 Hello, good morning, good evening, good afternoon wherever you are in the world and welcome to the second re-testing resetting digital currency succession of the World Economic Forum's DABOS agenda. I'm Michael Casey. For the past year, I've been the Chief Content Officer at Coindesk. Before that, I was at the Digital Currency Initiative at MIT Media Lab. Before that, a writer at the Wall Street Journal. It's an honor to be moderating this discussion with an esteemed panel whose experience spans both national and multilateral government, as well as academic and non-government leadership. Before I introduce them, I'd like to put this conversation in what I see as the right context. What excites me about digital currencies, why my team and I at Coindesk are privileged to be covering this topic every day, is that it isn't just your standard story of a new technology disrupting our lives, this isn't mp3 music files disrupting CDs. We're talking about the disruption of money, a technology so deeply rooted in the structural society that we so often just take it for granted. Whether we're talking about cryptocurrencies such as Bitcoin or, if we're talking about central bank digital currencies, as we will mostly be doing today, this isn't just another digital upgrade to our existing bank-centric system of money. With digital currencies, the money itself is software. It's programmable. And when that happens, a lot of our assumptions about what money is and how it functions may need to be reexamined. This disruption is likely to be challenging. And to add to those challenges, it is coming at a time of profound stress in the global economy, with governments racking up huge debts to cover the costs of COVID-19 relief, and central banks adding unprecedented monetary liquidity to the global financial system. It's also happening at a time of growing institutional interest in Bitcoin and other cryptocurrencies, which, whether you like it or not, are a part of the shifting monetary landscape. We'll discuss that and more today. The session starts with a 30-minute public panel discussion. It will then be followed by a more detailed conversation with forum members and partners. So now let me introduce this tremendous panel. We are joined by senior minister of the government of Singapore, Tharmin Shanmugaratnam. Before his important position in Singapore, which includes chairmanship of the Monetary Authority of Singapore, senior minister Tharmin has been a very active participant in international financial governance committees at the IMF, the G20, and the UN, all in senior positions. Welcome, senior minister. Next we have Dr. Xu Min, chairman of National Institute of Finance and Research in the People's Republic of China. Among a variety of important past positions, Dr. Xu has also been the Deputy Governor of the People's Bank of China and Deputy Managing Director of the IMF. Welcome to you, Dr. Xu. And last but not least, we have Dr. Sara Panteleano, who is Chief Executive of the Overseas Development Institute. In a wide-ranging international career in humanitarian and development work, she has led and served on numerous boards and committees for various national NGOs and UN bodies. Welcome, Dr. Panteleano. It's important to note that all three speakers have been actively involved in the World Documentary Forum's digital currency governance committees. So I'd like to turn to Dr. Xu first, because it's fair to say that the most hotly anticipated development in digital currencies at the moment is the CBDC being developed by the People's Bank of China. Dr. Xu, from your unique position to view that development, could you please walk us through where things stand with this project? What is the Chinese government's intention here? What is the purpose here? And can you give us a sense of the timeline? When might we expect the digital currency electronic payment system, as it's known, to go live? Well, thank you. First of all, I thank you for the invitation, and it's a great, great honor for me to join this very distinguished panel. We conducted two tests, as many people know, one in Shenzhen, one in Chuzhou, and on the digital currencies and small scale. In Shenzhen, roughly about 10 million RMB, as sort of for consumption, coupon free to the people, people can, you know, require and get them and they can spend money in around 3,600 shops and various, you know, the agents. It's relatively small, everybody gets 200 RMB, and the second in Shuzhou, we spend the scale much bigger, and the agent working with the system spend to roughly 30,000 and more. The whole thing, it looks like it's sort of for residential, it's a consumption type of things, like retail. But I think there are few features within the system. The first issue is defined by M0. In the first two tests, they are retail, but if you think about it, if you define by M0, it's still in the very early stage of CBDC, but you still can imagine many, many occasions and many, many scenarios you can apply. For example, the credit to SMEs, you know, for example, the salary payments to the public servants or, you know, to special subsidies and support to the people who need the Medicare or others. So you can imagine hundreds of different occasions you can apply to use and the CBDC to improve the efficiency, and transparency, and improve the public policy transmission mechanisms. I think that's the key issue. M0 