 Hello and welcome to the deep dive session on interoperability of CBDCs. First, we have to say this is the last session of today and after this session, the conference for today will be over but you will have the conference will start next today. I mean, tomorrow, sorry. So why am I here? That's the first question. My name is Bipin Baratun. I'm here because I am the vice chair of the interoperability working group in DC GI and policy and governance working group. I'm the vice chair and it's part of the policy and governance, like I said, and our ultimate aim is to come up with recommendations or standards as a group. So, what does that mean? It means we marry the existing practice to the new and exciting world of digital currencies. And in the interoperability working group, we deal with all kinds of digital currencies, including stable coins, cryptocurrencies, and of course, CBDCs and E money. This session is about CBDCs and in particular about the interoperability of CBDCs. And in our group, we are putting together a document that addresses interoperability from various viewpoints or perspectives, and also address looks at emerging solutions and standards. And then finally, we would like to produce recommendations for standards. And this particular session is focused on interoperability of CBDCs. And hopefully, the end of the session will have an idea of what to address in standards as far as CBDC interoperability is concerned. So, why is interoperability needed? Because there are multiple digital currency systems. That is the main reason. And how are we going to address it? There are standards for digital currency identifiers, standards for identifiers for people and enterprises, standards for tokens. These are just technical standards, but here we will also be addressing some of the policy and regulations, viewpoints as well and how can those be incorporated into standards. And then we start off with, you know, I have to address this important questions. Why do we need CBDCs? Are they a solution in search of a problem? Which is what many people say but CBDCs are the central bank liability with very low credit and settlement risk. It should be obvious to most that this is a very necessary instrument that central banks have to put out, although there is pushback from various corners to this enterprise. Anyway, thankfully I'm joined here by a able set of people, Tomasso, Mancini, Griffoli, Daniel Aiden, Sauleh Omarova and David Mills. These are all, you can read of their achievements and their positions in the presentation slide that you no doubt seen before. So my job is to just introduce the panelists one by one. And then we'll have a Q&A session and then a wrap up. So the first person that is going to present is Tomasso Mancini, Griffoli, division chief of monetary capital markets at IMF. So let me introduce Tomasso, please unmute yourself and start your presentation. I will disappear into the background. Thank you. Thank you very much for that very nice introduction that lays out a very important work plan. And we're here to speak about interoperability of CBDCs, technical standards, the plumbing that we can establish between countries to make this work. But I'd like to take a step back and say that's all very important. But we should not lose track of the macro financial implications of making CBDCs interoperable between countries. And that's really what my presentation will be about. I'll speak very briefly. I'll put up a couple of slides as backup and try to convince you that it's equally important to take into account these bigger policy issues. So here are my slides, which I hope you can see. Open economy, CBDC. Of course, when we think about CBDCs, we perceive a potential advantage to improve cross-border. If CBDCs were entirely interoperable between borders, there may be fewer intermediaries involved. Maybe I can receive this CBDC directly or we can exchange our CBDCs so that I can make a payment abroad. There's greater competition because of that and greater transparency, the ability to monitor transactions for AML CFT purposes, for instance. There's the possibility to establish from the get-go common standards to facilitate these transactions because we're starting with a clean slate in a sense, new rails that are promising. Because of the technology, these transactions may be safer and more respectful of financial integrity. Moreover, because computers never sleep, or most at least never sleep, there could be 24-7 transactions around the world. Now, those are very attractive prospects and potentially the interoperability of CBDCs could lead to cheaper, faster, more transparent and more accessible cross-border payments. And of course, there is a G20 roadmap that lays out various steps to improve cross-border payments, one of which is making CBDCs interoperable. And several of us on this panel are part of that work. Now, of course, making CBDC interoperable raises important design and technical challenges and this is what, of course, this ITU group is working on. Think about, just to illustrate very simply, two dimensions of this very complex problem. Will CBDCs be exchanged directly? Will I be able to directly own the foreign CBDCs with the direct ownership model? Or will I have to trade CBDCs through intermediaries? And are we talking about retail or wholesale CBDCs? Just these two dimensions make a very complex, raise a very complex set of questions. What are the technical standards needed? How to satisfy AML CFT on both sides? How to design markets where we can exchange CBDCs? How to ensure that this market has sufficient liquidity? How to gather data and information and how to share that information across borders in order to satisfy requirements for integrity, but also different requirements for privacy? What is the role of central banks in this exchange and this intermediation of CBDCs across borders? And so on and so on. And I know that some of the other panelists will speak about some of these topics. What I'd like to speak about is more of the macro financial challenges that need to be addressed. You see, by making CBDCs available across borders, by basically taking an eraser and removing many of the frictions currently existing across border payments, we may get much larger gross capital flows between countries, more leverage, and thus bigger valuation changes due to exchange rate movements, for instance. And we know that Mori Opsville has spoken very clearly about this. We know that large gross positions can be unsettling for countries. And the second question is capital flow management measures. These are controls that countries use to manage their capital flows. Most countries around the world have some form of capital flow management measure in place, about 80% of IMF member countries. So with the existence of CBDCs and their ability to trade, to be traded across borders to circumvent some of these capital flow measures, but if so, this has important implications for countries macroeconomic policies. The question of currency substitution is also a very important one. That is, will my citizens in my country start to use your CBDC, the foreign CBDC, to store value and potentially to transact. Of course, this is a grave problem, because the greater currency substitution would imply loss of monetary policy control, and potentially a foreign exchange interventions, the effectiveness of foreign exchange interventions would undermine central banks ability to serve as a lender of last resort would potentially lead to faster transmission of global conditions or financial shocks across countries. And could lead to a loss of information for countries and the loss of tax revenue, if the foreign CBDC is used for domestic transactions. So what I'm trying to do is is emphasize the importance of these policy considerations. The existence of the trading of seamless trading of CBDCs across borders could also potentially change the configuration of reserve currencies. Although we believe in general these transformations are relatively slow moving because they also depend on various institutional features, the depth of markets the credibility of institutions, and legal systems, etc. If these currency configurations change there will be a need to revisit the types of backstops that we currently have for the international monetary systems of which the IMF is a part. And the very important problem of payment system fragmentation comes up. Are we going to live in a world where they're going to be clubs of countries where CBDCs can be exchanged seamlessly among them, but not between them. That would be an important problem. And of course the question of the digital divide are we going to live in a world where some will be able to have CBDCs access CBDCs trade CBDCs and live in a very efficient world and some will not because they will not. They don't simply don't have the