. So there were a number of moves.

Under the Trump administration, you're aware they tried to ban WeChat and Alipay as apps, including payment, in the United States. So let me – I'm sorry to cut you off. Yeah, sure. Just so we can – I want to be clear on that. What is the threat in the American point of view? From the American point of view is nothing more than spyware.

And it represents an unacceptable threat of surveillance to American citizens. So it's as simple as that. That's it. It's not even that complicated. So much so that when the U.S. Olympians were –

coming over for the Olympics, um, there was a move. It didn't pass, but there was a bill to make it, uh, make it so that the American Olympians would not or could not use the, the central bank digital currency in the form of cards. So at the Olympic games, they tested for the first time ever, these little cards for CBDC, digital yuan, right? And, uh,

They are not connected, so you're not getting a lot of data transmission out of these things. And they absurdly wanted to ban all American athletes from using the central bank digital currency cards. And there was a Marco Rubio sponsor to another bill demanding the immediate ban of any use of China's central bank digital currency. So from China's perspective, as soon as they launch, they have a target on their back. They become…

Well, is there any actual evidence that maybe it could hint at spyware? Is there any shred of evidence that would make it even a plausible concern? So from a technical perspective, there is absolutely no difference from using central bank digital currency than using, say, a credit card. And it is...

There is no technical argument here. What you see is completely a political argument. Now, somebody who, now I can go and I have an hour discussion with somebody about the technical elements of politics.

China's central bank digital currency. I talk about the privacy laws. I talk about how all the data is encrypted and the same encryption methods that cryptocurrency use to make it private. I can talk about the anonymity that's given all the way up to 22,000 plus. It's around 300 US dollars, right?

You have complete anonymity in payment with the central bank digital currency here in China up to around $300. Above that, you don't have anonymity. That's a scheme that's also repeated in the European Union and other places, not new conceptually. So in the European Union, Italy, in Italy, my home country, I cannot spend more than €1,000.

If I spend more than a thousand euro, I have to use a Visa or MasterCard at the store so that there is a digital record of the transaction and there's no black market. Okay? Wait, wait. So wait, wait. So that's a law? Yeah, it's a law.

You can't spend – if you spend more than $1,000, you have to use a credit card in a sense? Yeah, in euro. So can you cash? No, I can't do cash payment for over 1,000 euro in Italy. It is against the law. I had no idea. Yeah, so what I'm trying to say is you have anonymity protection up to 1,000 euro in Italy. And then beyond that, you have to use a credit card, which is not anonymous. Right.

the digital payment stream. So same thing in China with digital currency, you get anonymous payment up to a limit. And I'm glad you clarified that because it's a, and then above that you lose your anonymity and payment. So, but I can take people through an hour and a half worth of arguments. And here's what it comes down to. There's a database of names at your commercial bank. Your name is tied to the digital currency database.

if you're a normal user at a commercial bank, and do you trust your commercial bank in China to maintain privacy over that information? And it boils down to this. Yes, I'm from the West. I trust that Chase Manhattan, Citibank, JP Morgan, whatever the bank is in the West, will hold my privacy in that transaction. And I say, well, how about China? No, all banks are automatically protected

Open to the government in China and it is essentially lawless and that's that's what the discussion boils down to after hours of high-tech going back and forth and you know so the answer is if you're a and so let's let's just say that you're buying something from China and you're in a foreign country forget about us just a foreign country and you're one of the early countries that's using the digital currency and

If you were to use a credit card to buy that, if you were going to use a credit card to buy that object, your credit card transaction would go from your local domestic banks to the Chinese banks to eventually to the person who gets paid in China. So tell me where your anonymity is in that payment. These are international transfers. You got no anonymity. And with the central bank digital currency, there's less anonymity.

stops for the money to make. So there's less hops. But in the end of the day, it boils down to what level of trust you have with your bank. What about this, the term they use, spyware though. So like if you have to use the government's actual app,

then that's different, right? Because right now, if I use a credit card or whatever, I can use like my own app or, you know, I can swipe it, et cetera, right? With that mechanism. So if there was another app that the government actually built and I had to use that app to spend the currency, couldn't they build like a Trojan horse in it? Oh,

The answer to the question of couldn't they is always yes. You have to assume that. But central bank digital currency in China, I'm going to be able to use it on WeChat and Alipay. You haven't looked. I've already – you've already got – I don't have my phone here. You've already got the central bank digital currency.

