CBDC Panel

Transcript

[Applause] [Music] it has been fantastic to be here in crypto valley one extraordinary event and i know this is nearly culminated here but uh although i know there's been some extraordinary talks given i'm hopeful this is the best panel of the day we shall see so joining me today to talk about central bank digital currencies are some of the leading experts in the world and they're all assembled right here on this stage so thomas moser from the swiss national bank is here to chat with us some of you have seen him speak before but we're going to be hearing a lot of new information um actually thomas why don't you go and

give yourself uh an introduction okay thank you very much david so thomas moses i'm an alternate member of the governing board of the swiss national bank which is the central bank of switzerland the issuer of the swiss franc and i think i'll leave it at that i like that that's a useful it's a useful thing this was frank and uh you also of course have been in addition to your your formal title you've been deeply involved um with some of the more innovative uses of technology at this national bank isn't that correct no that's right i mean i got involved for private uh interest so in 2013 i guess i got involved that was before most central bankers really paid attention to uh cryptocurrencies or bitcoin or anything like that

and actually then events just especially i guess dm or libra was a wake-up call and since then now central banks are really interested in the topic and i have actually been here on a panel when it was announced and i had been asked what do you think about libra and back then i said you know i think it's interesting competition is good it made headlines and the communication departments instead tells me don't make headlines when you go to this event so not trying to make any headlines we will do our very best to make sure you make no headlines here today and uh yeah dm talk he's coming out with punches uh in question one excellent okay matthew would you like to introduce yourself thanks very much david hi everyone matthew alexander i'm working for

cyberbank um we're based here in the crypto valley as well uh in zuk and i'm looking after digital corporate finance asset tokenization and that involves also working in these experiments and so what is ceba bank i think it's going to be helpful for bank it's a digital assets banking platform we're regulated by the finma um so one of one of the few um that provide institutional trading investment uh and banking solutions uh to crypto and and digital assets excellent and katarina tell us about yourself yeah hello everyone yes i'm excited anthony um representing guys boulevard partner today um starting december i will have my company for investor where i will focus on startup and compliance so this is what i do regulatory compliance for

crypto companies and helping them to feel comfortable in the regulatory environment of switzerland and also i'm board member of crypto valley association excellent alexander so i'm alex i work for city ventures i'm running their blockchain and digital asset practice it's a new team established in zurich and zuk currently hiring a blockchain architect if someone is interested and the job the job of this team is to engage with the ecosystem uh make sure that we understand what's happening and also what will be the role of banks like citibank in the future uh in a world that is more and more decentralized excellent and for those of you who don't

know me i'm david waxman and i'm the founder and ceo of a company also called waxman which is the largest communications strategy firm in blockchain we've had 110 employees around the world so we've more importantly been supporting the cva even before it existed and i've been really proud to be here through so much and today again we're seeing the cva is the best is yet to come so let's get right into it first i'm going to ask a basic question and i know it's one that's been answered before but again for the purpose of this discussion we need to go and get some context what is a central bank digital currency we don't need a complicated answer but thomas can you give us a very simple answer of what it is i think the most important thing is it's a it's a liability of the

central bank i would say that's that's the main definition and obviously it must be in some digital form but i would i would say that's it a liability okay so similar to for instance a liability like a bank note would be a liability is that correct exactly okay so that's a that's a pretty simple definition and it's one that would be issued by the central bank by the central bank yes okay so that's like what the imf calls a synthetic cbdc which is actually issued by a private entity but it's it has as a collateral or underlying asset a central bank account i would not call that a cbdc because that's not a liability of the central bank it's a

liability of the issuing entity right which might be a commercial bank for instance exactly okay and we'll certainly be speaking about how commercial banks are are making use potentially of cbdc's but let's i guess dig in just a little bit further which is to say does a cbdc necessarily need to live or operate on a blockchain actually that's a topic i'm very interested in because i have together with uh david chalm and christian god have made a proposal for a cbdc not on a blockchain so usually what i'm saying is that you know a blockchain most likely needs a cbdc but the cbdc does not necessarily need a blockchain oh man okay well

there's going to be a lot of people who are surprised at that answer as it turns out i mean the issue is of course uh you know on the blockchain if you like sdx or if you if you try to sell stuff for the blockchain you need some kind of a money you need some type of money to pay on a blockchain and there you can use a stablecoin or you can use a cbdc but at the same time you know when we look at the projects that several central banks have with cbdc's retail cbdc's you know it turns out that it's quite a challenge to have to run retail cbdc with all the efficiency that you need on a blockchain i mean we talk about if just thinking

about switzerland which is a small country to have you know eight eight million notes on a blockchain and do like thirty thousand forty thousand transactions maybe a second that's that's a huge challenge that was one of the reasons why we said no let's let's do it without the blockchain if you look at some of the projects now like the the bank of the swedish central bank what they basically do is they just use the blockchain or the dlt uh just for the settlement among the financial institutions so they kind of so they group transactions almost uh at one and then they ever now and then settle to uh more or less have a proof point that sits kind of like a lightning network okay