is a very early stage, but it's due importance of many roles. It also has a secondary structure. It is, although at the end you see as retail, it's not because central bank will give the digital currency to the banks, for example, in the second case, involving four major commercial banks in China and one e-commerce platform. So those agents were on behalf of central bank, people bank of China, and to solicitate, you know, to get applications, to get people to distribute the digital currency to the people. So central bank does not direct it to the retail in the sense to the customer. So it's a two-layer structure and makes it easier in terms of building the system, building the backward office, and also building a sort of controlling system in a clear and relatively less cost and architectures. So I think the best case is we'll continue to do more tests, expand the scope, is not increase the size, but increase more occasions, scenarios to apply for the various usage, to test the system, sustainability, durability, accuracy, efficiency. I don't think that we have a particular, you know, and a timeline as Mark you mentioned. So we just try to step, step to carefully to test the system because for financial and also public service, the security, the stability is the most important thing. But I think even from a very beginning point, M0, the potential for use is central bank digital currency in the real economy is a huge. Yeah, I mean, it makes perfect sense that you would take this gradually and see how it goes because the impact, as you say, could be huge. And so we need to be patient. But the world is going to be watching with bated breath to see how it rolls out. Dr. Thurman, you know, of course, China is not the only country that has embarked on a CBDC project. And the way that doctors who described it very much a focus in their case, at least to start with on this retail facing model, and the incorporation of that into e-commerce and other things as they go along. But Singapore, of course, has also been actively exploring this technology. And you've been really ahead of the curve in terms of wholesale CBDCs. So with that in mind, what use cases do you see yours and other CBDC projects contributing to? And also, we're talking here about, in China's case there, about what happens within China. But there's this bigger question about how will they be used across borders? And what risks and opportunities may lie for that cross border commerce with this technology? Thanks, Michael. Maybe just to take a step back, I would say central banks, the majority of central banks, are now actively exploring the issue of central bank digital currencies. But it's not a foregone conclusion that most central banks will issue CBDCs, be they wholesale or retail CBDCs. The fundamental issue that we are responding to is the rise of e-commerce, the upending of whole industries as a result of digitization of payments, sales, delivery. And together with e-commerce, you now have new means of payments and new payment providers that are emerging. So the old world of cash on the one hand, notes and coins, and bank account based payments, the traditional two tier payment system comprising the central bank and commercial banks. That old system is being disintermediated by new players, but the biggest and most fundamental driver is in the real economy. E-commerce is now a major force. And the old world of currency needs to catch up with this new reality. The second thing that central banks are responding to comes out of the first, which is that there's been tremendous innovation in the private sector, particularly outside the banking system. In the first instance, new non-bank players have emerged in some cases, like in China, as formidable competitors. In many other places, they are the most, very often, the most innovative players and the fastest growing players. That horse or that set of horses has bolted the stable and central banks are now trying to figure out how they intervene in that race. That's the second major change and the last 10 years especially have seen that whole new horse race starting. Now, inherent in the network economics or the network externalities that come out of both e-commerce as well as these new private payment systems or ecosystems is that there's an advantage in market power. The more competitive you are, the bigger you get and the bigger you are, the more data you have from consumers and the more market power you acquire. There are serious issues to do with emerging monopolies, not yet present globally, I would say, but that's where it will come to and of course China is a very good example. Also serious issues to do with the fact that these are typically, as they get larger, closed loop ecosystems. They are walled gardens in other words and what we have to do in the interest of a vibrant competitive and efficient payment system is to restore biodiversity. You can't have walled gardens constituting your national payment system. You need biodiversity and you need interoperability and that's where we are coming into it as central banks. It's not so much about CBDCs, central bank digital currencies per se, but about what we do about this whole new innovative landscape. We don't want the race to stop and I think our attitude should not be at this point to pick which horse is going to be the winner. Our attitude shouldn't be to try to halt the