Katrin Tinn is an Assistant Professor in the Finance Area at the Desautels Faculty of Management.
Tell me a little bit about something that you are currently researching and what your most significant finding has been so far…
Recently, I have been working on the central bank’s digital currency design and all the privacy issues and distortions that come with that. This was a project in collaboration with a colleague from McGill’s Faculty of Engineering, Christophe Dubach. Earlier on last year I looked at topics related to stock trading and COVID impact along with other issues around stable coins and new contracts for financing entrepreneurship and innovative firms.
Speaking of digital currencies, can you speak to what something like this would look like within the context of the central bank of Canada?
Earlier this year, the Bank of Canada solicited ideas from North American universities and selected three universities, including our team McGill, to come up with some suggestions. What is specific about our proposal is that central banks in countries like Canada would not want digital currencies that are simple but kind of intrusive, with records of everybody’s transactions—a big concern for privacy. So, they would like it to be more cash-like. There is on one hand a demand for more privacy, but on the other hand there is worry that if this digital currency is too private, it could become a vehicle for money laundering and tax avoidance. So how much do we compromise to still have monitoring? In our proposal, what is absolutely essential is privacy asymmetry. So, in collaboration with my fellow researcher in computer science, we are proposing a way that this can be achieved. Let’s take an example of extreme cash payments, the firm needs to verify and keep track of money received and declare it. It is very costly auditing, when the bank lends money to the firm and it is more costly to check that the firm is disclosing this accurately. That is one advantage of having digital records, verifiable records, so we can do a lot better with contracts.
How different is this proposed digital currency from Bitcoin and other cryptocurrencies that are already on the market?
It’s very different for many reasons. The first thing is just the regulatory aspects. If the central bank were to issue a digital currency, that means that we don’t have uncertainty about whether or not someone will accept it or not. Bitcoin has value, but if suddenly for any reason nobody wants to buy it anymore then suddenly there is nothing that it can be used for. Central bank digital currency is guaranteeing convertibility against Canadian dollars. You always know that if you have this currency, it can be exchanged for paper money or money in your bank account. This is one thing that makes it likely more practical to be used for small transactions.
The second thing is more technological, because Bitcoin is symmetric and there is an average level of privacy. People think it is private but it’s more accurately pseudonymous. Unless you make big efforts to muddle the trace, it can still be traced to the original holder’s account. It’s relatively private, but not as private as our [proposed] system would make the money spent.
You mentioned that you’ve published a paper about how COVID-19 has changed how people trade stock, can you speak a little bit about your findings from this paper? Should we all start trading cryptocurrencies and stocks?
It’s extremely important to diversify and often there will be stories about how someone got really rich with Bitcoin or one individual stock, but for every story like that there is also a story of someone who used all the money they could borrow, invested in one asset and lost everything. Participating in the stock market is good, but one needs to have good private information about specific investments, especially information to by portfolios in different stocks.
What is especially interesting is that FinTech platforms, like WealthSimple, have attracted new participants, especially young people, to the stock market. This is something where the answer before we started the project would not be obvious at all because there are at least two things that would be making us expect that there would be less participation in the stock market. Normally, it is people who are wealthier; they have lower risk aversion and thus, more likely to participate. With COVID, there were negative wealth shocks as well as more uncertainty. So you think, more uncertainty, less wealth for people, that would drive people to participate less but this trend is actually going in the other direction. Two things can describe the increase in participation, one is kind of a behavioural story and the second is having more time to think about these things, as well as a reduction of cost of participation because of the easy-to-use platforms.
I know that you have not yet had the opportunity to teach MMF students specifically, but can you speak to your teaching style more generally and some of your methods?
Yes, I currently teach mostly FinTech courses to the BCom and MBA students. What I generally like to do, especially with a topic like that, is to combine two types of theoretical approaches. One, the classical tools where I focus on highlighting which tools are the most important from economics, from strategy, from corporate finance, but also bringing in new research happening in FinTech when interpreting things. Then, this is maybe 30%, compared to the rest of the focus being on case analysis which I think is nice because it gives hands-on experience and lets the students see how classical and new theoretical ideas can help interpret existing thoughts--I try to focus on case studies that are reasonably new given also the nature of the topic. This is a general approach, and it is extremely important to me that the students do not leave the class feeling that they have some theoretical knowledge that they need to just remember for the exam and then forget it, but will increasingly see later on when they work on analysing the firm—maybe they work for a financial institution, maybe they start a firm, anything is possible—then they will notice “Oh I see a similar thing here that I remember analysing in the class,” and use the material for that.
How do you integrate your own research into your course curriculum?
In my course, covering things like mobile payments, platform-based forms of crowdfunding, blockchain and smart contracts, as well as machine learning—I have research covering some of these topics, in which case I would, among the theory we are discussing, also discuss the effects from my own research papers. Generally, when I am talking about new research papers, I am wanting to give the illustration to the student of the main mechanism rather than replicating, so it’s more about understanding the key messages from these papers.
Finally, outside of teaching and research, what is something that you’re passionate about?
It’s funny that you ask, because actually in addition to economics and finance degrees I studied art at the university level. Now I have more recently started as a hobby to paint more often and we have formed a little audiovisual duo, my husband and I. He’s in modular music, so what we are doing is simultaneously modular music as well as live painting or digital drawing that is projected alongside. There have been some concerts, online usually, but we also do them live. I also like some sports; I am a big fan of tennis!
