EN | Tokenized Money CBDCs, Tokenized Deposits and the Future of Digital Liquidity | MERGE São Paulo

The session tokenized money, CBDCs, tokenized deposits, and the future of digital liquidity. Please welcome to the stage Luis de Guimarães, Latin America team leader at being crypto. Yeah, so I'm here with great people. I'm seeing this event right now until now. It's one of the best events I've been this year.

So, it's really interesting to see a lot of different people, institutions, crypto people, and a lot of ideas in the corridors. So, it's really nice. And some of these great people are here today. So, we have Jaime from the Central Bank of Chile. Thank you.

We have Bruno from Banco Inter. And we have um Nayam from Alnet. He's leading the IDB Lab in Latin America and Caribbean. I I think anywhere, yeah. I would go there.

All right. All right. Right. Right. So, guys, um this is a really good day for us, and it's really a pleasure to be here.

My phone just turned off, so my questions that I have prepared will be [laughter] improved. I'm kidding. Um but yeah, so I think when you talk about tokenizing assets, we're really thinking about solve some problems, right? That we have action in the market. What is the main problem that we are here to solve and to discuss today in your opinion?

I want to I'm curious to hear every side of the story here because I think you guys have maybe some different visions. I I don't know. Let's start with you, Bruno. Okay, thank you, Luis. It's a pleasure to be here with you guys.

Uh So, from the from the bank side, we we have a lot of problems to solve with tokenized money. Uh one of them is the we are using a lot of different uh systems, right? To connect everything. And to to handle a lot of a lot of problems that we have to solve in the the financial ecosystem. And in my point of view, tokenized money bring us a a kind of lingua franca of technology that can put everything to talk and to interconnect and to operate in the same way.

Yeah.

Right? And they interconnected uh world. So, I think it's the the best offer is to have, for example, and I the stablecoin and the also the the central bank and the tokenized central bank money uh work in the same in a similar technology to bring them interoperate improve the settlement uh the settlement layers and improve uh the how do I say the movement of the money, right? Between different uh trade system in different countries and different banks, too, right? Yeah.

And Jaime, how how you see that as a regulator, let's say? How do you see that as a central bank? Thank you, Luis. Hi, everyone. I'm Jaime the head of the financial technology hub of the Central Bank of Chile.

It's great to be here. Well, um if we go back to the history of money, right? We know that there's been a lot of innovation around it. And I consider that this is another point of the innovation of the middle of payments, the innovation of money. And I'd like to bring to the conversation, which is basically the usage of the wholesale point of view of digital currencies.

In this case, when we talk about uh DLT we many times think about the asset, right? Which you are tokenizing. But at the same time, you have to think about how are you going to settle that asset. So, in this case, there are so many cases in wholesale perspective where, you know, having a settlement asset uh with the protection, basically, of the money that you have, which basically money is confidence. At the end of the day, this is what it is.

So, from that point of view, the use cases related to wholesale, from my perspective, are really important. All right. We'll talk about this later cuz I have a question for you regarding this. You guys just launched your your POC, right? But uh Nayam, how do you see this?

What what kind of That's an easy question, right? What kind of problems we want to solve? [laughter] Yeah, thank you. Thank you for having me. Hello, everyone.

Uh I think I need to provide a real little backstory. As Alnet's not very well known across in Brazil. But Alnet was established during a program called LACChain from the Inter-American Development Bank Lab initiative. So, I think all you know IDB Group. IDB Lab is the venture capital and innovation arm of of the IDB Group.

So, given that context to bring adoption of blockchain technology across the whole region, Caribbean and and Latin America, then Alnet comes as a nonprofit foundation to help governance, private sector to orchestrate and design this type of digital public infrastructure. So, I think this is the hook for explaining our war our mission, but not just the mission, but how can we support this as a nonprofit foundation helping IDB Lab execute. And now we have an example to talk about this today. So, for us, it's all about uh coordination. Wow.

Okay, so how can we come as a region working with interoperability, helping public sector to bring capacity, institutional capacity, hands-on experience in those types of use cases such as cross-border settlement in a wholesale environment. Yeah. So, how we can bring this type of expertise and how can experiment this to help each jurisdiction to come as a whole and integrated world. So, this is basically what I'm interested in one challenge that is not just one country. It's a whole region that we can go and evolve and modernize each infrastructure.