excellent well we're already starting to get into uh some of the more technical stuff but let's let's get again more context this is a long panel and we're going to dive deep but where are we right now so alex you've been a student of this you're forced to be in part because city is everywhere but what is happening around the world can you give us a bit of a status update in cbdc developments highlights at least i would start by saying that there's a lot happening and and i'm not going to be able to mention all that is happening but i think um for first at international level you have a lot of international organization or entities that are working on this topic like the bis for example which has quite a few uh innovation perhaps one in hong kong when in singapore and others who

are uh we have dedicated team working on that so there are for example two pro project worth mentioning it's uh one is called dunbar who will start very soon who associates four central banks australia malaysia singapore and south africa to experiment a four currencies being on the same blockchain for cbdc cross-border movements and domestic movements there is also the embridge which is similar concept with four other central banks china hong kong uae and thailand and just to give you an idea of how important it has become to central banks

the chinese central bank has put 400 staff to work on that experimentation and development so it just demonstrated that for sure their cbdc is there to stay it's not really a question of of if it's more when and then you have each of course national banks who are uh doing their their own experimentation we discussed that already this morning but the bank de france has announced some conclusions around bonds issuance against uh cd cbdc's settlement with euroclear and other partners you also have a first cbdc retail cbdc that will go live in nigeria by the end of the year called e-naira they're using

a hyperledger fabric techno blockchain to do that they are others that also pushing competition or at least creating challenges to get the best ideas in the cbdc world that's the mas in singapore has launched a global cbdc challenge and i'm proud to say that city has been selected as one of the 15 finalists on that for the uh regulated liability network concept that we've been uh uh put into place and i'd like to share a bit more about that later so as you can see quite a lot of things also i will finish by some interesting publications uh by the bis for example

published with uh seven central banks or an annual report on the progress around cbdc and also the seven central banks in questions also having published principles for uh cbdc uh issuance uh it's all available publicly and i really uh invite you all to to have a look at that because it's quite interesting to see uh the evolution of thinking of central banks around this so we've seen that it's happening all over the world we have it in nigeria we have it in southeast asia what i think is really interesting there is the consortia of central banks getting together and realizing that there needs to be some sort of interoperability absolutely or let's call it really clear and clean communication and transport of value between different countries because i

imagine this is quite challenging when it comes to from a compliance perspective dealing with cross-border payments i mean as it is a liability on a central bank's balance sheet i would have to ask and wonder is that something that is a concern once it's across the border and perhaps even being used perhaps even usurping the national currency of another country tell us i mean look you you work in compliance all the time do you see compliance issues um if a cbdc were to become popularized i i would say so because uh each country has a different regulation they also have different definitions and if we look at the central bank money or even private projects yes and how they will uh cooperate interact between each other we see a lot

of issues here and also definitions as well you know in different countries it's uh treated differently functionality and like thomas said we had a really wake-up call with libra where uh fema issued the guidance here in switzerland really good when we really understand what uh for private projects tablecoin for example mean and we have a really we are a bit advanced because uh just yesterday fatf issued no new update on the financial action task force uh vast guidance where they stated things which we already actually have in switzerland and i guess it was filmore who advised them to do so

and i would say from me as i'm advising businesses the question is how we can use it for businesses from you know what will be next step and why we need it and why we need blockchain um you know being from i'm originally from russia maybe and from soviet union i think would be great to have something like digital currency will cover all this uh former soviet union territory and give people possibility to trade between these countries because they really have issues with the you know currencies cross-border transactions for example maybe it will be some original meanwhile many of those countries are their largest trading partners with each other exactly because

from historical point of view and maybe we can bring this value so for me it's always a question to answer what we bring with this new developments yes it's maybe more transparency more security if we use blockchain uh we can uh tr traces better but also how we can benefit for commercial reasons well let's talk about that that's actually a very good point so what are banks doing about this that is to say are banks even necessary in a world with central bank digital currencies or in effect have we created technology that makes them redundant what do you think you're looking at gentlemen from the bank which of us look i think just by way of context we've been at seba involved in two cbd experiments so one with the bank de france which we completed over the

summer this was a wholesale cbdc experiment which we did in conjunction with bil in luxembourg terrifically interesting experience and i think speaking to a lot of the questions that people tend to raise is when is this coming what are people uh worried about in the wholesale world in the institutional banking world as well as retail what kind of struck me particularly in that experiment was the sheer level i think of conviction that this is coming and i think that is one question we always get is when will we start operating with uh digital money in a central banking context and i think as you said like before it's uh when we spoke to the bank to france there was an auditoriums because they're filled with uh you know very serious intellectual capital and for them it was not about uh

if and it was not about why it was about when and how and that's absolutely clear and it's uh to us um it was made very clear as well working across uh different experiments that the move to tokenization tokenized securities is for them a fair complete so this is coming and do you think you think that it's good i'm saying for the banks like let's say bank is a digital first you know bank and financial services platform and so do central bank digital currencies is that going to be a new commercial opportunity for banks in switzerland and beyond i think absolutely i think um i mean if you think about you know the trade being the settlement so in terms of institutional banking and we worked with for the the euro system it's all about the settlement and being more efficient more secure