race. We should want, in fact, a new dark horse in the system which is existing bank-based payment systems waking up as many are doing, certainly in Singapore the banks have responded very well, bank-based payment systems becoming as efficient and as competitive as these new players are. Reducing costs, speeding up transactions, offering better service to consumers. That too is happening and in fact the banks were really the first in the game of running real-time payments domestically amongst themselves, but this new dark horse is also now in contention and I'll aim, I think, at central banks and as financial policymakers should we, to not close our options at this stage, stay open-minded and we should not try to crowd out entirely the private sector players, those private sector digital wallets, tokens or stable coins. Don't crowd them out entirely because they've been a source of great innovation, but they cannot be left of their own. The payment system is a public good, it needs to be regulated, it needs to be interoperable, it needs to be safe, including safe from cryptographic incursions and it needs to have the necessary transparency to avoid the risk of money laundering and illicit finance and remember most studies show that roughly half of all bitcoin transactions have something to do with illicit activity. That's the first objective, don't crowd out this whole new set of players too quickly. Second, don't disintermediate the banking system and the risk of some conceptions of central bank digital currencies, particularly retail CBDCs, is that they can seriously disintermediate the traditional banking system, take away their source of funding because people would rather put their money with a central bank instead of with a bank, particularly in crisis or particularly when a crisis is incipient. It's very easy for people to switch money into a central bank if you have that cheap, easy, at a click of a button option or putting your money with a central bank instead of the banks and that will be very dangerous for the whole system. If we do have a central bank digital currency, which I think is still a option on the menu, not yet decided in most cases, it should make sure that it avoids crowding out entirely the private alternatives with the new stable coins and tokens, also make sure it avoids disintermediating the banking system and where possible allow for greater private sector competition. In fact, it's quite interesting because new players in payments may find it easy to ride on a central bank digital currency, offer smart contracts of the luck and they don't need to invent their own e-money, they don't need to go around acquiring merchants, they just ride on a central bank digital currency and offer their own services. Even in countries which are relatively unbanked, in other words, where the traditional banking system hasn't reached very far, particularly in rural populations, there are very interesting examples of central banks who are now experimenting with CBDCs that come together with bank accounts. So in Cambodia, for instance, which has high mobile and e-money penetration but is a relatively unbanked population, the new CBDC wallet which the central bank has introduced comes with a bank account linked to it. Very interesting option. So think of the world we are moving into in hybrid terms, not one or the other, not one or the other between the non-bank, private stable coin players versus the existing banks, know about the central bank digital currency displacing either of those two. Think of it in hybrid terms and how we can get the best synergy but regulation is going to be necessary. This is a public good, the payment system is a public good and we've got to ensure that we have interoperability, we have safety and we have the degree of transparency that is necessary including identity, digital identity that is necessary to curb illicit finance. Fantastic, senior minister Thamon. I don't know whether you may well have heard the previous session that we had in Bank of England Governor Andrew Bailey was maybe taking a slightly different position being that CBDCs would actually rise to ultimately make these private and different systems go away that they would basically outcompete them. Interesting that you're recognizing and keeping that option open and ensuring that there is this private competition, this bigger environment of competition. But I think it's most interesting and Dr. Pantoliano senior minister Thamon has set you up quite nicely here is that he also mentioned the idea that these ecosystems in this competitive hybrid environment he was talking about money starts to become an aspect of market power that your money now, your currency in some respects is an instrument of gathering power through the networks that they create. And that I think raises interesting challenges and opportunities for developing countries. He mentioned there of course there is this potential in these countries to perhaps leverage these existing systems and build on top of them. But of course developing countries who as he mentioned are many of them exploring these technologies have a whole set of different circumstances. They don't have the financial and technological resources that a country like China or like Singapore has. And of course they've been especially hard hit by COVID. So from where you stand, do you see CBDCs also