So it's not tied to their app.

It was very well received within a couple of weeks. 20% of the Chinese population had downloaded the central bank digital currency app because they wanted to see what this is all about. And it's rather boring. It looks just like WeChat Pay or Alipay except without all the functionality because you can't do as much with it. It's just payment.

But, uh, um, it's well received, but when it finally launches, you're just going to go to your bank app, open it up and it'll have a QR code system right on the front page. Boom. Pay. Do whatever you want. Yeah. I have a comment I want to make. Um, this is just from my normal browsing that I came across on social media platforms in the West about, uh, centralized, uh, banking digital currency. Uh,

Some people have commented in particular about China's digital yuan, saying how, oh, we don't trust the centralized currency, you know, with the social credit score and all this stuff. Everyone's, you know, the government's spying on the people and it's all this stuff. Yeah. So, look, I use...

So there's a couple of things you brought up there that are wonderful. Social credit. Let's come back to that one, but make sure we tie to that one because that's like number two or three. So the real issue of privacy in China is as follows. Number one, central bank digital currency, the digital yuan, gives Chinese users greater privacy than they have now with China.

WeChat Pay and Alipay. And Western listeners, don't tune out. China's central bank digital currency gives you, would give you greater levels of privacy than you have now with Visa and MasterCard. Why is that? Because when you use the central bank digital currency,

for coffee and below this 2000 RMB level, there is no data footprint left behind. You can't sell your data to data brokers. There's nothing. There is a registered entry on a database that is

on government servers but without your name. These are not named servers. These are not named transactions. These are transactions that are recorded and if the government says, "Oh, I want to pull out this transaction," they have to go to your bank to get the information. So, objectively, central bank digital currency, digital yuan, gives Chinese users greater degrees of privacy than they have now and again,

In the West, go buy your coffee with your flashy tap to pay Visa card. You're giving all this data out every time you use it and that doesn't happen with central bank digital currency. I'm a little confused in terms of what you just said because the way I understand it, and correct me if I'm wrong, let's compare central bank digital currency in terms of its privacy compared to Alipay or WeChat digital wallets.

Wouldn't the government still have to go to either WeChat or Alipay to pull up your information? Okay. So if you – Wouldn't it be the same level of privacy? I don't understand how it's more private. Okay. So when you make a payment with WeChat Pay and Alipay, right? WeChat Pay knows who you are and monetizes your data.

WeChat is a big tech company and they're a great company. I'm not trying to make them into evil, but they are a tech company and they monetize your data by selling you. Now, how do they sell you? Oh, you bought your, let's use a local coffee shop we all know, Mocha Brothers. How about this one? Oh, okay. Antenna. I love them. Antenna Coffee. So Antenna Coffee wants to know who's buying their coffee.

So they can go to WeChat Pay and Alipay and drum up a list and say, okay, here's the list of people who are buying coffee. We want to send them all out a coupon or an advertisement. And they can do that now. Oh, that's just fair game. That's what big tech does in the United States, whether you're Google. All over the world. Yeah, all over the world. That's just what they do. They monetize your data. Yeah.

And if you buy that same coffee with a central bank digital currency, you have left no footprint behind. Just the purchase. Just the purchase. Just like as if you use cash. It's gone. So your name and your age and your occupation is not... No, but the bank would know, right? The bank would know what you bought just like they would buy.

No, if you bought, just like they have access to your credit card data. It's the same scenario. So correct me if I'm wrong, the digital currency just removes one less middleman in the process. Because the banks are connected to the Alipay, right? Alipay, WeChat, they're just digital wallets. The money is sitting in your bank account and it's being pulled from your bank account.

Correct. So the bank exists in both scenarios, except in the digital yuan scenario, you don't have a private company like Alipay or WeChat also collecting your data. Who actually has all your information because you filled out all the- Is that the main difference? That's the principal difference, yes. But I have to go back and I misspoke. My belief, and look, this is all developing and you're right at the margins here.

