Getting Up to Speed on Crypto and Digital Currencies | Lord Abbett
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Economic Insights

Lord Abbett Portfolio Manager Leah Traub outlines the key differences among electronic currencies—and important trends to watch. 

Transcript

AM with a PM

Leah Traub, Ph.D.

Partner & Portfolio Manager

Air Date: April 28, 2021

Hi, this is Leah Traub, Partner and Portfolio Manager in taxable fixed income.

INTERSTITIAL: “Crypto” vs. Digital Currencies

So let's talk about a very hot topic right now in the markets, and that’s cryptocurrencies and the concept of digital currencies. We're hearing both talked a lot about in the media and also in bank reporting and it's causing a lot of excitement, I would say, within the financial markets.

You know we've seen rapid rises in some of the crypto currencies, namely bitcoin--you know, this year we just saw the IPO of Coinbase, which is an exchange to trade cryptocurrencies, so just a lot of excitement in the market.

At the same time, we are also hearing a number of central banks, both developed market central banks, such as the Bank of England, the [U.S.] Federal Reserve Bank, the European Central Bank, and also the emerging markets, central banks in China and India, really talking about issuing their own digital currencies.

Now one big misconception that I think is out there is that the [contemplated] central bank digital currency is not the same as the cryptocurrencies such as bitcoin and ether that that we've been hearing about. Now they do have something in common, and that is that they are both digital, they're both electronic currencies, so to speak, so there's no physical dollar bill, or coin that that you're holding.

But the similarities kind of end there, right--the concept of cryptocurrencies and how those really came about is that it's decentralized, [not] issued by a central bank, by a government [and not] controlled as part of the official money supply, for example. It is decentralized [in] that it's backed by this, really kind of innovative technology called blockchain which is how you keep track of the buyers and sellers and in the marketplace.

Now a digital currency, one of the central bank digital currencies that they're talking about, is actually going to be backed by the central bank. [So in] that way it is similar to a regular currency. So if we think of a digital dollar… now it will still be digital and electronic and the idea is that you'd be able to use it to pay for things--you'd also be able to use it for savings--but it would be centralized, meaning that it would be part of the money supply and really, part of the central banks.

And there is, you know, a lot of interest from the central banks to have this in their arsenal and really have it, so that they can control it.

INTERSTITIAL: Trends to Watch

And you know the emerging markets, for example, where we have a lot of, you know, we have large portions of the population that are unbanked, for example, and they're very hard to reach in terms of deposits. And you know, such as in India, there is a lot of interest in getting them into this digital currency market to make it much easier for those dispersed populations in order to have this payment mechanism.

And so, so this is something that we're following very closely, we do think kind of over the next five years, we will see the Central Bank digital currencies, maybe even you know, before then, and we do think that that the use of them can become pretty widespread.

Now, there will still be a place in the market for these cryptocurrencies that are still decentralized, backed by this blockchain technology. They would still be used as maybe a store of value, obviously, they would still have some anonymity associated with them. So there’s definitely still a place for the cryptocurrencies going forward but [there] would actually be two separate types of currencies within the marketplace.

Thank you for listening and thank you for your continued interest in Lord Abbett.

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