Jón Helgi Egilsson - Examining How Central Banks Can Support Stablecoin Growth & Innovation

baby [Music] so ladies and gentlemen it's great to be in Paris as always and thank you for inviting me um today I would like to discuss the relationship between National currencies and staple coins and the role of regulation in that the role of central banks and the um and cbdc's but if we start this conversation about you know thinking away so what is really a national currency I have a 10 euro here it's uh it's issued by Central Bank in the Euro area so this is uh central bank money and if we made make this digital version then we would call it Central Bank digital currency cptc right but the interesting thing is that most of the money in the world is not central bank money still it's National these are National currencies so most of the money that is issued for example in the UK is issued by commercial private Banks so it's private IOU um so we can say that well stable coins are ious as well right is it not just then similar actually then you could also ask you know if we if we should trust a national currency which is mostly issued by a private company that we call bank shouldn't we then also Trust private market player that is issuing a stable coin which says you know one Euro or 10 euros and you know there is Money in the Bank Trust Me that is a fair question but I think first of all we have to understand that we do not really Trust Banks do we you see there are 50 000 people working for the central banks in the Euro Zone area and most of them are a large proportion of them are monitoring and making sure that the banks are doing okay they are following the rules and so on so there is heavy regulation there is extensive oversight and then central banks they provide special renting facilities in case something is going wrong we have central banks that act as lenders of Last Resort we have special Deposit Insurance schemes for consumer protection and so on and so on so Bank deposits that are private ious yes they are without the regulation without the oversight without the special Landing facilities and other risk mitigating schemes in place they would be defined simply as bad money as coined by the corner Professor Dan Avery when he's making the case that you know how to change spot money into good money so ious without the regulation without the central banks would be categorized as good money so in some sense we can say that it is due to regulation and it's due to society's safety net for banks IUS that we refer to bank deposits as relatively safe or as good money so and then we also know that private commercial Banks make the most of the money supply but it is both regulation and central banks that make it a national currency this is one way of describing a national currency but of course it's much more complicated because the national currency is basically reflecting the monetary policy of a nation which is then a separate thing so a national currency is not just a piece of paper or not just a token that we issue and then we keep some reserves in the bank it's not like that not a national currency because a national currency is always and everywhere a legal concept what about then stable coins well stable coins are are really important and for the first time in history we can transact manage and store our own digital funds as tokens in non-costalgia wallets and they can then we can then do this without the intimidation of financial institutions such as Banks and this is really really important and this is actually in my mind a game changer and that is why I was so fascinated being a central Banker going into the space in 2012. but if stable coins are just a proxy for a national um if there are proxy for National currency they are ious issued by private Marketplace private Market players they are in somewhat similar to the US dollar notes that were issued in the US by different banks before the establishment of the U.S federal reserve in 1913 or just you know put it bluntly it would be defined by Dan array as bad money so in my mind stable coins for National currencies that there can be stable coins that have other purposes stable coins for National currencies they just need to evolve and they need to become good money and you can ask okay so why is that important why is it even important for a nation to have a national currency that is good money it is because a trusted and and widely used National currency can strengthen not only the geolitical power of a Nation like we see with the US dollar but it also facilitates economic prosperity and that is why we have a history full of examples of um currency competition between nations now I think that and I think I thought this for a long time that the future of national currencies is on chain as tokens and if that is true then those currencies that will not be represented in adequate manner on a chain they will simply suffer and since regulation and central banks support is needed to convert bad money into good money it becomes a competitiveness for Nations to make sure that you have the right Tools in place to make that happen I think therefore that we're likely to see a fierce competition between nations on the record Regulatory and institutional front in supporting their own National currencies it's basically in their own interest to do so and we are seeing this happening a few days ago we saw the UK that passed new laws giving Regulators the power to supervise crypto and stable coins and they declared aim of the law is among other things to facilitate the uses of blockchain in financial services um the UK opted to go out of the European market brexit but in my mind it's obvious that they want to compete in this market and and compete with the EU the most active investor in crypto and web3 and recent Horowitz did open his first non-us office outside of yours but it's in London a few weeks ago and the excited reason is that they wanted to take advantage of what they see as a more welcoming environment for crypto and web3 entrepreneurs now the U.S is a different story there is currently no specific regulatory framework for stable coins and as a result the U.S dollar stable coin holders are left in a legal No Man's Land that's just a fact but hopefully that will not last long in the U.