That's really nice. And this region, like emerging markets, usually are early adopters, right? So, this is really interesting for us to to be talking about. Uh Bruno, I want to come back to you. Uh you've been like, I'm going to call you this, probably not right, but the founding fathers of Drex.

[laughter]

You've been since day one in Drex.

Never heard about that. But uh like uh what I know Drex was stopped and and like uh they they changed a little bit of focus on the what's going to be. But we should talk a little bit about about CBDC. And is Drex a CBDC? What is Drex or what how you see the the whole project project in general?

All right, it's a good question. For those that never heard about Drex uh is near in this in this market, right? Drex is the the Central Bank of Brazil project to create a tokenized uh Central Bank money or uh or a Central Bank digital digital currency. That's a kind of I don't like this, but it's a kind of cryptocurrency issued by the Central Bank, right? Of Brazil.

So, the idea was to to we had a since the beginning, we had we had a a pilot, right? A pilot with two phase of this pilot to test some use case and to test using blockchain to create this digital currency, right? Using the same technology as we are always for stablecoins and for crypto currency. Uh Since the beginning, we had a lot of tests on the the uh on the pro pilot to prove the technology and to understand how we can use it to improve our our financial ecosystem, right? The main reason is not create a crypto coins, right?

The main reason of the the the Central Bank of Brazil is not All right, I need to create a crypto coins to to fight against Bitcoin, for example. That's not the reason. The reason is to improve uh the financial ecosystem to to use this new technology that already has more than 3 billion locked value locked to improve our Brazilian financial ecosystem, right? So, uh they bring the technology, they studied we had 16 not only Inter, but the 16 uh consortiums working with the Central Bank of Brazil to test a lot of technology related to blockchain to create this CBDC or tokenized money tokenized Central Bank money. Uh But it it it didn't it we came uh in a in a conclusion that it's okay, the technology is not is not yet prepared for this in this phase.

We had some a big issue with with privacy solution, right? Because Ethereum uh Ethereum is a uh technology that is is transparent by design. And the we we need we tested a lot of solution to create some privacy layer inside this technology inside the blockchain, but no none of them was mature at that time. Okay. So, the the Central Bank decide to go give one step back and create one simple use case to using the same concept of the CBDC, not using blockchain yet, but they using a a digital currency to solve a simple problem for the financial ecosystem financial institutions in Brazil.

In my point of view, it is still a CBDC because it is one way to solve solve the liquidity and to solve the transfer of another assets different from the the the money, right? So uh Drexel is this experiment to create a new financial system using this a lot of new technology and to improve financial system connect connect with other central banks too, right? Yeah, and that's super interesting because it's like a great real use case initiative, right? And you guys just released your proof of concept. How did Drex and how did the the Brazilian experience?

And what Tell me more tell us actually more a little bit more about your proof of concept. Why you guys want to prove? How is why you guys are doing that? Great. Yes.

First of all, my opinion doesn't represent the opinion of the central bank.

Of course.

[laughter]

Don't worry. Yeah. No, well, and we're running a POC really narrow, you know, related to issuing tokenized assets and settle those tokenized assets with the wholesale money central bank money. Um it's been going a great great experience. It's something that we've been doing, you know, internally.

We're not doing this with the market there. It's just because we want to develop capabilities inside of the central bank about new technologies. We know that maybe this is not as new as a few years ago, but there are so many things to do in this space related to central bank money because normally when we think about central bank money we immediately think about tokenized money, right? But there are many other things how to settle transactions that are, you know, tokenized on a DLT without issuing central bank money. Actually, the the IMF the Monetary Fund has a taxonomy, a very good one, in which defines um on the one hand says, "Okay, if you are issuing money and you're issuing, you know, assets, okay, you can first decide if you are going to do both in the same platform or you are going to do it in separate platforms, which means that you can have central bank money in on a DLT and then you can have, you know, tokenized assets in different DLTs, which is quite, you know, obvious because the market is quite fragmented, right?

But at the same time says, "Okay, who is going to operate that platform?" Right? So you have also have many options. That platform could be, you know, operated purely for the central bank, could be, you know, together with private sector, it could be, you know, purely for private sector or in you can we can be also in a centralized, you know, DLT such as Ethereum or whatever. But the point is that that is when you are talking about tokenized reserve or tokenized wholesale money.

