CDBCs: Embrace or Delay?

[Music] thank you so much it's a great pleasure to be here in Abu Dhabi at uh Abu Dhabi Finance week the capital of capital um cbdc in 10 minutes it's going to be quite a challenge but let's get started so I'm Dr Ruth I run my own Consulting business uh advising Central Banks Banks fintechs I'm also a professor at what used to be called C Business School in London now based business school teaching particularly fintech and digital money and executive training uh and I'm also quite well versed in the space of cyber security which is actually increasingly becoming a real challenge for every type of infrastructure and flow of value that we're seeing but here I'm here to give you a bit of an introduction on Central Bank digital currencies where does it come from why is it so topical for central banks and where is sort of the real challenge with it we've seen over the last five six seven eight years cryptos coming to the four as an alternative means of value transfer particularly after the financial crisis people stopped trusting Banks and the whole Central banking system interestingly particularly also given some of the policies in terms of quantitative easing and everything else we've seen so there is now a new plethora of asset class to do things differently but people realized it's volatile we've seen all the issues with Bitcoin ethereum and others going up and down particularly in response to social media as we've heard earlier on the panel we also now have of course stable coins which is very interesting because I just came from a panel talking about how stable coins as programmable money could be used as a rapper for central bank issue digital currencies now the thing is with central banks they would like to keep control of the money flow the monetary anchor so we do have actually a number of central banks around the world that have now for almost seven eight years experimented and collaborated to see whether there is no need to digitize central bank money if we think about us as citizens of various countries the only time we ever get into touch with central bank money is physical Cash Central Bank money is normally only used in the interbank high value transfer in terms of settling large transactions so the question is should a central bank issue a digital variation of the cash that I'm holding today in case I still use cash in order to propel the whole society into the digital economy and this is exactly one of the key reasons why central banks have been so Keen being inspired by cryptos and all the technology advancements to understand where is their role in terms of the relationship with the citizen of a country in terms of the money because a physical cash continues to dwindle in response to co in response to further digitization and automation of businesses then of course you no longer have practical use of cash and most of the outlets you want to spend is there therefore a role for digital cash now we all know that today we have Global Card schemes everybody in developed countries has some sort of access to you know debit cards credit cards so there are already a number of retail payment instruments that we do have at our disposal in in terms of transacting into the digital economy uh we heard on the earlier panel instant payments we heard this morning about open banking open finance a number of initiatives over the last few years both regulatory standards and Market developments that really try to accelerate the use of electronic commercial bank money the money that sits on your bank account in terms of making this account to account transactions possible so more efficient cheaper for merchants to acquire so there's already now a plethora of Al digital means to actually pay so then the question comes do we need Central Bank digital currency as yet another complement on this journey and central banks felt we should definitely look at this now this is what I'm clicking and it's not happening but it doesn't matter so um in terms of the central bank's approach here we have two key models on CB bdcs retail and wholesale and what I spoke about until now is all about retail payments and and turning central bank money into a digital variant of course we do know that cash as a bearer asset is really rather Anonymous if I make a cash inhand transaction people can't really trace it very well they do trace it when I take cash from the ATM and even when I pay in a shop that has uh obviously cameras everywhere but when we think about cbdc the IDE idea is not to make it Anonymous central banks would obviously settle the transaction on their Ledger and they need data for that so any type of digitization of central bank money whether it's retail or wholesale will inevitably require identification of the individual on boarding into a digital wallet and then also the transactional processing where you require data on The Ledger of the central bank to ultimately settle so if I think about my work um in terms of what I'm doing with the bank of England for example a very big question is around privacy how private are my transaction uh in cbdcs compared to physical cash or compared to other digital Alternatives and the reality is of course it's no longer going to be private as the anonymous cash variation think about the policy trade-off I just called our privacy which is a very sensitive topic for some countries more than others the other ones of course Financial stab ility um particularly a few years back when we had the sort of crypto hype in Phase One central banks were very concerned that they would lose control over their monetary policy if too much flow would go through alternative system outside the central banking system so Financial stability is a key concern for central banks in this journey Financial inclusion interestingly enough or maybe not surprisingly many central banks do not see cbdc as a key financial inclusion uh policy because Financial inclusion implies that the actors regulated in the market can maybe offload the kyc to the central bank and that's certainly not what the central banks want to do so what we tend to see is that most central banks are saying we would like the private sector to deal with digital wallets to deal with the transaction initiation and the flows between entities to deal with the conversion from my bank account Commercial Bank money into cbdc and back and the central bank as they do today is running The cbdc Ledger where all the data will be held all the cbdc will be held and they just look at the settlement side another key uh opportunity of course is innovation we heard this morning from the Central Bank of Abu Dhabi that they're creating an innovation platform based on a new real-time infrastructure where you can ultimately look potentially at different digital assets Commercial Bank money potentially One Day cbdc digital assets crypto stable coins so that you're starting to create a much broader interoperable environment for different digital assets which is really the opportunity here when you think about the design um I would argue that for most countries a retail cbdc as an additional tool in addition to all the other digital payment instruments you've got is maybe not such a big burning platform need however wholesale is a different question and wholesale is all about interbank settlement which is already happening in Central Bank digital Mar money if you so wish but there the question becomes are we creating a new infrastructure at the Central Bank level which is potentially running on different technology distributed Ledger as an example blockchain where I can design a system that is multi-asset instant settlement Atomic settlement as you would call it on a blockchain and where I can start to issue a bond I can trade a bond digitally I can pay for the bond with Commercial Bank money with stable coins with DC and all of this can happen more or less instantly on one big infrastructure you're starting to reduce the whole cost chain of all these different infrastructures and silos regulated Thoms of CCP csds registr and everything else so the Innovation and efficiency potential of wholesale cbdc even from a domestic perspective is really significant now the biggest challenge of course is always crossborder payments how can we use cbdc in crossborder and that's something where central banks will tell you hold on I don't want my money to be fungible in the sense that a foreign Bank can hold my currency in a digital way however you want to enable transactions cross water and this is potentially where the whole idea of programmable money as a second layer after cbdc has been issued comes in in terms of a potential St stable coin wrapper to wrap around the cbdc so that an individual ual anme a business can start to transact cbdc cross border irrespective of any missing interoperability between central bank cbdcs because you're using technological programmability around it that will allow a central bank to still trace and make sure that they know where the currency actually lands now any questions we've got 22 minute seconds and of course I don't have time for questions but suffice to say that we are at an early stage of the cbdc journey we have not seen any significant Market roll it out neither retail nor wholesale but we have a lot of incredible collaboration within the bank of international settlement Community where I know the UAE is playing a really big role and we do see more regulation coming into crypto stable coin and ultimately impacting the viability of cbdc both domestic and crossb so early stage it's going to happen and it will be very interesting so reach out if you want to know more thank you so much [Applause] oh [Music]