Are Stablecoins Really Stable? Regulation, Risk, and Market Growth with Zeke Copic [Season 3 | Episode #1]

Shaun Ferrari 00:00:33 Hello, everybody. Thank you for joining us on this week’s episode of The P.I.T. Exchange, where we talk about the latest in payments innovation and technology. I’m your host this week, Shaun Ferrari with Currency Research. And I’d like to welcome everybody listening to our first episode of season three of podcasts of The Pit Exchange. So thanks for joining us on season three. And we couldn’t think of a better way to kick off this third season. then with Mr. Zeke Copic as our special guest today, the director of the digital currency policy section over at visa. Hey, Zeke, how are you?

Zeke Copic 00:01:11 I’m good. How are you? Shaun thanks for inviting me.

Zeke Copic 00:01:13 I’m super excited to join and kick off season three. This will be great.

Shaun Ferrari 00:01:17 Yeah. No, thank you for. Thank you for coming. We’re thrilled to always work with with visa and and have all sorts of discussions. I never I always leave our our conversations wanting to continue them. So it’s great to be able to continue something and share it with with the folks out there as part of this podcast. I think the last we were together, we we traded a lot of stories about about payments and stablecoins and policy over, over some gourmet hot dogs and hamburgers, out in San Francisco.

Zeke Copic 00:01:47 That is that is right. That is right there. There’s so much I mean, it’s it’s a fascinating time to be in payments. you know, you and I have obviously had a long career both at the various branches of the Federal Reserve. And, you know, back then. you know, monetary policy and payments were quite interesting. I mean, I’ve always sort of been that central bank nerd. but now you it’s great to see it in the mainstream.

Zeke Copic 00:02:11 and great to see such a proliferation of, you know, new payment schemes to whether that are, you know, instant payments, or new technologies like stablecoins and central bank digital currencies. So it’s a it’s a great time to, to be alive in payments and, and happy to have this conversation.

Shaun Ferrari 00:02:29 Awesome. Thanks. And it’s a good time to be a payments nerd. I think I listen, we have we both know Mark Gould pretty well, and we have him at a lot of our different events, and, he’s he’s always up there talking about, just like you said, is the best time to be a payments nerd. It’s the best time to be in payments. There’s so much going on. So, Yeah. Couldn’t couldn’t agree more. and I guess, I guess as we get get started here, maybe to help folks orient themselves a little bit. maybe tell us a bit about the Visa Economic Empowerment Institute, which is which is the institute you’re part of over at visa. I think folks know they know visa and they might, but they might not be so familiar with the Economic Empowerment Institute.

Zeke Copic 00:03:10 Awesome. Yeah. So let me and maybe just a quick background for those who don’t know who I am. Yes. so, yeah, my name is, Ezekiel Coppock or Zeke for short. I’ve been with visa for a little over three years. but as I, as I mentioned earlier, a big chunk of my career was spent at the Federal Reserve Bank in New York. and then after that, I had a stint at the World Gold Council, helping central banks manage gold reserves. and then I went and moved to the West Coast. and of course, everything on the West Coast is tech. so I quickly found myself, at a layer one blockchain doing, stablecoin work and stablecoin policy, and research, and then, eventually joined visa. so, yeah. So a little bit about the Visa Economic Empowerment Institute. So we are effectively Visa’s in-house policy think tank. We’re part of the global government affairs team. And, you know, we focus on creating new knowledge at the intersection of payments innovation and regulation.

Zeke Copic 00:04:13 so specifically, we publish research reports, leveraging visa data and expertise, really trying to shed light on key topics in the payments industry. So, you know, some of our latest publications cover issues such as digital assets, like stablecoins, which we, you know, are certainly garnered a significant amount of attention recently. but we also do more traditional economic topics like growth and productivity, as well as resiliency, safety fraud, all those key payments, topics. and apart from our research, you know, we also work to promote a dialogue among key stakeholders, from both the public and the private sectors. And this includes hosting events for industry stakeholders like central banks, payment practitioners that address topics like innovation, financial inclusion, things that are important to these, to these stakeholders and to help us engage with policymakers. You know, we have a community of experts, comprised of leading thinkers and influencers in the payments policy space, as well as a group of esteemed academics and practitioners who contribute directly to our research products.