At the same time you have also, as I said before, other ways how to, you know, settle transactions. In this case, there is one which is called RTGS link, which is basically connect the RTGS of the central bank with the different DLTs in order to provide a synchronized way how to settle the transactions without the way of, you know, creating central bank money in a tokenized way. Which is something that we can test as well. We want we would like to do it as well. Of course, you lose things.

You lose the atomicity of the transaction because you are not using the same technology, but it's a, you know, different way how to think about this. And also there is another way how to do it, but I think this is the most interesting one. So finally, what we are doing is trying to learn as much as we can and make it the the best decision in order to provide information to the board of the central bank if in the close future there is, you know, any interest in in issuing or not a central bank digital currency. Yeah, but I mean it's a huge step for a central bank, right? So this is this is really this is really interesting.

And and Nayan, we have like here we have Banco Inter representing Brazil, let's say. We have Jaime with the Chilean. And you are kind of across all the region seeing the Latin America and Caribbean. What are you seeing? You see everyone converging for the same direction?

Do you see everyone doing different things? Tell us a little bit more. I'm very curious about it.

Yeah, sure, Luis. And I think Jaime provided a perfect example that the symmetry across the region, you know, we have countries and jurisdictions such as Brazil, Chile, they understand and they are actively proving what it's possible and so tokenize reals, etc. But generally speaking, we need to level the playing field. You know, there's different levels of understanding the the value that this could bring and that's why behind this and with this reading from the whole region, IDB Lab decided to establish a project called CBWeb/3 to come up as a regional cooperation to create a testnet present a hands-on experience to issue, redeem, and prove some use cases such as, like I said before, cross-border settlement in this safe environment. So the discussion here is, yes, different paces in each country.

But we know that in order to come as a region, how we discuss as an infrastructure, how this plays out as a it can scale, work safely, and more about governance. How does work in this context? So we are providing this trust environment for all of them currently uh 12 central banks coming together to understand. But IDB executed by El net is providing this technical um environment. But not just this and I I I need to highlight co-leaders of this initiative such as CEMLA, the Center for Latin American Monetary Studies.

Also FLAR is the Latin American Reserve Fund. They are interested in also providing some technical assistance such as, again, LF decentralized trust because this is not just an isolated effort. So how can really become this as a digital public good, a blueprint of a DPI for everyone can use including the private sector, not just the public sector. So this is kind of a contribution for a multilateral executed also for a nonprofit foundation. So different, but the effort is a joint effort to bring playing the left field like okay, let's start.

How do you guys think that we can level this field Nayan just said, you know, like do you think it's how long would it take? Do you think it's possible that the great output of this would be having a, I don't know, digital peso or whatever currency that the whole region use? How how do you see this? It's a huge huge problem, right? Huge problem to solve in my point of view.

Uh It's it's impossible to to think that every every country will adopt the same technology and the same the same stacks and the same pace as as Nayan told. Uh so it's a very difficult to understand. It's it's important projects like that the El net to to connect everyone to put everyone in the the same table to talk about and they to understand how we can learn learn one with another. Right? Uh and understand how we can do this work, right?

I think it's very important. It's it's important to to connect the central bank, to connect the private sector, connect and think about the final user that is the the the the population, right? And understand how we can do this work because it's important to to make it possible to connect everything and to do everyone talk with one another. But it's a very very You are in a bad place.

[laughter]

Thank you for that sentiment. Good luck with that.

[laughter]

I know that you will be it will be a successful project. Yeah. Thank you. Thank you.

And and how how do you see this, Jaime? Jaime, do you see because there's there's some similarities with the Chilean project with other projects in the region. How do you see this? Do you think everyone can converge for the same direction and help a little bit Nayan's job? Not at all.

[laughter]

Yeah, I mean there is a lot of cooperation among institutions. You know, we talk a lot. We like to share information about the different projects. Actually, I I've been talking with Central Bank of Brazil several times in order to learn the lessons learned about Drex are really important for for us because you guys were really, you know, the first movers in in this in this region related to this. It's a drone.

