Expanding Access to the American Dream with Michael Milken of the Milken Institute

Jeremy - 00:00:00: Money is changing, it's evolving, it's innovating, it's getting faster, safer, more open.

Michael - 00:00:15:

Many people running large companies in the world know their company would be far better off. If currency was digital and transfer was digital. Good morning, everyone, and welcome to an episode of The Money Movement, a very special edition here with Michael Milken at the Milken Global Conference. And this is astounding, global leaders, financial industry leaders, entrepreneurs, change-makers, every sector of civil society, it's an extraordinary event and platform, and so thrilled to be able to have this conversation with you and explore some of the underlying themes that have been driving what you've been building and also connecting those into the world of what Circle has been building. So incredibly grateful to be able to have this conversation with you.

Jeremy - 00:01:22:

Myself also, Jeremy, and there are people from maybe 60 countries here. One of the things we've seen, the countries that are going to have the largest populations in the world, many of their issues are convertibility of their currency. And other things like that. And so the potential you bring to the world will spur. Many years ago, I did a program with one of the leading entrepreneurs in Africa. And we talked about entrepreneurship, and there were 4 million views in Nigeria. So he told me there's a lot more entrepreneurs in Nigeria. Than there are in the United States. I don't know if I agree with them, but let's just say maybe someday. But it was amazing, their interest. And as you travel around the world, All the questions often are the convertibility of their currency and the access to capital as the challenges for the growth of their businesses.

Michael - 00:02:29:

Yeah, I mean, and I think that's a major theme, kind of that financial inclusion, access to capital, developing entrepreneurship, and as we think about this whole technology space, this idea that we're building an internet financial system in the same way that we've all become accustomed to an Internet communication system and an Internet media system and an Internet commerce system and education and you name it. But we haven't yet seen the Internet financial system. And, and so this this opportunity to bring the same kind of open markets, the long tail of access, both at the individual level but at the creator level into participating in value exchange on a very different scale velocity globally is sort of, you know, and a big picture of what sort of animates what we're doing and I think, you know, really connects fairly deeply to many of the pillars that you have in your new center as well. And pillars around access to capital, pillars around reducing friction, breaking through barriers, you know. And, you know, we've sort of seen the internet be able to do this in a lot of different parts of society. And we're now just seeing that this world of open money on the internet making that possible, you know, further as well.

Jeremy - 00:04:04:

I don't think people realize, Jeremy, sometimes the barriers to not only access to capital, but convertibility. And in many rural areas of the world. If you talk to a Coke employee or a Pepsi employee, They will tell you when they're out there, for safety purposes, they don't really want to carry any money. And so they would prefer it being digital as they're going from village to village or town to town. They don't want to be perceived that they are carrying a lockbox or they're carrying money with them. Many parts of the world, 10 to 15 percent. Of the money disappears because it's physical. And so, you know, one of the most interesting stories is we had a couple people from the Milken Institute in Kenya. When they started paying themselves, they paid people digitally on their phones. And the first thing they thought is they got a 20% raise. And why did they think they had a 20% raise? Because all of the middlemen had been eliminated. There was no raise, but you went directly to the individual who had provided the services. And so I don't think, you know, the general people in finance, many people running large companies in the world know their company would be far better off if currency was digital and transfer was digital. And obviously, you've provided a backup versus the dollar. So effectively, they're being converted into a reserve currency. And until you've been on a truck delivering Pepsi or Coke or other types of things someplace in the world, and that driver now has to move, give change, give currency, you don't really realize those challenges from that standpoint.

Michael - 00:06:09:

Yeah, it makes sense. I mean, I think this sort of economic security, economic freedom. The reality that everyone in some ways is a participant in a global digital economy and have opportunities as… whether in the direct labor they're performing or in the intellectual property they're involved with and so on. I think this— this kind of transition, you know, we've started with some things like, partnerships with leading humanitarian aid organizations, the United Nations. To deliver, instead of literally airdropping cash, it's delivering USDC in a corruption-resistant, real-time way to the people who need it, where they can then transact. And you take out the corruption middlemen, and you make that safer for them so they're not themselves targets. If you're a refugee and you're holding a bunch of cash, you are a target. So there's sort of the economic security in the purest of sense. And I think it's been fascinating to watch. This adoption of stablecoins around the world and that convertibility issue that you talk about. I think people want to hold things like digital dollars that they're not taking bank credit risk. They're just holding a kind of fully reserved digital dollar. And I think there's a way in which just like with, you know, when WhatsApp took off, you know, people, you know, might have started with using it to communicate in their local with their friends. But then the fact that you could then communicate to anyone with a mobile cheaply, easily became just explosive. Right? And so this sort of transition into, you know, blockchain based digital currency money, it feels like we're really getting close to a kind of a level of reach and access that. That could achieve those kinds of scale and have that kind of impact in terms of economic security for more and more people.

