“Digital Currencies and Revolution in the Payment Space” with Professor Darrel Duffie | Summary and Q&A

October 21, 2021
Stanford Graduate School of Business
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“Digital Currencies and Revolution in the Payment Space” with Professor Darrel Duffie


The FinTech payment space is undergoing a revolution with the emergence of Central Bank Digital Currencies (CBDCs) and stablecoins, which have the potential to transform the current payment system. This comprehensive analysis discusses the benefits and challenges of CBDCs, stablecoins, and other payment innovations, addressing issues such as financial inclusion, cost reduction, regulation, privacy, and disruption to the banking system.

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Key Insights

  • ✋ The current payment system is in need of improvement due to its inefficiencies, high costs, and delays.
  • 🇨🇷 CBDCs and stablecoins offer potential solutions to these problems by providing instant, secure, and cost-effective payment options.
  • 🤨 The introduction of CBDCs and stablecoins raises concerns about privacy, regulatory frameworks, competition, and the impact on existing financial institutions.
  • 🗯️ Finding the right balance between innovation and regulation is crucial to unlocking the full potential of these payment innovations.
  • ♿ CBDCs can contribute to financial inclusion, especially in countries with limited access to the traditional banking system.
  • 😵 CBDCs and stablecoins have the potential to revolutionize cross-border payments, reducing costs and increasing efficiency.
  • 🔒 Instant settlement in securities markets through blockchain technology could enhance liquidity and reduce settlement failures.
  • 👨‍💼 The macroeconomic effects of CBDCs and stablecoins require careful consideration, as they can disrupt existing financial systems and business models.


So much undergrads, really nice to be here for the full reunion. And welcome everyone, at least virtually. I hope I get to see you in person at the next one. I'm delighted to be able to talk to you today about what's happening in the FinTech payment space. There's kind of a revolution going on as most of you probably know. And I want to get your fe... Read More

Questions & Answers

Q: How do CBDCs and stablecoins differ from traditional cryptocurrencies like Bitcoin?

CBDCs and stablecoins are forms of digital currencies, but they have different characteristics. CBDCs are issued and regulated by central banks, offering the stability and security of fiat currencies. Stablecoins, on the other hand, are cryptocurrencies pegged to a reserve asset, such as fiat currency or commodity, to maintain a stable value.

Q: What are the implications of CBDCs and stablecoins on money laundering and illicit payments?

CBDCs and stablecoins can enhance transparency and traceability in payments, making it harder for illicit activities to go unnoticed. However, privacy concerns arise as the central bank or regulators may have to monitor transactions for compliance with anti-money laundering regulations.

Q: How will CBDCs impact the retail banking system?

CBDCs have the potential to disrupt the retail banking system, as individuals can transact directly with the central bank, bypassing commercial banks. This could lead to changes in the business models and profitability of banks, potentially affecting loan provision and deposit funding.

Q: What are the benefits of instant settlement in securities markets?

Instant settlement through blockchain technology can eliminate counterparty risk and improve liquidity in securities markets. It allows for faster availability of funds and securities, reducing settlement failures and increasing efficiency in the market.


In this video, the speaker discusses the revolution happening in the FinTech payment space and the need for an upgrade to the current payment system. They explore the issues with the current system, such as high fees and delays, and the potential solutions, including stablecoins, central bank digital currencies (CBDCs), and improvements to the existing bank payment rails. The speaker also discusses the implications of these changes on financial inclusion, cross-border payments, and the role of regulators in overseeing these developments.

Questions & Answers

Q: What are the current issues with the current payment system?

The current payment system has high fees and delays, particularly in the United States. The interchange fees for credit card payments are severe, and the US payment system costs about 2.3% of US GDP. Additionally, there are financial inclusion issues, with millions of households lacking access to banking or having limited and costly access.

Q: How are payments made in the current system?

In most cases, payments are made through credit cards or mobile phone apps, which eventually flow through bank payment rails. Alice, the payer, initiates a payment through her bank, which deducts the amount from her account and sends it through the payment rails to Bob's bank. However, this process takes time and incurs various fees.

Q: What are fast payment systems?

Fast payment systems are designed to provide 24/7 availability and near real-time access to funds. There are different approaches to fast payment systems, including deferred net settlement and real-time gross settlement. Countries like Korea, Mexico, Sweden, the United Kingdom, Singapore, and the US are implementing or developing their own fast payment systems.

