CBDC's beyond borders

[Music] hi everyone and welcome to the last day of european blockchain convention we have an amazing topic ahead of us cbdc's hopefully we'll get some answers last week we saw everyone some news coming from the swiss national bank today we have the honor to have thomas here to reply to the questions we may have and also we have francisco marotto who is head of blockchain at bbba and and hacking will do the moderation so welcome the three of you thank you daniel and hello and welcome everybody and thank you all for joining us uh today on this panel discussion on central bank digital currencies i'm looking very much forward to the discussion with the francisco and thomas my name is hashem hassan i'm a lawyer at the danish central bank and i'm really thrilled to be facilitating this discussion i would just like to remind everyone that throughout this session you are of course invited to ask questions by submitting them into the question panel and we'll try to to or i will try to facilitate the questions to to to the participants before i should introducing you to the panelists i would just like to set the stage and give you some background information on on on on this topic well a vast majority of central banks are researching and actively experimenting with central bank digital current currencies and these some of these projects include project juva the swedish e-corner m-bridge tokenized euros and so on but also extensive extensive research on both wholesale and resale cpc simply see architecture and also cross-border arrangements so i think it's fair to say that there's a lot of stuff going on and not only in europe but around the world and and this will bring us to the main topic of this discussion essential bank digital currencies beyond borders and lucky for us we have our great panelists who who are who are also driving force behind some of these projects and research so without further ado i would like the panelists to introduce themselves thomas would you like to start yeah thank you very much and thank you for having me so my name is thomas moser i'm an alternate member of the governing board of the swiss national bank i'm an economist by background and i'm involved as you said in the in the projects that the swiss national bank is doing on wholesale cbdc and then i have a private research interest in cbdc and cryptocurrencies more generally perfect thank you summer san francisco hello everyone thank you for having me it's a honor to be in this final here today i'm working in the client solution area of the bank this is the area of the bank that is in charge of moving the bank from the traditional world to the new digital world creating the new products and services that we need in order to compete in this new ecosystem within this space i am heading the blockchain and the intel asset team and leading the defining strategy of for ppva globally and executing the different projects that we have within the crypto and blockchain space perfect and we're grateful for both of you for taking part of this discussion and offering your thoughts and reflection on and sub disease well today we'll be discussing uh the the motivations behind a possible issuance of sib disease some of the ongoing projects and finally we'll try to ask if and when we could expect an issuance of spdc to actually become reality so let's just jump right into it and the first question is for you thomas why essential banks exploring cbdc's both retail and wholesales why it is actually interesting for central banks well thank you that's a very good question that i actually get get asked often and i think the motivations differ from country to country on the retail side side i would say the central banks it's so it's i think there is part of the general digitalization and of the innovations that we have seen recently clearly payments have been changing a lot over the last 10 years there are new players that appeared with with fintechs and i think central banks have to figure out how they fit into this new ecosystem of payment providers what is their role and and what are the opportunities uh and i think that differs as i said from country to country because the roles and also the the the the roles that the private sector plays might be different from country to country so that's on the retail side side uh and and here the swiss national bank has been uh communicating that we do not see them see a need at least at this stage to uh to provide a retail cbdc we leave that to the private sector on the wholesale side i think uh it it is it is the question of blockchain technology what role will blockchains or dlts play in the financial market infrastructure in the future and if you have important financial market infrastructure then it's a natural question in what circumstances or on which infrastructure do you want to use central bank money for settlement because only central bank money does not have a counterparty risk so that's a question of financial stability in the end but there it depends how quickly blockchain technology develops how quickly these infrastructures become important i think that would be how i would explain it at least from a swiss perspective thank you thomas so so maybe just to to maybe elaborate a bit especially on the wholesale is is mainly about how the infrastructure is running or will be running in the future and with what type of cash leak we want to use and and and and you as as you also mentioned the systemically important uh participants just in these systems they should be able to use central bank money at least at least at least if if if we're able to provide that absolutely as you said i mean the question is how do you pay on a blockchain so you need to have some kind of a digital money it can be provided by the private sector it can be stable coins but i guess in certain circumstances especially if the infrastructure becomes systemically important then central banks usually want central bank money to be the the settlement asset perfect thank you and francisco you're not from a central bank but but but from a banks like from a commercial bank's perspective do you agree with with the motivations behind this and and and do you see any benefits of of actually is if if the central banks chose to issue cpcs yes so well what thomas was saying from a bank perspective a commercial bank perspective we are always looking on how we can improve