CBDC 103 Wholesale and Interbank payments

▶️ James was a guest speaker with the All things CBDC club.

Recording available – see audio file and transcript below

Event info

  • Start time 19:00 UK
  • Duration: 1hrs 20mins
  • Guest Speaker: James Sherwin-Smith (@26Left)
  • Broadcast channels: Clubhouse (main), Twitter Spaces, Facebook Live
  • Recorded: Yes – Facebook Live and Audio file
  • Transscript: Yes – Otter.ai



Unknown Speaker  0:00  
 Basically, Blockchain work solutions,
 Unknown Speaker  0:05  
 doing the controls for really complex systems what
 Unknown Speaker  0:07  
 the agency's been doing some work as well with banks, predominantly central banks look into the digital currencies and
 Unknown Speaker  0:18  
 think about how to apply cases reflected applications or re platformed applications. Embrace. Central banks. So I'm really excited for this conversation. So thinking back to what Camille just mentioned around security and privacy considerations that central banks need to think about as they walk upon the space, but definitely a nutshell excited I'm looking forward to this competition, thanks for self registration,
 Unknown Speaker  1:03  
 I'll take it.
 Unknown Speaker  1:08  
 Hi, everyone. Good day to you. Hope you're having a great day wherever you are. This is James in the red. I'm based in the UK. I work for MasterCard, in the new payment platforms business, which is a part of MasterCard that focuses on everything that isn't card, and the any opinions today are going to be mine and not those of my employer, because that's a social media policy that abide by, but really looking forward to discussion. And I have only recently, kind of gone deep into Central Bank digital currencies and start thinking about that, and it was, it was prompted a month or so ago, Lyrae a blog, of a kind of really intuitive thinker in the payment space that I love reading about. And it really provoked thoughts in me on a Sunday morning as I was waking up and scrolling through my phone, and got me interested enough that I then started writing a comment on that blog which then turned out to be so long I had to go and write a blog about it so that was my introduction to Central Bank digital currencies. I've been thinking about blockchain and digital ledger technology for a few years now, I was first thrown that question by my employer, seven years ago and got locked away in a room in Dublin with some colleagues to think about blockchain and digital Ledger's and what that might mean, and what we should do about it as a business, and it's been, it's been very influential for me in terms of thinking about holistically, what are the challenges and payments. And what we need to do to make things work better. And I always like to start from that I like to start from, what is the problem and therefore, is this a solution. And, and that's hopefully some of the thinking I can bring to the conversation today. Thanks very much for the opportunity come out of everyone. Great to be on stage with you today, and looking forward to discussion, back to you.
 Unknown Speaker  3:06  
 Alright. Hi everybody, my name is Daniel Lee Dan. I'm a solution architect of our three but I'm actually transitioning between roles, so I wrapped up my job at R three and I'm about to start a new role with bank, the Bank for International Settlements out in Hong Kong for their operations there. And to spearhead some of their cbdc work. Carmel thanks for having me back. It's a pleasure to be, to be with everybody again. Rock star lineup. So I'm excited to see where the conversation goes. Of course, I guess maybe just quick, quick intro on my work I've been with. I've been working with R three for just over three and a half years now, and I guess my intro CBBC was with Project Jasper that was back in 2017. Since then, I've been kind of doing cbdc work with various central banks around the world. Most recently, and notably was probably the work with the banks to France and Swiss National Bank. That is an ongoing project right now. And over the years that comes from work in retail and wholesale services across craft. So we're very excited for the competition.
 Unknown Speaker  4:18  
 And Daniel, I'm so sorry I didn't see you joined the thought I was the last person on stage so quantities.
 Unknown Speaker  4:24  
 Nowhere from Toronto. I have to represent the committee.
 Unknown Speaker  4:32  
 Thank you, right before you had to pull Hong Kong.
 Unknown Speaker  4:35  
 Yes, represent there as well. All right, good. Well,
 Unknown Speaker  4:41  
 I'll kick it off by asking a generic question, and Daniel, I'm going to start with you just because I know Arthur B has a lot of work with DOD. What is a wholesale cbdc And how does that fit into the broader payment system that we know today.
 Unknown Speaker  5:03  
 That's a great question. I guess that's a good question to start off with because it's kind of definitional in nature and I guess zeroing in on what exactly we're talking about compensation will be very formative, so I guess I would say maybe I maybe have a final subsidy etc but what it isn't. It isn't generally accessible. So, I refer money flower was a great piece of work that was actually got that idea asked I think in around 2017. And in that money flow you can see the different attributes of different payment instruments if anybody's sitting in front of a computer right now listening to this and you want to want to Google the money flower. It's a very limited digress. I digress. So you can see. Oh, amazing, thank you look at that, multi channel. Twitter. So what's interesting about that is because when you look at that diagram you can see that a general purpose, etc. And, and a wholesale cbdc There are only distinctive difference in their attributes, is that one is generally available and the other one is not. So wholesale CPC is not generally available to the public, which is what makes it first and foremost kind of a major bank payment. I think what's interesting with it. What's interesting is, as a consequence of that, the way the instrument is used is very very different you know if you think about a retail payment system, you know the trivial example to say you know how do I how do I use this to buy a cup of coffee or, you know, a carton of eggs at the grocery store with wholesale cbdc The use cases are very different, you know, it's often. How do I use this to settle payment for security, or how do I use this for large volumes of money over courses, or for cross border payments of large value. I think one figure that I'll just put out there to contrast between general purpose, kind of retail CBBC versus wholesale CVC or just retail payments versus wholesale payments. This is an interesting statistic that sat with me and I think will maybe help kind of anchor the conversation is that when you think about retail payments like buying copies and cartons of eggs and any payment that you and I make digitally or physically in cash. That's usually accounts for 10% of the value of any domestic system, and about 90% of the volume of transactions is counter to the wholesale system, the whole system Canceler 90% of the value. So very, very large sums of money are only 10% of the number of transactions. So maybe just kind of for our listeners, you can keep that in mind as we go.