When you make these payments that are below 2,000 RMB,

the bank will not have access to that data. So it will have a transaction record but it will not be able to say, "Oh, you went to Antenna for coffee." That's again, that's an anonymous payment. So I misspoke before please… So anything below 2000 yuan is not tagged with any of your personal information. Hands off, yeah. So it's just like a… It's like cash. It's just like a transaction… It's like cash.

So in the back end, it would just be like a bunch of numbers. It would be like a serial number transaction code. It is a cryptographically encoded pseudo-anonymous representation of who you are, and nobody's going to crack that. So here's a question. I kind of want to take it a little bit darker just because we haven't really...

gone there yet we haven't gone dark enough you know social credit is how much I'm going to go ahead well I think it's going to go together right because this is going to go along with control right and this is another talking point that a lot I'm sure you faced a lot right with people challenging the ideas of digital currency which is I don't want to be controlled what if because you lose the trust like what if they want to control the way you spend what if they want to block your money what if they want to put expiration to your currency what if they want to you know I mean like this kind of stuff or

Or freeze your accounts or whatever. Okay. So those are three. They're perfect lead-in. Let's take them in order. Freeze your accounts, control your money, and social credit. Okay? And feel free to interrupt me. Freeze your accounts. Or expiration because it's digital, right? Perfect. They're all related. Okay? So number one, freeze your accounts. Look at the following examples. Grease.

Greece is hardly an authoritarian country. 2015 froze all bank accounts in the nation during the 2015 currency crisis.

Look at Canada this year, froze 250 plus bank accounts for the truckers and froze all their crypto accounts. Wait, how many accounts did they freeze? 250 plus. It was from the trucker protest? It was from the trucker protests of spring or January, February of this year. But what was the reasoning for freezing? Like what does that accomplish? From the...

In that scenario, the Canadian government wanted to cut the funds for the truckers who were protesting. But the important thing for our discussion, whether it be Greece...

Canada or another more recent example, which is Brazil, which just shut down 150 bank accounts, is that you don't need a CBDC to shut a bank account down. And, you know, it's like I have the hardest time getting that across to crypto people. That's pretty direct, actually. You know, it drives me out of my goddamn mind. They're going to shut your money. If the government wants to shut your money down today,

Go look at the IRS, what they do with people who are severe tax cheats. They put tax liens on their bank accounts and they can't take any money out. So don't tell me that CBDC has human superpowers like Superman. Oh, it has new Superman powers to shut your bank account down. That's absolutely wrong. Your money is digital. It's not kept in a box, a wooden box in the bank.

So if the government wants to shut it down, they call the bank, they give them a legal reason why there's a process that has to happen in any country. And in Canada, they got an emergency declaration to do this. It was legal. It may have been wrong. I'm not saying it was the right thing to do, but it was done within the legal parameters of Canada and it was done.

The point is account freezes do not require central bank digital currency. It exists. So will the government be able to go to all banks and say, all banks, give me all KYC data, all the names of all the people on all these wallets? And the answer is yes, if you have some kind of radical idea.

um collapse of the entire legal system you know a mass warrant hi i would like i want a mass search warrant for every person in it's like a backdoor like so is what you're saying that so like this is ignorant but like um because i don't know anything about this but like so there's no backdoor and like let's say that the government did create this backdoor

to access the information from these local banks, could they do so without actually telling us? Or would that be practically impossible because every bank would be doing this and then it would just get out? So the answer is as follows. Now we're talking about the dark side of governments. So one of the reasons why Edward Snowden is living in Russia right now is because he uncovered in part

the NSA's efforts to capture and control terrorism in the Middle East. And what he talked about at one point was that the NSA had cracked, I think it was the Visa Network,

Particularly in the Middle East so they could have certain access to data and transfers in the Middle East. Whether that included names, I don't know. Probably. That would be my guess. Well, someone has the data. Essentially, it's like whenever you do this stuff, someone has data because it's... Yeah, but the real issue is here now we're talking about CIA, NSA, spook kind of stuff. Intelligence agencies. These are intelligence agencies. So can I, will I go on...

a podcast and say, oh yes, I guarantee that the intelligence agencies are never going to corrupt or try to corrupt a system. And the answer is no. But I will say this, the intelligence agencies are going to have a hell of a time trying to crack crypto style encoding.

