02 February | Financial statecraft & digital currencies

Notes from February 2020

February was an absolute blur. I was fortunate to spend some time traveling (both professionally and personally) and caught up with friends & family! I spend a lot of time in February reading about digital currencies, economic policy, and covid, of course.

What I’ve been reading:

Financial Statecraft & Digital Currencies

The econ nerd in me is really enjoying this read (h/t to Spencer Bogart) which explores the notion of financial statecraft. At a high level, financial statecraft is when a nation uses economic policies to specifically influence capital flows. For example, policies to prevent financing terrorism financing or impose sanctions on a country. The concept of financial statecraft is even more complex today given how quickly money moves across jurisdictions and countries. The authors argue the role of the U.S. dollar is one of the most powerful (and dangerous) tools our government has at its disposal in international markets. The reason I spent time thinking about this topic relates back to the notion of digital currencies.

Ever since digital currencies like Facebook’s Libra project or the Chinese DCEP were announced, the conversation around central bank-backed digital currencies (CBDC) has accelerated. The implications of a CBDC is outside the scope of this email, but one angle that has been interesting to consider is how money is used exert power on another nation. Take dollarization for example. Dollarization refers to a nation adopting other nations’ currency. U.S. dollarization has taken place in a number of nations historically, like Argentina or Ecuador. The notion of another country adopting the dollar typically occurs from a major catalyst such as the financial crisis or government collapse. Some governments fight back on this phenomenon by restricting the amount of cash that can enter the nation or be held by its citizens. Dollarization in a world with digital currencies, however, could make it even easier for citizens to independently acquire a U.S. dollar or other currency. If and when a digital currency from a major global power is launched, it is likely to threaten other major currencies, given how easily it could be circulated and disseminated. There’s a lot more to unpack with this topic, and it’s been a fascinating topic to think about. If you’re interested - I really enjoyed these two articles from Neha Narula and Nic Carter on the topic: here and here.

To IPO or not to IPO?

I’ve been devouring most of what Bryne Hobart has written lately - really enjoyed his latest piece on IPOs and when / why it makes sense for companies to stay private longer. We’ve seen a wave of companies take over a decade to IPO (e.g., Uber, Slack, Pinterest), IPO delays (e..g, Airbnb) and later-stage companies getting bought out (e.g., Credit Karma, Plaid). Bryne discusses how going public today is just that much more work. We have a stricter regulatory regime and the process can leave companies with a big hickey of bad press on them. Hot tech startups go from being the new cool freshman to jaded seniors in a matter of months. Of course, IPOs are critical liquidity events in the life of a company, for all invested parties. I’m not sure anything will actually change anytime soon, but market dynamics appear to be evolving over time, and IPOs may go from obvious to a tougher choice.

Other links I’m reading:

What I’ve been thinking about:

Living in a world of unbundling and re-bundling content

First music, then TV, and now online content. The era of unbundling great content and paying for it (newsletters & podcasts) is upon us. I’m a little bit frustrated by this world because I love to read all the things. In fact, the amount of things that I like to consume is far more than my willingness to pay. For example there are 5 newsletters off the top of my head that I would love to pay for the premium product (Femstreet, Farnam Street, Stratechery, Divinations, FinTech Today, Bryne Hobart to name a few). Although each individual newsletter is not that pricey, combined, it would cost me ~$787/year. $787!!! On one hand, everyone talks about the woes of paying for things they don’t use or read and wanting to pay for only what you want to read. On the other hand, a Spotify model for content feels like an inevitable ending to the newsletter content wars. (Side note: we all saw how that went for Medium). When I compare my potential newsletter spend to my TV content, I’m left rather aghast at the difference. I spend $275 a year (Amazon Prime and Netflix), and that includes ALL the other benefits of Amazon Prime. I genuinely can appreciate that these newsletters go above and beyond to provide excellent curation and analysis. But at the end of the day, I have a hard time justifying a total budget of $500+ for a handful of newsletters.

The caveat here is that many of these newsletters are doing a great job cultivating more of an online/offline community with their readership. FinTech Today has what I hear is a dope slack channel and Femstreet regularly puts on high-quality events in the U.S. and U.K. In these instances, you are paying for much more than simply a newsletter, but rather an informal professional network that you are able to self-select into and get the most value out of. Particularly as the online world feels oversaturated, the thing most people are willing to pay for is curation.

Of course, I do not miss the irony that I’m writing about this in a newsletter!!!

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