technical capacity to do so and that's an important policy consideration as well. Let me illustrate a little bit some some features of currency substitution so that you you see how important this is. This is a graph that shows the number of countries is bars shows a number of countries whose foreign currency deposits in blue currency deposits as a share of total bank deposits are between zero and 10 the first column 10 30 second set of figures 30 and 50 and 50 and 100% of bank deposits. And in gray. It's the foreign currency loans as a share of bank deposits. Now you can see that there are 27 countries with foreign currency deposits and between 50 and 100% of total bank deposits around the world and 17 countries. And with foreign foreign currency loans that are between 50 and 100% of total bank loans currency substitution is currently already an issue. And these countries suffer in terms of their independence of policy. This is goes into a bit more details and shows the countries that indeed have very high levels of currency substitution. You can see that that plenty of countries with levels above 50%. And this is a slide that shows you the evolution of currency substitution over time. So the dots represent countries and their level of currency substitution. After a time T when you started to see an increase in currency substitution and basically what you see is this black line shows the average across time, it's pretty flat. What does that suggest is that currency substitution is persistent. And thus, there is trade off here. Even if countries see CBDCs coming and improve their policies to try to limit the currency substitution, it will take time for policies to improve and for credibility to be built domestic. But the availability of foreign CBDCs could move very fast. And if it does, currency substitution could increase in the short term and remain high. Pretty hard to fight against currency substitution once it's still in the country. So this is an important policy problem to solve. And in fact, we can think about two forms of substitution really. We can think about rapid substitution and slower substitution. We can think about runs and shifts. So what does these look like? Well, a run is really a form of currency substitution and option of foreign currency over a very short period of time. So this is in a country facing a crisis, a capital flight, a capital flow volatility, and potentially the ineffectiveness of capital flow management measures in these cases. CBDCs, the readily available foreign currencies in the form of CBDCs, the ability to hold them lower costs and hold them safely might make runs to foreign currencies more frequent and more destabilized. So with these shifts, we can imagine here a slow movement towards a foreign CBDC. This is really the classical example of currency substitution where countries lose monetary policy under last resort efficiency. And you start to see balance sheet risks building up as the citizens are exposed to the foreign currency. So when we speak about currency substitution, we can have these two ideas in mind. And how do we solve this? Well, on the demand side, clearly the better policies to instill greater confidence and credibility in domestic policies, potentially capital flow management measures to limit the extent to which citizens can hold foreign CBDCs. We said that there was a question mark about the effectiveness of these policies. And on the supply side, of course, we could imagine banks issuing CBDCs, allowing for their holdings of their CBDCs to be limited abroad. And I think what these design, what these measures really boil down to are two questions. And I'll end with this. The first is, can central banks really control who holds their CBDC? Is it possible? Of course, there can be many criteria on which to decide who holds CBDCs. One of them being citizenship or geographical location. But can they do it? Is it technically possible? Is it legally possible? Are there constraints? What about shell accounts that people can hold, people can open through a foreign corporation, for instance. And what about synthetic CBDCs? We've written about this. And this is the idea that there can be a private issue of digital money that takes your domestic CBDC and issues its own liability in exchange, one for one. So you're holding something that is just the safe, give them a certain regulatory and legal structure. But you're holding something that the central bank may be able to control much less. Because then you're trading over the private network as opposed to over the public CBDC network. And those types of digital monies could spill over across borders much more easily. So the question remains, can central banks really control who holds their CBDCs? And I'll be very interested to hear what panelists have to say. And the second is, will all central banks want to control who holds their CBDC? And we can think about central banks that decide to cooperate and central banks that decide not to cooperate. And I think the cooperation example is really central banks allowing foreign governments to set certain limits on the wallets that are used by foreign citizens to hold CBDC. Because you issue CBDC, and you allow certain parameters of wallets to be managed by foreign government, so that the foreign government can decide to set a limit on balances, on data transactions, or whatever else. And that's the cooperation example. And the non-cooperation example, the question is, what can countries do and is perhaps the only possibility to work with exchanges that are used to convert domestic currency into the foreign CBDC and to establish certain controls at the level of the exchanges. These are open questions. These are completely open questions that I wanted to pose to the group to have a discussion. I don't have strong views on this, but this is really just a stimulating discussion. Clearly, these are important questions. And what I tried to suggest in this presentation is that the policy implications are very serious, so we should be thinking quite hard about these questions. Thank you very much. Thank you, Thomas. We will be talking about some of these during the Q&A. But right now, we're going to have Daniel Aiden come up and talk about his view or his experience as the advisor to BIS Innovation Hub in Hong Kong. They have come up with a couple of very interesting projects that are POCs, but still may answer many of your questions. So Daniel is going to present next. Thank you. Thank you so much for the kind introduction, Vipin. I'm not sure I'll be able to answer Tomaso's questions, but I'll do my best to add value. It's always a tough act to follow, and I always learn new things whenever I listen to any of Tomaso's presentations, so thank you. Thank you for having me. I'll just quickly share my screen and get started here right away. Right, so today we're going to talk about interoperability for cross-border payments in CBDC. The agenda that I have ready for us today is in five quick bullet points. I want to talk about the motivation, which may be a little bit redundant, considering that everybody is here for the probably for good reasons. I like this number two. I'll start, I'll talk about some definitions of interoperability from a BIS perspective. I'll highlight four quick models for cross-border CBDC interoperability, and then I'll end with a BIS Innovation Hub overview of some of our cross-border solutions, and I'll conclude with some final remarks. Okay, so getting started on the motivation. I think it's clear when we think about the corresponding banking network and the reality of cross-border payments today that much work is necessary. I was glad to hear Tomaso mention the G20 cross-border roadmap, and that is very much kind of the focal point of a lot of the initiatives that are going on around the world. When you look at the image on the left-hand side, this is a schematic diagram of how we see correspondent banking networks. You can look at the colored circles around the perimeters as different jurisdictions, and essentially if one node on one side wants to talk to another node on another side, it needs to do so through a routing of different correspondent banks. Some of those paths can be shorter, some of them can be longer. It really depends on the nature of those relationships. In general, these processes are costly, complex, have high-effect settlement risk, low transparency, and have a lot of reconciliation and reporting. You can see a breakdown based on a McKinsey study on the right-hand side of, if you take 100% of the cost of the payment, not the payment itself, but the cost, it can be broken down into those subcategories of cost. So you can see the top four being nostril-vostril liquidity, treasury operations, FX cost, and compliance costs. So as you pay, as the value and volume of the correspondent network goes up, that