Zeke Copic 00:05:25 For example, we’re really excited. We just recently announced the addition of Doctor Augustine Carstens, formerly of the BIS, to our advisory council. so we’re also really excited to have him aboard and helping us think about all of these, you know, new and fantastic, payments innovations.

Shaun Ferrari 00:05:45 Yeah, know for sure. And I think, you know, it’s interesting, as you talk about your kind of career arc and where you are out and in the fintech land, out in the Bay area now, one of the things I found as as I’ve gone kind of from from the fed over to. To hear a currency research. then with the digital dollar project for a little bit. Back to currency research. what’s fascinating, whether it’s cash or coin or or gold or stablecoin. you know, there’s there’s different flavors of policy and regulatory challenges with each. But a lot of times at the heart of those, it’s a it’s a very similar discussion and similar policy argument, whether or not you’re talking about how coin transits boundaries or cash transits boundaries or stablecoins do cross-border payments.

Shaun Ferrari 00:06:36 there’s a there’s similar threads between all this stuff. I don’t know if you’ve noticed that in your journey, but I’m always continually amazed by it. as we talk about this stuff.

Zeke Copic 00:06:47 Yeah. Yeah, absolutely. And they’re similar. You know, it’s fascinating to me. You know, when I, when I joined a stablecoin company, you know, there was a lot of amazing engineers who were, you know, focused on these problems. And, you know, a lot of them, you know, they were just attacking it from from a different angle. But it was still the same issues, you know, that that we faced at the fed or any other payments. company. Right. It’s just, you know, how do you clear and settle payments? How do you do it? fast, but also securely. and so, you know, a lot of those things, are not new. but certainly obviously the technology is new and the capabilities now are new. you know, the idea of micropayments in our legacy sort of traditional system, right, is something that we just really can’t comprehend, or it’s something that we wouldn’t really think about.

Zeke Copic 00:07:34 but now with this new technology and with digital, with distributed ledger technology, things like that, the idea of sending somebody $0.50, across the globe is not that ridiculous anymore. and that’s really fascinating. Of course, you know that. Then that, you know, requires a lot of regulation as well, which is what policymakers are certainly, you know, concerned about these days.

Shaun Ferrari 00:07:57 Yeah, for sure. Which which I think brings us right to the right to the heart of what we’re, we’re talking about today, which which is kind of regulations, stablecoins or just the regulatory environment around these new technologies that are that are out there. so you did, also were highlighting you a lot this month or these past few months. You did were so kind as to author an article on our central bank payments news publication last month, and it was all about the regulatory environment and how that might affect stablecoins. So I don’t want to stop people from reading all the great work in there and give away the, the lead.

Shaun Ferrari 00:08:34 but, you know, to to answer the question, there’s a lot of new regulations out there. the regulatory environment is very dynamic right now when it comes to, to stablecoins and their future. But so what what does it mean? What how might these new regulations that are occurring out there affect the the future of stablecoins?

Zeke Copic 00:08:52 Yeah, yeah. And let me say I, I’m happy to talk about that. also do definitely hope that your readers, check out the The Central Bank payments newsletter. not just to read my article, which would be great, obviously. but just as a plug, your team does a phenomenal job. I honestly don’t know how, they pull together, so much important and interesting information into one document. you know, I often joke with you that it’s it’s almost too much. but it is a great resource. and I am very appreciative to the, the team that puts that together. you know, when it comes to the regulations and how that might affect the future of stablecoins, I think first and foremost, the very existence of these regulations and the clarity they bring is enormously helpful.

Zeke Copic 00:09:40 you know, whether or not you like the rules, it’s much better to know, what they are so that you can apply it so that you can plan and build accordingly. you know, one of the things that I didn’t fully appreciate when I was first starting to dive into stablecoin regulations was just how critical the income stream from reserve assets was, and is, to stablecoin issuers. You know, so, for example, between 2022 and 2024, the income that circle received from the interest that they earned on their assets held in their, Usdc reserves accounted for 95 to 99% of total revenue. So stablecoin issuers are really dependent on these reserve assets, which means that the way in which these assets are regulated is vitally important to stablecoin issuers. Now, at a high level, you know, many of the recent regulations that have been passed in the US and Europe and in the UAE and even Hong Kong, for example, have similar mandates, right? So there’s a lot of things that are very similar among all these jurisdictions.