 Unknown Speaker  7:43  
 Well thank you, teams, any, any thoughts from you on the web, how do you see this space, how do you see, based on what Daniel just mentioned. What is a wholesale cbdc to you based on your research. And given your relationship and I, your knowledge of the banking system. What are the potential impacts
 Unknown Speaker  8:02  
 or drawbacks
 Unknown Speaker  8:06  
 that you see.
 Unknown Speaker  8:08  
 Thanks come out. So yeah, Daniel thanks for bringing people's attention to the to the money flow I know how to describe that way but I think it's a good defined nicer name than a four way Venn diagram. But yeah I agree I think it's a really useful tool and. Thanks. Come out and popping it up on Twitter cuz it's reminded me, has saved me going searching on, on the, on the website for the right paper. So what a wholesale CBCs for me. Well, effectively for me it's a way to increase the level of access to the payment system for non bank entities. So the way I think about this is that the way the way it works, I use the UK in the UK as a frame of reference, because that's the one I'm perhaps most familiar with is a UK citizen is that in order to arrange payments today, you typically need to be able to play in the space in the wholesale space of central bank money. So, we have different payment schemes in the UK which fulfill different objectives. One is a batch service, which is used a lot for Bill Payment it's used a lot for salary disbursement. And we then have a separate, separate scheme which is called Faster Payments which as the name suggests, allows you to make payments in almost real time. But both of those still require money to move between banks. So while I may be an account holder at Bank A, and I want to send money to Daniel, and is an account holder at Bank B. It's very rare that that money actually moves between banks in real time and is cleared and settled in Central Bank currency, typically what happens is, at various points throughout the day all the banks, basically tally up all the movements, and then they decide that wholesale amount of money, move between them, depending on all the movements that have happened between their respective account holders underneath. And they typically do that by being part of the central bank. Real Time Gross Settlement system RTGS. And that's why the RTGS typically as Daniel was pointing out, moves very large transactions, but in relatively small amounts of one. And if you are a new participant in this ecosystem if you are a FinTech, or a non Bank Financial entity or potentially even a new bank, you're affected effectively you need to be able to get access to the payment systems. And it means either you have to be big enough and bold enough to get an access or get an account with the central bank to move money through RTGS so you can then participate fully in the payment system and your account holders can receive and send money in the same terms as other institutions, or you need to be sponsored by a bigger bank who says we will do that on your behalf. And it affects the ability to use the RTGS and become part of a, of the central banking system can be potentially a barrier to entry for new companies that want to participate. And so one of the things that I think's interesting about a wholesale CBBC is that it could create a lower barrier to entry for new companies to participate in the payment system. And so effectively will allow more competition and more innovation to flourish. And so that for me is what's quite exciting about a wholesale Central Bank, digital currency is that it could create a totally new pool of liquidity that allows people to participate, allows me, people to organize transactions without having to be a big bank with all the capital and liquidity and all the other restrictions that come with the regulation of becoming a clearing and settlement bank in real in real time gross settlement in central bank money. So that's what I think about interesting at the kind of the top level, and there's probably a whole host of challenges and problems within the system that also wholesale central bank digital currency could consult for, but that's the first one that I go to when I think about this problem. This is James. I'm finished. Right. So
 Unknown Speaker  12:48  
 you said you suddenly go world with the L word, it's all come back to Wiley any thoughts on that. Before for the wholesale CDC what you're seeing here given your work with the banks to what's happening because the wholesale cbdc And there's a component of a stable point as well but we'll talk a little bit more on that, but what are you seeing from a wholesale CDC,
 Unknown Speaker  13:14  
 the perspective that I have is the bank. Back to the liquidity out to the ecosystem, I think, generally, banks in general, traditional regulated ecosystems. The reality that they're all encumbered by their ability to engage and participate in the entire crypto space. And often I think when you think about it it's the lack of clarity of regulation standpoint, and thinking about all the enterprise grade, like, governance, risk frameworks and all the traditional handhold and that we have to do for them. It seems engaged in the space. So to me that's been the biggest challenge from an adoption standpoint, we're given, or empowering, banks, central banks with things that we've done in the traditional traditional set right where we scan and we give them enterprise grade infrastructure where they're not necessarily messing around with Metamask wallets wallets that we use thinkable individual investors, but given them this framework on governance, risk and compliance. Well clearly delineated things from our enterprise standpoint. And ultimately, thinking about the work that you were doing with FinTech where it's it's really a solid enterprise grade sandbox where banks can go. Experiment with pilots and start to look at this notion where currency isn't necessarily a traditional paper, how can we tokenize safely how well guard guardrails around our approach to start digitize currency and enable access and different activities with more flexible, where you can do payment settlements transactions on a near real time basis where they're not necessarily all kind of technical gymnastics legacy systems. So that's the that that to me is really the exciting space. And those are the kind of compensation that I that I'm seeing going on right now. Where now, moving away from the days where it's just not entirely clear the intentions there. Think about the bank. But given the guardrails we're heading into the safely. Security Solutions infrastructure solutions where cloud native gives them to some of their workloads on prem. Looking at the flexibility is really what I'm seeing.