Jeremy - 00:08:28:

Well, let's maybe think of some analogies. So when you spoke about... The Center for Advancing the American Dream in Washington, D.C., and its four pillars. Your mobile device. Someday will be your teacher, your educator. And so that pillar, that idea of education, continuing education and knowledge, will be given to you via your device. And if you have what we think of, let's say, as a television set or a monitor today, What I envision is you just put your mobile device in a docking station and up it comes on your monitor. If you're talking about health in the world today, There are countries where there are 50,000 people per doctor, 100,000 people per doctor. We had a session here a few years ago at the Global Conference, 125,000 people in Uganda for every doctor. So you're not going to be able to provide health care. And much of that is going to be coming over your phone. And the day that we can put a drop of blood into that phone, it's digitized and it's sent. The people that are reading, and we've already had examples now of surgery. Where the surgery was being advised by a person not in the room, someplace else. So the health care, medical research, and education pillars. The third pillar of finance that we've been talking about. What we see there... Is financial literacy is the key. So if I want to learn something, knowledge, how to build an economy, how to create a stock market, what are these type of financial instruments? Once again, your phone has that potential to level the playing field. And then the other area, the fourth, the entrepreneur that we've really focused on, the potential for access to capital and friction. When I first went to the financial industry and to Wall Street. If I wanted to talk to India, It costs $12 a minute. So you can imagine now In the 1960s, when you might get paid... A hundred dollars, or if I gave you an annual pay, you might get being paid a few hundred dollars a month.

Michael - 00:10:59:

Right.

Jeremy - 00:11:00:

You're not making a lot of phone calls at $12 a minute, okay? Today, as you mentioned with WhatsApp, it's free. For all these years, the remittances, when you were here in the United States, from the Philippines and sent it home here from Mexico, send it home. And these remnants make up a large part. For many countries of their citizens that are working in other countries. There used to be a 10%, 15%, 20% charge. How do we get it from point A to point B? And the promise that you offer someday is that charge goes to zero.

Michael - 00:11:39:

Yeah.

Jeremy - 00:11:41:

And so eliminating the middlemen. We did a study at the institute. For the Gates Foundation a number of years ago. And the cost of food. You grew it in Iowa. You transported it. You dropped it in a capital. In Africa and the cost of food doubled between dropping it and getting to the village. Why? There were a lot of middlemen, okay? A young man with a machine gun became a toll road, letting you know whatever you have in the truck, a part belongs to him. And so when I look, It's so much easier to adopt new technologies. In new areas that are not ingrained, where they have a bank or something historically. And so some of the most exciting experiments of drone delivery in the world are now in East Africa. If I want to get medical supplies or food supplies or other supplies, I don't have to deal with roadblocks or toll roads. I just put them on a drone. I put them in the air. And unfortunately, until they get surface-to-air missiles, you're not going to be able to stop that delivery. So I just think it's amazing that this is the last bastion. When you think of what's occurred, and when I went to Wall Street, just tell you how old I am, Jeremy. They used to have fixed commissions. So the highest paid person in a financial firm was the salesperson. And if you wanted to buy stock, you had to pay 1%. So if you wanted to buy a million dollars worth of stock, you paid a 10,000 commission. Depending on the price, we've got that down. To a dollar, three dollars, four dollars, and the highest paid people in the financial industry are no longer the salespeople. And so you have reduced the friction in the system. And I want to give you one other example. We've launched charities. And how do you get a person that wants to make a small contribution to you to accept that contribution? So we calculated in the 1978-79 period. That it cost us $16 to process a contribution. So if you got a check for $10, you were losing money. We then went digital, and you might remember, at checkout stands and supermarkets, they asked you, do you want to round up? And at Safeway stores in America and their various related entities, we raised a quarter of a billion dollars. For four medical charities. Average donation, $2. So it was all digital. And what we're seeing in crowdsourcing, et cetera, small amounts of money with no friction costs can build up. And you would have thought that this would have been one of the first. When you see those images of people from the United States. In Afghanistan, Iraq, other places, with pallets of $100 bills. You just wonder how much of that money actually made it to who you want it to make it to.