Zeke Copic 00:10:43 For example, issuance must be backed on a 1 to 1 basis with high quality liquid assets or HQ for short. The assets also need to be denominated in the same currency as the reference peg. Right. So if you issue a dollar, stablecoin, you need to hold those assets in dollar denominated assets, which makes sense. and then of course, the payment of interest by the ish, by the issuer to a stablecoin holder is typically prohibited, at least directly. though this has certainly become an issue that’s being hotly debated at the moment. but nonetheless, most of these requirements are pretty uniform and understandable. but when I, you know, when you dig a little bit deeper into the regulations, there are some really significant differences. that could have a material impact on the business models of stablecoin issuers. and, you know, again, not to get, not to, you know, give too much away. but I think it would be helpful, you know, for your listeners if we just cover a few examples.

Zeke Copic 00:11:43 so let’s start, you know, with the genius act that was passed in the US last summer. Now, the legislation was very specific about what qualifies as HQ la so namely cash, bank deposits, US treasuries. As long as they had an average maturity of of 93 days or less, as well as overnight repurchase and reverse repurchase agreements. but the rules. but there weren’t any rules as to the amount, that can or cannot be invested in any of these assets, you know. So the issuer is free to select the most optimal asset mix. And if you look at those assets, you know, short dated US treasuries and overnight reverse repos at the moment currently yield more than 3%. I don’t know the exact numbers right now, but it’s probably somewhere between 3 and 3.5%. but you compare that to the seven basis points, you might get from a, you know, a bank deposit. And it’s easy to see why stablecoin issuers like circle, you know, hold more than I think 85% now of their reserves are in treasuries and repos.

Zeke Copic 00:12:49 but but if you look at Mica in Europe, the regulations are far more prescriptive. So Micah doesn’t explicitly outline which assets are considered HQ, but it does say that stablecoin issuers have to hold a minimum of 30% of reserves in bank deposits, and that level rises to 60% if the issuer is significant, which basically means that they have more than €5 billion in issuance, among a few other criteria. but now, again, looking at the current asset levels, you know, overnight deposit rates for corporations in Europe are currently around 50 basis points, compared to the three month sovereign debt that’s yielding about 2%. so you can see that this makes the economics for issuers pretty tricky. you know, since the majority of their reserves, you know, would basically offer little return. so the overall headline of this is that the details matter. and they can have a material impact on the business model of stablecoins.

Shaun Ferrari 00:13:50 Yeah. No, for sure. I think, you know, when you’re your first point in there about, you know, you might not you might not like the regulation.

Shaun Ferrari 00:13:58 but at least there’s a regulation that you can, you can be guided by. Right. and that was one of the things that, shocked me a little bit. I was at a meeting in, in New York, and the one of the superintendents for supervision and regulation, was was there talking about how, you know, again, you might not agree with everything the current administration is doing. but they’re at least putting guidelines and rules out in a lot of different areas, that weren’t as clear before. so you again, you might you you might like it, you might hate it, but you in most cases know what the rules are to play by. And and they were talking about it in this stablecoin context. just like like you were too. so so I think that’s interesting. I mean, you mentioned so I guess, you know, pushing a little bit further. you mentioned kind of the, the genius act and then Mika in Europe and, and there are highlighted some differences there. clearly the, the stablecoins in the US right now are growing.

Shaun Ferrari 00:15:12 It’s pretty dynamic. And there’s a lot of of interest and growth in those. you know what? How is how is from what you’ve seen, how are the the ways the Europeans are approaching this, impacting impacting growth overall?

Zeke Copic 00:15:29 Yeah, I mean, it’s. So Europe is a really fascinating case study. you know, they were at the forefront of stablecoin legislation when they passed Mica back in, I think. What, Ma may of 2023 if I if I have that right. you know, at the time, you’re it’s anonymous. Stablecoins were practically non-existent. I think there was about 310 million in issuance at the end of, of May of 2023, which basically meant that euro denominated stablecoins represented only about 0.2% of total issuance. so the vast majority of stablecoins then as now, is, you know, is in US dollars. now, it’s not entirely clear to me why there’s been so little demand for euro pegged stablecoins from consumers. but from a stablecoin issuer from from their perspective, the stablecoin issuer perspective, it’s pretty obvious.