but also with the transparency held back such the the banks can work in the context of a let's say semi-anonymous state so when it comes to security and using a public uh protocol if you tell the central bank you want to issue 600 billion in uh digital euro and public blockchain they have a few questions about that but in terms of the efficiency gains the speed um taking out this intermediation brings a lot of benefits i think certainly moving and facilitating to use that coin as a settlement within a securitized tokenized institutional trading platform there's a huge cost block that can come out it raises of course a lot of questions um particularly around uh how the central banks like and i'd be

interested to see how you think about this but one thing we found with the bong de france they really wanted to make sure that and what we did was to settle a security into t2s which is the european settlement which is running 600 billion of volume every day um how we settle that into t2s on the public blockchain and so for them an important aspect of course when they're interfacing with uh other institutional banks and other central banks within the euro system uh they don't want everybody to know where they're directing their flights certainly into privacy and the way these things are created is going to be very important and we should definitely talk about that but before we talk about kind of the different models or archetypes or iterations that one could have of a cbdc because of course there's been all this

experimentation i'm told that there's 110 central banks around the world which is approximately half of all central banks are already at least experimenting and some of them getting to pilot and we learned today even heading to production cbdc research but what are the actual let's break it down you mentioned some of them um you know in your and what you just mentioned in your answer there but what are some of the real advantages you said settlements so you think there's going to be much more rapid settlement uh when it comes to trading is that correct yes i mean the trade is the settlement and i think their interoperability depending on whether using you know a permissioned or a private uh protocol will have an impact but i think one of the major questions is how do you converge existing infrastructure with a public

blockchain there is a lag there but certainly you can close the gap in speed and i think particularly one aspect has been through 2008 financial crisis you know lender of last resort rapid disbursement of central bank money this can be significantly improved certainly that's that's i'm sure something that the swiss national bank and others have thought of it which is when is this going to be particularly useful i mean what would you say i mean have you even had to make an argument or is there an argument internally perhaps between maybe not detractors but people who are consciously they're they're they're public servants uh you know cynics what's the argument that's made for why cbd sees thomas yeah so i think that really differs from country to country

you know like here in switzerland we came to the conclusion that the retail cbtc is not really bringing that many advantages at this stage at least but the wholesale cbdc especially if you have this new financial market infrastructure emerging on blockchain that's when you need some some way to pay on that blockchain and i mean you can do it with stablecoin so cbdc has clearly uh more safety to it and and so in our case we said you know wholesale cbc makes sense we made these experiments too we also made with the bomb defrost actually an experiment we will issue the report uh probably towards the end of this month so in the retail space we are not active

at that stage but for other countries you know like sweden where you have the cash basically disappearing or other countries where you have a payment infrastructure that is not that up to date not that modern uh it can make sense to to switch immediately to to a blockchain this is all dlt isn't it is it that the advantages weren't sufficient to for all the costs to change management that would need to occur on the retail level is that why you made the decision to focus on wholesale so i mean there are there are clearly efficient efficiency gains to have you know but that again depends on the on the legacy infrastructure that you have uh so i think it's really difficult to to

to to make an argument for all for all countries i think it really depends on the circumstances in the country so there makes sense then to have and i think you just made a case for why there needs to be multiple different cbdc's out there um and of course the city you know you guys are all over the world and you're seeing this let's talk about nigeria you mentioned that's a retail focused cbdc so beyond talking about that specific use case can you maybe tell the the audience here what are some of the advantages that uh might exist in let's say a developing country or a rapidly growing economy that's using a retail cbdc can we talk a little bit about that sure so there's also another country in southeast asia where i used to live that has also a live

cbdc implementation which is cambodia and uh there the for similar to nigeria the objective or part of the objectives is financial inclusion in the sense of reach being able to reach the unbanked because a lot of people in those countries are still unbanked uh due to many reasons either uh they don't have well they are too small to be bankable for for banks who wants to do profits or or and other reasons and i guess it's being able to reach those type of audience that cbdc's and retail cbdc in this case can be very useful dispers dispersion of social support as well as social help for example can be another

reason so like welfare or fair payments for example in the us there was that debate about retail cbd at the time of the covet uh relief package that they wanted to distribute and at the end they ended up of course sending a check which sometimes ended in in the wrong mailbox so indeed it had donald trump's signature at least well first of all on each of this signature so there there's an obvious efficiency game that you can get by have being able to push cbdc down to wallets that are managed by customers by individuals or by banks but one i would add is programmability as well so programmable money so you could very well imagine in the future that yes i'm a government i'm giving help to uh individuals because there's a crisis but

that money is only spendable for good for food and for essential okay so let's let's pause here for a moment yeah this is a big topic yes what did he just say there he said that money that could be perhaps issued or disbursed by a central bank may only be used or can only be used technically you could program it to only be used in certain shops or to be received by certain wallets for example wallets of grocery stores and not wallets of alcohol stores for example okay so let's talk about the upside here first because i think we it's important um for us to be speaking about the downside to but the upside there can this will this reduce fraud well if it's uh control via blockchain i