cryptocurrencies and other elements of blockchain technology stablecoins were mentioned. Do they allow these countries to leap from the technology barriers that they currently face and address the economic challenges that they've had in the past but now face seriously in terms of this COVID-19 pandemic? Or does that competitive challenge that senior minister Thamon was referring to exacerbate the financial challenges that these countries face? Thanks Michael. So let me explain why the system we have now doesn't quite work and why we really need to leverage that competitive empowerment in trying to find ways to make it work for people. The current system doesn't allow everyone to acquire a bank account. In middle and low income countries, financial institutions are not easily accessible. They're not robust. They very often leave people to rely on cash to rely on barter to borrow money to collateralize loans or informal institutions like the microfinance organizations that we see in many countries, the cooperatives. And even people who have bank accounts are actually underbanked. They don't have access to the full gamut of financial services, loans, mortgages and brokerage accounts. And actually I would argue that this is not just in low and middle income countries. This is a problem even in our developed economies for some of the poorest in our societies. They've got very high logistical costs for the finance industry, but also for the consumer that often, especially in remote rural areas, doesn't have access to banks or has to really incur profound costs to access ATMs or banks. And so the digital payment system can help reduce these logistical costs, can help remove the dangers of holding cash, can help reduce the gender pay gap in financial access, which actually remains deeply persistent in low income countries at about nine percent. And we have positive stories from the Philippines where women's digital financial access actually is greater than the men's in Bangladesh, where women government workers are using digital access to receive wages more safely and conveniently. And they can really help facilitate remittances, which are actually the largest source of external financing in low and middle income countries. We have an annual remittance flow of about $529 billion dollars. They can be as much as 35 percent of GDPs in some countries according to the IMF. But remittances prices are very high. They're high because of underdevelopment financial infrastructure, because of limited competition, because of regulatory obstacles. So CBDCs in particular have the potential to create a domestic and cross-border payment transfer system that is fast, that is efficient, that is much cheaper. And they can actually be utilized by the full value chain for person to person, business to business, and business to consumer transactions. And they can also help create a financial identity and a credit history. There's actually a big problem for many people. They are historically excluded from private institutions. Another advantage is savings. That could be improved through the adoption of CBDCs as an instrument that can allow money to be stored easily, immediately, and securely. But CBDCs, if we really want to see them make a transformative contribution in this space, need to address three critical issues. The first is access to the internet, because in many low and middle income countries, internet communication infrastructure is very low compared to many other contexts. We see internet penetration just in the urban areas, where at least a 3G network is about 90 percent. So we need to be careful that this doesn't exacerbate further divide and digital exclusion, particularly for people in rural areas. So if countries are seriously considering the introduction of CBDC, they need to make sure that they first build affordable internet infrastructure and mobile wallets for CBDC transactions that can operate in low bandwidth areas. The second is the level of digital adoption, because only 3.5 billion adults in the world have access to a smartphone out of 8 billion. And even though we can only imagine that smartphone penetration will increase very rapidly, it will not reach 100 percent soon. So before governments turn to CBDCs, they must work with mobile providers to increase smartphone penetration rates. And finally, digital and financial literacy, it will be critical to help people understand and trust the technology, allay issues around data security, help people become more familiar with the technology, improve the financial literacy of people. So I actually think that CBDCs have the potential to be hugely transformative, but they need to be designed with the end user in mind, especially those who are currently financially excluded. So lots to unpack there as well. And maybe Dr. Zhu, this is an opportunity to think about China's role in the international community with a lot of developing countries that engage with China through trade and obviously China's investments as well. I'm interested to know what is the plan for the digital R&B in terms of how it fits into China's international strategy, for example, into the Global Belt and Road Trade Roots Initiative. We know that China has long been interested in internationalizing the R&B and in giving it a greater place in international commerce. So does a digital version give China a bigger opportunity to compete