Because this stuff is really good. So one of the things that people in the crypto world talk about all the time is how secure it is. Oh, it's really, really wonderful. I got blockchain. It is super secure, right? Well, what the hell do you think the central bank digital currencies are doing with regard to the currency itself, the names, everything about it is hyper encoded. So I cannot tell you that a malicious government would not

challenge or try to uncover this. But I would say, how is that any different than in a malicious government trying to track Visa or MasterCard from our Edward Snowden example? Look, that is an issue that is no different with central bank digital currencies as it is with our current version of payment system and bank accounts.

Because of the new technology that's being used and adopted, I would say it is less vulnerable. A state security agency would have to go to do a hell of a lot of work to either decrypt or to hack data.

the newer networks that banks are going to be putting in for this stuff. So I think it's far harder. I think it'll be harder for the NSA to do what they did with Visa to a central bank digital currency. Well, and then the vulnerability is that actually they could just come to your door and then open it, break it down and just get you. Yeah, well, it's really the funny thing. I had this discussion the other day and I really went to that exact thing. Somebody said, well...

If you're really an autocratic dictatorship and you want to control your people, you're going to use central bank digital currency. And I said, I didn't say, this is what I wanted to say, but I said, you fucking don't know what an autocratic dictatorship is like. They could care fucking less about your bank account and the money. They break down your door. They don't need a reason. You know, you can look at neighboring South Southeast Asian nations where, uh,

They bust down the door. They put you in jail. They drag you out. I mean, yeah. I mean, it's like they're like, oh, well, they're going to control. Are you kidding me? Why go through the trouble? Why bother? Why go through the trouble and the cost of decrypting on this when they can just break down your door? Yeah, I know. But I'm like, are you guys really sure you understand? I asked them politely. I said, are you really sure you understand what an autocratic tutorial system is really like?

Go to Myanmar, go to local Southeast Asian countries that are really high up. - And that's why this podcast is now recorded in an undisclosed location. Somewhere in Asia. - Yeah, somewhere in Asia. - It's in Asia.

We got Snowden here. He's quiet inside right now. Now I'm going to hear door knocking in my nightmares. Snowden is really a great look. I think of him as an American hero for the fact that he revealed things like the United States –

listening in to Angela Merkel's cell phone calls, which just cracks me up to no end. But on central bank digital currencies, he really hates them. And I'm saying that not because I agree with him, but because I really respect the guy. And even though he dislikes him, I still respect him. But central bank digital currencies are not his thing. Why? What is the argument he puts forward? He calls them all spyware.

And I think that the argument would break down to the same one we just had, which is he worked for the NSA. He was a digital spook for a living. That's what he did. And he would say, we as the NSA or other security agencies are going to hack this stuff and we're going to get access. That's what I believe he would say.

Is he big on crypto then? Is he a big advocate? Oh, yeah. Big crypto advocate.

Well, not to get too sidetracked, but I'm just, because of your background and your expertise, I'm like, I'm interested, where do you think the future of crypto is headed? Given like the recent slump it's gone down, like, do you think it's going to make a strong return? Is it going to be around for a while? Like, what do you think the state of it is? Okay. So let me break it down into, I'm going to do a 30 second soundbite on this. Number one, crypto has a right to continue to exist.

The current crypto crash is by no means the death of crypto. Now the heavy one. Crypto does not have a right to exist in an unregulated fashion anymore. It has surrendered that right. We have seen two major crypto crashes. We've seen $2 billion hacked out of decentralized bridge exchanges this year.

so far this year. The concept that crypto should be unregulated and separate from the state and not answering to the state basically invites the kind of criminality that you've seen with FTX, with Terra Luna,

with these various bridge hacks. So there's no way that crypto is going to come out of this period of darkness unscathed and without regulation. And the regulators are now, the regulators are fools. I'm pissed. And I just wrote this morning that the US regulators are complicit in the FTX regulation.

Because they're complicit because they were unable to accurate to they and other regulatory bodies were ignored it and basically let it, let it grow. They should have been on it long ago, years ago, they should have been on crypto regulation now. But the point is,

Crypto is going to change and my belief is that by the time you're done, you're already at a point in the United States and some other places where when you access your crypto, you have to access it through an exchange.