Michael - 00:15:02:

It's a huge issue, right? This sort of middlemen, not just corruption, but just structurally that we have. We have, and actually, by the way, one of the themes that you brought out really ties to a big theme that we're talking about, which is... The open internet has given us ubiquitous knowledge, open free communications. It's given us access to all these services, whether they're delivery services or travel or all these things in these powerful ways. But what's the one thing? That the open internet hasn't yet really changed, is money. We've had Little dribs and drabs, but not that internet scale, global scale. So that is certainly what we're trying to answer. But getting into a lot of what you just touched on, I think when you think about the scale of what that could look like, right? Today, there's the old forms of digital money, right? Which is sort of bank digital money, the kind of style that's there. There's 21 trillion U.S. Dollars in that form of electronic money. Globally, there's about $100 trillion equivalent forms of kind of bank electronic money. And a meaningful component of that will become digital currency. And we'll tie to the other side of it, which is you've got the actual... Value, the asset that's stored, and then the utility. What do you do with it? And so when you build the stack, you've got everything from consumer and merchant payments, cross-border and international payments and remittances, every transaction that supports every capital market in every part of the world. You have business-to-business transactions that happen. So you add those up, and that's the utility side of it. And the utility side of it is trillions of dollars of value as well. And in a world where the unit economics go kind of upside down, where the cost to actually store, move, transact value with counterparties, whoever they are, wherever they are in the world, kind of approaches zero, it creates tremendous opportunities to provide that greater access and that sources of economic freedom and mobility and reduction of just like the telephone call costs went there. And so on, kind of down the line.

Jeremy - 00:17:41:

It was interesting when you say that, Jeremy. So 1975. Telecommunication costs were a significant part of our revenue and our expense. So we had to monitor this and... And interacting with potential clients all over the world became an important issue. What did it cost to interact with them? So one day I was talking to Ken Griffin at Citadel. And I asked him, you know, Ken, what percent? Of your business is telecommunication costs. You're doing these millions of transactions. And he told me, you know, he doesn't even look at it. It's so small. So it just gave me a feeling what was a significant part of our costs is an insignificant cost from that standpoint. And I think there's so many analogies. I'd say the other industry. Is healthcare.

Michael - 00:18:42:

Yeah.Jeremy - 00:18:43:And the other day, Bob Bradway, the CEO of Amgen, we were talking. And there is an estimate that there is more money spent in the United States. On transferring, faxing, still more than half the transactions are faxes. Then there is pain for pharmaceuticals. They estimated $800 billion a year. It has a span on administration, paperwork, everything else. So after you create a digital currency for the world, Jeremy, I'd like you to go to work on the health care.Michael - 00:19:22:All right. I'll get on that. It does bring up another example, which is, I think, really interesting and powerful, which is within that, you know, the utility side of money and, you know, we use these communications industry examples, legacy utilities. And then when it becomes an internet scale utility, it kind of goes to 10x better, 100x better and faster and basically free, right? One of the areas that has really resisted that, which actually, you know, introduces like a trillion dollar tax on the real economy globally is... The fees that businesses have to pay just to accept a payment from a person. And the varies around the world, but you're talking about 1%, 2%, 3%, 4%. I think PayPal raised their fees recently to 5%. You're talking about huge fees. If you're a small seller who's trying to make a product and sell it on a marketplace like Amazon or Alibaba, or you're a giant company, Verizon, whoever you are, that is handling all these things, it adds up to hundreds of millions of dollars, several hundred millions of dollars for these big players. That margin is razor thin. And so this is a place where I think we could see some pretty dramatic change and put real value back in the real economy. And this is kind of invisible to consumers because they're just paying and these embedded kind of taxes are there. They don't know. It's just sort of grossed up into what they pay. Last week, was it the week before, this evergreen content. So it was a recent thing. You know, Stripe, which is, I think, you know, one of the most successful fintechs in the world. They have three million businesses that use their software to accept. Digital payments online, in a mobile app, on a website. But overwhelmingly, that's credit cards and that's card payments. So the founder, co-founder John, announced last week at their big event that they're introducing USDC. Payment acceptance right alongside cards. And, you know, he gave a nice speech and all this, but the bottom line is the bottom line, which is you can receive the funds as a business at the speed of the internet. And at a tiny fraction of the cost. There's been a lot of, you know, what's crypto good for? You know, and I think a lot of people have finally realized, like, stable coins are the killer app. And that's going to be take over the world and be a big thing. But it's getting into. When we talk about real utility, what that really is about is like, how do we actually deliver economic value to the people who need it? Whether it's businesses or individuals or refugees or people who need to move funds to family members and others. And we're really starting to see good progress towards those things.