with the U.S. for that role, and if so, how? The first issue is I don't think it's a plan. The second is I don't think it was thought of for an instrument to compete with the dollar. And the currency competition is a very vague unclear concept, both in economic theory and also in practice. So I don't think that the digital currency will move into that direction. However, the digital currency can and will move across the board, which is very much lead and driven by market with trade flows, with payments, and with all the cash flow or capital flows, and with currency exchange. So all those things will go, but it's really much depends on the market. And also, I think it depends on the countries, the authorities' agreements, the government's agreements. And so here, if Singapore willing to have the Chinese digital currency move into Singapore and China willing to accept the Singapore digital currency, maybe two countries can sign a deal to work on those things. But respect the integrity of the country, I think this is also very important. But in the business, the market will drive the digital currency move into a different area. I think if that's the case, we will see and will happen. If you don't mind a little follow-up question here, Senior Minister Tharman was talking about interoperability and you there were alluding to it as well, the potential for agreements across borders for these currencies to be able to exchange with other, with, as you said, respect for the integrity of the system. There's a lot of focus on China's model, and we've had, for example, former CFTC chairman, Christopher Giancarlo, promoting a digital dollar in the US. And the idea that he's arguing is that the dollar will be more appealing, say, than the digital RMB in his argument, because there's better privacy protections. I'm just wondering, in the context of this interoperable cross-border arrangement, what guarantees, if any, can China give that this digital version of your currency won't have those privacy concerns that people are talking about so much? Well, I mean, since this is a sovereign digital currency, so this is really on the legal base equivalent to whatever the physical RMB. So I think that's the basic coordination for the digital currency to any foreigner who want to hold the digital currency of RMB as well. I really don't see that's a big issue. Obviously, if you go one step backwards, the internal architecture, internal technology, and can be very different. So the way it's used and transformed, and also the technical networking path also can be very different. So are those issues need to be solved when the market gradually developed? Okay. C. Mr. Thamman, you heard the reference there from Dr. Xu about interoperability with Singapore. Now Singapore has played, I would say, a leading role in setting an open regulatory approach to cryptocurrencies, to blockchain technologies, and you were alluding to that in your prior comments as well. What happens, though, on the international stage? How do we arrive and should we arrive at some sort of globally consistent standard for this regulatory framework? And what role will Singapore play in contributing to that global agenda? Do you think that you have an opportunity in this environment to take leadership? Or do we go back to a scenario that Dr. Pantaliano and I were talking a little bit about, in some respects, the big country set the rules, the US, of course, being the elephant in the room here. Where do you see this international process going? Well, I think, actually, payment systems are a very interesting example of how, I wouldn't say multilateralism, but a broad set of international players are now actively collaborating with each other. International regulators and central banks are actively collaborating with each other. And the roadmap, we all want to be on as we explore this rapidly changing landscape or as we traverse this rapidly changing landscape. The FSB, working together with the G20, has been in the lead and Singapore has been a very active member of these working groups. So I would say, if I compare it with some other aspects of international affairs, this area is actually working fairly well. You've got a set of players around the table, large countries and small, who have a common interest. Central banks tend to think roughly alike, a common interest in safety, stability, efficiency, resilience. And that process has been, has already gone forward a fair bit. But one issue that really happened, resolved, is the whole issue of integrity of different international systems or what the economists would call monetary sovereignty. In the traditional world, we already had a problem. Small developing countries were always at risk of what was called dollarization of their economies. There's a major country currency, the US dollar being the most prominent, which is always available to firms and consumers of that country. And whenever there was a hint of sovereign risk and there was worries about whether the central bank would run out of reserves, people would just start switching into dollars. And there are some economies today where the dollar is still a major unit of transaction and a store of value. Now that, which is a traditional risk, will become much more pronounced if you have a digital currency, because it'll be that much cheaper and faster to switch from domestic currency assets into