And that exchange has what? KYC and AML on it. So you're at a point where the difference between crypto, central bank digital currency, stable coins someday, they're all going to have an input into the government. Now,

People on the Bitcoin side said, no, we don't want that. I want free money. And I'm not a big fan of that, you know, because people don't want to pay taxes. I want to use a hospital. I want to use an airport. I want to go on streets. People who have free and transparent use of money without government intervention steal it.

End of story. And that's what we've got right now. We've got the Wild West. We've got crazy stuff going on. Well, from what I see as well, I think there's like kind of two perspectives on it. One is if you're talking about currency, actual money you want to live off of and use and save versus investments. And I think if you're talking about actual currency, you don't want your currency to be volatile.

No one wants that. You don't want the dollar or the yuan to be worth this or go down 20% in a day. You wouldn't want that as a normal means of living. Please explain. I'm going to be really nasty now. Please explain to some guy in the West living in his freaking mother's basement who's a crypto friend who gets on Twitter and says,

cryptocurrency, you name it, Bitcoin, Ether, whichever one, is the solution for financial inclusion in Africa and in the developing world. What freaking planet is he coming from? What poor person can afford their money being worth plus or minus 20% a day? Who on earth? People are our most vulnerable population. They are claiming jobs.

The savior for the world's most vulnerable is a volatile coin that they should be happy to accept. And this is going to save. And I'm like, get out of your goddamn mother's basement. Go. Go do. I did a couple of trips to Western Africa. Go. Go hiking in Lijiang. Go visit those people.

And they're like, they're going to deal with currency volatility? You would actually wish that upon them? What insanity is that? But anyway, I get that all the time. And you go to Twitter. Go to Twitter right now and look at inclusion and crypto. And you'll find dozens of articles. And then you've got the UN Development Program pumping out articles.

article, paper after paper saying, please, this is just wrong. You can't do this to these people. We do this for a living. But the Twitterverse is aflame with this stuff and it drives me absolutely freaking bonkers. But anyway, you hit a nerve. Sorry. No, no, I love it. I love it.

I wish you would go on even more. You want more? No, that's enough. Let's go to social. We had, so we covered, we covered, okay. So we have, we have to do two more. So the first part was stop your bank account. And the next one gets to the very issue of programmable money, timing of money, the money, the crypto, the ready, the central bank, digital currencies are going to have an expiration date and it's evil.

Well, one of the comments were, okay, what if they need to stimulate the economy? So they want to put like expiration to you need to spend this much money to stimulate the economy or whatever. And that's a great thing. So the world is of two minds when it comes to programmable currency. And it's really funny to watch. So let me give you the best possible example. There are...

They used to call it the food stamps program, basically social payments in the United States to assist people with giving people money to eat, right? So that program, of course, advanced. They no longer have stamps, but they give away debit cards. And you know what? Those debit cards have a limit on them. You got to use them within six months. And you know what? If you take that debit card and you take it to a gun store,

Not going to work. And if you take it to an alcohol or liquor store, not going to work. I ask you, is that programmable money? Yeah. Your debit card is programmed to have certain uses to it. Now, most sane people in the United States say, yes, this is social payment. This is money from the government, and we have the right to tell you how you can or cannot use your money, including time limits and use cases.

So the first thing that I hear about central bank digital currency is, oh my God, it's programmable money. It's the worst thing in the world. And my answer is no, you already have it and you already want it. Now, so the question is, will your money time out? And the answer is yeah, if it's a social payment. So let's look at Shenzhen, the first time that China tried to use the central bank digital currency.

They actually gave people hung bao, red envelopes, presents. There was a lottery. Millions and millions of people applied to this lottery. They won it or they didn't win it. And they got a hung bao, a red envelope of 200 RMB. The red envelope had the following conditions on it. You had to spend it in two weeks. You could not save it to your bank account. You couldn't move it up. You actually had to use the money.

And you couldn't just give it to a family member. They tried to restrict it so that you had to buy stuff with it to pump up the economy. And that's an example of a programmable currency, programmable central bank digital currency being used in China today. Is it evil? All right. So that's the first part. The second part for programmability is what people don't really understand is they don't understand that if you got, let's say,

So what people do not understand is that from your digital wallet to your bank account, there is free transition of money. In other words, your money goes from your wallet to your bank account back and forth freely and easily.