 Unknown Speaker  16:39  
 All right, so we've talked, we've talked about a few things here, so the liquidity aspect of it is something I want to come back to, and Daniel maybe going back to you. The concept of a central bank, issuing a central bank digital currency that is only available to institutions to banks, but on the other side. Still holding those institution with the concept was still using traditional Swift or bch or any other correspondent banking mechanism. In my mind, there's a disconnect of course in a technology perspective, that if the central bank were to issue a wholesale CBC, it would make it very difficult for banks to continue to operate on the other side so have one accounting system that's traditional versus on one side you have digital currency that the central bank, are there opportunities, you know, that we can talk about, whether it's for the banks, on the, you know, stable coin slash, I don't want to say define too much but the stable coin aspect of it that helps harmonize and tapping into that liquidity that we're talking about here because, just for everyone's benefit the concept of things mentioned today. It takes an average of two to three days, didn't really, for a transaction to go from one to the other apps and service providers make it look like it's real time
 Unknown Speaker  18:25  
 but the real settlement
 Unknown Speaker  18:26  
 the backend takes days, and therefore, if you imagine that you know if you send money to someone at the money comes out of your account, but they have not received it. There is a middle middle world and actually the cloud, but now we can see the cloud, but the money, it disappears and doesn't exist really for for use. You can't purchase anything with it because you actually send it to someone else. That person did not receive it, therefore they cannot get paid or recommended, and the because of float, some people would say, and there's a lack of liquidity at that level. That happens. Think about the opportunity, the opportunity of having real time settlement, if you could provide a digital currency, a digital a distributed ledger, where the transactions are settled,
 Unknown Speaker  19:19  
 almost in real time,
 Unknown Speaker  19:21  
 you have real visibility of your liquidity positioning, you have no visibility on your partners, and what's coming in what's coming out your ledger is up to date, can you do more transactions in a day. Can you move more money, so there's a concept of the velocity of money as well. So, Daniel, bring it back to the question is, what does that look like if, if that really is an opportunity to create liquidity in my mind on the one side you have cbdc on the other side you have a sniff or typical a CH are stable coins the way to go and opportunity there on the other side of the coin on the interbank side.
 Unknown Speaker  20:10  
 Interesting Placement courses. I'll try to answer. I'll try to hit on as many of them as they can, as I was listening to James and well, what are we talking about what is what is wholesale CPC I realized that I didn't even answer the first question I think I spoke more about wholesale payments in general without really talking to CDC, you know, listen, you were you were referencing the word stablecoin, quite a bit and I think it's interesting to kind of just to make sure that we speak clearly about the difference between a central bank digital currency and a stable coin stable coin, you know, has the, you know its name implies, that it's some type of tiered instrument, where there's an asset, there's a stable asset if that makes sense a Bitcoin that's pegged to it. So, leaving that aside, I think I would think about cbdc as an instrument that, that bears the liability of the central bank without thinking about what the actual kind of implementation structure itself is, I wouldn't really call stable coin a cbdc Unless it's pegged against fiat currency stable coins issued by a central bank in which case, you know it's probably more of a cbdc than a stable coin. So let's talk about wholesale CBDCs I want to talk about kind of the issue around liquidity and I think it's interesting talking to you talking those settlement time as well. In the context of liquidity because when you think about that settlement time which in general is usually you know t plus two. So from the time of the transaction, two days until the transaction actually clears, you know, of course, having that money kind of trapped in the system, existing at the at the center and not existing with the recipient creates liquidity issues because the money is otherwise kind of missing so when, when we think about, you know the value proposition of wholesale CBD easily can make. I think you're, you're on point and you say, you can do so much quicker. Using CDC, you can offer a settlement quicker, in general, you know, even using, you know, not necessarily central bank digital currency you can do so, quicker through many different optimization tricks, the issue is that everybody used to do it all at the same time so it's going to be the weakest link in the chain that is going to determine that people's to settlement time and even when we will work on Project Jasper, you know, three years ago, we could show that we could do some t plus zero, the issue is if you can determine that people have zero within Canada, you know if most of the trades are happening between Canada and the US and the US is t plus two. Well, the fact that you can do t plus zero doesn't doesn't even help you. So there's always that tricky issue of, you know, trying to get settlement time quicker and quicker but at the end of the day it's a network effect so you really have to move the market together and incentivize everybody to settle faster, and everybody to kind of upgrade their settlement tools and things like that. The interesting thing about liquidity I mean, potentially because I guess, the holy grail thing, Everybody wants to have liquidity and really wants to have liquidity, because without liquidity, you can't really do anything you're you're stuck in what's called gridlock, but the, the interesting thing about liquidity is that liquidity. It stands at odds to some degree, with, with real time payments, and what I mean by that is, when you think about RTGS systems as the name is Real Time Gross Settlement. Most RTGS systems, they actually aren't pure RTGS, they aren't RTGS in the sense that I only send a payment as as an institution that participates in RTGS system. I don't only send payments, when I have the liquidity to execute. In fact, what happens is a lot of these RTGS systems they have liquidity provisioning mechanisms, so that I can send the payments without really having the liquidity, but they give me intraday liquidity so that I can execute my payments during the day without actually taking any loans. But intraday period. So it's interesting kind of thinking about this holy grail. We want to have liquidity on the one hand, and on the other hand, we also want to have real time payments if you reason about those two things kind of closely realize that they actually have to kind of contradict each other because if you're sending real time. You must have the liquidity to do so. As always, you can't stop the payment, but you also want to be able to send payments, or you want to be able to make that introduction you don't, you don't have to preserve the liquidity buffer all the time. And it's interesting I guess maybe to ground the conversation again something a little bit more intuitive.
 Unknown Speaker  24:41  
 The average wholesale institution that has access to central bank balance sheet, usually transact X their balance sheet, in any given day. So, you know, the equivalent of that is saying, I can I walk around with $100 in my wallet. But I spent throughout the day. In build an outbound over $1,000 On average, that emphasizes the point that liquidity is really important to the system. Because, if I can only make a payment when I have enough money to make it. If my balance is only $100 but I'm sending $1,000 sending and receiving $1,000 worth of debt. I will rarely have the liquidity I need to execute real time payments. So on one hand we want real time payments with Quiddity volumes, they kind of contradict each other. Almost, almost by definition. I'm not trying to answer the question directly, but what I would like people to maybe leave with is the tension that exists between real time payments, especially on a wholesale level. And this notion of having liquidity. Liquidity provisioning and that's why when you look at a lot of the work that's been done in the wholesale payment space, you see this liquidity provisioning mechanism and good luck resolution algorithms and things like that that kind of pop up all the time, because that's the significance of that because without these maps, without these things. You ultimately have to go to deferred med payments, all over. I don't know if there's any follow up on that. Happy, happy,
 Unknown Speaker  26:19  
 actually before somebody to observe these are all great points so sorry to interrupt, I just want to reset the move really quickly. Thank you to everybody in our audience. I also want to acknowledge that we have some past speakers in here Nita and caress they talked at our retail and financial inclusion event so thank you for that and then Diane was here for policy and technology. Day, who also just joined us on stage. I recall you attending a previous rule, get some great points on wholesale CBTC so welcome to the stage.
