Matteo Maggiori is an associate professor of economics at Stanford University and joins David on Macro Musings to talk about global capital flows, reserve currencies, and the international monetary system. Specifically, David and Matteo also discuss the details of the Global Capital Allocation Project, the US and its status as banker to the world, the possibility we could see a major run on the dollar in the near future, and more.
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Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].
David Beckworth: Matteo, welcome to the show.
Matteo Maggiori: Thank you so much, David, for having me. It is a pleasure.
Beckworth: Well, I knew I had to have you on the show Matteo, when I had a previous guest, Ricardo Reis, and we discussed one of your papers. He had a very powerful insight he drew from your paper, so I can't wait to get to that today. That's what kind of prompted me to reach out to you and you seemed interested in coming on so I'm looking forward to our conversation today. You have a rich publication record, fascinating articles on reserve currencies, international monetary system, and the like and the financial side of it as well. But before we get into all that, maybe tell our listeners a little bit about yourself, how did you get into economics and international economics in particular?
Maggiori: Well, first, let me thank Ricardo Reis for being so insightful and so nice about my work. He's a great scholar so I'm quite honored. Now, where do I come from in terms of economics? I think I really got interested in the field when I was quite young, Italy went through the EMS crisis in 1992. I was very young, I was 10-11 but it seemed like such a big thing. It seemed to affect the daily life of people. It certainly affected my family. And it's something that stayed with me for a while, of course, I barely understood it. I'm not sure I even understand it that well today but I certainly at the time didn't. And it's just one of those formative experiences that kept with me, and I've heard it is actually quite common for other international economists that come from countries with big crises, who have gotten into economics through that route.
Maggiori: So, I certainly did. Then I went through college. And then academia really started being on my radar, while late in college. It's not common in Italy to want to become an academic, or at least, we don't quite know what a research academic is. Very often you perceive academia, as you have a teaching job, and then you have a private sector job in one of the liberal professions. So the idea that I could do pure research every day, other than I guess when I'm teaching was not something that was obviously available to me. And then I met an economist, Lucio Sarno is now at Cambridge University in the UK, who was visiting. And he had heard that I was decent at this. And he really introduced me to a notion that I could do this for a living, which was kind of luck. And that's how I got into the PhD program. I went to do a Masters with him and then I got into Berkeley.
Maggiori: From there, I really kept going on just thinking about international economics, which I'm one of the few people that hasn't changed their mind through grad school. I always tell the incoming students whatever you think you're going to do now, chances are, you're going to end up doing something different throughout PhD program although that was not my experience, but I think I'm the exception rather than the rule.
Beckworth: Yeah, so you followed your heart's desire, became an economist doing research. Now, I noticed in several of your articles you co-authored with the late Emmanuel Farhi, how did you guys meet? Well, what's your connection that you're both working on international economics together?
Maggiori: I'm still quite emotional about that. Emmanuel, he was a well-known economist, well before I came around. He was one of those people when I was in graduate school that you will look at this website and go, “Let's see what this guy is doing now.” He was just such an exciting person. On the job market, I got to know him. We were actually working on similar things, or actually, I was working on things similar to his, and we got to sort of spend time together. And then he was coming off into New York. We just hit it off intellectually. I think he was just somebody that had big ambition, was interested in a million things in and outside of academia. It was just fun but at the core, our focus on the monetary system.
Maggiori: We were both very interested in the topic and we both thought that we understood it very little. We had some fuzzy notion after reading a lot of the history, but we couldn't quite figure out the way we would like to think about it. And so we spent a long time talking before we even started writing equations. So for me, it's been quite a treat to get to know him. I was devastated when he passed away, but at least I got to know him I guess.
Beckworth: Yeah, he was a giant and when I was watching all the tributes that they made, one of the things they talked about is he's very generous with his time for graduate students and young people like yourself and made time for them. So you're an example of that. Also, just his many, many interests, he was really good at many different things including this international literature. And I've followed his work on the safe asset, literature side which have been really great. It's been informative for me and my understanding of what's going on. So it was great to see that you and him to worked together, collaborated on these projects. In fact, we're going to talk about that very paper that we were talking earlier by Ricardo Reis, you co-authored with him in a bit. All right, so the first thing I want to touch on though is a project you have going on, you got a nice website set up, you got data and papers, and this project's called the Global Capital Allocation Project. Tell us about that.
The Global Capital Allocation Project
Maggiori: That's something I'm very excited about these days, I guess. It's been a lot of my life for the last few years. This is a joint work with Jesse Schreger whose at Columbia and Brent Nieman who’s at the University of Chicago, at the Booth School. It's a research lab that we put together, trying to go after a pretty fundamental and in some sense, very old question in economics, which is how capital gets allocated globally. But fortunately, over the last 10 years, we've been able for the first time to provide different answers from the traditional ones. And I think that the differences really come from a data breakthrough. I would say that after the financial crisis, it became much more obvious to everybody that who owns what around the world it's a very meaningful question.
Maggiori: There's been a collective effort between the private sector, the public sector, official institutions, the sovereign nationals in collecting data. And so a few years back the three of us started thinking, “Well, there might be a wave of research coming that provides either a different take on all facts or establishes new facts because all of a sudden, we can really look under the hood of how this capital gets allocated.” That's really where the project comes from. And, we've now written a number of papers. They're simple papers that try to get to basic facts but for me they're very exciting. They sort of taught me things that I didn't think I could quite get down to with that level of precision. It's still very much an ongoing process, I think we're probably at 10% of capacity right now but that's where it comes from.
Maggiori: You mentioned the website. And in particular, what we try to do is not just write our own papers, but also make this very accessible, make it a building block for the profession. Economics over the last 15 years has gone dramatically more empirical than it's ever been. And part of that has been this Big Data that has come around, but it comes with its own issues. In particular, it increases barriers to entry for everybody else. We're fortunate, we have a lab, we have resources and part of what we wanted to do was make a lot of the methodologies, the estimates, and some of the knowhow easily available so the website really came with that intention. Again, we're still building but so far it has been quite a rewarding experience.
Beckworth: Yeah, it's a great website, we'll provide a link to it on the show web page. But going back to the original intention behind it, you're looking at global portfolio decisions, where capital is going, who's investing where and one of the areas you touch on, I believe, is tax havens. And this is in the news, Janet Yellen is talking about, we got to rein in some of these corporate loopholes these ways people channel funds offshore. So any interesting findings from that area?