S and there are actually bills that are being discussed and proposed that could actually change this rapidly since the drafts are discussing the optionality of stable conditions to use the fats deposit accounts and that would be really important to make those table cons safer from a counterpart party risk point of view and could give them competitive advantage now Europe has already established regulation for digital money tokens known as e-money and this piece of legislation was first introduced in the year 2000 so that makes it a well-established framework for over 20 years now e-money if you read the directive then e-money is intended to be technically neutral form of costs doesn't matter what technology that you're using if you want to represent cars in a digital format the European Central Bank ECB it recognizes billions of Euros of e-money issued by Major financial institutions as overnight cars or overnight deposits now monarium monarium the company that I co-founded became the first company in the world to be licensed and regulated to issue a national currency the Euro on blockchain already in 2019 just the Euro not the stable coin just the euro but this demonstrates that the legal status of e-money under EU law has been cleared for more than two decades and aligned with e-money regulation monarium Euro tokens are provided with the same consumer protection and are subject to the same kyc KYB and AML requirement as other Euros these are just Euros on chain as tokens as erc20 tokens now most of the monarium Euro tokens underlying funds are safeguarded in high quality liquid assets assets assets sorry assets and they are held by State Street their money isn't helped by State Street this is just in accordance with the regulation that requires us to do this in a certain way and since monarium Euro tokens are recognized as a national currency regular euros we were able to fully integrate our token issuance solution with a single European payment system sepa so our customers they can manage their monarium Euro tokens with their monarium provided icons in both trotfy and web file you just get an iPhone account monitor goes into this account appears in your crypto wallet you can do whatever you want in web3 and then you won't need to pay your rent or whatever and send it to some bank account then you just do that from your wallet no problem so it's fully fully integrated but from a global standpoint then the US needs to step up its game obviously the UK is on a web 3 path in my mind both us and UK legislative legislators have discussed the possibility of granting stablecoin or e-money issuers direct access to Central Bank deposit facilities and thereby removing the risk associated with keeping the underlying assets within a bank so the competition between jurisdiction is on now in Europe we have what is called Mika or Marcus in crypto assets Amica does not provide access to Central Bank deposit facilities yet I believe that one day that will become a reality so I say yes of course regulation is important to convert bad money into good money is crucial actually it's not the whole story and we need a smart regulation with regards to Smart regulation then the good news is that regulation can evolve and be improved and we're seeing this already in Europe so on June 28th the U.S the EU commission issued a review of psd2 and suggested revised rules for psd3 and one of the suggestion is to allow European central banks to up provide account services to non-bank payment services providers PSPs after this question of the central of the relevant Central Bank now this is most interesting this is most helpful although there are other aspects that are more um that I'm a little bit worried about but anyway I think this is um basically telling us that you know there is a competition between different jurisdictions and we are seeing that the jurisdictions are responding because they understand quite well that the national currency as a token is important for Any Nation so I say that regulation just as Technical and business Innovation is best served by competition and if the EU the EU the US the UK or all jurisdiction if they mishandle their regulation companies can simply move their operation to more favorable jurisdictions and this is um so so that is why we have this competition uh not only with regards to Legal Frameworks also with regards to institutional support access to central banks facilities and so on because competition is a catalyst for growth and progress it is challenging the status quo and it drives us to find better ways of doing things and I think that you know healthy competition is it is typically the most efficient way to provide people with the goods and services that they desire so I think that policy makers Central bankers and others that are affecting the framework and the support they should embrace competition I think that central banks should remove themselves from competition and I say this as a former Central Banker myself and in doing so it will be more likely to encourage more investments in businesses and techno and Technical innovation in payment in payments and thus facilitate competition but it's likely to lead to a better solution for their own National currencies I think quite honestly That central banks should not be allowed to position themselves as direct competitors in the retail payment space it is not the role of central banks to drive business and Technical innovation in retail payments and also if a central bank where to compete it would create a conflict of interest when it comes to regulating and monitoring it's competitors it doesn't work so in conclusion I think that we are on the verge of a new era of a fierce currency competition this will be a competition between National currencies and between other forms of money tokens including stable coins a you know competitive and widely used National currency gives power to Nations at the winners in such a competition are the one that will be backed by central banks and they will encourage competition on all fronts and merely discussing the