 Unknown Speaker  26:54  
 Great points. Honestly, I was not I did not have a continuation for what you just mentioned, so thank you for for clarifying that. Because in my mind. And maybe you've throughout the literature as well and the research that I'm talking about settlement in real time, making room for liquidity. So the quicker you can get money from another bank, the quicker you can actually send money to another bank but your way the trading kind of the, the credit that gets issued against your reserve at the Central Bank, maybe this is where we'll transition and talk about, I mean when we look at what's happening at the stable coin level and how some business models are evolving and emerging right now, as far as how they create liquidity how they earn yields on deposits. I think there's something there that's, that's worth talking about. But Dave do want to jump in. Welcome back, Dave.
 Unknown Speaker  28:02  
 Dave I'm I'm humbled by your presence, if this was the day presented. It's a pleasure to share the stage with you, my friend, for joining, it's very kind of you to save so thank you. I just wanted to, I just wanted to say two quick things but I wanted to really argue with you because I missed the conversation. James You know earlier on, you said that wholesale cbdc was a way of extending access but of course I don't think that's true. The opposite is the point about wholesale cbdc is it's the financial institutions. And I think one of the things that is not helping the conversation, which I think confuses some of the people that are listening, is that we're calling the two things digital currency wholesale digital currency and retail digital currency are two completely different things. They have nothing to do with each other at all. So I think this is an experiment. I'm going to call retail central bank digital currency fish sticks for now or six in people's minds. So the issues that you were talking about about, you know, I sent the money to my friends at the bank sit for three days so my favorite examples that was in the US, a woman who went to visit her friend's, friend's house for her baby. So her friend. Her friend ordered map is on Amazon, and seven o'clock next morning the map is store. He said to a friend who happens to you, whatever it is cost $30 So she looked into her online bank account and sent her friend $30 Right. How can that how can Amazon, anywhere in the continental United States, within 12 hours. It takes five days for the money to get. Why don't we get Amazon to send the month, I mean literally wait a week to get Amazon verbals and $100 bills passed that will be quicker. So that's the problem is systems. Okay so fish sticks. The exact problem, because if I send my fish sticks, remind one it's your wallet. That's the end of the story. They go from my wallet to your wallet. There are no banks for faster payment systems are meant to meet credit accounts or credit, or anything else, just go from me to you. End of story. It's nothing whatsoever to do with wholesale central bank digital. And I think that was confused some of the people listening but I might be misinterpreting a little bit of what the second point is that why do we want wholesale central bank digital, and why do these financial institutions want this. Well, the answer is. And actually, I think, one of 10 Again, I'm criticizing and only half of the conversation. I think one or two people said settlement, sort of slightly. The point about wholesale bank digital currencies, there is no. So So, when the wholesale bank currency goes from where UBS sends the central bank digital currency dollars to bankers, that's it, that's the end of the story there is t plus anything. The reason the money just goes from a to b It's not crazy. it's. So, why do they want this. This goes back to the very early days, when people started messing around with Blockchain, and started to think, you know what, shared Ledger's of some kind, might actually be a more efficient way of doing some kind of financial transaction. Right. If I'm going to put shares on the blockchain. And you're going to buy my shares. It doesn't really help me to share from one, a theory of wallets or core wallets to another quarter of wallets. But then we have to go and phone up the bank to get the money. We need that money on the blockchain, because we can't put bank credit. I can't put my bank account. I need some money that I can pull out wholesale central bank digital currency.
 Unknown Speaker  32:53  
 Yeah. Interesting. That's an interesting statement, because, I mean, what about the fact that we can put our fist sticks on the blockchain.
 Unknown Speaker  33:08  
 And I don't think you can move a stick on the blockchain. That's a completely separate issue. Let's say we're influencing you know whatever some sort of wholesale bank digital currency, and we're implementing it is pretty standard way so we're implementing isn't a theory of smart contracts, and we're going to do delivery versus payment. Okay. We have no wholesale digital currency. So I'm going to use money that's in my Barclays accounts to carry out this transaction. So there are a million nodes on the network. And the smart contract gets executed a million times simultaneously on all of these nodes. And there are a million requests coming from all over the blockchain to transfer money from A to Z. That doesn't really sound right to me. Because the smart contracts can only can only move value that's on the blockchain. Right. If you want to move value this off the blockchain and actually do interbank just Bundesbank is probably quite good reports about this. There's the Swiss one as well but they either need wholesale digital currency to do this you can't do it in another way, and actually I worked on a system to do this in Belgium about five years ago so what you can do is you can have an Oracle, which is looking at the bank. Posting into the blockchain. You can execute on the basis of that then you have a stamp, which is monitoring the blockchain. And then moving the real money across the RTGS so you can't do it without digital currency, but there are some rubies, to think also digital currency might be a better way of doing. So my 2.31 retail digital currency and wholesale digital currency are entirely unrelated. And secondly, and this is probably the secret. The point about also digital currency is anything to do with existing speeding up settlement has to do with this technical issue, how do you how do you process transactions on blockchains are some of the shared ledger. When you don't have any money on that shared ledger. It's a solution to that specific problem I think so that's my two cents. So thank you.
 Unknown Speaker  35:36  
 So Dave, your your dinner sounds pretty good, You're actually cooking while you're talking, which I appreciate most.