Tax Havens and Corporate Loopholes
Maggiori: Yeah, I think that's our most recent paper and the idea that tax havens have gotten very big over time. I've been there for a long time. The idea that countries like the US, for example, have a lot of their equity and bonds investments abroad in tax havens. So the Cayman Islands is about 14% of all foreign portfolio assets of the US. So it's one of the major destinations, that was all known. What we didn't know is, how to get rid of this problem. How do we get rid of this problem from an analysis perspective? Like, where does the capital end up? And that's what we managed to do systematically, and really, what does emerge out of this global picture are some facts that I find fascinating.
Maggiori: One is that large developed countries like the US or in Europe, invest a lot more in emerging markets in places like China, Brazil, Russia, than we previously understood because the vast majority of that investment occurs through tax havens. To give you an example, if you want to understand how much does the US invest in China in equities and you look at the official data for the US foreign assets you will conclude relatively little. I think I have in mind 2017 numbers, and it's about 150 billion. That's tiny compared to what they invest in say the UK or Canada or other developed countries. But if you actually unwind the Cayman Islands, the numbers go up by 650 billion, you're now much closer to 700 billion. So it's a huge gigantic difference.
Maggiori: Where's the gap? The gap is that every Chinese company that is listed abroad like Baidu, Tencent, Alibaba is actually resident in the Cayman Islands. And so the US investment in those companies get counted as US investment in the Cayman Islands and not China. You've heard a million times of the rest of the world in particular, China owns a trillion dollar worth of treasuries, you barely ever get to hear that the US own 700 billion worth of equities in China. And I think the reason is, it's hidden away to distractions. There was a lot more clearly in the paper but that was really one fact that took my breath away, I thought I knew the data pretty well, and that I could miss something that big going on came as a surprise.
Every Chinese company that is listed abroad like Baidu, Tencent, Alibaba is actually resident in the Cayman Islands. And so the US investment in those companies get counted as US investment in the Cayman Islands and not China. You've heard a million times of the rest of the world in particular, China owns a trillion dollar worth of treasuries, you barely ever get to hear that the US own 700 billion worth of equities in China. And I think the reason is, it's hidden away to distractions.
Beckworth: That is fascinating. I want to come back to this when we talk about the US is a banker to the world if these findings kind of reinforced that point or not. One other last question about this global capital database before we move on to your other papers, and that is there's been a lot of discussion of how it's important to look at gross flows, like during crisis versus net. I think in the past we tend to focus more on net like looking at the current account balance but under the BIS and it was really stressed, you got to look at gross capital flows. So does your database helps shed light on that question as well?
Maggiori: I would say that the focus on gross flows was around well before we got stuff that I think is completely correct that the notion that you would net everything out, doesn't make sense the moment you realize that the assets that you're netting on the assets and the liabilities aren't similar that you might be netting equities versus treasuries. And you wouldn't do that for a commercial bank and you shouldn't do it for a country either. The notion of netting really came from an old style of macro analysis, where risk premia were ignored. So all assets are perfect substitutes and then it's completely legitimate to carry the net but the world really isn't like that. And, even amongst sovereigns, you wouldn't want to net Greece and Italy with Germany, there are meaningfully different assets.
Maggiori: What we did was go much deeper than that into for example, the currency composition of assets. I was told that when you look at large developed economies and their corporates, their foreign debt is in the domestic currency. So if I look at the US investing in European companies is all going to be in euros, it turns out that that's all in dollars. And that's not just the US, it's a much more general phenomenon that we call the home currency bias, that tells you that the foreigners really skew into a very particular set of assets that are mostly issued by very large corporations. They're the only ones that they can cater to this currency composition. But that gives you a very different picture even in big economies of how capital gets allocated by the foreigners.
Maggiori: And you talk about crises, one of the things that I would like to get into is, how does this affect crises? Clearly, the companies that are getting the capital aren't one over N, or one over market value of all the companies that exist. There are a very special subset. And I don't think we understand that very much yet, as of yet. So, I'd like to go there at some point.
Beckworth: Yeah, very fascinating stuff. And again, I encourage listeners to check out the website. All right, so let's move on and talk about a related point. And this is the international reserve countries of the world, the important ones. I want to start with a paper that you have written, titled *The Rise of the Dollar and the Fall of the Euro as an International Currency.* And it's also tied to this, I believe, Capital Allocation Project as well. But tell us about that because it's interesting. I remember reading… man, it must have been in the 2000s a book by Barry Eichengreen how the Euro was going to take over and become the next great reserve currency. There are even little cartoons, you'd read in the newspaper where I've even seen one cartoon where the euro symbol was smoking a $1 bill, kind of as a symbol of your days are numbered. That was back in the mid-2000s. And here we are and it seems very different. So maybe talk about that paper, what you found in it.
The Battle for Reserve Currency Status
Maggiori: Great. Yeah, over time, there's been a number of contenders for the dollar role. The yen at some point before the 1990 crisis was supposed to be able to take over, the euro was a candidate and now we're thinking about the renminbi. But in the particular context of that paper and also an earlier publication that we've been through in the JPE. We have established with the micro data, a pattern that we found surprising which is somewhere around the global financial crisis and throughout the decade that came after that, the dollar rule if anything became even more central than it’s ever been. And this is somewhat surprising if you've been the financial crisis 2007-‘08 was somewhat centered on US banks. So in the specifics what did we document? We looked at corporate bonds that are held cross border, excluding the US and the European Union as either orders or issuers.
Maggiori: So this is third party user this is the UK investing in Brazil. And we looked at what fraction of those corporate bonds that are held cross borders are in dollars, in euros or in other currencies. So before 2008, you get the typical picture that you would think, a lot of it is in dollars, the euro is the second biggest. And then there's a very small share in the pound, the yen and everything else. With the crisis, there's a big shift in these portfolios where the dollar picks up. It goes from around 40% to over 60%, close to 70% of the portfolios and the euro shifts down. This is a big meaningful shift in global portfolios at a very particular time. And the paper really just tries to document it very cleanly without taking a stand on what might be causing this but if I stay away from the paper and I speculate a tiny bit more, to me it always looked like the private sector is, or the private markets are becoming even more dollar centric.