Jeremy - 00:22:41:

So when I look at – let's just look at the demographics of the United States. So if you go back to 1960, 75% of everyone not born in the United States was born in Europe. 10% in North America. That was 85%. Today, there are more people born in the United States, that were born in sub-Saharan Africa. Than were born in Europe. In the United States today. There are almost as many people who were born in the Middle East in the United States today as in Europe. So these dramatic changes. And when you look. At some of the shortages in the United States in health care, for example. COVID reduced the mobility. And so it is estimated today that there's a shortage of 400,000 nurses in America. And so many of the leading medical institutions in America Mayo Clinic, Cleveland Clinic. Providence Health & Services lost more than three quarters of a billion dollars to more than a billion dollars because they have their payment for temporary health care. And one of the largest groups has come from the Philippines that's providing health care. As you look at this century in the United States, the number one country with immigrants coming in the U.S. Was Mexico. Number two, China. Number three, India. And number four, Philippines. Number five, Dominican Republic. But as you're looking at Sub-Saharan Africa, South Asia, et cetera. Yeah. There are enormous remittance going back to these countries from that standpoint. And likewise, if I'm running a small store, if I could not have to pay 3% for a transaction charge, it would significantly increase my profitability. And so I think this option, I think one of the keys is how do you get people to adopt a new technology?

Michael - 00:24:54:

Yeah.

Jeremy - 00:24:56:

So let's look at health care. For a moment as an analogy. One of the challenges you have with doctors around the world who want to provide, or nurses, the most knowledge and care for their patients is do they even know what the latest technology is? If I gave you an example in China. 30, 40 years ago, if you went to medical school in China, you didn't even study diabetes. The number of people who had diabetes in China was so low. That it was not something you study. Today, the country with the most people with diabetes in the world is China. But all those doctors and all those health care providers that went through their medical school. Don't really have much knowledge in this area, and it's now estimated that China has the highest percentage of people with diabetes that are not treated. So how do you get that information? The growth of checkpoint inhibitors and... Immune therapy in the U.S. Is revolutionizing cancer care, but does your doctor? Have full knowledge of that issue as to what's going on. So how do you get that information? To that medical professional who went to school 20 years ago or 30 years ago so that they are current today. And the same thing in finance. When I have a four-year-old granddaughter jump in the car, the first thing she wants to do is grab your mobile phone. They're all over it. I now have a green screen. It used to be white. I don't know what happened to it, et cetera. She's downloaded apps onto my phone. So this next generation is so comfortable. But one of the challenges in medical that I think is it's safe. Is this information being transmitted safe? Is it accurate? If my financial net worth in my business is being operated on a web or digitally. If I have a large percentage of my assets, with you? Is it safe? How do you answer that question today?

Michael - 00:27:20:

Yeah. So I think about that. It's a great question. And I think the bigger question of how do you make this user experience of this digital currency money accessible, trustworthy, and safe, that's just something we think about all the time. And so the sort of starting point on that for us is, with USDC specifically, we'll take that as a core example. We have set out to build one of the safest dollar instruments in the world. And also one of the most transparent dollar assets in the world. And we do that in two ways. So when you put dollars in a bank, they take that money and then they lend it. They lend it out like 10 times or 12 times. So they fractionally reserve it and they take all these risks. And so we're constantly having these issues of bank failures. Everywhere in the world.

Jeremy - 00:28:26:

Jeremy, didn't you have that challenge yourself?