So, there's no incentive. There's nobody who's going to say, okay, once you take money out of the bank, it's got a six-month time limit. And if they did, you say, okay, fine. Well, I'll just make it bank deposits. Nobody's turning your bank deposits into you have to spend it in six months, you know? So, it's sort of a nutty concept. Well, I think it's more about…

I mean, we're not using actual real case scenarios, right? It's more about estimating the future, what could happen based off of this technology. Well, okay. So let's look at the technology that we have today. We have WeChat Pay and Alipay. Look, other than tax cheats and people who have been arrested for some crime, we don't see a government campaign to control people's money through WeChat Pay and Alipay. And it's already been around for a while.

So, you know, this concept that the government wants to control your money, I think is a little bit, okay, you want to look at a future and look at it? Okay, I agree. It's something that should be looked at. But there's plenty of mechanisms that we could build as a central bank digital currency that would prohibit that. That's the best answer I got for it. All the concerns that we may have with CBDC, right?

It can technically happen now. Like, it's not a huge difference, right? Yeah. So, and then I think that's the point that I think we got to... If you want to envision a dystopian future, all right, you can envision the same dystopian future with CBDC as you can with cards and banks today. We want to cut out... I mean, you've got it. So, I mean...

Right now in the United States, certain banks will not allow credit cards to be used for the purchase of either pornography or guns and firearms. The last one is the most recent. Porn has been around for a couple of years. Firearms and guns. So you have an example where a corporate interest is determining whether or not you can or cannot use your money.

You want to call that dystopian? I agree. I don't like it. I think it should be, you know, you got a visa card, you should use it wherever you damn well want. But that exists in small scale today and is socially accepted. Where do you go with that, right? It's definitely an interesting way to discuss this because some of the points that you're bringing up, at least personally for me,

I have not really thought about in terms of relating it to now or relating it to today. If anything, when I'm hearing about the future with CBDC and stuff like that, it's all about speculation, fear-mongering, all that stuff, right? But I love the way you're putting it into today's terms of the life we have now. Well, yeah. Look, you really want to look. I swear we're going to get back to social credit in a minute.

Eventually. But look, you really want to look at this from a dystopian view? Go ahead. Look at global sanctions. You and all other countries in the planet may not transmit money to country X or Y. Look, I know that countries do bad stuff. I don't want to get into the discussion of what's going on right now. But are global sanctions on nations dystopian?

I mean, these are, you know, we just, so we talked about. They can be for the nation that's being sanctioned. I mean, it affects the quality of life in a big way. Absolutely. And there are other countries who argue whatever your, whatever problem, let's, I'll do it. All right, I'll go there. Just do it. Whatever problem the U.S. has with country, let's use Cuba. Cuba's great. We'll start with the C. I mean, you know, I mean, whatever, whatever problem the U.S. has with Cuba, let's,

My country doesn't have that problem. Why the hell can't I send them money? Right. You know, why are they sanctioned? Why can't I do business? What right do you have? So you get into that question of why does Bank X not allow me to use my Visa card for porn or for sex?

buying firearms in the United States. And then you have the same question at a bigger level. How come I can't take my bank deposits and my central bank deposits and or transfer them or do business with Cuba? Because on a bigger scale, a transfer system, which is analogous to Visa or MasterCard, has been

programmed to turn off my currency transfers to Cuba. And I love Cuba because it's like, it's the concept of a Cuba embargo in 2021.

to sitting in China, it's almost like... It's weird. It's weird, yeah. It's like it's such ancient history that, you know, like, okay, we get it, America. You don't like them anymore. Okay, you know, but what? So that's the same stuff on a bigger scale, and it exists. So are we getting to the social credit? Yeah. Okay, so I wanted... So that's... Okay, so we handled...

We handled turn off my money. We handled programmability, which we've shown is a real thing already in multiple ways. And now we're going to get into social credit. And as I say frequently online, look, I live in China. I know what social credit is. And there's two fundamental alleyways that I go down. And one is to tell people in the West that they have social credit already.