Zeke Copic 00:16:24 you know, stablecoins have been around for about a decade. but keep in mind that from the middle of 2015 to the middle of 2022, like right when stablecoins were really getting kind of ramped up, yields on short term European sovereign debt. Were actually negative, which meant that stablecoin issuers, if they wanted to have reserves, built, you know, they wanted to have a reserve assets that were built up in sovereign debt because it’s safe or bank deposits, you know, because those are also obviously safe, like the things that we, you know, have now and the things that are codified in, in Micah, you know, those assets were were negative, you know, which meant that the stablecoin issuer would be losing money actively on the the assets that they held, in any euro denominated reserves. And so from that perspective, it’s pretty clear why issuers, you know, were in no rush to, to issue stablecoins. You’re a Euro based, stablecoins, you know, so from the policymakers perspective, you know, you can understand why many at the ECB, you know, are pushing for them to development of a retail central bank, digital currency.

Zeke Copic 00:17:31 Right, a digital euro. you know, they look at like as you pointed out, right. The demand for US dollar denominated stablecoins are growing significantly, their use is proliferating around the globe. And importantly, you know, these outcomes are also being heavily and actively supported by the current US administration. you know, and so it’s understandable, that, that Europe, you know, wants to have a counterweight to that, a counterbalance. and when you think about, like, how the potential of this, you know, can impact growth, and especially when I think about, like, what the impact of, of these regulations might mean on economic growth and not just the growth of, say, the stablecoins or the growth of CBDCs, but actually the economic impacts. I mean, it’s a it’s a really fascinating question. and if you start, I guess, basically with the CBDC side of the equation, because that’s really where policymakers are focused. you know, if the issuance of CBDCs in the euro area takes off, which is certainly not a foregone conclusion, you know, this could be supportive of economic growth to the extent that CBDCs help increase the velocity of money in Europe, which naturally then helps increase economic growth.

Zeke Copic 00:18:45 as of right now, velocity of money in Europe is pretty low. at least based on current estimates. so if you know you have an increase in CBDCs, people are using them to pay, you know, using them more and more to pay. that might then help, spur economic growth and economic activity. Of course, this would all be contingent. You know, it would need to be contingent on CBDCs, not disintermediation of the banking system in Europe. because you can imagine, right, if everyone in Europe rushed out to obtain CBDCs at the expense of bank deposits, then, you know, the subsequent decline in those deposit levels would probably reduce the lending capacity of banks, which would then have a negative impact on economic growth. And so the, you know, the positive you might get from the CBDC circulation might be offset by the negative impact of the lending. Of the decline in lending. and again, this assumes that CBDCs, you know, demand takes off. which certainly has not been the case.

Zeke Copic 00:19:47 You know, where CBDCs are currently live. I mean, you only need to look at the Bahamas, Jamaica and Nigeria, which is the only places right now, where retail CBDCs are live and available. And they actually only account for a very small fraction of a percent of currency in circulation. I mean, something like 0.1 to 0.4% of currency in circulation. and let’s also remember too, that, any digital euro is not going to be fully operational until 2029 at the earliest. And, you know, you’ve seen all the changes in just the last year or two. and so that that the landscape, by 2029 could be dramatically different. and so instead of CBDCs, you know, if we look at the idea that euro stablecoins took off, you know, what would that look like? and what and how would that potentially impact growth? you know, right now, obviously, you know, your denominated stablecoin still remains small. I think they account for I don’t remember the exact number, but it’s probably less than a percent of all total stablecoin supply.

Zeke Copic 00:20:59 you know, but unlike the digital euro, right. This is this idea of a CBDC, a retail CBDC in Europe. Euro dynamic stablecoins are already operational. and, you know, it’s been suggested that with Micah now live and up and running, we could start to see a meaningful increase in, in euro area stablecoin activity. and so would this help? and I think the problem is it’s it’s quite a complex, issue. And first of all, we need to remember to, that as we just talked about, you know, just a minute ago. MCA requires stablecoin issuers to hold at least 30% of their reserves and bank deposits, and again, this rises to 60% if the issuer is significant. so if you suppose, for just argument’s sake, that stablecoin activity really takes off in Europe and most issuers are deemed significant, you know, thereby shifting a substantial amount of their reserves into bank deposits, as would be required by Micah. You know, the ultimate impact on the economy would really depend on how banks treat these deposits from stablecoin issuers.