 Unknown Speaker  35:45  
 You're absolutely correct most relaxed. Dating welcome entry good
 Unknown Speaker  35:59  
 solid multitasking. So, so first of all, I think, you know fish sticks versus wholesale right. Completely agree they're two different things we said that up front and that's why the title rental sells so yeah, they are different things we're not talking CBBC general we are specifically talking about wholesale, and to the point about liquidity and does it speed up liquidity. Yeah, not, I don't think it makes a blind bit of difference for monitoring, because the way I look, think about payment systems and how they work. That whole problem of managing liquidity I think it's been pretty well managed and obviously it depends where you sit and ecosystem which country you're in, and what the challenges there are right. But I do think that wholesale CD VCs Cancel for access in that I think it allows less mature, less, less robust institutions to participate in transferring CBCs wholesale between themselves than then having to join into the full clearing and settlement relation and being a fully regulated bank with an RTGS account at the central bank, that I think is a diff That for me is the big difference but sound like you disagreed so I was kind of curious as to why.
 Unknown Speaker  37:26  
 The only people that, that were accessed wholesale cbdc financial institutions. So what the what the Bank of England has done, which which is very good. I think it's a template I think other people do something similar. The Bank of England have created a new type of the omnibus settlement, which will allow institutions to hold CBDCs on behalf of customers, but the customers don't have the cbdc. It's the financial institutions.
 Unknown Speaker  38:02  
 I don't see that what I'm saying is it could be a different class of financial institution, right, Or, you can be a non bank loan institution, it could be a FinTech it could be a payment situation, etc. Right. And that's
 Unknown Speaker  38:14  
 the settlement accounts the non banks and as a settlement account.
 Unknown Speaker  38:19  
 Yeah, but you're still measuring in 10s Not hundreds or 1000s Right.
 Unknown Speaker  38:25  
 And the reason for that is obvious because you have to pre fund separate accounts because, as you pointed out, there's no credit. If you're if you're going to trade one of the settlement accounts through the day. You have to pre fund it, you can only trade up to the amount that you put in, Because they're not gonna grant you any credit. And so actually if you if you're going to, if you're going to spend the day moving money in and out of these cats or get someone to transfer wise, let's say, the maximum amounts, negative, if you like that you go during the day is 100 million that you've got to pre fund with 100 billion. I mean they don't, because obviously, companies and we'll get back to them during the day. But, yeah, you're right, no credit. So, it's not for everybody. That's why the banks brought in these Omniverse accounts for people, but I think we're agreeing on the central point which is the users of financial institutions. So, it doesn't help me. Speed up transferring money from me to my friend, because it has nothing to do with that application.
 Unknown Speaker  39:39  
 But one thing, one thing I will challenge here is, I do, I do see a scenario for the liquidity assets. Because, when, when you think about when you think about the access to the central bank and maybe that differs from jurisdiction to jurisdiction, but like Daniel was saying something some intraday liquidity. If you are JP Morgan or if you are Standard Bank of South Africa for example, you can probably command issuing credit against your reputational credit rating right against your credit rating, and say, I have 50% of the volume on the transaction with the liquidated I have I have been in reserve, but the other 50% Because I'm going to have to trust me that I can actually settle. When there is a settlement. And that can create and now, today, the way that folks is that banks can actually create that and extending credit above their liquidity ratios,
 Unknown Speaker  40:49  
 but in tomorrow's world,
 Unknown Speaker  40:52  
 assuming that you had a himself CBC, the same way we're seeing right now in the retail space of what a stable coin can do which is the commercial stable points we're talking about, and a bit around, you know, Someone mentioned the
 Unknown Speaker  41:05  
 smart contracts.
 Unknown Speaker  41:06  
 Is there a positive view here of how that can be addressed on a blockchain because I think that liquidity can be very powerful, at the wholesale level. Sorry, I think you're going to say something
 Unknown Speaker  41:23  
 yesterday but if you want to answer criminals question I can I can jump in on that. Please go ahead. I think I was gonna you know I was gonna talk a little bit more about the access and I think that on the one hand, you know, we've been talking about wholesale CtbC is to go back to the to the earlier part of the conversation. You know I referenced the money flower and I almost said my definition wholesale CPGs are accessible to the general public, so. So this notion of access. If a central bank. So I agree that in a sense you know if we say, hey, sacrament wants to do open accounts for retail individual challenges which operational as opposed to you know Policy and Governance and so on. So even if the technology of wholesale cbdc could enable that I think that, you know by definition we're talking about wholesale CBD something that's made for regulated financial institutions, regardless of whether we're talking about reserves or if we're talking about a distributed implementation or cbdc Like, I think the thing that I have, and working on is, is when you think about how these things scale up as as systems, and if you think about like let's think about open banking as maybe as maybe a counterforce to CBC that's built on top of a distributed ledger. And when you think about open banking and you think about how a system was in participants, all with API layers, integrate into each other well for everyone to integrate into everybody else, you need a unique set, you need some number to the end of common rhetorical integrations for for a group of N participants to all communicate with each other, each one with their own API spec of how you talk to my friend. On the other hand, if you think about a distributed which could put a distributed system where you have bearer assets on the network. I don't need everybody to integrate into my custom bespoke API creating this exponential combinatorial chaotic framework, I can simply say, This is my representation of a liability of my wife and assuming that I'm a central bank. And now anybody that we custody can claim to make a claim against this instrument. And I think that when I think about tech technically how to integrate different components, this loose coupling, that's enabled by the technology. In my mind, does lower the barrier for integration and access, and maybe to make this example come to life. When I think about dollar liquidity swap lines that the Fed is running. You know, I would prefer. How come the Fed does have $1 liquidity swap lines for every central bank in the world. And the answer to that is, is because of the operational logistical nightmare. And if I'm not mistaken. They used to run nine and then after the COVID crisis, they upped that to 18 and doubled the number because these this the liquidity was needed. So how come that ATM doesn't double again and again and again. So ultimately, everybody knows every central bank in the world with access with liquidity and they don't have to go to interviews, and I think this is this is an assumption that I would love to either validate or to have somebody oppose that is challenging, you're getting access even when even when you would like to give that access using today's practice there's my intuition, over the over the last little while it's the system's up close and personal, is that it doesn't enable that type of access. When it's desirable in the right kind of circumstances. So, any comments on that would be valuable. Well, I mean, you think maybe first, because me. You know the banks don't have a competent competent tutorial connection now I mean if I send money to Jay. Let's say I'm involved with taxes that way. It doesn't go from Barclays to. Where's Jake. It goes to Barclays send it to the faster payment. The faster payment networks and to net worth actually picked up because it's jacked
 Unknown Speaker  45:55  
 up. Get out of Java, and want to extend that to cross border banking relationships that don't share a common RTGS manual treading into different carriers, because I've already in trouble on food extra
 Unknown Speaker  46:19  
 that was going to be my next question.