margin gets smaller, and ultimately the ones that suffer most are actually remittance payments and small-value payments in general. I think an interesting component of this that doesn't get talked about a lot is the value of active correspondent banks and the strength of these relationships as a prerequisite to cross-border payments at large. What you have in front of you is a graph that shows the state of active correspondent banks with respect to both value and active correspondent relationships in general. What I'd like to just contrast is, if you look at the yellow circles, those are active correspondent and value both increasing, which means there are more active correspondent relationships over the course of time being created in that region, and the value being transmitted on those channels is going up over time as well. And of course you can see that that is by far the minority of the world map. In contrast to that in gray, you can see this area is where the active correspondent number of relationships is decreasing, and the value is increasing, or underneath it, active correspondence is decreasing, and the value is decreasing as well. So the majority of the world would fall into a scenario where either the active correspondents are decreasing or the value is decreasing as well, which really talks about a steady decline in the health of active correspondent relationships of correspondent banking at large. When we think about inclusion and we think about it as inclusion of the individual, I think what this work shows is that financial inclusion can also happen at a country and jurisdiction level. To deal with some of this, this is the G20 stage two roadmap. It's broken up into five building blocks. The building blocks from A to E, and I won't enumerate through all of them, but I will say that we at the BIS focus primarily on building block E. Now each of the building block E being new payments, new payment infrastructures and arrangements. If I kind of double clicked on this circle and highlighted every building block that's contained within them, you have a total of 19 building blocks. And I think the building blocks, there's a lot of great work here and you can see that when we talk about technical interoperability. A lot of these don't just fall into technical interoperability. There's a lot of other types of interoperability and we'll get to that definition in a moment. But I'd like to just, I'd like to just pull your attention to building block E, looking at those three last sub sections. So consider the feasibility of new multilateral platforms and arrangements for cross border payments, foster the soundness of global stable coin arrangements and factor an international dimension into CBDC design, which I think is very much kind of the core of what we're discussing today. So maybe preempt the solution a little bit. CBDCs could simplify the monetary architecture and substantially streamline the cross-border payment chain. What you see at the top is today's roughly speaking correspondent arrangements. So if we took from the diagram before and kind of actually drew out a transaction, that's what it would look like. You can see between the payer and the payee, you have multiple different banks with an effects market in between. The promise of CBDC cross-border arrangements, or as we call them multi CBDC arrangements, is having an effects provider somewhere in the middle, but ultimately to CBDC payment system providers, payment service providers that could connect to each other in a seamless way. Ultimately creating a lot of the benefits that Tomas articulated in the previous presentation for cross-border payments. So let's talk about some definitions really quickly, and let's talk about attributes of interoperability. So we'd like to break interoperability up into these three sections, business, semantic, and technical interoperability. Okay, so when we think about business interoperability, we want to think about systems that agree on kind of the premise of the context, right? So how to settle obligations, how to connect payment systems, how to address the risk of failure, things that you think about as sitting outside of the system itself. Then there's the semantic layer. So you can think about that as understanding the same language and interpreting the same messaging structure. And then last but not least underneath you have the technical platform. So things around technical standards, messaging, data, hardware, things like that. I think the example that brings this to life is, you know, this conference call right here. So if we maybe took that backwards, let's start from the technical. We have technical interoperability because we are all on this team's invite, I think, or it might be a WebEx. Whatever architecture we're running underneath it doesn't matter if you're on a Mac or on a PC, or if you're on your iPad, it doesn't matter. We have technical interoperability, my video stream is coming through, you can hear my voice, you can see my face. That's working. That wasn't always the case. I should maybe remind people that there used to be a time where you couldn't take a file from a Mac computer and put it on Windows and open it. So technical interoperability is not given. Semantic interoperability is the fact that we are all here talking about the same topic we're talking in English, we understand each other. Business interoperability is the use cases we're talking about cross-border payments, the fact that you're all on mute, and I'm not, and there's a Q&A and so on and so forth. So those are the layers of interoperability in this call and it works very similar for technical systems and interoperability of payments. I'll move along now to quickly talk about some of the form models that we see for cross-border payments. So reading clockwise, single access point, bilateral links, hub and spoke, and cloud, sorry, a common platform. So those form models vary slightly in terms of their advantages and disadvantages and challenges. So just to give a couple of examples to bring these to life, when we think about a single access point system, that would be the equivalent of jurisdiction. The difference between jurisdiction A and jurisdiction B being completely separate, but you have a single link, single access point, a single corresponding, if you may, that actually has a foot in both systems that enables through a single access point integration between those two systems. A bilateral link would be taken to payment systems and asking them to speak directly to each other. This is relatively straightforward. The issue with this is that it doesn't scale very well. So you can imagine a system of bilateral links once you multiply it by two, by four, by eight, by 16, the number of links that you need to do to facilitate a bilateral system grows exponentially with a number of systems you're connecting. Sorry, going down to the left-hand side, not the clockwise, but down to the hub and spoke model. A hub and spoke model would be multiple systems that ultimately integrate into a hub and that hub allows settlement and finality within that context. This actually solves the problem of the bilateral linking, but introduces some other issues around connectivity of the hub, scaling issues, what that hub looks like, and things like that. And I'll try to bring these to life a little bit when I talk about some of our project work. Last but not least, you have a common platform. This is probably by far the most complex to implement in its own right, but the common platform is really all jurisdictions get together and perform and cooperate on a common settlement infrastructure. So you alleviate this, the bilateral problem and to some degree the hub and spoke problem, but the common platform is the hardest to build and maintenance of this type of platform and governance of this type of platform is by far seemingly the most complex. So to maybe make these things a little bit more tangible and bring these to life a little bit, I'll talk a little bit about the BIS Innovation Hub and try to show some examples of these type of models in our current work. So maybe just to stand back a little bit if people here haven't heard of the BIS Innovation Hub. So our three main objectives are to identify critical trends and technology to develop public goods using those critical trends and to facilitate a network of central bank experts on innovation. We have a global footprint, what you can see here is our three existing centers. We have one in Basel, we have one in Singapore and we have one in Hong Kong where I'm calling you from. We've recently opened new centers in Toronto, London, Stockholm, and our Europeans Center in Frankfurt and in Paris. We have a strategic partnership with the New York Fed, and we have business BIS Innovation Network working group chairs all over the world, as you can see so we