Maggiori: And in some sense if you were a global investor before the financial crisis and you were looking for safe assets, the financial crisis really confirmed the expectation that the dollar is the safest thing out there. It's a currency that appreciated strongly even after Lehman went down, the US kept a combination of monetary and fiscal policy that didn't worry anybody. we didn't go bizarre on spending or trying to depreciate. So overall, you might have formed an expectation that these assets are what you want in a crisis.
If you were a global investor before the financial crisis and you were looking for safe assets, the financial crisis really confirmed the expectation that the dollar is the safest thing out there. It's a currency that appreciated strongly even after Lehman went down, the US kept a combination of monetary and fiscal policy that didn't worry anybody. we didn't go bizarre on spending or trying to depreciate. So overall, you might have formed an expectation that these assets are what you want in a crisis.
Maggiori: Now, what's interesting is at the same time over the last 10 or 15 years, the fundamentals of the US might be deteriorating. And we're shrinking as a fraction of world GDP, that is going up so whenever I look at a situation where the private market seems to be utterly convinced that nothing could ever happen and shifting even more into dollars. And at the same time, the fundamentals are not as good as they might have been before. Then you start thinking about well, is this stable or unstable? I know you want to talk about my work with Emmanuel, and that one feeds into that.
Beckworth: Yeah, I want to talk about that. And the Triffin dilemma and the possibility the dollar could lose its reserve status. But before we move on, just go back to the Eurozone. So the Eurozone is competing, both with the fact that the market and private firms are gravitating towards dollar assets. But the euro wasn't helping much itself. The euro wasn't providing a bunch of safe assets as an option. Right? I mean, could things have been done differently in Europe to maybe have slowed down that move?
Maggiori: I mean, let me start with a fact which I think we established pretty carefully, which is the Eurozone looks like any other economy and not like the US when it comes, for example, to big corporates or corporates in Europe getting money from abroad. European corporates borrow predominantly in foreign currency, when they get capital from the foreigners. The US in this dimension is a huge exception. The vast majority of US firms get exactly as much foreign participation in a bond if they throw it out in dollars or in foreign currency. So that's a very, very different distribution, for example, across different sides.
Maggiori: In Europe, it's really just the very big firms that end up issuing in foreign currency and getting this foreign capital to the bond market. It doesn't look like the Euro is behaving like the dollar in the data in terms of international usage, it's a very different picture. And it's not just in the time series, it's also true in the cross section. So if that was supposed to be one of the big benefits of the euro, we haven't seen it. Now, that doesn't mean that there haven't been many other benefits. But in that particular dimension, it is still quite different. You mentioned the creation of safe assets. In Europe, that's a very active topic, particularly now with the reaction to COVID.
Maggiori: If you look at the Eurozone, for a while there were even questions about whether the euro was going to be viable, whether there was going to be a breakup. Now we seem to have overcome that, but there's still a fundamental problem of their architecture. I mentioned tax havens like Luxembourg, Ireland, they're clearly big tax havens included in the European Union, and in the Eurozone that they're going to need to deal with this fiscal transfer problem. I mean, clearly we're not going to sustain a situation where Germany subsidizes the rest of the Union, either directly or indirectly to the ECB forever. So, until these questions are getting softer, with better and more stable answers, I doubt that we're going to see a huge rise in safe assets in Europe, there's certainly ability to manufacture much more than they have. But, getting to the status of the dollar seems like a different game.
Beckworth: Okay, Matteo, so we have to wait and see what happens to the Eurozone, whether it becomes a viable contender moving forward to the dollar and the dollar as a major reserve currency. Let's move to that paper that we were talking about earlier, the one that Ricardo Reis brought up. And the title of the paper is, *A Model of the International Monetary System* from the QJE 2018, with the late Emmanuel Farhi, and it's a really great paper, we'll provide a link to it on our web page. Maybe you could just start off with a summary, a bird's eye view of the paper, then we'll get into some of the questions.
*A Model of the International Monetary System*
Maggiori: Sure. So first of all, let me tell you where the paper comes from because it's an interesting story. You asked me about the beginning, how I got started working with Emmanuel, and a lot of it was we had this joint interest in the monetary system. And we were both reading about the history of the system and there's just some great work. But ultimately, we would go for dinner, we would be both very excited about what we read. But we would come away with a very different sense of how we interpreted what we had just read. And we realized that in both our minds it was a bit fuzzy, what we actually meant by the monetary system, how did it work [inaudible] that I would think about it. So the paper really sort of came out of a desire to clean up in our head a way to think about this big issue.
Maggiori: Now, that might not be as useful to other people but that certainly was useful to us. That's how we got started. So how did we end up thinking about it? We thought that the monetary system was really an agreement on trying to generate safe assets. There's the idea that risky assets are abundant around the world, there's lots of risky stuff to invest in. But safe assets are much more scarce and they had to be manufactured. Gold was one option, historically but it became very clear to the world even in the 1920s, that the supply of gold was just not enough. You have to complement it with what are called monetary assets, short term liabilities, of some government or some corporation. But it's obvious that if they're monetary, their safety depends on the future behavior of the issuer. Are they going to inflate? Are they going to depreciate? And so this was an old conception of what the monetary system is that was very prevalent in the 1920s. And in the early '50s, it has somewhat gotten lost, even in what people think the monetary system is about.
Maggiori: I think a lot of people would think it's the fixed versus floating exchange rates. There's some of that, but at the core we thought that was the issue. And then the question became, okay, how do we want to think about this? What are the typical tradeoffs? And we thought about a very simple setup, where there's an issuer, and the issuer wants to convince you that the debt is safe, because then you get low interest rates. And they should get to use these funds for projects that have higher returns. So there's a fiscal reason to do it. But of course at first it's expensive in a crisis to maintain that promise, because you will like to reduce the real value of the debt. Now, you might do it without outright default, you might do it with financial repression, or you might do it with depreciation. In the paper, we went for depreciation because historically, the country at the core of the system tended to depreciate rather than do some of these other shenanigans.
Maggiori: One of the things that we tried to do was map tools into this question. So we ended up using a tool that it's very well known in the literature and has to do with multiple equilibria in particular, with sovereign debt multiple equilibria. And this is a very simple set up where, if I issue very little debt I'm perfectly safe. Why? Because even if confronted with high interest rates, the fiscal repayment, debt times high interest rates is still so small that I will decide to behave and repay. But if I issue sufficiently high levels of debt, there might be multiple equilibria. If you give me low interest rates, then add those low interest rates, it's actually convenient to repay, and I will behave, fulfilling the idea that you should have given me low interest rates to begin with. But there is another possibility, if you now give me very high interest rates, given a sufficiently high level of debt and high interest rates, the debt repayment exposed is too expensive.