guess so because you will control everything you know and uh i would say uh blockchain in these regards will be the best you can do the for controlling for the governments it's it's the best solution you can have for the financial uh regulator and uh if we we already know that uh if you do compliance if you uh you know on board the client of traditional business you will always have a lot of uh questions and you can't trace everything and you always have a lot of paperwork with uh blockchain money you can easily just look at the blockchain and you understand everything you know you don't need a lot of efforts it's much more transparent and but it's also have to be

transparent from the governments as well you know they have also to be in transparent level here so it's also about the economies about issuing new money and how manage economies it can be really next step to absolutely a new area are there other upsides to that type of let's call it really transparent the nature of the central bank digital currency potentially on the retail level are there other real advantages to that what how could this transform society that's a big question um look i think actually one one area i find a large benefit is in aml kyc tracing i spent a long time working in private banks and i think the natural reaction at the moment from a private bank or in

general is cliche crypto is is used for corrupt purposes can't be traced et cetera et cetera now if you're looking at the history of how a wealth piece of wealth is used and you monitor it so compliance monitoring within um within banks both wholesale and particularly in the private banks you need to monitor and ensure compliance with every trade and when you onboard a new client that can be an enormous prospect and we saw the the doj coming at the swiss banks very aggressively in past years so actually using the public blockchain we're using a blockchain solution um

and i'll take a little bit of license here there's only really one trade you have to have ever have to verify is done legitimately and it's the first one and once you work out the first time that that was ever converted from a fiat into a digital currency and you're sure that that has been done in a compliant way then you can trace it easily thereafter so i find that to be a remarkable traceability i mean this this could allow for to stop corruption this could uh perhaps may pose a possibility allow us to lower tax rates because you actually could collect all the taxes as opposed to only some of them is this is this a possibility i think absolutely i mean in okay uh countries who uh who have a very very

high respect for the law and you have to assume that all are going to ultimately be the same then yes that makes a lot of sense so you know the taxable the tax base becomes much bigger um and and therefore ultimately you could argue make an argument you reduce uh the tax burden but let's talk about the downside too i think it's worth noting and thomas i'm sure for instance that you have thought a lot about this um and this has weighed on your mind and and your colleagues many times is there a problem and perhaps one this is maybe why you also didn't pursue this yet on retail um is there an issue in privacy uh if every single transaction is being monitored by government and of course switzerland has a unique government set up but is this something that you've thought about before and

what were some of the of the issues i guess and risks about privacy specifically um that came to mind yeah no absolutely and the proposal i was talking about which is actually issued as a working paper at the swiss national bank website is exactly about privacy so that was one of the reasons too why we why we made that proposal together with david john who is a who is i guess one of the pioneers of digital privacy so i think this might be the pioneer of digital privacy in fact yes exactly so i mean this is really a big issue i mean you have on the one hand you have some people who say you know i rather have my data with the with the central bank then i have it with some private commercial enterprise i mean that that

might be one way to go but at the other hand if you have the the basically a possibility for a government to really have centralized all this data i think it's scary i wouldn't want to have the data i wouldn't want the central bank to have the data so but the trick really is to to get this balance right between compliance and privacy you know dude because if you have it anonymous totally anonymous doesn't work because you have to have this compliancy with aml uh kyc and so on at the same time total transparency i think is not really what we want so it's really a challenge and i think that's very exciting

research right now is going on is to get this balance right to provide some adequate privacy but at the same time make sure that it's compliant and i think that actually i think the window of opportunity that we have here to get it right is relatively short so i think it's really worth to to why is it short because i think that otherwise we will just have the regulation come down [Music] to an extent that you will have uh basically no privacy you know i think that that's right with cbdc the regulators are still trying to figure out how to regulate cbdc because cbd says there are not many around yet but i think once you have then a regulation in place it's going to be

much more difficult to change it so if we can use the some of the interesting technologies that come out of cryptography we might get it right it is very difficult but i think that's a very exciting field right now so in other countries around the world of course we're seeing this it's worth noting that in china right now there's of course a well-advanced central bank digital currency project and at least the rumor has it reportedly the mcdonald's in china are being forced to accept the digital yuan in advance of the upcoming winter olympics and of course i guess the upside might be or an upside might be wouldn't it be great if you could go and use digital money natively digital money

to make a payment as opposed to utilizing a credit card system or repay or whatever it might be of course the downside might be what if a a government central government might decide to prevent you from being able to buy food is that a real risk or am i being a conspiracy theorist i think it's conspiracy to it's theory i mean as long as soon as the money is a legal tender in a country any shop needs to be able to accept it like like money like cash money today you can't refuse cash money from someone who wants to buy a coke for example so if the chinese iran cbdc is the legal tender in china which is which is which it is obviously there is no reason why a shop should say i don't want to

