 Hello and welcome to our monthly meeting of the Central Banking and Digital Currencies series. Today we will have a panel discussion on where the central banks should issue digital currencies. Today's host is the ECB, and I will now turn things over to our moderator today, Katrin Asimaka. Hello, good morning and good afternoon to everybody. I'm Katrin Asimaka. I'm heading the Monetary Policy Strategy Division at the ECB, and I'm very honored to welcome three very distinguished speakers to this panel today. And let me briefly introduce them, although I'm sure that everybody knows them, so there is no need to say a lot of words. So let me start with Governor Chris Waller, who is the Board of Governors of the Federal Reserve Systems since December 2020. And prior to his appointment at the Board, Dr. Waller served as an Executive Vice President and Director of Research at the Federal Bank of St. Louis since 2009. And well, I think it's well known that the Federal Reserve System is not very enthusiastic about central bank digital currencies. And I think that's also reflected in Chris recent speeches where he has a speech that's titled CBDC, A Solution in Search of a Problem. So I'm looking forward to hear your views about that. And then I would like to turn over to Gary Gordon, who is the Frederick Frank class of 1954 Professor of Finance at Yale School of Management. And Dr. Gordon has done a lot of research in many areas of finance and economics, including both theoretical and empirical work. He has also consulted for various central banks, among them the Federal Reserve Bank, Bank of England and the Bank of Japan. And Professor Gordon has published on stablecoins, mainly being critical about stablecoins. And this has also been reflected in media coverage. For example, the Financial Times has titled Gordon turns the suspension to stablecoins. So I'm sure that we will hear a lot about stablecoins and regulating stablecoins and the distinction between public and private money from you. And finally, we have Dr. Heung Sol Shin, who is an economic advisor and head of research at the Bank for International Settlements. And Heung, of course, is at the center of digital currencies and central bank advice on digital currencies. And I think so let me directly start with Heung. So we have many developed economies that are exploring that central bank digital currencies, which means that the public, the general public would have direct access to central bank money, digital central bank money. In particular, Federal Reserve Bank of England and ECB have also launched consultations to seek feedback from the public on topics related to CBDC. What are the benefits in your view of a central bank digital currency and why would a central bank want to offer it? Well, thank you, Katra. It's great to join you and the other panelists on this really good discussion. I did have a couple of slides, which actually might help us to save a bit of time. I won't go through all of them. But I thought it was maybe interesting just to put the discussion in a broader context. And I think one very important theme is the broader market structure in the monetary and payment system that I think a CBDC designed in the right way would actually provide you. And before we get to CBDC, think about the conventional 2-tier system. We have the central bank providing the settlement accounts as a metaphorical public square. And the idea is that within this public square intermediaries, whether they be banks or in some other jurisdictions other than the US, even non-banks could be offering payment services. And if you combine this sort of setting where you have a digital ID system that is well established, everyone is using their real names. And at the same time, you combine it with the technical standards for information exchange, for privacy. For example, through the various application programming interfaces, APIs, so-called, that give you the ability to transact by just sending just the right amount of information, and sending information to only those who actually absolutely need to know it, and thereby preserving privacy. But at the same time, opening up the whole payment system to competition. So, you know, why am I bringing this up? Well, I think we should be, you know, thinking about a CBDC, especially a retail CBDC, as some, by analogy with this kind of system where you have an open architecture, and you have the way with all to prevent walled gardens, but rather impose from the very outset an open architecture. Now, the way that I've just described this, this is really how a retail fast payment system would work. Now, the payments are in terms of deposits or other claims on the intermediary, so these are not CBDCs, but it's a very short step from this kind of architecture to a CBDC, in the sense that the same information, the same data architecture that has digital IDs and APIs. I mean, that's exactly what you'd expect to have in a CBDC based framework. And I would go so far as to say, if you have something like this already a retail fast payment system. You are 70% of the way there towards a CBDC in that, you know, you have most of the of the infrastructure there, you know, already in place. The one additional step would be that you're transacting in the direct planes. Now let me get back to that but what what are the, what are the some of the, you know, benefits of having an open system like this and I guess, you know, in this context we're really talking about something like said now rather than a CBDC. But let me just give you a couple of facts and figures for a very interesting