It's a drone, yeah. So yeah, as I said, there is cooperation. There there are projects running like like the one that Nayan said. I I can't confirm or deny that we are part of that, but

[laughter]

but yeah, there is cooperation and it's it's it's something good to to establish, to say, you know, because many people think that uh everything is but yeah, these kind of institutions, you know, share some information in a private spaces, you know, to try to create something good. All right. And um Naim, do you think that maybe everything that we learn together can be uh shared with all the institutions uh not only in the region, but across it? Because we have like the European region. I know you're not a specialist on that, but how do you see the other regions?

Not only Latin America and Asia, the US. Um yeah, there's definitely an opportunity. And actually, the idea behind it is one project for the region, to the region, from the region to the region. So, the idea is really, well, we have experience in Asia, in Europe, etc., but how can we deal with our own efficiencies or opportunities such as liquidity of non-convertible currencies?

How can we deal this? Can we bring new technology and new concepts to foster and encourage the discussion? This is just one an angle. But again, like like Bruno said, it's not it's not a tech stack to rule them all, but it's a safe space to discuss this. And one thing that we hear a lot it's about digital sovereignty.

Mhm. Quite valid question from Jaime. Who's going to operate this? Uh private? It's a hybrid?

It's just private sector? Well, it's we just want to help regulators and in this dialogue with the private sector in terms of keeping the mandate. Financial stability. Monetary sovereignty, so on and so forth. So, yeah, I think we can learn.

We did this. We researched a lot of papers to come up with design choices that could work for the region. Corresponding banking model on chain. Can we leverage liquidity pools for non-convertible currencies? Very advanced topics that depends.

We are currently implementing, developing, and co-designing and co-development with the whole working group. So, this is the beauty of not a stack rule them all, but at least one single discussion, one single place, and a trusted environment to share information. Great. Now, in your own POV, point of view right now, what is the question that urgently needs a cross-sector answer in the next 12 months? It's not an easy question, but I think everyone is is curious to hear that about.

Um we're hearing, I think this is the this event proves stablecoin, deposit token. So, every single form of private digital money. So, what we are really considering how this plays out with the public digital money. In a tokenized form or other species or any other kind. So, how we're going to have this balance?

Balance between pace innovation pace from the private sector and institutional rails. And I'm not even talking about DLT and blockchain. It's really kind of, well, this is one thing and this is another thing in terms of again, digital sovereignty, about digital transformation organization in each jurisdiction. How balance this. So, this is the question.

Is my it's in my agenda to help to help the participants of CBUAE 3 to come up with a potential phase, next phase for this engagement. Is that Is that your question, too, Jaime? What do you think? Um

[laughter]

Yeah, I I wouldn't say urgency like the word for my answer, but I think that we must be aware that there are, you know, different kind of digital money in this case or ways how to settle transactions. And because of that, we need to think about the coexistence, right, of all these different kinds of digital assets. I think that we must be aware of the risks and benefits of each one in order to decide why am I using one for one thing or or not. Bruno, is that your question, too? Yeah, I think that for me we need to understand with technology we need to create yet, right, to solve these issues, to solve this problem.

I think there is a lot of things to to be built in the near future to construct like a solution that you told us in the how to integrate a lot of technology to make it work, right, and to make to bring benefits to to the population. I think it's the the main part for me. That's great. Guys, unfortunately, we don't have much time. I could spend the whole afternoon here.

I don't know about your social battery, but mine is still a little

[laughter]

some but we have some bars yet, but we need to end the panel. Any final thoughts, Bruno and and all of you guys? Uh I think that a lot of things have been built now and the a lot of studs are being are being created just now, right? A lot of things to understand on how we make the future of financial ecosystem, right? There is a lot of things to understand and to bring BIS and the IDB institutions are helping a lot to understand how the future of the financial system will work.

So, it's important to everyone to be to be understanding, to be studying and the how the the things is going. All right. What about you, Jaime? Any final messages? Yeah, just a thanks to all of you in all this in this and for the organization and and you, of course.

Me, too. Naim. Uh well, again, thank you for having me. Thank you, my colleagues. And well, I invite you.

What I told here is public. CBUAE 3 is a public project. We are working with the decentralized trust. We have a lab under the decentralized trust. So, if you feel free, you can reach out to the panel.

More than welcome to contribute as a community as well, because everything we're going to open source. Okay? Thank you very much.

Thank you, guys. Thank you so much you as well.