Q: What are stablecoins?

Stablecoins are a type of cryptocurrency, with the price of each token intended to remain stable relative to a fiat currency, such as the US dollar. They are often used for medium of exchange purposes and have the potential to offer new opportunities for payments, such as programmable payments and smart contracts. However, concerns exist regarding the backing of stablecoins, operational stability, and regulation.

Q: What are central bank digital currencies (CBDCs)?

CBDCs are digital forms of fiat currency issued by central banks. They can be used for payments, with funds being transferred directly between the payer's and the payee's accounts at the central bank. CBDCs offer potential benefits such as more efficient, inclusive, and cross-border payments. However, design choices need to be carefully weighed, including privacy, operational stability, and the balance between the central bank and private sector involvement.

Q: How are CBDCs being developed in different countries?

Different countries are at various stages of CBDC development, with some still in the research or proof-of-concept phase, while others are focused on development. China has already introduced its CBDC, known as eCNY, which operates on a centralized database management system rather than using blockchain. Many other countries, including Sweden, Korea, Nigeria, and Canada, are also exploring or developing CBDCs.

Q: What are the policy options for the United States?

The United States has several policy options to consider. One approach is to improve the existing bank payment rails, making them more efficient and accessible, potentially through regulation and competition. Another option is to allow and regulate compliant private stablecoins or other FinTech payment service providers to compete with banks. A third option is to introduce a general-purpose CBDC. Each option has its own design choices and implications for the banking and payment landscape.

Q: What are the potential implications for money laundering and privacy?

Cryptocurrencies, including stablecoins and CBDCs, have raised concerns about money laundering and privacy. While blockchain transactions are public, privacy can be maintained through pseudonyms or ISP information. However, authorities are becoming more skilled at tracking cryptocurrency transactions, and there are challenges in ensuring compliance with anti-money laundering regulations while protecting privacy.

Q: How can regulators ensure an effective and non-politicized oversight of these developments?

Regulators play a crucial role in designing and regulating the payment system. It is important for regulators to be non-political, aligned, and guided by a clear plan. Government agencies, such as the Federal Reserve in the United States, should work in collaboration with Congress and the administration to establish regulations and develop a plan that balances innovation, competition, financial inclusion, privacy, and security. The involvement of private sector experts and international collaborations can also contribute to effective and coordinated regulation.

Q: What are the potential implications for commercial banks?

The introduction of CBDCs as a direct form of digital fiat currency could disrupt the commercial banking system. If individuals and businesses can transact directly with the central bank, commercial banks may be disintermediated. This could impact their profit models, balance sheets, and their role in conducting monetary policy. The potential radical reordering of the financial system requires careful consideration of the implications for existing commercial banks.

Q: What are the potential cost reductions from improving the payment system?

The cost reduction from the current payment system, which constitutes about 2.3% of US GDP, would depend on the specific improvements and reforms implemented. However, by making payments more efficient, cheaper, and accessible, it is expected that significant cost reductions would be achieved. The exact estimated cost reduction is not provided in the video.


The video highlights the need for an upgrade in the FinTech payment space and discusses potential solutions such as stablecoins, CBDCs, and improvements to the existing payment system. The current payment system faces issues of high fees, delays, and limited financial inclusion. Fast payment systems, stablecoins, and CBDCs offer the potential for more efficient, accessible, and inclusive payment systems. However, careful consideration is needed to address concerns regarding compliance, privacy, regulation, and the potential impact on commercial banks. Regulators have a key role in overseeing these developments and ensuring an effective and non-politicized regulatory framework.

Summary & Key Takeaways

  • The current payment system is plagued by inefficiencies, high costs, and delays. However, the emergence of CBDCs and stablecoins offers the opportunity to address these issues and improve financial inclusion.

  • CBDCs, such as China's eCNY, allow for instant and secure peer-to-peer payments, making transactions more efficient and accessible. Stablecoins, on the other hand, provide price stability and can be used for various payment purposes.

  • The introduction of CBDCs and stablecoins raises concerns about privacy, regulatory frameworks, and the impact on existing financial institutions. Finding the right balance between innovation and regulation is crucial.

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