the user experience how we can provide better services for our customers and we think that there is always a space for improvement and in the settlement space where a payment space where we see that cbc could appear knowing the as the new kid on the block on this space we think that it might bring some value and that has potential to bring value and it depends on how these solutions are built and for what they are built no and starting from the wholesale uh side we see that this there is improvement maybe from the traditional market infrastructure perspective traditional settlement now we have for example in europe target 2 but target 2 is not 24 times 7 365 and these are the needs that we have in the new digital world it's a immediate real time always working settlement system so maybe this new cbdc system if it's built for wholesale and is built with this in mind could be solving problems that we have now in the traditional or existing uh wholesale settlement systems not only thinking in payments target too but also looking into the security space target to securities where securities are settled maybe in that space we can also use cbdc's and improve these services with tokenization and tokenizing financial assets or securities and moving again to this better service improved service more real-time service and and open always now always open service so that's on the on the traditional side on the new world on the tokenization world we see that there are there is potential for for issuance of securities or bonds in a tokenized format once we have the asset tokenized or maybe real estate or other non-financial assets tokenized we would need the cash leg and you have been talking about it we need the cash leg and this cash leg can be solved and via off change settlement connecting to existing payment systems or can be solved with own chain settlement and for this we need a tokenized cash and this tokenized cash can be a stable coin privately issued or it could be a cbdc cbdc could be maybe more more backed by the by central bank and maybe more secure and more reliable for for a from a banking perspective at least no and another area of settlement that is needed is in the new blockchain ecosystems or solutions that are being built around blockchain for example trade finance solutions these trade finance solutions they need settlement and again we can do it off-chain connecting with existing rails or on chain with tokenized cars again and can use stable coins but maybe it would be better to use a cvd signal from a retailer's perspective um it also could bring value depending on the design and how it's built this is a big question mark i think for all the central banks at least they are in the process of defining all of this we think it needs to bring value added for the customers and from the banks why because we already have very good real-time payment systems for example in spain we have business broadly used cost 0 365 7 days a week and 24 hours working free and it's perfect and uk faster payments in switzerland they also have real-time payments so so if we build a cdc for retail use we need to think on what it needs to bring on top of that maybe it's programmability for the use of iot machine to machine payments maybe it's conditional payments for for enterprises or for the government i don't know we need to work on this but we it needs to add value otherwise we are creating a new infrastructure with the cost this has for the banks and for the central bank and for everyone and we need a bit a business case to compensate for that new investment so it's it's very important to define that business case and that value added for the for the users going back to the motivations very quickly reducing cash will be one of them using these cvt disease and with the problems of what we do with the persons that don't have mobile phones or don't want to work in the digital world so it's a problem so cash will always be there uh mentioned in the corona that we mentioned before i think that one of the motivations that they have would be having an alternative payment method because in sweden they don't use cash they use a lot of cars they had some card system outages in the past and maybe they are willing to have an alternative to to in case this happens again you can operate in that space and financial inclusion maybe i don't know and but for that you need something more you don't with a wallet with some digital euros you are not doing financial inclusion you need to build financial services on top of that wallet within the euro so again it depends on the design and what we can do with that digital euro or rather and you know currency in digital and finally i think it's a maybe a more from your strategic perspective we are now moving to the digital world the markets are moving into the digital world and if one of these cbdc's or stable coins gains global adoption it could be an issue for the local economy or the local digital economy of that country you know so maybe it could be also a defensive strategy to be able to compete and operate on this new digital world with your currency with your euro or your dollar or your yuan or your gen so so yeah lots of things to discuss in the following years and a very interesting space ahead for a lot thank you so much francisco and it really makes sense when you're mentioning all of these different motivations and news and and possible use cases that it makes sense that there's so much research and the experimentation going on and i think that leads us on to the next uh question and topic is about the ongoing initiatives and and and projects uh we're seeing many different projects from around the world and and and also from the bis innovation hub and for example we we recently had we had the embridge project who are trying to create a common dlc platform for for issuance of cpc we have project donba but most recently we had we we we saw project churra and thomas you have been a part of project jura and i would like to like could you tell us a bit about it and also how does how how is projectura different from any of these other projects uh from from around the world yeah thank you very much yeah we were very happy to uh release our report last week on project churra that was a project together with the bog de defrost and the consortium of private banks and the issue was cross-border settlement of both assets and cbdc and the projects