And two is to tell them that essentially payment is just one component of China's social credit system and it is not the entirety of the system. So even if the government gets its hands on your payment data, that is not what social credit is about. They have a misunderstanding of what social credit is. So let's take the most dystopian first.

What nation is as obsessed with credit scoring as the United States? There is no – None, right? I've got two – you don't certainly see it in China. You don't see it in Italy. There is no nation in the planet that is more obsessed with its credit score than the United States. Right.

Is that because it was really founded a big part of the financial system on the credit system? Yes. It was, you know, it was the, you know, the credit rating agencies were born in the United States. They were, they came in the early 60s. I really don't know their history that well, but they've been around for a while, but everybody is running around credit agency obsessed. And what's sad is that most do not realize that credit

In addition to rating your credit, they also have a suite of products that they sell to people. And some of these products include renter's checkup or should you hire this employee, HR department kind of checks.

And what they do not fully understand is that these products leave credit behind and go into big data and they look to see who you are using social media posts and many other things.

Data sources. Who's doing this? The credit agencies right now in the United States. So they can provide this information to potential employers, things like that? Yeah, they sell it. Social media posts? Yeah, they go into everywhere. Look, so what people do not understand right now is that FICO, the big credit rating agencies have FICO.

big data analysis. So when you look at your FICO and the other major companies, they're not just examined for your credit score. It is completely based on your payments. But then they have these other products that most people are only casually or unaware of. And these other products that they can sell. So when you apply to FICO,

rent an apartment from the owner of that 2000 unit, you know, complex, they pay FICO and or somebody else to their, to their, to get their service to say, are you a good person? Should you, should I rent to you? And that is not just a credit rating check. That's credit rating plus rent.

other information that they've gleaned out of big data. I didn't know that. Thank you. Thank you. It's hilarious because you can go to their website and it's a real thing? It freaks people out. You've got social credit in the United States. Look, if you work in a big HR firm right now, right? If you're a

a big bank, Citibank, right? And you want to hire somebody. They have a crap load of software that they connect to. And some of it is directly tied to searching your social media accounts to see if you are undesirable. You know, they actually use some places used to say, you must give us your

logins to your social media. Most of them have gone far beyond that now. They just hired out and they let another company check your social media for them. So is that social credit? Oh, you're damn straight it is. But how does it work in China though? Because this is, we've talked, I've heard it, but I don't, I haven't seen personally how, where the social credit score is being implemented here in China. Like, I don't know, like, can I check my own social credit? Like,

How is it being implemented? How does it work here in China? So that's part two. Part two is what does a social credit system look like in China? And it's actually funny. So most people in the West, if they are moderately familiar or even to a better level familiar with China, they will make the following statement, which is untrue. And the statement they will say is that

Sesame Credit, which is operated by Ant Financial, is a social credit system. And the answer is it is not. It is a financial credit system. Okay, great. So number one, there is no unified social credit system in China to the point where, remember I told you about hiking?

So actually, the social credit system in China is highly, highly localized to the point where social credit in rural communities is done with pencil and paper. And there was one place I just went to, Jade Lake. It was great. Tiny little village. Social credit was put on a blackboard. Yeah.

And they were saying that these houses had uncut grass and beer cans in your lawn kind of thing. You know, that's social credit. But the key point to understand is that social credit as viewed, let's say, in a bigger city like Shanghai or somebody with a more advanced digital social credit system is not simply about whether you pay your bills.

It has inputs as to whether or not you are a good citizen for other reasons. And that could be inflammatory WeChat posts or perceived – oh, the big one that was running for a while was are you waiting for the green – The jaywalking. Jaywalking. Yeah. All right. So –

you know, that's the kind of stuff. So, how does it like, because I jaywalk here all the time. Like, so what is that? Like I have a really low social credit score. Like, what is that? Like, you know, because I'm just, I'm honestly just trying to understand it because I've been living here for over 10 years and I don't,

I don't know where this social credit score is. Yeah, and the answer is you – You're a foreigner, that's the answer. Yeah, you're a foreigner. So I think for us, it's – I've tried and I don't know where to – I don't know where to find it. And so as far as I can tell, I have nothing that I am aware of. But let's look at what happened to social credit in China. So you got to go back to 2016. Okay.