Zeke Copic 00:22:11 you know, there’s one you know, one idea is that, you know, they treat these deposits just like normal retail deposits, which is to say that, you know, they assume that they’re relatively sticky and they’re not likely to be withdrawn quickly. And so therefore, banks would probably use the funds much like they use like our, you know, deposits by you and I as just retail consumers? for lending purposes. you know, to help provide loans and mortgages and things like that, which, you know, ultimately does help support economic growth. but but the reality is, it’s probably more likely that these deposits will have a higher level of volatility. you know, it’s more likely that you might see significant, you know, minting and burning of stablecoins, which requires, you know, withdraws or, or, additions to, to deposits. which means that banks might prefer to invest these funds into sovereign debt, or other instruments that are highly liquid and can be easily sold if and when a stablecoin issuer wishes to withdraw their deposits.

Zeke Copic 00:23:14 certainly not in loans, right? because those are longer term. You know, you can’t just call a loan. you know, they’re typically, you know, seven years, ten years, 20 years, whatever the you know, the mortgage rates are sometimes. and so lending to the real economy could decline, as banks choose to invest in these highly liquid sovereign debt. But like all of this, you know, needless to say, there’s a lot of moving parts in this analysis and lots of issues, not just for European policymakers, obviously, but but everyone around the globe. Right. Has to think about this. It has to think about, you know, how their their regulations impact then and incentivize behaviors. from a business model perspective. and then what that does then to, to lending, what it does to, credit, all of those sorts of things. It’s really fascinating.

Shaun Ferrari 00:24:06 Yeah. No, for sure. And I think the I think, you know, the, the, the complexity is exponential, especially like you were talking about where environment where one.

Shaun Ferrari 00:24:20 Yeah. You’re not exactly sure what’s going to happen with, with opposites. And in the case of backing stablecoins, but in the European context and many other countries as well. You’re also navigating well, will there be this? This CBDC central bank digital currency that’s out there in the future? Okay. Well, that, you know, in the US, at least for now, we’re kind of like, yeah, no, that’s not going to happen. So all the all the effort went over to stablecoin. And that at least gets rid of one big variable where whereas in whereas in other areas you’ve got okay. Well now you know, how much is the market, the private market going to invest in creating new tools that then may or may not have to compete? Or how will they compete with a publicly provided digital currency, you know, at some point down the road, at whatever, whenever that may be, and what might that look like? I mean, it’s a I don’t yeah, I, it’s a very complex environment to operate in for sure.

Shaun Ferrari 00:25:20 Yeah. And I think, you know, the other thing that we, we, we talk about too, and when these new digital forms of payments come out is there’s a whole it’s not it’s not as simple as the build it and they will come. analogy. Right. That’s out there. It’s it’s you have to show people how to use it. There’s education involved. There’s trust. There’s a whole slew of things that go along with actually getting use of these things. And I think that’s where you mentioned some of the the CBDC projects that are out there currently. you know, have have struggled a little bit in terms of what is that use case, you know, how much resources will will the central bank or the government put behind, education to get folks to, to use these? whereas the it’s again, a different kind of dynamic when you’re talking about stablecoin and the private market, that is a little more or differently incented to, to get use, right and make a profit. that it’s anyway, it’s a fascinating environment out there.

Shaun Ferrari 00:26:24 I guess, you know, talking about how how many reserves and the the deposit requirements to, to back stablecoins and, and what they’re being backed with in the US, what they’re being backed with in in Europe. is it there’s still a lot of apprehension out there, I think. And then this little bit of like mistrust, if you will, from, from some folks saying, that’s great. I know these stablecoins are supposed to be stable and, and and safe and but I guess my question to you, even even with the, the, higher quality liquid asset backed stablecoins that are out there. Are they are they secure? Are they risk free I guess is anything risk free? but what’s your view on on the risk associated with, with the stablecoins that are, are circulating now the major ones?

