Dan Awrey on the Future of the U.S. Payments System in a Digital World - Macro Musings with David Beckworth Recap

Podcast: Macro Musings with David Beckworth

Published: 2026-02-09

Duration: 57 min

Summary

In this episode, Dan Awrey discusses the evolving landscape of the U.S. payments system, emphasizing the need to differentiate between money and payments. He argues that technological advancements are reshaping the financial system, challenging traditional banking's dominance.

What Happened

David Beckworth welcomes Dan Awrey, a professor at Cornell University and author of 'Beyond Banks,' to discuss the future of money and payments in a digital age. Awrey highlights a critical issue: the financial system's current structure is overly reliant on traditional banks, which has created a path dependency that hampers innovation. He introduces the concept of 'Gresham's new law,' pointing out that as technology in payments evolves faster than the regulatory frameworks, there is a growing disconnect that could lead to instability in the financial system.

Awrey elaborates on the historical context of banking, explaining how centuries of development have led to a system that bundles money, banking, and payments together. However, this bundling has become problematic in the face of new technologies that facilitate payments independent of traditional banks. He argues that we must reconsider how we view money and payments, understanding that what constitutes good money—law and institutions—differs fundamentally from what makes for effective payments—technology and governance. This distinction is vital as we navigate the future of monetary systems, especially considering generational shifts in payment preferences and the implications for policy.

Key Insights

Key Questions Answered

What is Gresham's new law in the context of payments?

Dan Awrey introduces Gresham's new law as the idea that the technological advancements in payments are outpacing the necessary legal and institutional frameworks that ensure sound money. This disconnect could lead to instability, as innovation occurs outside the traditional banking system without adequate oversight or support from existing laws.

How has the bundling of banking, money, and payments affected the financial system?

Awrey explains that the historical bundling created a path dependency that has made the system rigid in the face of new technological realities. While this bundling achieved a certain level of stability, it now poses challenges as innovative payment technologies emerge, highlighting the need for a reevaluation of how we separate these concepts.

What does Awrey mean by the generational shift in payments?

Awrey notes that there is a profound generational shift in how payments are made, with younger individuals gravitating towards digital options like Venmo rather than traditional cash. This shift indicates a broader trend in consumer preferences, which policymakers must recognize to adapt the financial system to current realities.

Why is it important to differentiate between money and payments?

Awrey argues that conflating money and payments leads to misunderstandings about the requirements for each. Good money is rooted in legal and institutional frameworks, whereas effective payments are driven by technological innovation. Understanding this distinction is crucial for developing a modern financial system that meets contemporary needs.

What challenges does Awrey identify regarding bankruptcy in new monetary instruments?

Awrey mentions that bankruptcy serves as a significant weakness for many new monetary instruments, which often lack the robust frameworks that traditional banks have. This vulnerability can lead to failures in these innovative systems, emphasizing the need for thoughtful regulation and reform to protect consumers and foster stability.