MAP: Digital Upheaval in Finance with Randall Kroszner
By: John Clements Consultants
Tags: Map, Digital Asset, Finance, Cybersecurity, Cryptocurrency

MAP: Digital Upheaval in Finance with Randall Kroszner

Last May 4, 2021, I was able to attend the 4th session of the MAP CEO Academy series which was a webinar on “The Digital Upheaval in Finance: Implications for Developing Markets”. This was in partnership with Chicago Booth. For this webinar, the speaker was Randall Kroszner, Deputy Dean for Executive Programs and Norman R. Bobins Professor of Economics from the University of Chicago Booth School of Economics.

Prof. Randy started off with answering some questions initially posed during the introduction. Should the Philippines embrace these financial innovations or protect themselves? It’s impossible to be cut off from these financial innovations and slowing down the process is potentially harmful for the country.

Another question asked was why should these changes/innovations be embraced? He is quoted in saying that through these innovations, many things that we initially thought impossible are now possible. In 2020, there was a record issuance of debt and equity as the virtual world was able to substitute the previously required personal/physical appearance when making transactions (selling/buying). It was evident that we are able to distribute debt and shares more efficiently by doing away with the personal transactions (less travel made for faster and more efficient transactions). As for developing countries like the Philippines, being able to embrace these technological innovations allows for a much easier connection to the world.

In order to thrive in this advanced environment, Prof. Randy shared a business model he teaches his students at Chicago Booth: UMAP your future, which stands for:

Urgency — How to urgently adapt to these changes

Mission — Make clear direction/goals

Agility — How to pivot quickly when challenges arise

Persistence — How to continue despite all the uncertainty

He also mentioned that in the new normal (and even prior to it), data has become extremely important as financial institutions are one of the biggest collectors of data. The recipe for success is to base decisions on collected and analyzed data. While AI can greatly help here, human judgement is still needed in steering where to focus and how to analyze these data.

He focused next on the need for regulatory frameworks as this is needed for appropriate protection and use of data, especially in enforcement against scams. Cybersecurity is now vital as so much data is available online, more transactions are done online. Cybersecurity should focus from individuals, to corporate level to national level.

He also discussed digital currencies/cryptocurrencies or digital assets. In the last few years we have seen more than a trillion dollars in innovation in that area, although the challenges seen are risks associated with bitcoin and its volatility. While a lot of people are investing in digital currencies/assets, they are still not part of the mainstream investible assets, but experts see this as a maturing market, with China in the lead. Case in point: Ethereum is used to develop non fungible tokens (NTFs). NFTs are used to represent ownership of unique items. They use a block chain to track these assets via a serial code — through this, only the unique code of the wallet the asset has will be seen and not the identity of the owner, therefore protecting the investor. This is also widely used in the art world now.

Digital currencies are being studied to be adapted by the public sector. Central banks are mitigating the risks involved in these digital currencies and regulations are needed for these, especially in security. The US is going slowly on regulations and China is centralizing it in monitoring all the transactions made.