that you mentioned have all in common that they look at how can you do cross-border settlement of different cbdc's issued by different central banks and so i would say our project is really complimentary because there are a number of questions when you do that so a simple one would be do you want to be to have all these central banks issuing their cbdc on the same platform or do you want to have national platforms and then connect these and different projects look at this um at this problem so we have both we have experiments with uh just trying interoperability connecting different types of platforms and then you have those uh where you have try to have a single platform now project churro belongs to the second group so we have a common platform but what is different uh i think and new here is that we introduced together with our three some uh technical solutions on how could you have a a common platform that is operated by a third-party private provider and still have the autonomy of the individual central banks that they still have control over their own cbdc and the solution technical solution that was involved here on the one hand you have sub networks so one question was uh would you to which private participants do you give access to your cbdcs and the group of banks that the bank defrauds would allow access to its cbdc and the group of banks that the swiss national bank would allow access is a different one so we created sub networks on the same platform for that so that the center base can choose which nodes do they allow uh to have access to their cbdc that's one thing and the other thing the really cool thing i think is this uh dual uh notary node so uh these quarter platforms the consensus mechanism usually works over this uh notary node it has to sign off all the transactions and there of course you have a very important governance question who controls that if you have a national platform uh it's usually a lot of times it's the central bank that controls that that notary note that has to sign off every transaction so if you have two central banks on the same platform the solution here was just to have two nodes but they both so any transaction that involves uh swiss swiss franc cbdc and the euro cbdc would have to be signed or has to be signed in that project both by the swiss national bank and by the bank defrost so it's a dual signery note i think that's that's new and that has been developed specifically for that project so i'm not saying this this is the solution for everyone but i think all this project you mentioned dunbar and bridge and so on they all show you different possibilities how you could do multiple cbdc's cross-border settlement and i think it's interesting to compare these solutions uh see the pros and cons and and all the questions it races i think that one of the the big uh uh findings again of this project is it's not just the technology it's a lot of the governance questions the legal questions and then you have to adapt the technology in order to implement that thank you so much thomas and i was actually also thinking about that part because you you you mentioned that this is a technical solution but especially with cross-border payments is not always the technical uh challenges that are the hardest one is is the is the governance is the jurisdictions kyc processes across the whole chain so so i think i think it's very very interesting that that that is at least from a governor's perspective that you've been you've been you've been trying to to experiment with how can we actually try to create some governance within this platform thank you and um francesco i have a question for you i know you've been working on on on some projects or trials on tokenized heroes and could you tell us a bit about that and the motivations behind those those trials and also the outcomes of of these of these trials sure happy to do that so so we have been um moving on a journey since we started six seven years ago with the blockchain initiatives we started testing blockchain technology for cross-border payment settlement and we did projects with ripple technology to test this then we moved on and we started they started exploring the off-chain settlement combined with operations that were being closed in the blockchain in a blockchain ecosystem and here we did a pilot with with r3 with coda where we tested a supply chain finance blockchain ecosystem that issued settlement instructions and through an api we connected with swift gpi payment systems global payment system and with this we were able to do of change settlement of blockchain created operations or blockchain initiated payments no on this same space we collaborated with everpay which is a spanish payments clearinghouse and we did a similar project with them we created a blockchain ecosystem for warranties and when these guarantees were executed we sent a payment initiation instruction through an api to the real-time payment system here in spain so we started the journey with that of change settlement and and then the last project we did with weber pay which is the spanish payments greenhouse and we have we had the know the spanish central bank as an observer of this project so they were monitoring what we were doing we uh blocked euros in in the in the account that we have in the central bank that the banks have in the central bank and this with these blocked euros we issued tokenizers on this blockchain network that we have within the spanish entities and we started moving these euros between the banks and we also created wallets in mobile in a mobile mobile phone app and we are starting paying from these wallets simulating the payments within customers and also testing off chain and sorry of chain offline and online payments so in case we don't have internet how we could do the payments offline and this has helped us understand very well what would be working with a digital europe and also has position either pay in the in the projects and looking forward to the potential issuance of a digital euro in the following years and this is not the end of the project we are we're still in conversations with european the rest of the spanish financial industry in order to continue this exploration and see how we could move from this basic digital euro to a more advanced or programmable digital euro and this might be what we will do in the next or the following years apart from this we