Nobel Prize in Economics Dybvig rules out a financial crisis in the US

EFE.- The American Philip Dybvig, one of the winners of the Nobel Prize in Economics, knows that the world economy is going through “problems”, but he sees no indication that the banking sector has them, at least in the United States, so he does not expect a financial crisis in his country.

Dybvig (1955) was awarded Douglas Diamond and Ben Bernanke, who was president of the United States Federal Reserve, for their research on banks and financial crisesworks that have reinforced knowledge about these institutions, their regulation and how to manage major recessions.

The economist from Washington University in St Louis spoke to Efe about the moment of uncertainty in the world economy, among other factors due to the war in Ukraine, the energy crisis or the escalation of inflation.

Although he is concerned about “some of these issues”, the new Nobel laureate sees “no indications, at least in the United States, that the banking sector is in trouble right now. I don’t expect a financial crisis.”

There are many countries where the regulation and the financial system “don’t have the same level of sophistication that we have right now in the United States and there are probably places that have problems, but I’m not really an expert on them.”

Regarding the aspects that concern him about the current situation, he points out inflation, but insists that “honestly” these issues are “a bit far” from his area of ​​expertise.

What he does talk about is the turbulent world of cryptocurrencies, in which the collapse of the FTX platform, recently declared bankrupt, has caused value losses in other similar ones.

The world of cryptocurrency is “a mess,” Dybvig said, although at the moment “it’s not big enough to be a problem for the economy.”

Still, regulators have to watch how they regulate them and “not give them a free pass” that allows them to do things that “put small investors’ money at risk.”

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Nobel Prize in Economics Dybvig rules out a financial crisis in the US

If cryptocurrency is “a kind of security and a kind of investment,” it should be regulated like other investments, and if it’s a crypto bank, it should be regulated like a bank, he said.

The Nobel indicated that, for now, they do not have a good use case to test whether cryptocurrencies are “really useful for the economy.” and said that, so far, they are “for people who require anonymous payments for illegal activities.”

In addition, given the “anonymity” of these digital currencies, “there is no one trying to maintain their value”, as is done with the currencies of countries. “I tell my students that the only known equilibrium price for bitcoin is zero. If people think bitcoin is worthless, it will be worthless.”

It may be that for future generations “crypto can play a big role, but I think they are not yet ready for use by the public,” he said.

Dybvig and Douglas Diamond developed theoretical models in the early 1980s that explain why banks exist, how their role in society makes them vulnerable to rumors of their impending collapse, how society can reduce this vulnerability, and why it is necessary. regulation.

For the Swedish Academy of Sciences, which decides the prize in Economics, these investigations have improved the ability to avoid serious financial crises.

“I’ve heard people say that our research prevented a second Great Depression, we don’t know that. As for what the regulators understand and how important it is, I don’t know,” he pointed out.

The analyzes of this economic theorist also defend the creation of guarantee funds created by governments, which act as lenders of last resort. Dybvig points out that “personally” he would like bank deposits to be insured not up to a certain limit, but one hundred percent.

Overall, he added, “I think a lot of countries have deposit insurance, which is well funded and that’s consistent with what our research suggests is good.”

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Nobel Prize in Economics Dybvig rules out a financial crisis in the US