 Unknown Speaker  46:23  
 Tell us about the trial. again for a second. If we will use in retail CBBC, but it's not obvious, is going to have any different ways. But the point is I'm sending money from. Let's let's use Facebook as an example right so Facebook today announced that they're pulling out Europe, and they're launching their US dollar stable coin with the bank. If I if I've got some dollars in Stargate or something like that it's something like that was a real bank. It's an entity with a banking license. But the point is, if I send money for my whatsapp, what if I send one of these dollars my whatsapp wallet to your Instagram wallet, and then you send it on to Facebook. It doesn't matter near the banking system Swift, don't even smell the transaction has nothing to do with. So I found by what I said about. Now if you're talking about moving wholesale CBDCs in the same way as swap. In other words, with the Bank of Japan, be able to hold us dollar wholesale CBDCs for transacting between Japanese institutions. I'm not sure. I don't know enough about the topic to know yes or no, there's an obvious reason why not, but I don't know enough about. I think today we bring up that Japan buying commodities that other Japanese banks in US dollars, you know, their, their, their, their access to the dollar system is is limited, I think, by real operational. And maybe I'll comment on that point again about swit the retail payments, and I said it earlier. Again, love to hear your couldn't get but you know that 10% of the value that exists in retail systems roughly, you know, maybe that's okay that doesn't touch the banking system and it's not the biggest deal to, you know companies that are targeting companies that are that are providing value for, for wholesale. So yeah that 10% doesn't get aggregated into the wholesale and some settlement later settlement but you're right it's a peer to peer transaction instantly gets you know there is a settlement, the IOU is a transaction and so is the settlement. You know I don't know I guess I just don't feel like it's that big of a deal. Maybe if I was sitting here with Swift hat on, I think, you know, so maybe maybe we have to fight a little bit harder for that type of sense of urgency. Maybe safe and secure. I don't know
 Unknown Speaker  49:16  
 if that's still the case, if the banks decided to do peer to peer, the stable coins. They had their own stable coins.
 Unknown Speaker  49:25  
 Well, you're absolutely correct, we wouldn't even need to be their own stable coins because I think I've got a wallet. So let's take a look. So Barclays now needs to pay some other bank or some other company on the other side of the world, so they could make a dress up to messages in ISO 222 and they can send them off to Swift GPI. And then the message will get through and then the third one goes and then you get a response. And then, later in the day you instruct settlement transfer from your nostro account to their boss draw account. And that goes through a correspondent bank and blah blah blah blah blah. Or you can email the coins for your wallet to somebody else's Wallet. So, I don't think you have to wonder what Swift is going to do in a world of digital currency, irrespective of whether those digital currencies. Central Bank digital currency or Facebook's, or anybody else, right, because the market just goes from wallet to wallet, there is no, there is no system in the middle for swift to manage and organize the message, right. So maybe immediately a little bit controversial and just interested. I'm just interested you know having James on the line. I also see Harold boss in the audience as well from domestically, so I'm just interested to know what you think about Smith as a network as a payment network, can you extend the same logic to MasterCard and Visa, of the world or is there something kind of fundamentally different controversial.
 Unknown Speaker  51:08  
 It's interesting, right
 Unknown Speaker  51:08  
 because Swift is a messaging network that supports a broken system is called correspondent banking, right. It doesn't exchange any value. It works in a limited way. And, yes, it's been enhanced from what I can tell with GPI and other things like that, but try and make it a bit faster and a bit better. It's still for me the kind of Polyfilla fill in the cracks in what is a broken system. I don't feel the same way and honestly I would say that about the broader kind of MasterCards visas, etc, as well because I think they do a lot more than what Swift does, and I think they provide a lot more value to the people that participate in those networks than Swift. So I think they come from a totally different perspective on that. So I don't feel they are subject to the same threat, I will be the first to admit that they are. They are a legacy of a time when you wanted to connect billions of consumers with millions of merchants through 10s of 1000s of banks. We had to use a technology which required you know phone lines and people to connect up switchboards and things to join from, you know, a switch in the center and now that we have the internet and we have peer to peer technology, you know, that technical reason for being, doesn't exist, but in the 50 plus years that those networks have been built over, they have established significant brand presence they have huge issuance and acceptance networks. They have realistic rules that provide trust and safety. And they do it in a relatively efficient way, compared to some of the alternatives that we're looking at today in terms of how blockchain works and distributed nodes and proof of work whatever else might be used, right. So, when I first worked for MasterCard in 2014. I was kind of like why does this thing exist, we've got the internet now we've got, you know blockchain blah blah blah blah blah. Now I'm looking at it seven years old I'm going. I have a huge amount of respect for having a unifying brand, that means this will work wherever you are in the world. And if something goes wrong, You're protected. And I think that is phenomenally valuable I think that's why Wall Street values and associative. In the same way. So, I think they're very very different things. I think if you were trying to put swift and mask on visa in the same bracket I
 Unknown Speaker  53:37  
 think would be very wrong. I agree, James, I think, to pretend it is obviously wrong because it will fix the price point. But the point is correct people think of these remarks guys, but actually payments is only one part of the proposition. And, you know, when I when I when I when I walk up to a store I see a MasterCard sign in the window. That's not just telling me, you can pay. It's got all this other stuff behind it which you don't think about. So I'm not here to shill these appointees they do make. They do make the whole thing. Click. And as James said if something goes wrong, it will get fixed. And, you know, if it turns out the merchant is actually rook front for a triad gag that discipling getting a hold of my cash. And for some criminal enterprise, I don't care, because the system will get my money back. And I think that's pretty important people, people will get taken advantage in a retail, wholesale CVTC, with a retail cbdc I mean you see what goes on using the forms that go on at the moment, you know, through, through bank accounts where your KYC that was, you know there's 20 billion in AML CTF, and people still don't. Imagine how you would remember the general public and then get ruthlessly exploited. When there's, when, when you go into sort of central bank digital currencies, which are whisked off abroad and you never see them again. So, these are MasterCard. Yes there are valid complaints about some of the complexities and costs, blah blah blah But games actually right, it's because they don't just do payments.
