CBDC or Stablecoins... Is That Even the Question? - TOKEN2049 London 2022

so central banks they've been around for a long time they are slow they're boring and they're risk averse so why are central banks experimenting with digital currencies and what is a former Central Bank like me doing at a company like fireblocks one of the fastest growing digital asset companies in the world to illustrate the points I got one of my colleagues to I said I'm a challenge and I said to him I want to give you a week show me what a cbdc can do so he set about using fireblocks technology to Mint his own cbdc token from a fictional Central Bank on an evm compatible private chain he then minted his own stable coin using a smart contract he got from a library online and so he hadn't had this GBP stablecoin tied to the cbdc reserve he then used his stable coins to do four things first he bought some yeast to store in his wallet price of that went down a bit last night then he converted to usdc and used that to send some money to a U.S colleague who wrote for lunch third he used the stable coin to go and buy a fraction of a carbon credit and finally he uh created an NFC to celebrate his success with uh this image of himself he had a bit of fun now in comparison as a boring former Central Banker all I was able to do in that week was come up with this speech but that's okay and it's okay that Central Bankers are not entrepreneurs central banks broadly have two responsibilities monetary stability and financial stability Financial stability sorry monetary stability first is really about low and stable inflation that's something that's very difficult for most central banks at the moment since Russia's invasion of the Ukraine but it's also about maintaining the value of the currency and that's why most central banks around the world also have responsibility for printing banknotes and when you think of the responsibility for monetary stability as printing banknotes it's easier to imagine why central banks are asking themselves a question if consumer demand is Shifting towards digital currencies do we have a public duty to consider providing a state-backed essentially Bank Central Bank issued send a digital currency and if so what are the opportunities and what are the risks many of the opportunities the benefits center around things like Financial inclusion for the unbanked and also for reducing the cost and reducing the time taken to make payments especially for cross-border payments and then the really interesting use cases of programmable money and micro payments become really interesting but many of us can make instant payments today to our friends and Merchants and National cbdcs won't solve cross-border problems at the same time while central banks are debating the merits stable coins can do almost all of those things today going back to financial stability that's about making sure that the financial system continues to serve the real economy for its needs and payments borrowing saving and risk sharing in bad times as well as good it also means making sure that a widely used payment method can be relied upon now sadly Terror has become a classic example of a stable coin that a payment method that could not be relied upon it's also a classic example now of where when central banks and Regulators fail to keep up with Innovation things can go badly wrong thankfully that was not used widely as a payment method for everyday payments but if a stable coin is used for everyday payments then central banks and authorities need to pay attention and that is exactly why authorities are so exercised about stable points it is why the Mika rules in Europe are so stringent that stable coins used for payments the U.S solution to this problem is probably going to say that only regulated Banks can issue stable coins while in the UK we'd expect something that allows both Banks and non-banks to compete while ensuring that the consumer has an equivalent level of protection with either on the other side of the world where the regulator has been a little bit more willing to allow some experimentation we have had perhaps a glimpse of the future ANZ Bank in Australia has in the past two months been the first Australian Bank to issue an Australian dollar stable coin they've used that stable coins coin to transact to 30 million Australian dollar transaction to prove its functionality and they've used it to purchase the carbon credit the thing is with stable coins the smart contracts is really easy you can find it online you can copy and paste it the real challenge is Trust why should anyone trust in the value of your stable coin and this is where regulated Banks actually have a really big advantage over non-banks because they've been storing funds for Generations they also have to adhere to really strict rules and in worst case scenario they can also Park those funds at a safe and boring Central Bank so the smart contracts are readily available regulated banks have a bit of an edge in terms of trust in this world perhaps that's why we're having conversations with over 20 banks around the world who want to issue their own stable points the age of the stablecoin is upon us today with our partnership with checkout.com and we'll pay Merchants can accept stable coin payments and the merchants can be paid they can receive those funds instantly no matter what time of day and they can be unencumbered by weekends or holidays rather than having to wait three days for the card company to settle that's a marked improvement on the flip side creators in the digital economy can pay can receive can be paid out in in a digital currency of their choosing something that is more aligned with their business model bringing in people perhaps who are financially excluded tomorrow with a global ecosystem of stable coins issued by Banks you can imagine the same benefits to be able to be available around the world via a stable coin in the currency of their choosing making that opportunity truly global so so but commercial incentives can easily just just as easily get in the way and this is where I think central banks will step in the truth is that people are very skeptical of governments they're never going to accept a retail cbdc that allows the government to be able to spy on them so I think retail cbdcs will come into play to fill in the Gap where stable coins have left in terms of privacy and interoperability central banks will step in and have to provide the only Central advantage of currencies that will survive in the hands of a retail customer are ones that will have anonymity attached to them something more like a digital banknote where you can spend it for low transactions without any data shared at all rather than competing with stable coins they will provide an alternative that will actually have some use and deliver a public need what's more by the virtue of the rule of law they will be able to say that this token is has to be universally accepted and therefore becomes a layer of interoperability between all the different stable points and that's where a retail cbdc could have a real role to play in the future but we're a long way away from a digital banknote so where are we seeing most of the action today China already has its own version of a stable Court of a cbdc out there and many other countries small number of countries out there much smaller countries also have their version Nigeria is a really good example where although their functionality and their adoption is still low they've really started that journey in earnest and now they're they're expanding those use cases we're also seeing really interesting pilots in the next few weeks and months from Australia from Brazil and India Australia is a really neat one to think about I mentioned before because of the stance of the regulator we've seen a wave of innovation and stable coins including from ANZ Bank they've issued their own stable coin now with the rba's pilot we might have a really interesting opportunity to see how a stablecoin and a cbdc can interact and I've got strong hopes that we'll be able to see how a wholesale cbdc can back a stable coin and all the different use cases that come alongside that similarly Brazil has announced that Banks and non-banks will be able to issue stable coins backed by deposits they've also announced a digital real a wholesale cbdc which will be used for streamlining into bank payments so the pilots in 2023 will be really worth watching it's interesting to think though let me go back actually interesting to think that despite all the research taking place in the G7 countries a lot of the tangible action is happening outside the G7 and that's probably because they have more to gain for Nigeria and Brazil some of the biggest benefits are from Financial inclusion and that alone is enough to justify exploring a cbdc add to that the potential benefits of Street cheaper and faster cross-border payments and remittances and the argument is clear India although it has its own UPI instant payments it's seeing a cbdc as a safe alternative for its citizens instead of crypto and Australia it sees as an opportunity to LEAP ahead of its peers and demonstrate leadership on the global stage so where next Regulators around the world are currently drawing up rules for stable coins they will likely be strict but the clarity that that provides I think will enable a proliferation of stable coins from Banks all over the world thereafter and probably sooner than you might think I think cbdc's will come into play central banks will issue wholesale cbdc's that will streamline into bank payments and and uh and cross-border payments and those wholesale cbdcs will probably become the de facto backing assets for the stable coins issued by Banks thereafter once the system is developed and matured and central banks have become more familiar with the technology I think we can expect that digital banknotes the version where the Central Bank provides something that has a degree of anonymity and provides interoperability between the rest of the ecosystem as a final piece of the puzzle when you describe it like that it sounds so simple doesn't it but hey I'm a former Central Banker working at one of the fastest growing and most secure digital asset companies in the world so why not thank you very much