idea of central banks offering retail cptc thus Humper Investments because who's going to compete with the central bank that can create all the money it needs to compete so it is not good for competition and it's therefore not good for growth and prosperity of Nations the European Central Bank ECP has been very vocal about this digital Euro project in my mind it is not helpful for the euro and though therefore not helpful for the people of Europe important absolutely if I just complete so rather than deterring private Investments I think they should encourage private companies to compete a digital Euro already exists it was first issued by monarium in 2019 fully legal fully regulated licensed and everything you can go to the monarium website and just onboard and you get an iPhone account uh in five minutes or something like that so to strengthen the Euro that can better compete on a global stage I think it's important for Europeans the ECP should back the digital Euro by granting e-money issues in general access to the bank deposits facility as is now the case for commercial Banks and I think also that equal backing by the European Central Bank would create a Level Playing Field and therefore facilitate what we need for Europe that is growth thank you John we have time for a couple questions [Music] yeah hi John thank you for the presentation could you talk about how Mika is impacting monarium basically states that anyone that wants to issue a national currency will have to be licensed as an e-money institution or a credit Institution so we are already uh e-money institutions so that is not a problem but then Mika is adding some other requirements like you know new issues that need to issue white papers okay we're not a new issue so that's not an issue but what Mika does which I really don't like is that they require e-money issues to hold at least 30 percent of the underlying Assets in Banks commercial private Banks and the whole idea of tokenizing you know money in this way is try to make it safer and we can't do that by having it safeguarded ideas high quality liquid assets managed by a world um Renault asset manager company like stay Street like we do or keep it directly with the central banks but to require e-money issuers to hold at least 30 percent of the money in a Reit you know in a commercial Bank I don't see how that is helpful in any way or you know I don't think so and then there's uh another issue which is not helpful which is that under Mika then there are limitations on the volumes that you're allowed to issue in other currencies than European currencies and um as long as you issue it in the correct way you Safeguard it in the correct way why would you do this and then the complicate things further and say well there's a difference between those that are issuing smaller amounts and bigger amounts than your your significant this year and then you have to have this Rule and this rule I mean this is in my can I be planned I think it's PS is unnecessary for stable coins it's it's not necessary but it is there and the stated objective of Mika to create regulatory Clarity for crypto yes I think that is correct to create a regular Clarity for e-money tokens wrong because we have had this legislation for 20 years and has anyone complained no but anyway this is the case this is where we are so the um this so what we need to do now is to just you know improve what we have and there's some this new proposal or this new revision of psd2 into psd3 is a positive step so we have to just work with these guys and say okay the aim here is to make Europe stronger make sure that the euro is going to be used on this platform how can we do that in the best way it's not about the interest of the banks it's about creating what I think is inevitable which is the Euro on as a token on blockchains did I answer the question sorry okay any other questions which in your opinion is which in your opinion is the most favorable towards your um digital currencies and and maybe e-money yeah now this is a really good question so when we started monarium many many years ago we thought okay so we thought most real world assets will be tokenized at one stage in the future but in order to um trade them for for something you usually you will use the Fiat system okay National currencies they are regulated will be regulated so what regulatory framework should we build our company on to basically offer real money on chain and we I mean I was born in Iceland and live in the UK but in living in an island in the middle of the Atlantic you know looking at the US and looking at the Europe we say okay so how is it in Europe and how is it in Europe and how is in Asia at that time we said okay so there is a fantastic regulation in Europe it's called e-money so we it's technically neutral it is it has to do with consumer protection how you Safeguard the funds and all of that so we go for that that was the best and actually it is still the best although I mean we are under the e-money um framework I don't think Mika is improving uh e-money but it just States the fact that we have to work more closely with Regulators to make sure that this is going to be smooth and we we will be ahead now the competition between nations the UK is um developing interesting piece of legislation and the bank of England we actually started the project with monarium uh in uh with Banco L the first discussions we had in 2015 was with Bank of England discussing uh putting the Sterling on on blockchain and my sense is that the UK could surprise us and that is why we have decided monorium has decided to open an office in London because I think that unless things will change rather rapidly in Europe they will probably have to move faster because they are competing with the rest of Europe hopefully EU policy maker will will move fast so we don't need to but in any case we are opening up this Autumn on office in London so we'll see thank you young let's give him a round of applause next up we have a clear moderating a panel on navigating the international regulatory landscape [Music]