Maggiori: It's too onerous for me and I would rather depreciate to lower the debt repayment, creating a self-fulfilling equilibrium where indeed, ex ante you should have given me high interest rates to compensate you for the fact that ex post that won’t be safe. So this is the Calvo Model. This have been around way before us. It is one of the celebrated models of sovereign debt. And we tried to adapt it to this situation. But really from a technical perspective, what we brought in that was new, is to think, okay, if that's the world, how does the issuer decide how much debt to issue in particular thinking of a country like the US that is big? So he understands he impacts prices, he is a monopolist, he understands that as he issues more debt, even if the debt is perfectly safe that interest rates will come up. And so he has this very special monopoly power. And we wanted to think about, what do you do then? Does he issue too little? Does he issue too much? What are the trade offs?
Maggiori: In particular, there was this idea in the literature that a country at the core of the system will never risk it, it will never try to blow it up. Because it makes all this revenue, it has this exorbitant privilege, which we'll talk about so, why would you blow it up? And actually, as you think through the problem it is very natural there are conditions under which you want to risk it. What are the conditions? Well, it's like all theory once you see it, it's awfully pretty obvious. If I'm in a world where there's a lot of demand for safe assets, so conditional on safety, interest rates are really low, and I perceive the crisis to be unlikely, then I want to risk it.
Maggiori: Why? Because if the crisis doesn't happen, and there's so much demand for my debt I get to raise a gigantic amount of debt at very low interest rates. And I look like a genius, I look like that was the right policy. Of course, I fully understand that with some probability, I'd blow up the system. But there might not be enough rationally, from dissuading me from sort of entering that risky region. So, ex post, it looks very normal, straightforward tradeoffs but it wasn't sufficiently clear to us ex ante, that that was the right way to think about the issue.
Beckworth: Yeah, we were talking about this before the show, and this idea that there's these multiple equilibria, multiple places where the main issue or the core country could end up was pretty radical back than when you first came up with the idea, right? Because we're thinking about the United States in particular. Tell us about that experience.
Maggiori: People were pretty skeptical, I would say, including some of our colleagues. The US had been, or has been, at the core of the monetary system, for 60 years now, has been a very stable equilibrium. And even the mere notion of thinking about US debt as a source of instability, rather than the ultimate safe asset is not something that people are used to or want to engage with. And so there was a lot of like, is this a curiosity? Now, if you take a broader view of history, actually, there is no reason to believe that this is going to last forever, or that the debt will be perfectly safe. I mean, think of England of the '20s. It was a country with a stellar reputation, very solid institutions, had been at the center of the gold standard for a long time. And it was supposed to never go down. And then in the late '20s, and early '30s, they decided to depreciate massively, it was unexpected.
The US had been, or has been, at the core of the monetary system, for 60 years now, has been a very stable equilibrium. And even the mere notion of thinking about US debt as a source of instability, rather than the ultimate safe asset is not something that people are used to or want to engage with.
Maggiori: They bankrupted the Bank of France, it was the biggest holder of pound reserves. And it was a massive shock that people didn't see coming. So, there's no reason to believe that under all circumstances, the US will be always at the center of the system. Now, that doesn't mean that you want to call for the end of the system or blowing it up next week. I mean, one way to ridicule these arguments is to always make it sound that wherever we spend, $100 million, we're debasing the dollar as a fiscal revenue. That is just ridiculous. These are like long term issues that you have to put them into the historical context. But certainly the reaction was, this is a bit crazy. And we were fine with it. We thought, well, the debate might come and I have to say I'm devastated that Emmanuel is not around to both see it and contribute to it.
Maggiori: But it has happened much faster than we thought. We're now in 2021, and I would say that the debate is out there in the public. I mean, there are questions about, how much debt is enough debt? Are we spending too much? Are we spending it wisely? And I think if you go back five or six years, these weren't questions where major economies were engaging with it. The pandemic run up of debt has pretty fast forwarded the picture much faster than we would have even considered where 100% debt to GDP ratio, in a matter of three years or four years after the paper, which I don't think we had any notion that this was going to happen.
Beckworth: Yeah, and the CBO is predicting that it will double that by 2050. So, 200% debt to GDP ratio. Let me now go into a part of your paper that's related to this. You bring up the Triffin’s dilemma. Your model can motivate the Triffin’s dilemma, so maybe tell our listeners what the Triffin dilemma is. And also, you mentioned exorbitant privilege earlier, kind of weave those all together for us.
The Triffin Dilemma and Exorbitant Privilege
Maggiori: I'll try. Triffin was a Belgian economist in the 1960s, at the height of the Bretton Woods System. What was the Bretton Woods System, just to remind you, it was the monetary arrangement of post war, economic stability, it was fixed exchange rates, everybody is fixed to the dollar, the dollar is fixed to gold at $35 an ounce of gold. It was supposed to last for a very long time. It’s a typical thing where economists get together at a fancy conference, we set it up, it seems to work for a while and then it ends up in a crisis. Now, in this particular system, the crisis came in a form that Triffin had forecasted.
Maggiori: So in the early '60s Triffin said, “Well, the US will face the following dilemma either issues very little debt, so therefore not satisfying the world demand for safe dollar assets. But then it makes it perfectly safe, or the US will have to stretch it's fiscal capacity, make the debt stock much bigger, satisfy the world demand. But then we have to be careful that the system might blow up, that there might be a run on the dollar.” And his view was kind of ridiculed at the beginning. Again, on the notion of, “This is the US nothing will ever happen.” But little over 10 years after he first put forward his view, actually what he had forecasted happened.
Maggiori: The Nixon administration faced with mounting demand for dollar liabilities, and domestic pressure decided to go off gold. And so we went to floating exchange rates. Actually, Bob Mundell, died just yesterday. And this reminds me that in the early '50s, when Bretton Woods was put together, one of the things that it's sort of amazing is the floating exchange rate system wasn't even considered, it was supposed to be the end of the world. And when you look at it with modern eyes, you feel that they were simply misinterpreting the evidence. They were looking at a brief period of floating exchange rates in the 1920s coming off World War I, where floating was a consequence of not being able to peg, so it was a consequence of complete instability. And so of course, the floats looked like completely destabilizing.