definitely straddle the entire globe. This is our work program from last year and the only reason I'm showing this is to show that in spite of us talking here about CBDC when we think about the innovation agenda at large it's much broader than just CBDC Treasury tech and regulatory tech, next generation FMI's, open finance, cybersecurity, green finance, those are all on the agenda. You see the three existing centers here but actually our work program was announced today for the following year and in that work program we have all seven centers and it's a much more elaborate view of the next year. So if you want to see what we're up to, I highly recommend checking this out. So I wanted to highlight just in a closing remarks maybe in the last two minutes I hope I'm not going over over time. If I am, please ping me, or jump in because I can't seem to see the chat. I just wanted to highlight some of our work and maybe bring to life some of some of the previous models that we were talking about so the four projects I selected in order our project Enbridge project sure are we good to have a couple more minutes. Please close it out. Okay. I think everybody is going over a little bit but that's okay. Okay. Okay, I apologize. I, as I was preparing the slides I saw this a little bit long. So project Enbridge project you're a project Dunbar and project nexus. And maybe the only thing I'll say about this is that project Enbridge. So project Enbridge has four regions in it. HKMA, PBOC, Bank of Thailand and CBUE. Project Dunbar also has four regions in it. It's led by the Monetary Authority of Singapore project shares between the Swiss National Bank and the Bank de France and project nexus is also the CNAS initiative. All three of the first projects are CBDC cross border projects in different regions, focusing on a single common platform. Project nexus is connectivity of a hub and spoke model for retail payments. The first three are all wholesale nexus is a retail project. So within the scope of these projects, we're covering multiple of these different interoperability models. If time was permitting, I would have loved to jump into some of the architecture to talk about interoperability at a systems level. This is a great example and I would encourage anybody that's interested in this to to read the project and to see some of the interesting technology that was implemented there to facilitate cross network transfer of assets between the sick system in Switzerland and target to in France. And I'll end with a wonderful, wonderful speech that was given by Mr. Augustine Carson is our general manager. Just read the very top at the core at the core of the system are central banks they act as operators overseers and catalysts in the payment market and regulate and supervise private providers of the public interest working together they can provide central bank digital currencies, like private stable currency DC do not need to bore their credibility from sovereign currencies they inherit their trust, the public already places in the currency, they can serve as a sound foundation for future innovation. And with that, we'll pass it back to you have been. And thanks for having me. Thank you. It's a wonderful thing to hear about all the projects that bias is involved in. So we heard the monetary policy angle, we heard sort of a technical. View of those monetary policy projects. Now we're going to hear from a solid who's over over professor over over is an expert in regulation, and we have to listen to her to see what the legal and regulatory demands are going to be on such interoperability systems. She could be just asking important questions, but those questions have to be answered. In order for us to proceed in a fruitful manner that is different from the past. So, please, Sally. Take over and do your thing. Thank you so much VPN for inviting me to present my thoughts at this illustrious panel. It is a tough act to follow both Tomaso and Daniel, and I would like to sort of continue on the same path of the discussion that Tomaso and Daniel began, but picking up on this sort of the three layer three dimensions of interoperability that Daniel mentioned business semantic technical and focus us a little bit on the importance of the fourth layer. Perhaps it's not even a layer, but the general environment in which those layers of interoperability exist. And I would call it tentatively governance layer or perhaps public policy interoperability layer. So just to step back and think about what what that really means. So cross border CBDC interoperability what is it well ultimately conceptually it's a form of structural integration. There are two words to pick up on that metaphor that Tomaso used, taking the eraser and erasing certain boundaries, integrating the space. And the questions that we need to ask ourselves as a community participating in that exercise of erasing boundaries is, first of all, to achieve of this type of structural integration. But behind that there is a bigger issue is, you know, how much of such structural integration. Do we really want. And that's when the public policy and regulatory interoperability, if you will, of different CBDC efforts comes into play, particularly strongly. The goal of interoperability is of course to create a seamless transactional flow, not just the flow of payments, but also the flow of investment and financial products, non financial goods and services in other words the structural integration is ideally much bigger than simply the integration and interoperability would achieve that by eliminating certain transactional frictions, right, in other words, increasing the speed of payments transfers and transactions, increasing the access convenience, transparency and predictability cost savings will be higher supposedly increasing volumes and capacity. And that's basically what what we all know that's that is the potential benefits of interoperable CBDCs and creating that word of integration. There are three key tools that we have in that exercise. One is technology, then there are institutional arrangements market structures but also institutional arrangements in terms of oversight. And finally there is a kind of legal and regulatory arrangements, the structure that would that would be interacting with technology and institutions. So with respect to designing interoperability in the CDC, CBDC world, technology on the one hand and institutional legal arrangements on the other hand are interacting in a particularly complex way. So for example, technology, technology is an external catalyst of change that's sort of the source of the innovation right that's the disruptive factor in a way it is something that kind of comes from the outside and sort of creates that possibility for producing those transactional efficiencies that we all associate with interoperable CBDCs. Legal and institutional arrangements on the other hand are much more path dependent just by nature. And in that sense, they are more of a legacy factor. And so when we are talking about clean slate as one of the potential benefits that CBDCs offer with respect to reorganizing the payments flow in the world, we have to be aware of that sort of legacy significance when it comes to the legal and institutional arrangements. The role of legal and institutional arrangements with respect to interoperable CBDCs is to support those transactional efficiencies, the speed, the access convenience, the cost savings and so on so forth. But it's a little bit more than that because the goal and the role of the legal and institutional arrangements is also to control and reduce the systemic risks that those same transactional efficiencies generate. And to integrate technology and public policy seamlessly together that integration is done through structuring the institutions surrounding CBDCs, particularly on the global level, and rules and and the policy that those rules represent. So this is already kind of a commonplace to say that transactional efficiencies, the speed, the access and so on so forth, can create problems on a macro level. And Tomaso brilliantly kind of highlighted for us some of those macro financial risks and challenges that interoperability creates. But what I would like to kind of highlight in that respect, maybe to add to Tomaso's discussion is to show how those types of macro financial challenges also have a layer of special challenges from the perspective of regulatory capacity. In other words, central banks that start living in that interoperable world of CBDCs, their tasks, the existing tasks and the new tasks become incredibly complex in a qualitatively in a qualitatively different way, new way. For example, the fact that the aggregate transactional volumes increase the gross flows of payments not only money but also the flow of investments and financial interactions and so on so forth increase. That