 Unknown Speaker  55:42  
 You're right. If I can agree with you, I just thought it was also important
 Unknown Speaker  55:52  
 with MasterCard payments. We've been earning wealth from the stable coins. The dish. Fi situation where there are multiple. And that may, you're referring to a scenario where from one to another, that has to do to set the font in the right format. And we know that this
 Unknown Speaker  56:39  
 is going to be the back end because of the regulatory compliance screening. I think we can all agree there is. Beyond that there's value in reinforcing. And I think that's something that others cannot offer, And there there are many, many ways, rising on the horizon for all of us. Institutions shifting, shifting quite rapidly. But historically, we know that large very large actors have successfully secured.
 Unknown Speaker  57:40  
 Right. So thank you forgot the arrow that was, that was a really good point D, welcome to the stage, I think you had a question or comment,
 Unknown Speaker  57:49  
 please welcome. Yeah, I heard the, the statement of liquidity isn't really an issue when you're talking about doing transactions, cross border payments, barring the FTC case, what do you guys payments industry back end paid finish etc. Ripple and XRP are they playing a role in the real world to solve the liquidity issue that the banks are having, or is there another system being touted, I know that the Fed now system is about to roll out next year. How do you guys see that playing out as well.
 Unknown Speaker  58:40  
 Okay, I'll kick it off and then James, do you want to jump in, maybe you can do some context so that doesn't get to any trouble. but I'll take a stab. I, I do see a need for, or maybe a demand, even for other players to come in and fill in that liquidity need. I think there are certain markets, easier not a financial institution that has direct access to central bank money that it makes it very difficult for you to create money. And the beauty of blockchain or digital currency and this base. So this is kind of a hybrid, you know what you would think as retail slash interbank liquidity payment. I think there's an emerging business model here, that fills in some gaps, but that does not particularly require the large payment system that we know today like RTGS which ironically they've asked for settlements and RTGS but there's no real settlement. But I do think there are other players that will come in to address the to address the access problem. And if the Fed continues or if they're indication of giving access to FinTech to the Fed system is successful. I think you will see syntax, and stable coin players and digital currency players, whether it's XRP and others I don't have a crystal ball on XRP specifically I know it's a sensitive topic, but that role of a stable coin to provide that liquidity and that new emerging place, I think there's a role for wherever MasterCard or Visa or, you know, partnering with stable coin issuers CVC issuers, now you hear people saying that they want to BCC distributors, there is clearly a need for merging liquidity and putting pooling and access mechanism and I think stable coins can do that, that's my view. Dave
 Unknown Speaker  1:00:57  
 Well I think that has to do first point RTGS it does in the UK RTGS fees for the final settlement fees if you send money from one RTGS capital did us account. That's the end of the story, there is no, there was nothing after that, that is the full setup, so I didn't I didn't quite catch the point.
 Unknown Speaker  1:01:26  
 You mentioned there was no set no real settlement, which I happen to agree with you but I thought it was ironic that RTGS are the real close
 Unknown Speaker  1:01:38  
 payments they have a deferred net so they have three settled on Windows a day so intraday if you're sending up to, I think it's 250,000 management James I can't remember exactly. If I said James 2000, as part of the conditions of membership ski is back as to give him access to that 250,000 immediately. Although they will actually themselves. Get the 250 1000 until it's connected up in a silver window later on which to consider. Feel free to major point where I agree with you. Although XRP or stellar or anything else, but accept Bitcoin because I'm just curious because Because Mr Martin said he liked the board's analysis because like is every soul that seemed like a sort of standard basis for future. And also I was just reading. I mean Bitcoin, in essence is actually a tether derivatives, and I've just, I've just read the roadmap to disclose that they're 100% US dollar reserve is actually 3%, which is a little bit different. So that might be another reason. But without coming to me that that was somebody said there was tether tether is supposed to be 100%, backed by cash 3% back on cash. People are all complaining about Twitter. But the point is the existence of those things I think to your point, is they show that the market wants the solution. And whether that solution in the long run will be XRP for US Dollars or some other dude who knows digital gold. I don't know what the answer is gonna be. It demonstrates this clear market nature solution, people want to save money. Around the world, like it's 2021 not like you're dating certain people, there's a real need for it has to be satisfied, and the markets getting dissatisfied with cryptocurrencies, is that the long term solution. I couldn't say. I mean, for all I know somebody tomorrow we'll come up with our oxygen base stable coin and
 Unknown Speaker  1:04:05  
 by the way, that was acquired for everybody, I realized is a dog coin
 Unknown Speaker  1:04:20  
 story. You've got a, you've got a few people who are retiring with hundreds of millions of dollars in Dogecoin, and then you've got millions of people around the world, taking a complete bath, because it's like it was in like the 1890s, you know, when when people were out shooting railroad stocks and stuff like that. People get super super rich but most people, they're going to lose their shirts don't trace down what two thirds of
 Unknown Speaker  1:04:58  
 the whole thing was created as a joke. It has no value whatsoever
 Unknown Speaker  1:05:10  
 to bring it back to the CBBC and go here to use that that kind of the Case in point, right, it's like these, these instruments, their power of their existence has opened up opportunities and and they are targeting a need, that is being slowly crystallized over time and something that the market is expecting, right 24 Seven instantly settled cross border cross currency transactions both at a retail and wholesale level, are you put in something like a dose coin or or whatever it is. And, you know, it's very easy for people to kind of get sucked into the narrative and I think that, you know, bringing the central banks into the picture with a mature regulated market perspective I think is, is incredibly well placed and I think it's gonna be fascinating to see what the what what the what the central banks and the regulators, bring into the system, to ultimately satisfy, you know, not take one person region, and a million others core, but you know this to solve the solve the real core core issue of storage and transfer of wealth, like we're in 2021 and not we're in the US. I think there is one point that I drifted off. Actually, it's actually an interesting characteristic four exercises. I think would be the same for you is about. But it is definitely token, accounting, and if it's either or. It drives certain decisions on mitigation. We don't choose a decision and decide how to decide how to deal with central banks, there's one aspect of that. Worst of the institution will eventually flew away from the actual type of scenario that quite nice and assess risk is not in control of money or another's, but we all have restrictions in house we can leave the country with our pockets, banks, banks have to report, but at the end of the day there is no parallel. So, if nowadays that can live in what makes money that actually need outside threat or risk and potential malfunction. Okay.