Maggiori: They hadn't quite considered that one could have floating exchange rates in a normal country in normal times as a solution. And really, Bob Mundell has been incredibly influential in our understanding of floating versus fixed. And part of the reason why we went to a floating exchange rate system is we understood it wasn't the end of the world. But I digress. Let me go back to the Triffin dilemma. Triffin had put forward this tradeoff, and Emmanuel and I tried to give it a radical incarnation. One of the things that sort of transpires also is economists at the time thought this was a problem or balance of payments, it was a problem of fixed exchange rates. And that once we went to floating this will go away. Actually, in the year 2021, with floating exchange rates, we're still talking about it. And what was the part of the prediction, or part of the logic that they didn't understand is that the problem is much more fiscal.
Maggiori: Maury Obstfeld has also written about this. It's much more fiscal than a balance of payments problem. It's about the government fiscal capacity and our willingness to repay safe assets to the rest of the world. And fixed versus floating, has an interesting interaction with this, but it's not the root cause of the problem. The root cause is fiscal. Now, how does this interact with the exorbitant privilege? The exorbitant privilege for those of you that haven't heard about it, it's the idea that a country at the core of the system like the US borrows at disproportionately low interest rates. It was an accusation levied to the US from Valery Giscard d’Estaing, not when he was president of France, but when he was the finance minister, saying, “Look, you have this incredible ability to get away in the Bretton Woods System with sustaining large deficits without suffering for it because you rigged the system so that everybody else wants to buy dollars, and that gives you cheap financing.
Maggiori: How does he interact with the Triffin dilemma? Well, the way to think about this is suppose that you are the country that has this special ability to issue safe assets, and that there is a privilege, there is this special demand. The way Emmanuel and I put it into theory context is we really made it a privilege. We made it a monopolist. So you really get a monopoly rent. So from a theoretical perspective it's quite different from other incarnations that you can give for the privilege. Here privilege truly means exorbitant in the form of monopoly rent. And suppose that you have this ability to do this, do you want to overuse it? Do you want to risk losing it? And again, the answer is sort of interesting. The answer is there are circumstances where even fully understanding that you have this monopoly power, and that you might lose it. You want to over issue and risk it. And when do you want to do it? When there's a lot of demand.
The way to think about this is suppose that you are the country that has this special ability to issue safe assets, and that there is a privilege, there is this special demand. The way Emmanuel and I put it into theory context is we really made it a privilege. We made it a monopolist. So you really get a monopoly rent. So from a theoretical perspective it's quite different from other incarnations that you can give for the privilege. Here privilege truly means exorbitant in the form of monopoly rent.
Maggiori: Why? Because if you get away with a continuation equilibrium, where the crisis doesn't come, you're now issued an incredible amount of debt, increasing your monopoly revenues, because you are giving at very low interest rates. And so that's a condition so to us, that's why the Triffin Dilemma showed up in the 60s, when Europe was growing very fast, was providing a lot demand for dollar debt. And today, when we're talking about this, again, because we perceive with China with emerging markets, and after the financial crisis, maybe even with some world financial institutions, we perceive demand for dollar debt having gone up a lot. And so that activates, in my mind, this sort of Triffin margin.
Beckworth: Very interesting. So, the relevance for today then would be that the world wants lots of dollar denominated assets. And we're the main supplier provider of that the US financial system. And the concern is that the world wants more of those assets than really is necessary domestically in the US economy for full employment stability, price level stability, all those wonderful things we aim for, with macroeconomic stability so there's a tension there. And I guess that the concern is at some point, we'll respond to that demand, provide these assets, and we'll come to some point where there'll be a break, some kind of shock to expectations, something's going to happen. And it'll be a run on the dollar is that the fear that there'll be some kind of... Or the dollar will depreciate? What's the ultimate outcome?
Maggiori: That's a great question. The way we try to think about it is like a bank run. The reason why we wanted a model in multiplicity was exactly that when you look at the historical evidence, you look at England in the '20s, the US with a breakdown of Bretton Woods, it seems that the systems are set up, they work seemingly very well for a while. And then there is one big crisis at the end that brings the system down. And the crisis is almost invariably, people don't see it until they're essentially into the crisis. So there are these very sudden events where the rest of the world shows up and says, “We don't think you're that safe. We want our money back.” It was France trying to withdraw money from England in the '20s. It was Europe, trying to put some pressure on the US in the 70s saying, “Look, we don't think you're going to be that safe, we want our gold back.”
Maggiori: And once I demand that you realize that you've gone too far with the debt and it's too expensive fiscally to repay, and you have to sort of do something like depreciate. This to me is very important, because it's telling us that these crises are very sudden and they're very hard to forecast. But even technically, in the model, it's just a parameter, multiplicity from a technical perspective in economics, it's called the embarrassment of riches. It's wonderful because it has all these sort of elements but we don't really know how to discipline it. All I can tell you is there's some probability in which it happens, and at some level, that's very unsatisfying. But it might be close to reality. It might be that, you know, people often ask me, “Can you tell me anything about a dollar crisis?” And I tell them, “No, I have zero ability to forecast this. I think I'm probably as bad as everybody else.” But that doesn't mean it's impossible and we should be thinking about the tradeoffs.
Maggiori: This brings us to today. I mean, the debate is raging on how much is too much debt? Should we spend another two trillion, we just spent one. And part of the argument in favor… One way I read it is, interest rates are so low, in fact, the interest rates have been going down while debt has been going up. So why wouldn't we spend it? And I think there's a very valid logic to that. It's in the context of the way I think about this, that's the good equilibrium. If the good equilibrium persists, and demand is high, you want to respond by expanding debt and use the money for useful projects. But you have to take into account that there is another possibility and that that might occur and you need to sort of have that tradeoff in mind.
The debate is raging on how much is too much debt? Should we spend another two trillion, we just spent one. And part of the argument in favor… One way I read it is, interest rates are so low, in fact, the interest rates have been going down while debt has been going up. So why wouldn't we spend it? And I think there's a very valid logic to that.
Beckworth: Okay, I'm going to come back to this, again, to this idea of a run on the dollar. But before we do that I want to flesh this one other angle out that you have, and it's actually tied to another paper you've written, but it's also tied to some other literature, and that's the idea that the US as a banker to the world. So in playing this role as the main issuer of the global medium of exchange, if you look at the balance sheet of the US economy as a whole, so you consolidate private and public sectors, the balance sheet looks a lot like a bank's balance sheet.