scale makes it much more difficult for central banks to control or even monitor the not only the flows but the impact of those flows on their domestic systems and their domestic policy goals. The speed of interaction in the financial system and payment system also of course increases speculative trading in financial markets, for example, and potential leverage accumulations and the configurations in which leverage exists. So to the extent that central banks want to keep an eye on the impact of speculation and trading and leverage on their internal systems, that becomes much more complex. Of course, the speed also increases the speed of contagion and the multiplicity of channels through which that contagion of various risks can happen. Interestingly also large private firms, particularly tech firms may exert outsize de facto control of payments and the financial infrastructures through which those payments flow. And that raises the question who operates the rails through which that interoperable CBDC actually becomes interoperable. But even more importantly, there is an interesting question that I find fascinating is the lender of last resort right and tomato kind of mentioned that issue. So the lender of last resort and other liquidity backup provisions may need to be activated very quickly in fact in real time, and on a much larger scale in the world of interoperable CBDCs. It creates a governance issue a governance command room that brings together technology law institutions, both on the international and the domestic level. So for example, in particular in times of market turbulence right, who which central bank really should step in and take that lender of last resort role on itself upon itself. There should be an agreement. And if there should be an agreement with respect to allocating this responsibilities and powers in effect, among central banks, then that agreement should be achieved before the world becomes interoperable, possibly, or should the goal be to render that role less relevant or perhaps even irrelevant through purely technical controls right, and that's the question that ultimately goes to the issue of access. Can central banks control access to their CBDCs. And that is a technical question, but perhaps it's also policy question. For example, domestically the CBDC can be designed in a way that you know, a particular central bank can decide which entities can have access to its own balance sheet and to its own liquidity provision on intraday level, or on some other basis. Can there be a situation in which a particular central bank can become the effectively an international lender of last resort in certain situations by virtue of its exposure to specific large payment service providers. And so, if that's the case, then how can it be managed. Can it be managed to pure domestic regulation or do we need some kind of a broader international agreement on institutional and legal matters. So the point of this little example is to emphasize how important it is to acknowledge the deeper linkages operational linkages, if you will, between technology and governance and governance in that sense is as much a policy and regulatory and ultimately perhaps a political issue, as it is a technology problem. And a couple of just quick finishing thoughts right where does it leave us if we acknowledge these linkages and start actually digging into these types of things like lender of last resort and liquidity provision, right certain institutional access decisions on the domestic level in the CBDC experiments and so on so forth. Is it really achievable for us to really aim for interoperability on an international level from the start. Perhaps those types of regional as Thomas said, I think clubs right, or maybe regional CBDC unions could be the more achievable the more realistic sort of sandbox type experiment as the first step toward a full interoperability, because it might be easier to manage the governance aspect of this kind of unity, right, with respect to agreeing on substantive legal and normative and regulatory policy goals and how to operate, operationalize those goals. But on the other hand, if we start with the multitude of these types of clubs in terms of interoperable CBDCs. Are we going to create a new form of legacy that is going to be very difficult to overcome. In other words, to create a truly seamless transactional space on a larger scale. Or should we actually bite the bullet and admit that in order to create the CBDC world that is interoperable, and therefore to increase the value of CBDC even domestically from the start, we need to really introduce more creative and perhaps bolder about creating an institutional forum, or maybe enhancing the existing international institutional forum for deciding on how do we bring together greater interoperability at the level of our laws and normative policy goals and regulatory goals alongside technology and to what extent the two can complement one another, and to what extent there are tensions that can only be resolved through negotiation and governance agreements. So, thank you so much. Thank you, Sally. So we go from monetary policy governance to technical to a super doll, which is spread out all over the world. So talking about super dolls now I'm going to bring in, you know, people from the Fed who are probably closest to the super doll than anybody else. So, between the Fed and BBOC, they probably cover 60 to 70% of the inter sovereign market. Without further ado, David Mills, who's associate director, the federal board, and who can also talk about operationalizing some of these issues, some of these problems. He knows a lot about payment systems be having written about Fed now, and other topics, and probably not fed now but more on the older system. But we are going towards Fed now maybe it is going to be fed now for the whole world. I don't know. So, David, please round out our conversation. Thank you. Let me just get my screen up here. And hopefully people are able to see that. So, one of the benefits of going last I think is being able to leverage and piggyback off of a lot of the good thoughts that have been said by the previous three panelists so far. So, I'm going to try to take a slightly different tact anticipating that we as we had a lot of policy discussions around some of the policy considerations, supervisory considerations around achieving interoperability for cross border payments for CBDC. And so I'm going to try to try to take from from that big picture into some maybe initial thoughts and reactions to sort of where you know where do we want to think and focus some of the efforts around technology standards and so that's what that's kind of where I'd like to kind of end us today before opening up for a broader discussion. And, you know, I have to say at the outset that these views that I'm about to express are my own and not reflective of anyone else at the Board of Governors or the Federal Reserve System overall so just want to get that out there. So, as I think you've heard through other panelists discussions already and but you know also just to help level set when we think about design decisions for potential CBDCs right there are a range of things that have to be thought about. And this is just thinking about what an individual central bank is faced with in terms of thinking a bit about how to build a central bank digital currency, and I've kind of, you know, brought broken that up into some broad themes, you know, most of with a with a bit of a technology focus, but not not exclusively. And the first is, you know, just how does one design the characteristics of the CBDC itself, for example, what a CBDC pay interest, you know, what are sort of the technological elements underneath the central bank digital currency, and that's ultimately going to be tied to some of the motivations or use cases or user needs and each jurisdiction that will help determine some of those important design characteristics. The second broad category is the technology underlying architecture so how is the central bank pretty much going to account for and distribute, you know, the any potential central bank digital currency so what is the underlying infrastructure which is going to be important. And I'm here I'm thinking, most primarily at least at the outset of the infrastructure for how the central bank interacts with a distribution channel for central bank digital currency so today, just thinking about traditional legacy payments infrastructures right there are, you know, Fed now was mentioned as one potential new retail instant payments platform in the US we have fed wire for wholesale markets there's an entire distribution channel that ultimately connects those institutions that have access to that channel to then be able to receive existing forms of central bank money. So, you know, a CBDC in and of itself may leverage