Michael - 00:28:28:

Well, we did, but here's the challenge. The regulations, so our whole effort has been to move as much of the reserves. To be in. Government obligation money. So today, in nearly 90% is in government obligation money managed by BlackRock and custodied with Bank of New York Mellon. And transparent to the day, you can see every single one of those government obligation instruments.Jeremy - 00:29:02:And have you been able to force down any management fees on that money?

Michael - 00:29:09:

We have an excellent partnership with BlackRock. But what I would say, and they're a tremendous strategic partner for us as well, is, you're having an instrument where you don't have bank credit risk, where you're able to make it as close to government obligation money as possible. And there's Stablecoin regulations now in some places where they're saying, actually, we want this to just be backed by entries at the central bank. So you want the base layer of money on the internet that's moving around at the speed of data. You want everyone who has one of those to know this doesn't hold embedded bank IOU risk. It's just this almost like government obligation money expressed and intermediated through private sector innovation on these technologies and so on. So one is just this base layer, making it as safe as possible. The other is transparency. And so that means the transparency of you could see every single transaction, you could see everything that's available in real time 24-7, 365 on a public blockchain. It's transparency in terms of the Circle Reserve Fund, being able to see through an SEC supervised and registered structure. Every single instrument that's there. It's transparent in the fact that regulators have us hire and work with a big four accounting firm to twice a month look and see, are the assets matching the digital currency units in circulation and then the annual pressure. We actually think we're one of the most transparent financial institutions in history because of that. That's one way of building trust. I think the other is a more... Right now maybe sounds more abstract, but I think it's really important to understand, which is... One of the things that I think ultimately made people feel safe with digital content and digital communications. Which when they felt like they had more direct control. And the cloud played a big part of that, where I kind of knew it was all there. If my device blew up, I could always get to it. And if I lost something, I could get back on my WhatsApp or these sort of big utilities that are there. Now, with digital currency and with the internet financial system, I think part of the philosophy is to move away from these giant centralized internet platform companies. Not be dependent on a Google or a Meta or an Apple or these very large centralized platforms that are now under various forms of antitrust investigations.

Jeremy - 00:32:08:

Well, they also have transaction costs, right?

Michael - 00:32:11:

They do.

Jeremy - 00:32:12:

To be on those platforms. So what I see a couple things here. One. The challenge in many ways is the government leaders. What is their knowledge? We did a survey a number of years ago, and what is the difference between an income statement and a cash flow statement? And we embedded it in a series of questions. For people in government. Okay. And I would say if a third could tell you the difference between a cash flow and an income statement, it would have been high. Okay. So to me, part of this is an education, financial literacy issue. And understanding that you're carrying $1,000. On you in cash, you're going to a concert, you're doing this, you're doing that, and you think it's safe? You know, as opposed to you have your digital that you can access. And so, to me, many things. Require some sense of education. Over the last 60 years, what have I learned? I've learned that when people just know. It's hard to change their mind. But if you ask a series of questions of them, And I, for many years, have distributed this book, Factfulness. And it was a friend of mine, and he passed away about two months prior to the publishing of the book, and his daughter and son-in-law. But he spent his life not trying to convince people of anything. He just asked you multiple choice questions and only three choices. And you on your own, not publicly, could see, how did you do? Okay, we will prepare for the global conference 4,000 slides during this six-day period of time. But part of that effort... I've been giving these multiple choice questions for more than 50 years, is to try to let people on their own say, okay, I know this, but let's see this question. And the one... That really changed the course of history for so many people. Was we had invited him to come to a giving pledge meeting. Now, everyone at the meeting is very wealthy. Many of them have their own planes or all of them. And put forth a series of questions. One of them was, If there's 10 boys in school, I'm simplifying the question, but basically this. If there's 10 boys in school, how many girls are in school in the world today? You had three choices. There were three. There were six or there were nine. And the answers were evenly divided, about a third said three, about a third said six, and about a third said nine. And they said that because many of them had been to India or Africa or other parts of the world, and they saw that not necessarily girls didn't all go to school. And so the correct answer was nine. But their perception of what had occurred in the world was so... Off it just, they now had to reevaluate what they thought was going on in the world. And if you go to the Middle East today, there are more women in college than there are men. And so this change has been so dramatic. But if you haven't really thought about it and haven't seen it, and so it brought home. That when you're very wealthy and everything you've done, quote, has been successful, having someone tell you you don't know what you're talking about doesn't have as much effect. But self-discovery. And so I haven't figured out the answer. That's your job in Circle.com. How are we going to educate people into safety? But the lessons in this country in the last few years on Silicon Valley Bank or First Republic or other banks is your money might not be safe. You think it's in a bank, but it might not be safe. And when you need it, you might not be able to access it.