risk to to accept it in my view and that would apply in any country it's not because it's china it's i think it's a normal way of having a currency being used uh in a market so there so there's not the risks you think of the spigot being shut off of perhaps something else triggering an event which shuts off your ability to spend money is that is that true i mean i kind of see some difficulties in in so far as central bank issued e-money working alongside private pools um and here of course when it speaks a little bit more to monetary and fiscal policy the sovereignty and how you influence purchasing power and inflation you know what happens when um let's say the adoption of the prevalence of the

use of a private money coin uh as opposed to the central bank sort of disconnects and that's that's a big issue i think let's talk about that then sorry let's change topics because that's a really good one which is can stable coins that are not cbdcs coexist with a central bank digital currency do they need to i think they they they will well as you rightly said this morning and uh it's already happening today with commercial bank money and central bank money they coexist and now there is even e-money which is uh a different types or a different type of money uh because the issue is different and the liability is different well the the entity having the liability is different so

uh i think they will coexist uh that's that's there is no doubt about that there will be stable coins will be uh will have to be regulated more than what it is today because today it's not regulated or very little and that's happening as well and fatf is looking at it but not most the us are going to come up this week or next week with a report on the house they plan to raise the occ says it there and the sec apparently is going to have purview over that absolutely there's been a basically agencies are competing for jurisdiction yeah so so it they will coexist but the risks are similar uh to go back on the programmability of money i think the risks are similar in privately issued stable coins and

central bank issued cbdc's over the excess of power that it gives the issuer of those coins so to go back to your chinese example yes if china uh china can for sure decide that this person is a bad person i'm withdrawing all its cbdc from its wallet overnight i'm sure that they can do that technically but stable coins issuers can do that as well i don't know if you know but if you look at the code of usd usdc you will find interesting lines of codes that enables the issuer of usdc to cancel to delete coins or to freeze coins of course they will tell you what the objective is to uh if

there is a hack we can freeze the posit the the usage of the usdc in those wallets but that gives them also the technically the ability to decide to remove all the all the supply from from the market overnight as well so so those risks exist they need to be looked at by regulators because regulators are there to protect consumers and the stability of a financial market and they need to be dealt with for sure well so that that might be a matter of controls right and i would say that corporate governance or governance in general is a real concern so i would say with the central bank digital currency it's it seems clear that the central bank itself would be governing the supply for instance right and and the manner with which the digital currency might be used with a

stable coin yes you're right it is less clear and perhaps that needs to be determined right now a lot of the stable coins seem to be either self-directed otherwise there's an effective sro that's the de facto popped up to help figure these types of things out but back to stable coins coexisting in this world with cbdc's um and i know this is hard to hard to get hard to ask about but do you think that over time cbdc's will overtake popularity stable coins because right now stable coins are huge they are the other side of the trade very often they're very often the most liquid other side of the trade for bitcoin and ether as an example certainly at seba i'm sure you've seen lots of that do you think that at some point cbdc will overtake

in terms of the amount of trading volume i mean i think eventually there's a strong chance they will because if you look at the coexistence let's say of the two once they come into the mainstream i mean us dollar tether obviously this has developed incredibly in terms of volume and usage i haven't checked recently but it must be more than 80 billion a year ago was like eight incredible usage but as far as we see with institutional clients it's used mostly by retail um and there it's all about as you said before it's a claim against the central bank a liability against the central bank for your own fiat money or future you have certainty and you have trust and that's what gives you certainty of your claim with uh let's say other uh stable coins which are independent

there is a large question mark over whether or not sooner or later that will get regulated to the extent where one for one this has to be proved to the same level of integrity of the central bank and this could go in an unpleasant direction so stable you know but i think if we look at the crypto market you know it's growing so fast and i would say the stable coin is somehow linked between uh gov you know central money and uh the crypto and in this regards i i would see think that we have a quite a possibility of that the stable coin private stable coin market will grow and also because of the regulation which if

again referred to the fatf uh yesterday paper each country has to develop the regulation which will make sure that every project which will be launched in stable coin environment is a pure very good thing over is regulated and then we will be in situations that we have more guarantees you know so even private and it's it will be not possible to have some doji projects because you really need to follow a lot of regulations uh and stable of course there's an issue with that too because uh innovation very rarely occurs with too much red tape surrounding it yeah and you know the stable coin itself is considered as vertical assets or as a

security like commodity or any type of equity but you always will have a classification so and you have to follow the regulation then because as the vertical assets you have to follow iml regulation at least as a security you have all this regulation each country and i would say one more thing which is fatf invented if you're an issuer of the stable coin you have to have a mechanism to control all the coins you issue and the distribution so that sounds a little bit like what usdc is apparently uh having inside their protocol right the off switch exactly you need to have technology then my answer will be probably it will compete

you know they'll compete yes okay it's my opinion no that's totally fair that's exactly why we're here so stable coins are going to co-exist in the world with central bank digital currencies um both of them there's tons of innovation and research happening in them uh let me ask you this all of you here seem to have been in the crypto space for some time is there room for digital assets meant for payments that are not stable coins or central bank digital currencies or do you think that in essentially the the advent and the rise of stable well-regulated stable coins and you and cbdc's are going to basically do away with payment coins from crypto is there room for a volatile