new or different types of technologies, even if it leverages the same types of entities and institutions. So we have to think a bit about what that infrastructure may look like, or range of infrastructures I shouldn't say that maybe there's there's not one particular infrastructure but but many. The third group large category that I flag is the, you know, what are the types of entities that have access to that underlying infrastructure and so access policy of central banks is fundamental here. Some of those are fixed by statute some of those are fixed by laws and or other other policy policy actions but again, thinking about who will be able to access the underlying infrastructure and be able to then ultimately interact with the general public. More, more directly from that is going to be important consideration. The fourth category I have here is the technology then of the infrastructure used to transfer and transact central bank digital currency. So this is where we can talk a bit about what are the payments platforms that can be used for a central bank digital currency. And so again, that can be a different technology or the same, you know, it's to be determined in variety ways from the technology of the underlying infrastructure infrastructure with a central bank issues and redeems central bank digital currencies in a variety of forms. And then finally, you know, it's important to think a bit about the ways in which consumers and businesses will interact and be able to interact with the central bank digital currency. So, you know, what are the types of underlying access points apps point of sale transactions integration. Again, thinking domestically, the different ways in which a CBDC can be accessed and used for transactions purposes is also going to be important. Another another sort of layer of technology that's important is how to convert to other forms of the same currency so central bank digital currency into bank deposits into physical cash. Other ranges that are available today under a very strong operating assumption that these other types of access points to the currency will certainly coexist and that that generally is the mindset that the Fed and other central banks who have been working on this continue to to assume that even though things like physical currency may decline is not necessarily thinking of a central bank digital currency as a replacement for these but rather as a complement. And so how do we think about technologically how these may be easily converted to other forms. And then finally the topic of the day how to exchange a central bank digital currency for other currencies to make cross border payments. So, as I think the point of this is to just say that there are a lot of technical design questions, some of which are going to be very domestically oriented. Some of which are important and crucial to think about from a cross border perspective and so we have to kind of keep in mind that there are a lot of different technology decisions and other policy and business decisions as others have talked about to be contemplating as we think about central bank digital currencies for cross border. So the key for cross border payments and central bank digital currencies for cross border payments is how can you effectively and efficiently exchange central bank digital currency. I think that's fundamental here. You know, we we know and others in the panel have already noted that people have a vision for central bank digital currencies as a way to address a number of pain points and cross border payments. You know, on the technology side, you know, I've highlighted a few things here that that others have already highlighted. You know, how do we address fragmented and truncated data formats messaging platforms. How do we deal with complex processing of compliance checks for illicit financial prevention and detection of illicit financial activity, which is an important aspect to be thinking about how technology can make that capable. I think it was brought up earlier by Tomaso about limited operating hours and how you kind of overcome some of the the frictions of that thinking about how a central bank digital currency will be able to to transact in ways in which where the liquidity needs may not be fully accessible on the other end. And how do we think about that I think so I mentioned a bit about financial stability risk. There's a lot of liquidity needs when you think about cross border payments. How would those be handled. And how to sort of simplify long transactions change. I think Daniel talked a bit about the simplicity of alternative forms of bringing together different payments transactions platforms for leveraging central bank digital currency transactions and simplifying the different ways in which we could simplify cross border payments today. So the big question then is can central bank digital currencies accomplish some of the, you know, reducing these pain points creating some effectiveness and efficiency that other legacy systems cannot. And of course we, you know, it was also mentioned earlier that the idea of a clean slate or a greenfield approach that that is certainly worth thinking about. I'm thinking about it for primarily as a, you know, with the list that I had on the previous slide that a lot of this gets to the transactions level and a lot of the I think the technical standards and specifications to be thinking about are primarily focused on that payments angle that cross border payments angle and those types of platforms to think a bit about where standards might be might be helpful. So on my next slide then so how how our CVC is envisioned to help I mentioned there's a clean slate there's a way to to provide platforms that allow for instant settlement 24 by seven by 365 operations overcoming some of the basic frictions again it's worth asking whether legacy systems will be able to accomplish a lot of the same things if brought together in a similar way. But but certainly CBDC is in the fact that we're starting to just think about different ways in which these could be built and envision ways that these could be built how do we keep sort of that cross border to the technical standards for cross border in mind as we contemplate decisions around central bank digital currency use in an operation. And so finally, you know, because of that we have this opportunity to establish cooperation across jurisdictions that's going to be fundamentally important. You know, we need to kind of identify appropriate clearing and settlement arrangements greed upon business rules, market practices in addition to technical standards so again I'm just kind of repeating a bit of what other other of our panelists have mentioned. So finally, you know, maybe what I'd like to leave us with maybe is just a parting set of ideas about what would be what with the minimum set of technical standards for CBC is needed to achieve the ability to enhance cross border payments efficiency and effectiveness. And so, you know, it's not necessarily thinking about technical interoperability across those five categories that I mentioned on the first slide, but really thinking a bit about platforms and payment platforms and the technical standards that will be needed there. I think the other aspects of decision making are going to be very jurisdictional in nature. They're going to be a lot of range of approaches domestically on how to design instruments themselves the types of technologies that they'll be choosing. So really what we need to be thinking about from a standards perspective is how to actually connect those cross border in order to be able to achieve efficiency. And so I would say, you know, my thinking here is that we would try to approach this from a technical standards on a limited set of tools and techniques that deal with two things in particular. One is to make sure that we think a bit about technical standards focused on payments and the second on compliance. So for payments, it's really trying to focus on messaging platforms, the way to connect existing systems that are just the systems that might leverage CBDCs in order to be able to focus on the ease of transactions across multiple platforms. And the second big thing is on standards would be to again to enable that broader use case that one thing that we haven't talked a lot about today is how to leverage digital identity standards and digital identity platform frameworks to be thinking a bit about ways in which common sets of standards to be able to to able identify the transactors on either ends of a transaction for compliance rules, which are fundamentally important across jurisdictional transactions, and will need to be absolutely addressed. And are there ways to be efficient about that, you know, in terms of how to think about the standards related to being able to continue to know your customer to do your