Zeke Copic 00:27:14 Yeah. No, I mean, it’s a great question. I, I don’t think that they’re risk free. and to your point, like, you know, is anything risk free? you know, so I would say I don’t I don’t think they’re risk free, but I also don’t think that they’re guaranteed to fail either, which is, I think, the the other end of the spectrum that some people believe that they are just, you know, absolutely destined to fail.

Zeke Copic 00:27:35 you put you point out this earlier, but like, as with many things involving money and finance, it really comes down to trust. you know, and and trust, like Rome is not built in a day. And it takes time. And I think that people sometimes forget that stablecoins are still relatively new. you know, while they may have, I guess the first one was what created in 2014, if I have that right, you know, they didn’t really gain any, like, I guess, I mean, there wasn’t really anything to talk about until like, at least 29 when you, Or. Sorry, 2019, you know, when you had the announcement of Libra, and that really sparked attention. But even then, when it comes to volumes, you know, they haven’t really taken off until maybe starting in like, say, 2021. and I think even more importantly, we’ve really I mean, we’ve barely scratched the surface when it comes to actually understanding the dynamics that exists between stablecoins and traditional financial institutions and those sort of legacy systems.

Zeke Copic 00:28:37 So, for example, like, you know, when Usdc is, there 1 to 1 peg, when that broke in March of 2023, it wasn’t necessarily because people stopped trusting Usdc. but instead it was the collapse of Silicon Valley Bank. and this, this revelation. Right? In fact, over Twitter, that circle had 3.3 billion of its approximately I think it was 40 billion of Usdc reserves at the time. You know, that 3.3 billion was effectively trapped with, with SVB. And people were concerned that circle may not have enough available capital capital to meet redemptions. you know, and so we often worried about like the potentially negative impact that stablecoins might have on the broader financial system. But the SVB collapse also reminds us that we also need to understand how traditional finance might impact stablecoins. And this this experience also brings up another issue specific to stablecoins, which is that of primary versus secondary market access. So, you know, I’m sure as you as you’re well aware, for many people, access to stablecoins is usually limited to secondary markets.

Zeke Copic 00:29:48 So if someone wants to buy Usdc, you know, they’ll often go to an exchange like Coinbase or Binance where the price of Usdc typically trades, you know, slightly above or slightly below a dollar. due to market dynamics. and when the Usdc peg broke back in March of 23, and it traded as low as $0.87, you know, all of that occurred on the secondary market. but institutional investors often have the option of buying Usdc on the primary market, which means that they can engage directly with the stablecoin issuer and in fact, MIT’s Digital Currency Institute. they did some research on this, and they looked at that Usdc, you know, Peg break in in March of 23, you know, and they and they noted that while, you know, it did break on the secondary market, you know, for institutional clients that had primary market access. that peg held up. and so at the end of the day, you know, trust is going to be built up over time, assuming that stablecoin issuers can establish a track record of operational resilience.

Zeke Copic 00:30:57 which, again, is not a foregone conclusion. but, you know, we’ll take time, of course. And our views on HQ, la on the on the specific HQ la backing these stablecoins. is also likely to evolve along the way. you know, one of the, you know, an interesting, thing that’s just come up recently, I think it was in November. the Bank of England proposed this idea that systemic Stablecoin issuers should hold 40% of their reserves at the central bank. I believe the fed has also talked about something like a skinny master account. although you would, I think in their version you’d have to be a bank and not simply a stablecoin issuer. but, you know, going back to the the Bank of England, you know, one of the things is that these reserves would be remunerated so they wouldn’t earn any interest on them, which would make it economically difficult for stablecoin issuers to commit like 40% of their reserves, because those would offer no return. But for argument’s sake, let’s just say maybe that that number ultimately comes down to, you know, something more palatable, like 10 to 20% of their reserves.