yeah i think there is it will survive maybe uh within a specific ecosystem or a specific project uh the same way that it's used today right it's used generally within uh ether is used to pay for for things on ethereum uh the same applies for other payment uh tokens and i think that will that will continue um i i don't think there will be a major impact on those in my view because there are a number of different digital currencies that are intended specifically developed to become a form of payments and some of them have perhaps uh supplies that are volatile or or in some way shape or form change depending on the usage you see really see complex governance and of course

then there's algorithmic type stable coins or collateralized you know with decentralized assets ones like maker um you know are these things dead in the water no i i don't think so i think a lot of these pools can co-exist i think the utility with them is is huge i do think and being a very strong advocate of the public blockchain myself and and sabre as well um i do think there is a coexistence for a long time um but in the end central banks and sovereignty tend to uh to call the shots so i think there's probably quite a bit of weight behind that but yeah i'm sure um that there will be a long period where the utility within these periods and and i would agree to the extent they can adopt

sufficiently rules regulations infrastructure so they can be interoperable i think this hopefully will be actually very good and fertile ground for you know many projects that are going on today and just maybe so just to add we have defy industry we have still to link the uh traditional and crypto regulated industry of defy and we need mechanisms so probably it's also will be part of how we will transfer you know to peer-to-peer market which still not regulated and i hope we will still have a possibility to have it anonymous yeah but how we can move from one market to another because as soon as you move from defy to a regulated crypto you already will be iml and compliance you know you

can't deal without compliance and regulation here so i i hope it will be mechanism which will allow us to be efficient between these two markets do you think a lot about d5 central yes actually i think that's the that's the very interesting part that's uh that's emerging and and to your question before i think algorithmic stable coins that are not asset-backed i think that's the really interesting uh area now because the other ones uh asked back staple coins especially off-chain asset back that's just reinventing banking in a new in a new environment yeah but but this is really an attempt to reinvent central banking so that's why i got interested in it

i said this morning what i would like to see is a stable in an algorithmic stable coin that tries not to pack to a fiat currency but basically to stabilize to pack to the consumer price index to really really do something different and not have the same inflationary risk i think it's sometimes interesting because people tell me i don't trust central banks that's a great idea a consumer price index uh peg stablecoin that's very cool no because any vcs want to invest in this no yes okay because people tell me i don't trust the banks you know you will inflate the money uh at the same time they have tether so you know it makes sense to trust the federal reserve system but i mean that's what you

basically do you you trust the monetary policy of the federal reserve so that's not not entirely consistent so it would be interesting to see something something different what what do you think about stable coins backed by something that's not fiat at all like for instance ones that are either pegged to uh perhaps algorithmically or otherwise collateralized by gold or precious metals um we've certainly seen the rise of some of those before there's actually a number of different players in the space do we see that these are compatible with the virtues from a compliance perspective do you see any issue there um yeah we you know with for compliance it's always uh the same you know if there is a regulation there is a

compliance if there is automatization we have uh simplification of everything and uh we don't need any more human being we just need smart contracts and algorithms to follow and i i think at the end of the day uh it will be much more transparent and easier uh from compliance point of view well we've certainly seen in the past that there are some national currencies that used to be at the very least us dollar being one of those to some extent backed by gold reserves as an example so i don't know from a commercial perspective is there upside is there even demand for these types of things um actually there we had quite a few use cases for those types of stable coins that are backed by commodities in particular in gold and

i think um in the utopian world gold should stay in the ground i still find this to be somewhat of a nonsense and i think it's ecologically devastating however if you could bring in thank you um we're actually looking at the case an interesting one whereby you could create a stable coin over gold which is still at least in the refining process so it never gets out the door it never gets melted never gets shipped 10 times it doesn't have to sit in a vault and it has fantastic esg standards that's a case which i which i like i think that speaks to the principles that we should all be embracing in terms of define all of these things so your question yes i think there are some cases other things like diamonds that's not an investable asset class but it's one that we kind of all

know and to be uh create a stable coin over something like that is uh there's interest in that and then there's various other precious metals that have a similar concept so yes i think that to the extent we can reduce a carbon footprint or improve the way that we deal with um with commodities um this is certainly a very interesting area and it's more about the investment case it's not so much about the you know we don't think about buying a big mac in uh in a diamondback stable coin but maybe bitcoin we do and that comes a little bit into the you know we talk about dollarization is it going to be at the very least you know people buy pizza with bitcoin right yes that's a good point originally something expensive one but um but yes i think there's a place for a

lot of these cases so what's next for cbdc's there's all this experimentation happening all over the world what do we see as uh the next step are we gonna actually see this in the hands of banks who are going to use this uh for much more efficiency perhaps in in settlements or overnight trades um where are we gonna see the next major either innovation or milestone when it comes to cbdc's i would if i may i'm not going to say what we're going to see next i'm going to say what i would like to see next fair enough which which is more collaborations between central banks and and uh as i as i showed you ct is presence everywhere you mentioned that uh we