checks to prevent terrorist financing, we need to be thoughtful about ways in which standards can leverage, we can leverage standards here to actually improve compliance, reduce costs and burns, which are also a big part of some of the pain points in cross border payments. So those are my remarks. So thank you all turn it back over to David. Thank you, David. Yeah, I think we should all unmute and get unmute, maybe not unmute but at least get on the video because we are going to have a true panel discussion now, which is, you know, a very difficult thing to achieve in a controlled environment because obviously you cannot control people's remarks, but you know, we are going to talk about certain things and that is the reason why VJ wanted those questions asked, because, and I'm not going to pose the same question to the same people, meaning the person who originated the question may not get that question but somebody else may. So first, first, first of all, thank you all for, you know, a broad view of this whole landscape, which is vast and complex. And of course we try to swallow it by making it into little bits, little circles somewhere around the globe and can that all those little circles joined together to become a big circle, which is what the question that Sally asked. And I think I'm going to start with David because he finished the last question. And he asked the question which is, which I'm posing to him, which is, what is the Fed doing about interoperability? Sure. So, as probably many of you know, the Fed Reserve Board in Washington just last week released our discussion paper for central bank digital currencies for the US market, and we pose a number of questions. We have a common period that will go on for about four months. And we are trying to, again, be thoughtful about range of use cases, why we need, why would the US need a central bank digital currencies, what are some of the options we need to think about. And then if we were to issue a central bank digital currency, we do want input on design. We put a few markers down on what the design principles might look like. Again, to further elicit a lot of discussion amongst a variety of stakeholders, both public and private here in the US. And I will say that one core tenant or one core principle that we emphasize was that essential bank digital currencies should be transferable. So we avoided the use of the word interoperable, because I think interoperability as our discussions here, you know, there's a lot of aspects that go into interoperability, there's a lot of different types of definitional ways to think about interoperability. But we want to make sure that we're thinking about essential bank digital currencies that adds to the existing type of ways in which consumers and businesses transact with the dollar today. But in that we that central bank digital currencies could presumably be transferred across multiple platforms. So there's some degree of interoperability or some degree of technical interoperability that will be foundational and important. And we're certainly eliciting comments and feedback from a variety of stakeholders on the achievability and ways to think a bit about that. So that's that's the first thing. The second big thing is that we've been working technologically into on a number of small scale experiments to think a bit about again interoperability across multiple systems. And this includes both new systems that might leverage newer technologies as well as let using things that look like legacy systems. So, you know, how can we interact say with some newer type of technology. Maybe it's a permissioned blockchain and how might that intersect with a legacy instant payments platform like Fedwire or, you know, to come fed now. And so how do we think a bit about integration there how do we think a bit about transferability across those platforms what sort of aspects do we need to think about. There's a lot of work that needs to be done and a lot of work to to to be thoughtful about here but certainly I think the key areas that we are focused on is is making sure that we are able to communicate any sort of concept of a central bank digital currency across multiple platforms. And so that's that's one of our big areas of focus. Thank you. For the question and answer session, it would be good to be pointed because there are all these, you know, everybody has opinions and thoughts and ideas and views on the question. The second question is a question like that which almost everybody has asked, which is how do you reflect or try to bring in the policy consideration into technical standards in, you know, what capabilities specifically should technical standards have in order to, in order to implement. Not just today's policy questions, but also of the future. So, Tomas so you should start off first but you should then have each one of us. And you should answer the question because you, you are interested in that topic. And that, you know, you asked those that particular question. Thanks very much. It's difficult question because today's and tomorrow's policies but I suppose, you know, one of the, I can, I can pick one and talk a little bit about currency substitution which I brought up as one of the important policy objectives, you know, managing currency and what is that require, require. One thing it requires identity. We must know who is transacting where they're coming from, if we want to be able to segregate on the basis of nationality geographical location, etc. The other thing is, perhaps certain standards on the parameters that countries wishing to implement certain capital flow management measures. What are the parameters that those countries would want to control. Total balances held in a wallet of foreign currency is it amount of transactions per day. Is it the number of transactions in one day or the location of the people to whom the transactions are made. We would want to know what those parameters are. And we would want to make those very clear, so that, ideally, in a world of cooperating central banks which is what I was suggesting before. There would be some agreements to allow wallets to be parameterized according to those criteria. So those are just some initial thoughts to get the conversation started. I'm happy to jump in and build on that a little bit. I agree very much with what Tomas was saying. I think that when I think about some of the legacy systems that we're talking about. And the architecture patterns that we had at our disposal, when those systems were built, they were very different than the architecture patterns that we have today. I think this is pre-cloud, pre-high speed internet. Today we can incorporate just what we know about architecture. For example, modular design. So designing systems in a way that are loosely coupled so that if you need to change one component, all you have to do is slide out a brick and put in a new brick. And this is very much what Tomas was talking about is parameterizing these things and understanding what parameters we need and how to build a system that's loosely coupled such that we can evolve it with evolving policy considerations that we still can't anticipate. I like to think about these systems like we're introducing an iPhone. It's going to be very, very hard to anticipate what type of innovation is going to be spurred on top of this platform in the next 10 to 15 years. But from a practical sense as well, when we think about these parameters and we think about generalizing, almost by definition, in order to generalize, you need to have a couple of examples to generalize from. And I think that that's what we're seeing today. As these things move less out of the laboratory and into practical pilots with real value put on ledger and these type of transactions, we're going to start finding these patterns and be able to generalize and parameterize very, very quickly. So that's what I'm looking forward to in like the next scope of the next year's work. Great. I think Sol is going to take over now. Well, you know this is really fascinating. And it makes me wonder to what extent there is a precondition to being able to parameterize right and kind of to, as Thomas said, ideally have an agreement on which parameters are more important for this interoperability because there is a normal, there has to be a normative agreement on certain goals on certain good things and bad things. What is it that we're trying to control or promote and whatnot. In other words, there has to be a standardization of substantive regulatory and legal requirements and approaches. And to me that's the governance issue that's incredibly complicated. And then we are in the chicken and egg kind of situation, you know, which comes first, the ability to parameterize, you know, create these parameters that are interoperable through technology, or all of us agreeing or