example from Brazil. I just tweeted this out yesterday and it seems to be getting some traction, you know, out there and on on Twitter. Brazil actually launched this instant payment system in November 2020. It's exactly this kind of system where you have a digital ID and you have APIs that ensure this open architecture, the Central Bank of Brazil is both the infrastructure provider, as well as the infrastructure. It actually oversees the rules on, on, you know, how the fees are set, how the interactions and the payments between intermediaries actually happen. If you think about how how an instant payment system works, what you need is basically when I press a button on my phone, the money immediately appears on the phone of the person that I'm sending it even though the other person is a customer of the bank. So it's a different intermediary. But then, you know, this claims, you know, is instantaneous to transfer. What would you need to do that? What would you need for that to happen? Well, you need the central repository of digital IDs and the API is which means that, you know, you can ensure this interoperability between intermediaries, and also the privacy, which means that, you know, even though I'm a part of the system using my real name. So it's not like Bitcoin, but I'm just using my private keys, I'm using my real name, but my identity and my transaction is masked from everyone except for, you know, those people who actually need to see it. Now what's happened in Brazil is that, you know, this system was launched in November 2020. And since then, it's been over just over a year now. They've signed up two thirds of Brazil's adult population. And it's been a, you know, really a really very, very rapid adoption. And this is a chart that really strikes the message home. If you think about the way that this particular system is now vetted in, and you count the number of transactions within the space of just over a year, it's, you know, it blew past prepaid cards in a few months, and now it's just poised to overtake everything credit cards. And you can imagine that. If I can ask you a question, you said that the, with an instant payment system, you have about 70% of what a CBDC is doing. And I think the last 30% is that an instant payment system, it's still money that's a liability of a private entity and not money that's liability of central banks. So I think one key question is whether citizens should be able to pay with central bank money in an increasingly digital world. And so many developed economies have already fast payments systems. Yeah, I guess the main sticking point is do citizen need to pay with central bank money when the commerce and everything is becoming increasingly digital. So maybe also the other panelists, for example, Chris, you are a very reserve official. What is your view on that? Oh, you're still on mute. Chris, you're muted. Sorry, I just want to check, are we going back to moon or are we now changing the structure of this convert we're now moving on to other things I just want to double check. I think we, we should move on so we have already 10 minutes into our time and I think we probably should have a bit more of discussion and the action as a guest so I think yeah, maybe he will disagree so Yeah, so, you know, the first thing I have to say is what I say are my views and not the views of the Federal Reserve I have colleagues who have very different views that I have on CVDC. So, I mean, the critical thing at whom was pointing out is you have to separate payment systems from what the instrument is, because you're gonna have fast payments and it's all commercial bank money and everybody's happy with the way that works. And the prices are fairly cheap for that. So that getting to faster payments has nothing to do with the CVDC. So the way I kind of have phrased thinking about a CVDC at least for the US, I'm just going to speak for the US experiences that the feds charged with make ensuring the safety and efficiency of the US payment system. For 100 years, we have taken the position that we will stay in the background and do all the settlement clearing across the banks and we'll let the banks do the front facing direct interaction with the customers or the private citizens. With the CVDC at least a retail you're now asking more now an intermediate, intermediate CVC slightly different but if you thought about a direct access one. You're saying, should the Fed take a more forward role in processing payments for consumers and households and firms and sidestep the banks. That's a philosophical question. And so, as I've said before, when I think about the government's role in the private markets, I always try to think what externality or what market failure is there that would require us to move away from 100 year tradition and adopt a retail CVDC. So, for me that's the big question point that out to me. Too often I see research papers on CVDC that look like infomercials. What does an infomercial do it says, I'm going to tell you all the wonderful things this product does it slices it dices it menses it mashings. And the whole idea is to keep it from asking do I really need this thing or one. And that's what I've been trying to focus things back to, why do we really need it as opposed to look at all the bells and whistles that come along with it. And I haven't been convinced of that yet it's not saying that I can't be but I haven't seen that on retail CVDC. So, I'll just kind of stop there and let others jump in. I guess one point is that commercial bank money comes with a lot of regulation. So you need a lot