connected to like 83 clearing systems today and so on and so forth can you imagine if the 110 central banks that you mentioned earlier on implementers their their cbdc in a way that is completely different from the others that means a hundred different 10 different systems to implement for banks like that are globally present so that's a challenge so what i would like to see is even more collaboration maybe with the supervision or the support of bis for example for establishment of standards and maybe why not one infrastructure or two or a limited number of infrastructure and that's why i'm going to conclude by that that we we have launched an idea that we're currently discussing with many different banks and central

banks called the regulated liability network where the idea is to have all the regulated entity wanting to leverage the beauty of tokenization and blockchain to actually do it the same way with the same standards on one platform cbdc's commercial banks the jpmorgan coins of these day of these years and e-money and when regulated why not stable coins the idea there is to enable the full strength of what blockchain can enable and tokenization through one model that everybody can deploy uh on and i know it looks like a bit crazy and nobody's but that's what people were

standard for everyone yeah developed by whom uh by by the industry bank by the industry and not by citibank it's not a city product and that's passion that's fun so some people are telling me that that's impossible it's a pipe dream well that's what people were saying before swift was created and swift is a reality that connects 60 000 banks or 30 000 banks i forgot across the world that's what we people were saying about internet not possible so why not daring asking that question let's have all regulated liabilities on one network well certainly we've seen that central bankers tend to be i don't know if adjacent to academics incredibly curious about the way money works this is

something that i've noticed in my travels around the world would you say that there is a collegial respect for other central bankers do you see this type of cooperation when you meet with other countries no certainly i mean central banks and alex has mentioned the central bank coalition that has come together and issued some some basically basic needs for cbdc but when it comes to building i mean that then it gets difficult and that's also mentioned swift it's not you know central banks are not very good at innovation i mean we try but our real prime business is security stability and it's usually the private sector that that invents and comes with innovation swift is exactly an example they came from the bank from the commercial banks not from the

central banks so i wouldn't be surprised to see something similar here you know also when central banks will issue you you've talked about programmable cptc or programmable money my guess is that central banks will issue a cbtc that's very basic and leave all the innovation and all the fancy stuff around to the private sector and i think that's a good model well i mean because banks like seba for instance right that's that's what they do is they create innovative products exactly based on maybe something a primitive that's created by a central bank yeah excellent so we actually have a little bit of time for audience questions and i'm sure you're burning with them and i'm seeing some hands raised raise them i'm going to be picking i'm picking

you hold on you got to hold your first so i'm going to repeat your question so as long as i can hear it this is what he said now question so let me let me repeat that question

i'm going to simplify a little bit is there anything that's stable coins by the way are you also saying that cbdc's are you bucketing those two things in your question no okay so stable coins is there and anyone can answer is there any real use for a stablecoin a problem with solving okay is there a problem at solving you're saying okay is there a problem stable coin solved if we can see the stable coin as a crypto assets there are vertical assets because we are considered by the regulator already i think that we can at least uh give a you know what actually libra tried to develop like to

solve the problem of this uh big commissions like uh when you send money to your parents or you work somewhere so remittance fees could go down yes and i think this is where it's a it's a big market to improve this it's number one second we remember that in some countries people and the women usually they don't have even a bank account so we can help them to be more independent uh so i think it's already enough that sounds pretty useful yes i think it's like a real problem with being solved in switzerland maybe in several banks and he his you know his children probably go to school and has already been a credit card maybe it's a good answer i don't know okay

well without all right who's next other hands oh my gosh right here first so uh let's assume that the central bank could change the monetary policy and interact directly with retail so how does the commercial banks feel if for example that infrastructure that the central bank launched was bdc could enable people to interact peer-to-peer directly without the commercial banks at all so does i'm going to put this another way the question was does a cbdc a retail cbdc perhaps disintermediate and make redundant commercial banks if the cbdc is operable p2p is that effectively your question

okay commercial bankers both of you do you want to have a so look i think um the central banks are not credit givers for a start so if you want credit number one as a retail uh consumer that's a pretty useful thing you need to have a bank in between who provide the credit so i think that function is is absolutely essential so i can't really see that uh disappearing myself anything else no i mean it's the obvious answers and i don't think any central banks are seriously looking at these intimidating uh commercial banks for the the reasons that you just explained but also for uh central bankers are not there to do kyc and aml of every users using the it's like it's it's that's not a business and there

might be some countries that decide to do that because they very on the left and they don't trust commercial private banks maybe but i don't think it's going to become a reality uh hopefully for commercial banks in in any case even if it would become a reality i think banks and private service providers that you can call them commercial bank would still have potentially a role in helping the users of those retail cbdc's store those cbdc safely and provide wallet services to those uh center to those customers and perhaps a new service and landing and so on and so forth i don't think it will it's the end of commercial banks okay i will not have moon from the crypto world to the commercial banker we don't have too much time so i want to go and