Beckworth: The liability side is disproportionately liquid assets and then the asset side is risky. In fact, and this goes back to your comment earlier about that the tax haven, we find out we have all these risky assets in China more than we thought. Let me circle back to that original point. And that is what you found with your global capital flows data does it reinforce the view as the US is a banker to the world or does it alter it slightly in a different way?
The US as a Banker to the World
Maggiori: In the context of the US-China relationship, I think that one reinforces it in the sense that it tells us that the relationship at least the bilateral financial relationship and one has to be careful looking just at the bilateral rather than a multilateral. But, if I take leave of that for a second, it's a much more of a sort of nuanced relationship where they own a lot of treasuries in the US, US residents own a lot of equity in Chinese companies. And that goes again, towards the banker for the world view, Gourinchas and Reyes had done some spectacular work, documenting how from the '70s onwards this has expanded and sort of, in some sense changed nature from pure liquidity transformation from also being debt versus equity. And the particular point that we brought to bear on China also has some interesting legal issues that I'm not going to get too deep into. But, what the US residents are buying are these technology companies like Alibaba, that are putting together structures in the Cayman Islands to blatantly bypass Chinese regulation that says, “These strategic companies cannot have foreign equity holders.”
Maggiori: These are pretty shaky legal claims. There's a whole legal literature on this. And it's an exposure that we barely understood, that we actually have and that it is that big. So it's not just the banker to the world view. It reminds me of AIG, where ex-post so everybody is like, “How did we not know this?” Well, I'm telling you about at least this part. So it's sort of interesting. But to go back to the banker for the world, the work that I did on financial intermediation, trying to use a model of financial frictions to figure out why US banks, for example, would be willing to do this kind of intermediation, sort of take on short term debt in dollars that is very safe, it's part of the safe asset creation that is not coming from the government. It's coming from the private sector and then invest in risky assets, compared to say financial institutions around the world. And it really had to do with the depth of US financial markets. If you're a country with a very big financial system with low financial frictions, you tend to rev it up.
Maggiori: You have a competitive advantage in producing these safe assets and investing abroad in risky assets. And that's where that paper was trying to go. The paper with Emmanuel is quite different. We took the banker to the world view, but we took a different view of the world banker. I guess after the financial crisis, it's obvious to everybody that when you mention banker people think instability. But actually, the term was originally coined by Kindleberger in the '70s, as a response to Triffin, and it was supposed to be super safe. His view was, “Don't worry about the Triffin dilemma. For every liability there is an asset. We're just like a bank.” Now, if you say that today, you say, “Well hang on a second, you're just like a bank so you might have a bank run.” And that's really what Emmanuel and I tried to bring in, was this notion and the banker to the world might be very unstable.
Beckworth: Yeah, and you raised the observation in your paper that Gourinchas and Rey in their paper and... Was it 2007 that they wrote this paper? That I think they noted in that paper that the US has gone from being a banker to the world to a hedge fund to the world. It's even gotten riskier and riskier on the asset side. So it's their concern is there might be this shock, something that's going to trigger panic and run on the dollar. But, let me come back and ask this question. How would that actually play out? And I'm thinking of several issues here.
Beckworth: Number one, where would investors go? I mean, one of the points we've been kind of talking about is the dollar is so dominant. There's so many dollar denominated assets. Where would investors go? And I understand there could be some price adjustments on the margin. But, this has always been a puzzle for me when I think about people who advocate Bitcoin, cryptocurrencies. Mark Carney, a couple years ago proposed a synthetic hegemonic currency. But, for any of those to scale up and replace the dollar en large, it seems like, in my mind, maybe I'm wrong, and I'm happy to be corrected, where would you run to? Where is the other bank that you would run to in this case?
How Would a Dollar Run Play Out?
Maggiori: Right. Let me start with one giving a shout out again to Pierre-Olivier and Helene. Their work in 2007 and after that they have a series of papers, really brought a lot of these issues. Again, we know both theory and data to bear on… the US has gotten so big, gross assets and liabilities you mentioned at the beginning they documented have been skyrocketing. So we really have to think hard about these issues. Now to the second part of your question which is, where would you run to? That one I think is an interesting phenomenon that in a paper with Emmanuel, in the second part of the paper, we try to think about multipolar worlds. What happens when you have multiple countries that can compete in being the reserve status? And there's an historical antecedent in the 1920s, Barry Eichengreen, as quite forceful he made the point that if you look at it in the '20s, it's not one day it was the pound and then after it collapsed, it's the dollar.
Maggiori: In the '20, you have an example of a multipolar system, with both the UK and the US providing a meaningful amount of safe assets to the rest of the world. And actually, an economist Ragnar Nurkse in a book in the 1950s, theorized that multipolar system tend to be unstable. Why? Because you kind of second guess yourself, you say, “Well, is it going to be the US that is going to be safe? Is it the UK that is going to be safe?” And he thought that as people try to figure out which of the two was going to be safe, they're going to move capital very fast between the two. And ultimately, that that flow themselves might destabilize the system. And so Emmanuel and I wanted to go back to some of that intuition and have more clarity to the mechanism.
Maggiori: And again, we spent a lot of time trying to map tools to the question, thinking about what is the right way to sort of think about this. And we ended up using a setup of oligopolies, competition among issuers under limited commitment. It turned out that from a technical perspective, this has been already developed, think about private money creation, among issuers within an economy and optimal inflation rate. And it has some very interesting insight. Now, let me try to make them as intuitive as I can. So suppose that you want to think about the US and China now. And China is up and coming and they start to issue safe assets. Well, what does that do to the system?
Maggiori: Well, one thing that you have to internalize is, what gives the US commitment? If and when we're going to have another big crisis and maybe interest rates start to spike in the US, what would push us to not try to depreciate or try to do partial default or repression, anything that could decrease the value of these assets as being safe for the rest of the world for domestic reasons? Well, part of what gives us discipline is we get low interest rates in average times, we get to borrow very cheaply. And that's the privilege and that's valuable. But if I tell you now that 50% of that will accrue to China in the future as a new issuer of safe assets no matter what you do then you might think that this isn't as valuable. And then when the crisis comes, you don't want to behave, you might want to be more like Europe, that explicitly says, “In a crisis we have no political interest in the euro as a global reserve currency. We're going to do whatever we need to do from a domestic perspective.”