Michael - 00:36:32:

Yeah. I think it's a... One of the great promises, I think, of this new technology is ability for people to directly control and take custody of their own money and to create safeguarding methods around that where they're not vulnerable as if they were holding a pile of cash. But also to be holding a form of money that is itself not you know, backed by a lot of lending risk from companies.

Jeremy - 00:37:06:

So, Jeremy, I wanted to make two other points with us today. In our education area, You know, we launched... Led by my brother, Lowell. But we launched this effort in the late 90s of digital school. We had invested over time almost a half a billion dollars in... Digital lessons of every. Class on every subject for every day from kindergarten to 12th grade. And one of the major arguments is you don't really know what the students are doing. Now, the facts were... You know everything they're doing. Far more than the teacher in the classroom. Every lesson, what they've done, how long they've been on it, how long they've studied, what they've done, what they've did. So we have this enormous data. Today, that company has created this industry called Virtual Charter Schools. And maybe, I don't know, millions of kids have got their elementary, middle school, and high school diploma. And if you didn't have a physics teacher in your high school, you could go online and take physics. So you could go physically some classes, digitally others. But what I think people don't fully realize that you know more. Governments that are concerned, you know more about the movement of money. I was an investor in a company called Ant Financial that at one time went public, then it went unpublic. Yeah. And I thought, boy, this is going to be the most valuable financial institution in the world. They know everything about 600 to 700 million people. They have that knowledge. They know what they buy, when they buy. What a great company to decide. Who could loan money? And so to me, I think one of the challenges with our regulatory environment is getting them to understand you might have more. They're worried about the movement. Of money to people they prefer not to get access to money. They'd like to control. Secretary Mnuchin, when he was secretary, felt that if you have regulations on moving ten thousand dollars, then you should have regulations digitally on moving ten thousand dollars. But I feel part of the barrier here, so my first point is... How are we going to let the regulators and the government officials be comfortable in maybe some multiple-choice questions and letting them study? And the other thing I want to mention, many years ago in... One of our philanthropic efforts in an inner city here in Los, in the United States, in Harlem. They had many challenges. And so no one was listening. In the mid and late 80s, to what the issues were of the leaders in Harlem. So I told him that I thought if he went to Warsaw, and told people about the plight of his community and what he was dealing with, et cetera, that the world would pick up the news. And at the very end, he would tell them it's Harlem, New York. He wouldn't tell them it's Harlem, New York at the beginning. He'd just tell them his plight. And I often think if you could find one country in the world. That would fully adopt it first. And then we could look at it as a, you know, of what could be done. And it's a lot easier in many ways to adopt it in a country. That is an emerging country and wants access to Kaspersky and wants convertible security and currency, than maybe in some of the major economies of the world. When they see that it works, and this is what the people in drone delivery are doing today. They're going to go to Kenya. They're going to go to East Africa and test it out. And then maybe Walmart and others in the United States will copy that strategy.

Michael - 00:41:18:

I couldn't agree more. I mean, I think that the... The transformations in access and inclusion and the changes in the internet financial system, they are going to come from emerging and developing markets. And that is where we're going to see the most innovation, the most adoption. And we're already seeing that. 70% of what we do is already driven by these kinds of markets around the world. So it's already happening. And so a huge opportunity to educate globally on the basis of that. This has been a wonderful conversation, Michael.

Jeremy - 00:42:00:

But Jeremy, I don't think the people in the world understand what it will mean if you can reduce transaction costs. Yeah. And create access to capital. It was a journey I headed out on in 1965. And one thing I can promise you is if you... My nine-year-old granddaughter. And myself, and you handed us a cell phone. She'd figure out a lot faster than I could. My guess is I use about 3% of the power of what I could use on my cell phone.Michael - 00:42:32:We've got to get her trading and investing on DeFi.Jeremy - 00:42:36:Thank you, Jeremy.Michael - 00:42:38:Thank you.Jeremy - 00:42:38:And I wish you the best.Michael - 00:42:39:Thank you so much.