get some more questions asked gentlemen yes you can you can now ask questions so let me re-ask that question is there a way to more or less limit the supply of a cbdc and how does that fit in with the pre-existing money supply is that correct so actually we have a central banker here i mean the way so most central banks change to to uh regulating or doing monetary policy through interest rates so basically the the the amount of the of the the money is demand driven

but you just apply the interest rates and that's how you get your monetary policy now so that that wouldn't really be a big problem and you can also imagine very different uh methods to to inject cbdc's into the economy i mean one for instance the proposal we made is that it would just be like uh like uh banknotes that you would have to go to your uh commercial bank and basically exchange uh withdraw it from your from your bank account and then get the cpc like you get a banknote today and then if you do it like that it wouldn't really change anything so it's be like almost going to a quote-unquote atm and instead you're going to actually redeem yeah but i mean you don't have to

physically go there so that's the difference probably not yes i would think um excellent okay who else has a question uh up in the last there where countries like work together trying to create this translates to adding an alternative so the question is and versus presupposing something that may or may

not be true that swift is the way that central banks you're saying communicate and send money to each other that's the first thing was that correct for cross-border payments okay i can also this one so the question is more or less does uh will central bank digital currencies will that allow for sanctions to be upheld yeah i worked at swift for 18 years so i can i guess i can take that one uh so uh yeah swift is primarily used by commercial bank for their old sales activity not too much for retail payments but they they do but and they've evolved their services to be also usable uh very cheaply for and

instantly for for uh for remittance um but it's it's not true that swift is really used as to swift never closed the country so you could think of that but if they're closing sanctioned banks so they're preventing sanction institutions to to use the network like anybody like any banks cannot do business or any corporates cannot do business with a sanctioned entity so it's more like you turned off a specific node yes you didn't actually turn off let's say a geographic cluster yeah the whole country yeah so that's important too to make a difference but will cbdc has an impact on swift as it exists today yes it will that's one of the reasons why i left swift by the way because i think that if they don't get their act

together they might be disappearing a bit like kodak uh in the 80s so yeah they definitely find words there so there will be there will be an impact on companies like swift but also on credit card companies like mastercard and visa and that's why there is a they have a big interest in that technology because they know uh that it will have an impact on them and they are enabling crypto payments or at least to purchase crypto within and then we have now travel rules which uh every country should to implement that it's also swift for crypto you know where we in in a way yes of course and because it's on top of blockchain you have to send in a compact message information about the client when you deal in the regulated uh area

like we don't talk about defying but in traditional and regulated crypto we have now to report each transaction no matter where it is and whom it is it's crossbody yes okay right there okay so that was part of question and part a statement or a declaration of freedom i guess but the the question basically was is privacy or personal freedoms or civil liberties in jeopardy due to cbdc's who's talking about that who's even representing the

interests of of those who care about you know personal and civil liberties thomas this is a question for you is this something that you think about your colleagues think about and do you get input from groups that aren't just banks oh um all the time i mean we get a lot of input through the political process or directly but i think what what i would answer is that that's why it's important to have options and not just one solution and that's also why i think it's good to have a coexistence between stablecoin and cbdc in the future you have to have different options not to be captured and that that goes in both directions i don't think it would be good if all the money is just provided by one commercial entity fair enough

okay uh yes yourself great question how do we how can you apply negative interest rates to cbdc's applicable because we're in switzerland anyone yeah actually the if you look at the working paper we should we we would be able to do that the way it's done is that your that the denomination key would would have an expiration date and you have to exchange it again for a new for a for a new coin or a new key and that's when you of course you could then apply a fee and that's how you could apply negative interest rates if you want to do that which is not a very popular i assume it's a clever technical solution though

it really is when you think about it expiring money that you have to renew and it might take a little bit off the top when you do that swap we didn't highlight it in the paper you know why i mean it's clever let's give them that yourself probably better but we'll ask someone how would government bond issuance work with cbdc's does anyone want to take that i mean i mean one of the experiments we were working on with with the bank france was exactly this it was settling well it was settling not so much the influence but yes i mean the way it's designed i can't go into too much detail but it was a settlement of a security bond um on the public blockchain using uh

ethereum and a layer to security um into t2s so those kind of operations work and they also provided a certain amount of anonymity which is important again this was from the central bank perspective but also for wholesale banks i think this is something once the infrastructure is adapted to be able um to issue in primary and secondary markets this is absolutely one of the big i think uh changes i think the legal and the regulatory basis has to converge that's not you know tech is always 100 yards 400 meters uh ahead of uh of legoland reg i am cutting it short but i'm gonna ask let one more question happen but it has to be controversial so put down your

hand if it's not a controversial question seeing a couple hands go down uh yourself right here will will cbdcs be used in d5 will it influence it at any uh basically will it influence it or will it change will it ruin the d5 we'll all right let's let's that sounds like the most controversial version of your question will cbdc's ruin defy one of the great things that's happened in crypt over the last two years anyone in the panel you've got negative seconds to talk about this so anybody no no no no no no all right well with that we're done

thank you so much