Zeke Copic 00:32:05 that that presents an an interesting thought experiment where if we roll back the clock and we look at, you know, March of 2023 again, you know, with the collapse of Silicon Valley Bank, with the public, you know, would they have the same reaction if they knew that while circle held 3.3 billion with SVB, but they also held 4 billion at the central bank? you know, maybe they wouldn’t have the same reaction. Maybe that peg wouldn’t break. because there’s this different asset mix. There’s, you know, clearly central banks. you know, we you know, we don’t often have bank runs on traditional commercial banks because we know that they have access to central bank facilities. and so if you if you extend that perhaps, to regulated stablecoin issuers, maybe that also helps make them secure. but look, all this requires a better understanding of how stablecoins interact with traditional finance. You know, not to mention, you know, CBDCs and tokenized deposits, which are going to also have their own dynamics as well.

Zeke Copic 00:33:08 So again, really fascinating, a great time to be part of payments. lots to study for sure.

Shaun Ferrari 00:33:16 No. Absolutely, absolutely. You know, it’s kind of started this discussion saying how everything kind of goes along that has a similar thread, no matter what kind of payment system you’re talking about. And as you were just kind of discussing the the break of the peg and the primary and secondary markets. I know you spent some time at the the markets desk in New York. and I worked at the board on, on kind of the, the daily open market operations side and currency flows and all that sort of stuff. And one of the interesting pieces there, you could even argue this is not a perfect analogy, but when you look at the, you know, the primary market and secondary market for even currency right in the world, you it doesn’t necessarily hold that $100 bill is worth $100. on the secondary market, there’s there’s pricing that differs, whether it’s how how confident the recipient is and that it’s a real note.

Shaun Ferrari 00:34:06 Right? Whether it’s new or whether it’s used or what series it is. those, those secondary and third, you know, market, market participants at that level price things differently. and yeah, you can always go to the source and get it. You know, you can get your peg at 100 at one for one, from the central bank through a bank. But the farther downstream you go, the more that value can diverge. And it’s kind of similar in what we’re talking about. Yeah, I mean.

Zeke Copic 00:34:32 Absolutely. I mean, at least. Yeah, there are definitely echoes for sure. whether it’s not, you know, what do they say? History doesn’t repeat, but it rhymes, I guess. Right? Yeah, exactly. There’s certainly, you know, certainly some of that rhyming happening, in the stablecoin, and digital asset space.

Shaun Ferrari 00:34:49 Yeah. No. It’s cool. so what what other stuff are there other big topics you all are considering currently at the the Economic Empowerment Institute? And it’s not just stablecoins you’re looking at.

Shaun Ferrari 00:34:59 Yeah.

Zeke Copic 00:35:00 No, we don’t spend all of our days on stablecoins. I mean, I do spend a lot of my time on that. but that’s also just because I’m just fascinated by it. But, you know, one of the big topics, that we will also be focused on in 2026 is around financial fragmentation. you know, and we were talking about, you know, the central Bank payments conference coming up, which were I know we’ll get to, a bit later on. but you know, that that theme is also around fragmentation. you know, as you and I’m sure all of your listeners certainly understand, the global financial system relies on connectivity, right, to provide access to payments, seamless money movement, as well as innovative payment solutions. but currently, you know, you’ve got things like economic nationalism, geopolitical tensions, trade disputes, of course, as well as complex and overlapping regulatory frameworks that are increasing this risk of financial fragmentation. And this poses a serious threat to growth. Right.

Zeke Copic 00:35:56 I think the the World Economic Forum estimates that economic losses from fragmentation could reach as high as $5.7 trillion annually. so world economic leaders, you know, need to be mindful of this trend and focus on, you know, their attention on the causes of Fragmentation, the impact of fragmentation. And of course, possible solutions for stemming, fragmentation and fragmentation isn’t an unavoidable outcome. In fact, in the face of headwinds, countries can strengthen an open, integrated financial system by advancing digital payments, especially through cooperation on cross-border transactions. And so to better understand this issue. The Visa Economic Empowerment Institute is working on building, excuse me, an indicator that measures fragmentation within the global financial system and the tools meant to serve as a barometer of global financial fragmentation and connectivity. Looking at the causes and scope of fragmentation, and with the help of, you know, identifying pain points and bottlenecks that impede efficient money movement. we expected we’re hoping to have this, up on our website, in early July. So sadly, it won’t won’t be ready in time for the CBC in Turkey.

Zeke Copic 00:37:16 but once it’s up and running, you know, we would definitely welcome, you know, feedback from you and your listeners, to help make this, you know, an even better, product and indicator.