of regulation to keep the uniformity of a unit of account and you CVDC could probably be one option that you can do with less regulation by having kind of a digital anchor means of payment that access is accessible to everybody and Yeah, so maybe Gary can say something on. Yeah, let me say something because we've wandered off into the weeds without really thinking about the real questions. I don't think we're Brazil I don't think this is about retail payments. So let me let me start with a couple fundamental things which we ought to talk about one is that 100 years ago 150 years ago, every single country on earth decided that the sovereign should have a monopoly over money creation. Okay, so we haven't had to think about that. Now we have stable coins which are competitors for government money. So you can you can throw up your hand and say let's let's stable coins happen, but we asked this question 100 years ago and we decided that for financial stability reasons and now we would add for monetary control reasons, we would like to the sovereign to have a monopoly over money. Okay, so whether it's retail or wholesale or whatever that's the first question do we want financial stability right so let me give you a fact. If the top three stable coins issuance goes up by one standard deviation commercial paper issuance the next day goes up by 7%. So we're not talking about some abstract thing here we're talking about the money market is already influenced by stable coins that's the first thing. The second thing is, everybody now knows what Swift is, and Swift was, as you know, central to the Russian sanctions and it was used before with the Treasury got data and presumably the National Security agencies got data. So we could track terrorist money and so on. Now, every other central bank on earth and then developed economies has cross border experiments with CDC, right, to understand how this is going to work how the interoperability is going to work and it's going to take five or 10 years we're not having anything soon. But it's going to be important to understand that we're not going to be using Swift we're not going to have messages we're actually move money through blockchains. And that means this whole issue is a national security issue. It's a national security issue. And if, if we, the US is not involved in setting the standards of understanding how this is work because we think that's a retail thing. It's going to be really behind. So I don't think I don't this is much bigger than the Fed the Fed can think whatever it wants. It's going to happen with the Fed or without the Fed. And the question is whether we're going to be involved and so we can understand the standards, which we're going to need for national security reasons. Those are the questions we're not Brazil. Yeah, let me so current systems. They're all pegged to the dollar. They're nobody saying that the Fed is not going to be the individual issuing a sovereign unit of account. It's just everything. You're missing the point we're not going to be using paper. We're not going to be using paper. I don't care about paper. I care about paper because everybody else is using blockchain. That's the that's the technology for recording things not the object itself. That's right. That's right. But we're not arguing about the object itself. We're arguing about the technology. So, so first of all, I think blockchain is totally overrated. Well, you can live as we live in a world he happened. I know it's already half of the question is, is it the most efficient way to do stuff. We know that distributed ledger blockchain is one way of doing transaction transactions and record key. It's not efficient. It's not claiming it's efficient. It's got issues. It's got scalability issues. It's got interoperability issues. Right. And it's a very, very early days. My point is, if we don't learn about it in the very early days, we're going to be behind. We're going to be behind. We're already behind. And we're not going to get a blockchain based central bank digital currency for five or 10 years. That's certainly the case. But in every other case where there's cross border trade, which is what we're talking about, there have been conventions, international conventions, which determine, for example, insurance liability. And those are, you know, those are treaties between countries. So all I'm saying is if we don't learn, I'm advocating learning, which the Fed doesn't need an act of Congress to do it can actually learn presumably. But I think that's what we should be doing. Other central banks are already learning. The Fed, the Fed is not learning. And so that's why the national security folks are kind of upset. Right. I'm totally baffled by that statement. Well, you're totally baffled how you can make that statement. The president, the president's executive memo basically says that between the lines. So as the amount of resources that we have studying this and researching it and understanding it is pretty big. So to say we're behind, we don't understand what blockchain is. Are you saying that every other every other developed country central bank has a cross border experiment. And fake doesn't show and doesn't the BIS isn't the BIS involved in one. Yeah, so, so Gary, if I can get a word in edgeways here, can I just say something about this. I think we've sort of veered off the topic a bit. But but can I bring it back to Chris's question earlier which is, you know, our CBDCs. So let's first of all distinguish retail CBDCs from wholesale CBDCs. I think I think the question is not retail we're talking about the