foreign currency assets. And it's an issue honestly that we haven't begun to address. And it's one of the concerns we should have when we think about central bank digital currencies, particularly for major countries. So I would say that's an issue that's not just regulatory in the sense of financial regulation, it's a monetary policy consideration that we do have to address. But otherwise, I would say moving ahead, the roadmap must involve moving ahead so that we have not just domestic interoperability, but we have international interoperability, both for retail payments, remittances and the like that Dr. Patulano was talking about, as well as addressing the whole issue of identity. In other words, everyone would love anonymous transactions, but we know what happens with anonymous transactions. You do need both domestically and internationally to have identification, unique digital identities. Now it doesn't necessarily have to require a central bank digital currency. And I'm sort of coming on top of what Dr. Patulano was saying. You can have publicly provided digital identities like the Indians have had through the ARTAR system, combined with open API systems. And you can have interoperability and financial inclusion. So it doesn't necessarily come with the central bank digital currency, which is the train on top of the rails. You can actually have private trains running on top of a publicly provided rail. But internationally, that too will remain important agreeing amongst regulators on the principles and requirements to ensure that you don't have anonymity and that you do have traceability or transactions in a world where, you know, let's face it, illicit activity will remain a fact of life for a long time to come. Safety is a whole big issue in the face of cyber risks. It's a huge issue. And one of the reasons why I myself favor this biodiversity in favor of not having one big dominant central bank digital currency solution even within our own countries, let alone internationally, is that you don't want the whole system blowing up at once. It's a rapidly changing field. Those who are involved in cryptographic crimes have a lot of talent and innovative capabilities. It's a constantly moving field. And you do not want the whole system blowing up at once. Sorry, just because we want to get one last question in here to Dr. Paolo Piano. Thank you very much, Seniors. Because there's a huge pile of stuff to unpack there. We're going to have to take this into the forum discussion. But just before we leave this public section, Dr. Paolo Piano, a lot of stuff that Senior Minister just laid out there and the vulnerability in some respects of developing countries to this problem in some respects of the dependence on the dollar and so forth. In light of that, what do you see the most important considerations lying with regards to the regulatory approach that the world should be taking to this? I think just to pick up from what Senior Minister Ramon was saying, there are definitely considerations around illicit activity, around the problems of corruption, around privacy risks that are associated with digital currencies that are at the forefront of the mines and also in low and middle income countries. But I think that this need to be dealt with in the design of the regulatory framework around this rather than be used, not to put that in place. And I think it's important to, and actually, I think it's potential to learn from and build on the use of blockchain guaranteed transactions, such as in the case of Bitcoin. But let me just come to the system that we have now, because low income countries have been really badly affected by global regulation. If you look at regulation concerning fiat currencies, the international standards in banking regulations are often too complex, too difficult, too expensive to enact in these environments. They're unsuitable for low income countries. So things like know-your-client regulations that require formal ID, identification of residence, is actually ending up excluding people from financial access. Other types of regulations around the Canterra measures, Canterra legislation, particularly in the US, has ended up seeing US banks closing correspondent banking relationships. And so, as a result, we've seen entire countries in the Sahel, in Western Africa, entire economies really seeing restricted banking services for international trade. So we need to have a balance between adopting regulations of digital currencies in the way that we're thinking about in the more advanced economies and tailoring regulations in low and middle income countries in terms of ways practical to implement. But even in advanced economies, I would really urge regulators to think about regulations in a different way. It's important that regulators innovate. They understand that we need new regulatory models in this space that can really be tailored to these new instruments that don't thwart the innovation, that harness the potential, because we've seen an incredible amount of innovation that really will allow us to make the most of the proliferation of digital currencies that we've seen over the past few years. So yes, we need regulations, but we can't have just old banking regulatory models. We need to innovate and keep the end user in mind. Okay. On that note, an interesting one to end on here, the idea of innovation around regulation itself.