All right, which is like the first declaration that there would be a social credit program. And the first thing to know we've already covered, which was it is not a singular nationwide program. It is a program that is different, including pencil and paper for every place. Now, what has tended to happen is that social credit is not particularly popular. So what has happened with social credit is

is that it has become used mostly like a better business bureau to use something that people from the United States would understand. In the United States, you have a social credit system that you've had for 50 years, 80 years. It's been around since I was forever. You go to your better business bureau and you say, this guy robbed me. He didn't

Paint my house properly. He took the money and he ran away. I want to file a complaint. So what's happened with social credit in China is that it's become a place for businesses and individuals who operate e-commerce or other stores who have stolen or robbed money from

It becomes a place for them to be singled out so that they are known as bad people in society and you should not do business with them.

Here's the funny thing is the Chinese people generally, they like it in as much as it prevents bad people from doing bad things. And China's got a lot of scams. A lot of scams. They like it for that. There are certainly an active and vocal group that says we don't like certain social credit for other reasons. But generally, it's well accepted. It's generally well accepted and people, at least in the early surveys, liked it. Now, I think it's morphing.

to be this catch-all for bad people and that I don't think that you're going to get denied your bank loan because you said something bad that people didn't like on WeChat. That's not really where it's going and that's not really the direction that I see it taking today. But it's malleable.

Depends on the city. And somebody somewhere is going to come up with an example. Well, look at this guy. Look what happened to him. And the answer is, well, I didn't see that and I don't know. And it didn't happen in Shanghai. I don't know about it. I think one thing I've taken away from some of this because a lot of these things are just different kind of platforms or facets of things is that the tool and the platforms themselves are different.

you know, kind of agnostic or neutral, and it's really how you use them, you know, and I think they, it feels like, you know, people want to conflate these things to say, okay, this particular platform or this, and if, especially if this platform belongs to a certain country, then it's automatically evil. And the reality is that these platforms exist in different variations and forms all over the world, but

And if you do have a despotic government, then there's a potential of abusing them. And if you have a benevolent government, then there's a possibility of using in the right way. So I think a lot of it is just the intention behind it. Absolutely. That is a beautifully put statement.

So whether it's CBDC, social credit, a lot of other controversial technologies or digital technologies in particular. The question is, is CBDC inherently bad? No, CBDC is software. You can have good software, you can have bad software. And the real question is, how does society relate and how does society use technology?

This new digital technology. Let's keep it in the digital realm for now. You know, crypto people are like, well, you love CBDC so much. And I said, no, I like CBDC a lot. I think it solves a lot of problems. But,

At the same time, I don't say that you should be blithely go along with whatever government says. You should be looking to see the design. I tell everybody, you will get a better CBDC design if you are educated and know what to ask and what to look for. So, yeah, I'm down with that. I think that's a great statement. Well –

Eric just, that just made Eric's day because he got to finish a mic drop the episode with a compliment. He loves that. It really strokes his ego. But Rich. It's not anything new. Rich, um,

This was fascinating. And I would love to continue talking to you for hours and hours and hours, but I know you have to get going. If you're ever available again, you're welcome back on the show because I think there's just so much, so much more to unravel today.

in this realm and so much more to understand and talk about, especially for me, which like I understand very little and I understand that much more now talking to you. Okay. Thank you. Oh, look, um, it's been a pleasure being here. As you can see, I have not quite finished my drink. I'm going to knock it back here on camera just to, just, just to final. Yeah,

And folks out there, if you disagree with me or you want to get in touch, I'm on LinkedIn and Twitter. I am actually the number four global FinTech influencer according to Analytica. So I spend hours on the platform. I answer everyone who writes to me. If you think I'm wrong, you think I'm not something really pissed you off or something you really like, write me. You're welcome to debate. I'm welcome to, you know, and connect, you know, so, um,

My book, I have to say this just so cashless, of course, is available on Amazon and Kobo and Apple and a bunch of other places. LinkedIn, Twitter. But we've got drinks. Yes, we do. Cheers. Cheers. Thank you all for having me. It's been awesome. Cheers. Anyway, thank you, Rich. That's it for today, guys. I'm Justin. I'm Mike Traub, Eric. And I'm Howie. Goodbye. Peace. Peace.

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