Part of what gives us discipline is we get low interest rates in average times, we get to borrow very cheaply. And that's the privilege and that's valuable. But if I tell you now that 50% of that will accrue to China in the future as a new issuer of safe assets no matter what you do then you might think that this isn't as valuable. And then when the crisis comes, you don't want to behave.
Maggiori: If you look at the ECB over time, they made it very clear that they don't either encourage or discourage the use of the Euro, and they're really going to be focusing on domestic conditions. The US is quite different. If you look at the Fed in ‘08 or the reasons why they did these swap lines, they understood very well the role of the dollar worldwide and that the Fed had to sort of maintain that liquidity, and it had to maintain that system function. It's a bargain on the US. On top of that, and this goes to the last part of your question. There is the idea that once you have multiple issuers there is an alternative. If I ran away from the US and China's viable, I can focus on China. And for a long time, it didn't seem like a viable alternative was there. And so there's an interesting question to which I don't think we gave a particularly deep answer unfortunately. I'll explain why, on whether having only one makes the system more stable just out of not having an alternative.
Maggiori: Now Margaret Thatcher used to say, “There is no alternative. This is the system we have.” People bring it up in the context of 1973, when the US breaks the gold standard or Bretton Woods, there is a brief period where capital starts to look for other destinations, in particular Switzerland. But then it becomes very obvious that Switzerland is tiny, from a GDP perspective it's not going to be able to be a viable issuer at the world level. And the dollar has maintained its centrality and I'd argue at the beginning of our conversation, if anything it has even increased over time. A lot of economists or some of us give a rendition of that event as there was no alternative so you have to trust the US again. It's an interesting question.
Maggiori: Now, in the context of our model, for those of you that are more technically oriented, the reason why we thought that the answer was somewhat shallow, is that it's more of an illustration of an example that this can happen rather than having any strong predictions of under which conditions would it happen or not happen. It's again, the problem of multiplicity, it's a bit of a selection device that does it. And it's nice to illustrate it. I think there's a lot more work to be done there to really understand it. I think, hopefully, we motivated other people to get into it. But I don't think we gave a very deep answer.
Beckworth: Let me just summarize what you said there. And I think this goes back to the discussion I had with Ricardo Reis about your paper. If you were in a world where you had multiple reserve currencies, you had a yuan region of the world, the dollar region, a euro region. And it was in a state of low commitment so these players couldn't commit to being responsible, fiscally over the long run, what could happen is you could have severe financial runs, is that fair? And they-
Maggiori: I think that's right.
Beckworth: Okay. And then the comparison would be okay, that could be a very unstable world in itself. And if that's the option... I don't think your paper says this, but if that's option B, and option A is the world we have, well maybe option A isn't so bad. Is that a fair comparison?
Maggiori: It's an interesting take. We didn't end up ranking the options. I think what we wanted to do was give a theoretical voice to the concerns about the multipolar world. The advantages of the multipolar world are somewhat easier to understand. I mean, for example, I think Barry Eichengreen has elucidated them very well, there is diversification benefits. You have multiple countries, if a country gets hit by a shock, if somebody else is still providing safe assets, you have more physical capacity backing the assets, those are all very valid argument.
Maggiori: What we wanted to highlight is that, while all those benefits might be there, there are also possible costs moving from a hegemonic world to a multipolar world and the instability that you have in mind [are] coordination problems. And the fact that commitment rests on… I get revenues out of this, I get something that makes me behave is, I get away with the privilege, if I need to share it, I have lower commitment. Those insights, I don't think were as prominent in the literature. And so we wanted to articulate them saying, “Well, it's not everything is going to go straight to strictly better as we go to a multipolar world, there are reasons to worry about that world.”
What we wanted to highlight is that, while all those benefits might be there, there are also possible costs moving from a hegemonic world to a multipolar world and the instability that you have in mind [are] coordination problems.
Beckworth: Okay, let me ask this question. If history is any guide, would that world more likely be one of high commitment or low commitment? Or is that too hard of a question to answer?
Maggiori: I'm a big fan of the historical knowledge on these topics, pretty much because it's all we have to go for it. But I think we have to be careful in the sense that… In history here really boils down to a couple of anecdotes, a couple of big episodes. And they're very useful to study but, these events are so infrequent that we really have two, maybe three. I'm always hesitant to over draw from these events but in general, I think, to me at least, it's pretty clear, we're in a world of limited commitment. I don't know, I'm a native of Italy, so we've faced this problem, at least since I was born. I don't know of any politician that is going to run on a platform that says, “My main goal is bringing the debt to GDP ratio down.” Everybody seems to have a good reason to make it go up. You mentioned the forecast that the US debt to GDP ratio expanding for the foreseeable horizon. I just don't know that there is a plan to bring it down. To me, what might get us into a crisis is precisely not thinking that it is possible and not thinking that we need to have a plan to maintain some spare capacity.
Maggiori: Now, none of that means we shouldn't spend in a pandemic. That's ridiculous. Everybody understands that the fiscal multipliers are very high during a pandemic. I don't know, most mainstream economists would say it's a great idea to spend for the pandemic. And we can debate on how much, on what, those are all valid questions. But I don't think anybody will bring up the role of the dollar as a big constraint on spending one or two trillion to fight off a pandemic. I will bring up the role of the dollar as why we need to have some plan to maintain fiscal capacity for the next crisis. One of the other things that I wanted to touch on is, there's a debate out there on interest rates have gone down. So clearly, we're safe. And I think our model or our point of view has something to say about that which is, private markets are unlikely to give us a signal of when we've gone too far. It's precisely that multiplicity.
I don't think anybody will bring up the role of the dollar as a big constraint on spending one or two trillion to fight off a pandemic. I will bring up the role of the dollar as why we need to have some plan to maintain fiscal capacity for the next crisis.
Maggiori: Now, it's true that if you look at very long-term debt, that should be pricing some of that compared to short term debt, because they should understand that there is this multiplicity. But, there is no reason to believe that the market isn't biased in some sense, that this is rational that they understand exactly what the probability is, particularly for these events that are so rare they happen every 50-60 years. Historically, I don't think markets have a good track record at spotting them in advance. The global financial crisis is a typical example. If anything, if I look at the empirical work on bank runs, it seems that just before they hit, if anything, credit spreads are abnormally low.