 Unknown Speaker  1:09:15  
 Now one thing I'll say, I mean I do, I do have a fairly strong position on on cbdc Being on blockchain, and the reasoning for me is the reason we're talking about TBC during your presidency these days have been the thing is because of Bitcoin. And it is because of the breakthrough technology that we're talking about here which is blockchain. True. Do you need blockchain to do cbdc No,
 Unknown Speaker  1:09:43  
 but would you want to Powell said. He said there's a debate about whether there's a Chinese digital currency will be on a blockchain. There's no debate whatsoever, they've already, they've already launched, not on a blockchain
 Unknown Speaker  1:10:08  
 visible but, but the interoperability aspect of it so how, how do you help. If you're issuing a CDC, because there is a change in the ecosystem that is purely technology driven. What we're talking about here is a technology, just by other people and different ways, but it isn't technology driven change, and for me I'm struggling with, you know, what do you tell a central bank five years or 10 years from now, where everyone is using a stable coin or cryptocurrency to do payments.
 Unknown Speaker  1:10:43  
 If you're bringing up some really interesting points so. Just two very quick points about that. The reason why no retail CPC will be on a blockchain is because it will be a fundamental requirement retail central bank digital currency that is that it has to work offline. And you can't do blockchain transactions when you're offline, So, it will be used for retail CPVC, but your interoperability. I think that's an interesting point, but particularly what it has to do with Blockchain if paintball go to the Chinese, and say, We would like to add DC to our paper wallet. Then the Chinese government will say fine, is the API. They're not going to say okay well we'll change the CP. Six with paper samples or something else so it turns into microfilters say, is our API, go right ahead. So the interoperability problem. It's that's not a blockchain. Right. And I completely agree with you, I think it's quite interesting. I want to briefly with you at the baseline. I think there is, there is more. And I think that's why for wholesale central bank digital currencies completely gets an issue, because this point about re implementing financial intermediation through some form of D fi, you know, whatever. That, that makes a lot of stuff. I didn't want to go around the corner to buy something
 Unknown Speaker  1:12:41  
 and discovers that because they can't get a month for because the power is gone. I can't buy it. That's not right.
 Unknown Speaker  1:12:54  
 It's not, but there are ways to have a hybrid. That's something we'll talk about more and
 Unknown Speaker  1:13:03  
 share some thoughts with you on
 Unknown Speaker  1:13:07  
 this specific problem. Given the focus on emerging markets
 Unknown Speaker  1:13:17  
 is another TV point that you have to take into account before you were saying earlier, which is my dinner.
 Unknown Speaker  1:13:31  
 You said it with such sincerity, so I always believe.
 Unknown Speaker  1:13:45  
 It's such an interesting discussion.
 Unknown Speaker  1:13:49  
 Dinner and quickly for me as a question asked about ripple. We've got Ashish Birla the ripple net GM. He was due to speak tomorrow he's actually just off so you can move back to next Friday, but if you're interested in learning more about how he sees the world. be more well join us. Now the FinTech and payments club. On Friday, the 21st of may.
 Unknown Speaker  1:14:12  
 Thank you for the invite. Thank you to everybody that joined us. This is a wonderful conversation I, I hate to interrupt but we do have to go ahead and again this was CBC 103 wholesale CPC and interbank settlement, definitely got into the details there we had our speakers are Wally from IBM, are three, and James Sherwin-Smith, Smith from masuk I thank you so much for joining us. and of course we have our host Carvel today. This was organized by M Tech and we will be continuing the conversation. Next week we are going to dive into privacy, security and fraud surrounding cbdc So Carmel is going to hand off to you for any final words and we hope to see you all next week. Yes, thank you, thank you everyone for joining the conversation we wish we had more time, and we're thinking about Bobby sizzling a follow up to this conversation and hopefully others will join
 Unknown Speaker  1:15:13  
 to follow the group all
 Unknown Speaker  1:15:15  
 things etc so you can be alerted when we're actually scheduling events. And join us again next time. I'll pass it on to James last words and Daniel de Aeroflex.
 Unknown Speaker  1:15:28  
 Oh, very good for you. Thank you. The convenience room great conversation enjoyed the debate. It's always nice to actually have some contrarian views and see what people think and different sides of the spectrum. So, thanks the opportunity really enjoyed the chat.
 Unknown Speaker  1:15:45  
 Thank you, everybody. Nice to see familiar faces and I even see some new ones. That was a great candidate by virtue. Pleasure to see you're surprised all of us everybody thanks for having me.
 Unknown Speaker  1:16:01  
 Thank you very much. Thank you everyone. Thank you carve out for the group here. Last question, was great refreshing to where CBT is now and in the near future,
 Unknown Speaker  1:16:22  
 a call with my boss will be honored to be on stage with the sequencing panel on my brother quite a bit. really excited about the future of the space. Looking forward to the next conversation.
 Unknown Speaker  1:16:36  
 thank you take care, See you next time.

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