Shaun Ferrari 00:37:29 Awesome. That sounds amazing. I think having an indicator like that, kind of measuring what’s happening in different, different regions and, and around the globe, especially when it has, when fragmentation has such a, as you say, big economic impact. yeah. Will be really interesting to, to see. And yeah, too bad it won’t be ready for March. but, it, you know, that just gives us something to talk about the next time. exactly. Keep the discussion going. So it’s all good. but but speaking of speaking of March, we’re thrilled to have you and your team at the central Bank Payments Conference. we we always look forward to that. And for for those listeners out there that that want to come, please, head over to Currency Research and get some more.

Shaun Ferrari 00:38:12 More information about that on our website. But, you all at the at the Economic Empowerment Institute are, are really partnering with us on a new research initiative where we’re proud to to unveil this time over in Istanbul in March, where we’re looking at up and coming research that’s been done by by central banks, by the private market, by universities, all, all in the payment space. And I know this is something that that you and the folks at visa have been really supportive of. And, and just we’re thrilled to have you in that. Maybe if you have some thoughts on on why I know you and I started talking about this, I don’t know, a while ago and how it would be great to to bring up and coming research, to policymakers. But tell us a little bit about why you’re so passionate about that and what excites you about this, this research initiative we’re working together on?

Zeke Copic 00:39:07 Yeah, absolutely. I mean, look, Sean, you know, I’m really excited about this opportunity.

Zeke Copic 00:39:12 We talked about it. I mean, quite a while ago. And it was, you know, I got, you know, my very, very excited. And I think, you know, part of it is highlighting new research is really essential. because it’s one of the most effective ways to advance the field while also ensuring that decision makers have access to timely and evidence based insights. you know, in our space, the landscape moves really quickly, not just in stablecoins, but, you know, in payments more broadly. Right. so that includes, you know, technology policy, consumer behavior, economic dynamics. All of these are evolving at a pace that requires constant learning. And when we elevate new findings, you know, we’re not just showcasing interesting work. You know, we’re giving practitioners, policymakers and industry leaders the tools they need to solve real world problems with confidence. And importantly, it also signals to the research community, which includes academics, the public sector, the private sector, that their contributions matter and that rigorous analysis has a clear pathway to impact.

Zeke Copic 00:40:18 you know what excites me the most about partnering with organisations? you know, not not not just currency research, of course, but like all the, the central banks and the academics, you know, that share our research interests is this chance to combine complementary strengths? You know, the academics, they bring this methodological rigor and fresh theoretical frameworks. our public sector partners, you know, offer on the ground policy context, and as a private research institute, you know, we contribute real world data, industry experience and as well as the ability to move insights into practice quickly. And so when those elements come together, you know, the result is research that is not only intellectually strong but is also actionable, which is really important. you know, these partnerships allow us to co-create work that none of us could produce alone, right? Work that helps shape markets, inform policymakers, and ultimately improve the outcomes of businesses and communities. And so I’m super excited. I can’t wait for, Istanbul for March. you know, for this new, this new, this new research agenda.

Zeke Copic 00:41:27 And we’ve already talked about, like, how do we grow this for, you know, the year after and the year after that? and getting to, you know, interact with bright young researchers who are coming to this, with such fascinating perspectives. it’s really exciting.

Shaun Ferrari 00:41:42 Yeah. No. Well said. I, I agree with all that. And, we’re really looking forward to it. Well, I feel like, we could talk forever. and it just gives us. It gives us, as I say, more to talk about next time we see each other. and especially with everybody else in in March. So. So, Zeke, thanks for the time. Thanks for your insights. was great talking to you.

Zeke Copic 00:42:05 Absolutely. Thank you for having me again. I look forward to to seeing you and all the participants. in March. It’s going to be exciting.

Shaun Ferrari 00:42:14 Awesome. Thank you sir. Well thanks everybody out there for listening. We hope you enjoyed the conversation as much as we enjoyed, having it.

Shaun Ferrari 00:42:23 and I look forward to you joining us on our next episode where we’ll hear something different from somebody new and exciting on all about the latest in payments innovation and technology. So please like, subscribe, download, listen, do whatever it is you do, wherever it is, you do it with your podcast. and we look forward to talking to you and seeing you somewhere around the world soon.