Maggiori: So the markets are signaling the opposite. And so I think of this as we might go into a world where people like me bring these issues up. It doesn't happen this year. It doesn't happen next year, it doesn't happen in five years so people start thinking, “Oh, this is crazy, we should ignore it. It can never happen.” And that's precisely the conditions under which you might think that the event will finally show up. It's precisely when everybody else start thinking, “Oh, it's impossible, rates are low, so we can borrow whatever we want.” That's the way I think about it. Now, unfortunately it also means it's difficult to falsify the theory which makes the theory have less of an empirical bite, which is a problem. But I'm not sure it makes it wrong. It's just very hard to test these kind of things.
Beckworth: That's a great observation, the bond market did not predict the great inflation, a lot of events didn't predict it, so we need to take those inflation forecasts coming from tips and breakevens with a grain of salt and have some humility in interpreting them knowing that they might be good for small changes but these big swings, they don't have a great track record.
Maggiori: Yeah, well, at least we should... we want to worry that if we rely on them too much, they're going to tell us when it's time to tighten. On the other end, I'm sure you're aware, there's been a gazillion predictions of the dollar demise in the last 30 years, none of which have pan out. I think that the truth is somewhere in the middle. And I'm not sure if, me or well, I don't want to speak for the profession. But certainly for me, I'm not sure that I would have anything intelligent to say quantitatively to make predictions. I have no reason to believe that I'll be any good at it.
Beckworth: Well, let me throw out one more argument why I think this dollar run may be harder than we think. I'd love to get your response to it. And that is just kind of a network effects story. You mentioned several times in show how the dollar's reach has just grown, grown, grown. The banker to the world role has just grown, grown, grown. And as you mentioned during crisis, people actually issue more dollar liabilities because it has a lower convenience yield, lowers the cost of financing. I would argue that the Fed when it stepped in 2008, and in last year, it backstopped the dollar shadow banking system, it effectively set a signal, “Hey, it's okay to hold dollar assets on the margin.” And so it kind of reinforces this dollar network. So to the extent this dollar network is slowly growing over time, might that not increase the cost of breaking from it and at least increase the odds that we stay with the dollar longer than otherwise would be the case?
The Network Effect Story
Maggiori: That's a fascinating question. Let me disclose something, which is, Emmanuel and I were actually working on this. And unfortunately, we're not going to get to write the paper together. But it's something that we were thinking in a slightly different form, rather than thinking about actual networks. A lot of the issues we had in mind, if everybody uses the dollar, this might be self-fulfilling. We were thinking about more stickiness coming from expectations. So from a form of extrapolating expectations, so we had in mind the following. In 2008, you see the dollar appreciating after Lehman goes down. That's pretty extraordinary. That's in some other work, I called that one the reserve currency paradox. The dollar appreciates even when the shocks are bad for the US in the first place.
Maggiori: As an holder of US assets you start thinking, “This is great, this is super safe. Even when they get a big banking crisis, the dollar appreciates, I'm going to move even more towards the dollar.” And you might overdo this, there might be an element of that it is rational, you're learning about the institutional quality of the Fed and the US government, but you might overdo it. And over time, you hear that there are problems with the US, that the crisis should be happening and they don't happen. And every year that passes, you form even more stable of an expectation that the dollar is super safe. Now for the garden variety shocks, this actually works. Why? Because if everybody else flights to the dollar, when there's more shock occurs, that flight puts pressure on the financial system and makes the dollar appreciate making you even stronger, your view that the dollar is super safe. But ultimately, you're going to end up with a major crisis.
Over time, you hear that there are problems with the US, that the crisis should be happening and they don't happen. And every year that passes, you form even more stable of an expectation that the dollar is super safe. Now for the garden variety shocks, this actually works. Why? Because if everybody else flights to the dollar, when there's more shock occurs, that flight puts pressure on the financial system and makes the dollar appreciate making you even stronger, your view that the dollar is super safe. But ultimately, you're going to end up with a major crisis.
Maggiori: Why? Because at some point, the expectations are very far out of line with the rational expectations, with the true situation of the fiscal capacity of the government. So this is all very loose for anybody who's listening to this. And as a theorist, I apologize deeply. Think of it as a coffee conversation of things that we were fascinated about that might be true, or we might be able to make them work out in a paper. But we really thought about the self-reinforcing cycles of expectations. And as an empirical literature in finance, Andrei Shleifer has written a whole bunch about this, for stocks that might apply very strongly to these big events that occur very infrequently, for which you form expectations over time by looking at smaller things that are going on. I'm fascinated by that. I mean, I wish we had time to write that paper. It's an interesting idea.
Maggiori: Again, I don't think it's very testable, which is one of its shortcomings. But, very often we're thinking about the monetary system and big crises. Testable is not exactly the world we live in. It's more about trying to ex ante, or ahead of time, thinking about what the risks are. And hopefully, when the shocks come around, we will have at least a baggage of knowledge that we've accumulated over the years to face them. That's what we are at least.
Very often we're thinking about the monetary system and big crises. Testable is not exactly the world we live in. It's more about trying to ex ante, or ahead of time, thinking about what the risks are. And hopefully, when the shocks come around, we will have at least a baggage of knowledge that we've accumulated over the years to face them.
Beckworth: Okay, Matteo, this has been a fascinating conversation. We're nearing the end of the show. And I have to ask you this question that haunts me, I think about it all the time, I've asked other guests and you're the perfect person to do this since you're a theorist, international money guy, you think about these issues long and hard. But if we could re-run Earth's history, say a million times, with slight little perturbations here and there, would we end up with a single kind of dominant reserve currency, like the dollar or the pound, previously? Do we have any sense of where this experiment would take us?
Maggiori: It's a great question. I think the answer is probably no. In the sense that I don't think our models are really giving us a strong sense of whether we should have one country, two countries, three countries. I think there are reasons to believe that we're not going to have a situation with 10 to 15 countries providing safe assets. There's enough forces that sort of are self-reinforcing to select a few players. But whether that it's one versus two or three, I don't think I have a strong view on which way we're going to end up and we've seen the UK and the US dominate, we've seen a period with both the US and the UK being part of the system. I don't think we have a strong reason to discriminate between one versus two or three. I think the self-reinforcing forces are probably big enough that we're not going to get 10 or 15. That's probably what I feel most comfortable.
Beckworth: Okay, with that our time is up. Our guest today has been Matteo Maggiori. Matteo, thank you so much for coming on the show.
Maggiori: Fantastic. Thank you for having me, David. It was a pleasure.
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