a lot of jurisdictions agreeing on what constitutes bad behavior, for example, what is terrorism, what is, you know, not terrorism, for example, those are incredibly thorny issues. And as a lawyer, I just wanted to kind of highlight that aspect. Yes. This, you know, it's pointed to the criticism of the FATF work. I mean, that everybody tries to implement the KYC, AML, CDD work, I mean, recommendations. So, in a sense, there is a systemic view that is needed, which is what in the end comes through. And the other thing that is not even talked about is under what conditions are you going to upgrade. I mentioned that some legacy systems exist in the past, but we know that new things are going to happen, new technology is going to come through new problems are going to come through. So where the intersection of those two things happen, how do we upgrade either the CBDCs in the world or the rails that connect them. But I think I have to give some time to the questions that are coming up in the chat. One of them is, of course, address to you, Daniel, I think in a certain sense is the liquidity provision and the replacement of the correspondent banking system, you need somebody to provide, you know, some kind of a price, some kind of a exchange rate. In the case of Project Abair, for example, that rate is constant because they belong to a currency union of some sort, they have definite, you know, sort of exchange rates between the currencies. But Daniel, could you talk about the difficulties you had in this regard? Yeah, happily. I agree with the premise of the question that, you know, constraints around liquidity and effects in general are still going to remain, right? I think you can provide general, but it's also a very nuanced question because there's an assumption here around access to central bank balance sheets that creates the notion of and the necessity for Nostra Vostra accounts and some of the mechanisms that we have today. So there's a lot of assumptions in the question that access to central bank balance sheets will remain as they are, and therefore how would you, you know, provide liquidity and maybe otherwise unliquid markets. And that's a very fair point. That's not a technical challenge, that's a usability challenge, and that's depth of markets and some of the things that Tomasso was mentioning as well. So that's a very, very good point. The question maybe is, you know, if some of this technology was available, would maybe otherwise markets that are less liquid have more liquidity because of market behavior. And I think that that's something that's still to be determined. But it's a nuanced point. I would also suggest that maybe, you know, there's always the option that as a consequence of some of the access of the technology, maybe access to central bank balance sheets will change. You know, a good example is, when you talk to the Swiss Central Bank, for them, the notion of offshore banks holding accounts at the Swiss Central Bank is, is a natural idea, right, and that's exist there for a long time. You know, as you go to other jurisdictions, and that seems like an absolute impossibility. So it's very jurisdictional specifics. It's hard to answer the question, but these go posts are moving together with the technology. One of the other questions that came up, which Tomasso may be able to answer is, are there already such groupings forming around the world where there are, since you are part of an intergovernmental organization, you might have more clarity on that, whether these groupings of central banks that are cooperating, where, you know, solely talked about the fact that we start off with these little circles, and then probably going to a bigger circle but right now what is the situation with respect to that. Thanks, Vivian. I'm not too concerned about the situation now. I mean, you do see groupings, but it's, it's, well, certainly you have groupings such as those that Daniel mentioned, but that's very much for experimental reasons, and that's great that they're small that they start small, exactly how it should be. And I think that, you know, the BIS Innovation Hub is doing an incredible job and adding a lot of value to offering this public good internationally. No, my concern was more looking forward. It was more, you know, given that there will be ways in which to establish very efficient links among countries at low cost. And it may be the case that for whatever reason, whether it's political or other, that groups of countries decide to work closely with each other, but exclude other groups. And then, and then we start to have a much more fragmented payment system, which has implications, not just payments, but it has implications for trade it has implications for development of financial markets the ability to hedge risks across countries and distribution of the propagation of shocks, etc. We've done everything we could to try to avoid a fragmented world and it starts with a payment system which is very much the basis of a lot of economic transactions. And so our hope is that this will not materialize in the future. But one of the points that should be made is these some of these groupings are natural in the sense that they are between countries that are either have a similar philosophies like a G 20, or between countries that you look, you know, geographically closer together and they have a lot of trade between them. All of that is possible so it could be a natural evolution and organic thing. David you have to, you have something to offer on this with one more question. I'm going to go to the closing remarks because we have, you know, just about five minutes I probably need three minutes to do it. But I think after David solid can go ahead and talk about that for a bit for a minute or so. I mean, maybe I'll just say very, very quickly, you know, my view is a lot of the, again, a lot of the focus for standardization, you know, in pockets of unions around around the globe I think are generally focused primarily on payments and payments infrastructure. Again, thinking about central bank digital currencies more broadly. I think I think there's still a lot of domestic focus and jurisdictional focus that, you know, should should last for quite some time. That's all that you have. Yeah, I just wanted to echo what everybody said and I think there is a need for more creative and maybe bolder thinking about the institutional arrangements on the international level. And I'll just leave it at that. One of the things we have to mention is this is the last session of the DC GI conference, the DC three conference tomorrow for today, tomorrow the sessions continue and so sort of the sessions continue on the day after tomorrow tomorrow sessions will be focused on stable coins and the last session will be focused on the last day will be focused on security, which we haven't even opened up in this session because interoperability, of course, has to take into account all of these different topics. But in the last three minutes that we have, but let me first thank everyone who showed up. All the people who presented. And of course, you know, without the presenters and the audience. There is no conference. So we opened with Tomasso who magisterially defined, you know, the whole monetary policy landscape and the mindful and the minefields that are waiting for us in all of them. And they are similar to what they what they are today but they could be amplified. They could become much more dire and happen in a much faster fashion. If you have interoperability that is faster, more efficient, less costly, and so on. Essentially it is about the losing of sovereign boundaries and we know where that has led us today. Into a contraction into our own shells into our own selves a little bit because of the pandemic, which was supposed to be caused by this, the other participants echo these themes and of course, we went through a cycle that is, you had the broad thoughts, and then you had Daniel talking about actual technology, then you had solid talking about the fourth layer which was missing the regulatory layer, and then also about the coalition, the coalescence of the circles into the big circle, and what that would mean in terms of a counterparty of last resort, which the central banks have been for a long time. The last person that David also went deeper into the actual technology aspect, but through all this, we see how technology and policy are interrelated. And I would say that we need a way to have a conversation in terms of having technical standards that can implement that is capability to implement policy, monetary policy, regulation, and all the other things that go with it. Thank you for attending and please, please participate in the interoperability report that we are preparing. Thank you again. And I think my time is now up and thank you everybody. Thank you so much. Bye bye.