obviously participate in different working groups regarding cbdc's we are part of the market advisory group with the european central bank we have a representative of bva in that group and we are also exploring the possibility of tokenizing assets and also cash and for for the you know corporate and investment banking world thank you so much francisco and yeah it sounds like you have a lot of going on but they are very very interesting i have a question from the audience that i think would be relevant for both of you especially now where we have a bank and a central bank represented the question is issuing a cbc can downgrade the importance of retail banks as middlemen in the money flow process what are the mitigation factors for for that in order for the financial stability not to be disrupted so i think that's mainly from a central bank perspective but i also like your opinion on that francisco after maybe maybe you could you could start summers yeah i mean that is one of the concerns with retail cbdc i think one mitigating issue would be the way you distribute it if you have a so-called hybrid system where the like with cash today where the cbdc would be distributed through the banks then you could clearly mitigate that risk but i can also see what francisco actually said in the beginning you know i think a lot of retail solutions in the end we'll just use the cbdc as a settlement between the banks which is a wholesale cbdc and then the banks will create their own solution for uh for a digital token for the customers but that that's just one guess but i think the way you distribute it is clearly a way to to mitigate it yeah totally agree from from from a bank's perspective i mean we are advocating for this what they call two-tiered model no when you have the central bank and the commercial banks why because i think that we have we have you know the the payment methods the channels the the capabilities and the resources to do all the kyc all the technical development all the commercialization all the distribution if that was being to if a central bank was willing to do all of this they will need to grow and to build that you know make something similar to a commercial bank in order to to be able to provide this service so i think that that the model that would be more reasonable and this from our thinking is it is the two-tier model where the distribution is done by intermediaries by financial intermediaries and if you read the acb report that was issued in october 2020 they said two things one thing is that the digital euro should be used as a means of payment not as a store of value so because that's the risk that there is if it's a storage value that maybe we have a deposit run and if that impacts the credit capability of a commercial bank so so it needs to be a mean of payment not a store of value and the second thing they said very relevant is that it should be distributed by financial intermediaries okay so i think that in general the solutions that are being developed or thought about in the retail space are in this in this model yeah and maybe also just a side note i think also in the ecb report they also mentioned that it would be possible to limit the amount of of of cpc that the consumers could hold so that would at least prevent it from being a store value okay we don't have much time left we have three minutes left so i would like to ask you about the last question and that's do you see a cbdc issuance anytime soon both the wholesale or retail cpc um i think we've discussed this earlier and and and a couple of years ago also but do you see at a assembly c anytime soon we already have a couple of cbd's around the world but but maybe in europe do you see do you see snbc anytime soon so if i should start anytime soon i don't think so in europe i think we will see that first in other places but i would say maybe in five years we see something but but before would be tight and just because as also francisco said there are so many open issues not just on the technical side but on the governance side most likely you will also have to involve parliaments change some laws and that just takes time yeah totally totally agree with with thomas in the end there is so much work to be done before launching a cvc it has it could have a huge impact on the financial system on the monetary policy on you know for any foreign countries spillover effects it's a huge change no so so i think it's it's we need to be very calm and things think things twice and and identify very well the key risks and what are the mitigants and that's that's will take time and i mean in europe at least we have two years for investigation this investigation process has been launched now in november so after that after all that definition which is mainly assessing impact and identity do the design on the different options ensure that there is privacy and avoid risks define the business model for you know for everyone and all these things will take time at least two years and then from that if the decision is making they they were saying that they need three years more for the implementation that's why they say five years for this project i don't know if they make the decision to go forward and we will have that five years if they don't make the decision maybe we don't have a cvtc and we will work with with a stable coins who knows we will see in the following years i i foresee that it's easier to go for a wholesale one than a retail one but time will save yeah thank you and and yeah it's really interesting and obviously there's a lot of stuff going on central banks are researching on this project commercial banks are researching on these projects and we're trying to figure out what's up and down in this but but thank you so much uh both of you for participating in this discussion and i at least think it was very very interesting thank you thank you and also thank you to the audience for the questions i'm just i'm sorry i'm sorry we couldn't we couldn't run through them all thank you for the amazing discussion i think it's a good idea to leave something for uh next time right even though we cover a few things i'm happy that we also managed to cover some stuff from the project jura that it's quite new it's new news so thank you very much once again i appreciate also the audience was active sending us questions and i invite you all to join us for the next session on nfts thank you [Music]