design. Before we've even decided whether in principle the sovereign should be the monopoly issue of money. You're skipping a few steps. No, no, no, let's let's make sure that we touch all the bases. What I was about to say was, and I think Brazil is actually a very good, actually a very interesting experiment Gary, I think it is worth looking at. No, I agree with Chris on this. Then it's then it's, you know, a problem in search of a solution. Right, we don't have such a terrible retail system in the US granted China is faster, and in Sweden swish is faster none of these things work cross border by the way. But I don't think that's the issue I think for developed countries it's about global supply chains. Right, that's the issue. Right. Okay. A couple of points Gary. So, first of all, if you don't already have a retail fast payment system, then that's probably the lowest hanging fruit. And I think, you know, with with Fed now that's that is coming in next year. I think that is, you know, that's going to be a very important development. That, you know, will be in a setting of a very important benchmark. Now, Chris, you could easily, you know, from there you can say, what in addition, do you gain from a CBDC. I think here this this goes to some of what Gary is is referring to think that there's a general point here which says, when we think about the monetary system and think about policy for the next five to 10 years. We should be really trying to anticipate what that, you know, what the system will look like, what the technology might enable you to do five to 10 years from now, rather than, you know, looking backwards and say, you know, do we need it right now. Now the second point, I think this is where the blockchain and the decentralization comes in. If this is your best case for a CBDC, I agree with Chris. When you have an international system, you know, by definition, by by the nature of the problem, you have more than one currency. And if you have more than one currency, you have more than one central bank. And in the in the international application, you know, rather than going through the long chains of corresponding banks. If you want to use a CBDC architecture, then, you know, by the nature of the problem, you need decentralization from what go And Gary, you, you, you refer to the to the bias experiments. Let me say just to say, you know, one, one word on that, you know, we have three experiments going on at the moment that has these multi CBDC type, you know, collaborative experiments going on. One is this project called Europe, and it's run out of Switzerland center and the bias innovation hub, it's between the Swiss National Bank, and the bank to France so we have the Swiss Frank and the euro as being the two currencies. Now, what do we need to do in this kind of international setting. We can't use blockchain here because the fight, you know, by construction blockchain actually has everything up on the block. And because we want to use real names. Yeah, you know, almost by, you know, from the word go, you know, we want to use real names. This is why was going into digital IDs and API's. We have to use real names rather than private keys, because it's a fundamental that people have discussed how you do that. Yeah. Right. There's all there's several proposals about how you do that on blockchain DLT. How do you have a non blockchain DLT. Well, you know, you have real names. You still have decentralization. But the, but the unspent transactions are coded through a chain, you know, just like in the public key cryptography but you keep track of the unspent balances. But it's done through these non blockchain DLT. So that's one experiment we're doing. We have another experiment that's coming out of Singapore, it's called Project Dunbar. There's another group of central banks there. That's a group of central banks both in the region and then outside. Technology is very, very similar in that, you know, we're using real names. And this is wholesale. So the, the members of the nodes are commercial banks across a different jurisdictions. And we need central banks there as nodes of this decentralization of the system. Now, the variations have to do with how do you take care of AML. Do you need a sponsor bank in each jurisdiction that you have to go through to transact in the currency? Or do you allow commercial banks to hold directly claims of other central banks? There's a, there's a, you know, there is a variation in Hong Kong. The difference between the one in Hong Kong, which we call Enbridge, the one in Singapore we call Dunbar is that in Dunbar, we have this additional AML layer that actually, you know, allows the, you know, the additional check. So I'm actually agreeing with you, Gary. So for the, you know, for the question, and Chris, you, you pose that question. If you already have a well-functioning retail CBD, so if you already have a well-functioning retail fast payment system, what in addition do you gain by going to a CBD C? Well, one of the answers is that you're actually future-proofing the system to the case when you eventually go to a multi-currency CBD C system, rather than going through this very long chain of correspondent banks. You can have a much more parsimonious monetary architecture where you have central banks that will oversee the settlement in a particular currency. Let me just interrupt you. I mean, I agree with you, Chris. If this is your best case, then this is a lot of hoo-ha. I think the best case has to do with global supply chains and cross-border stuff. It's not retail. I mean, the U.S. system is not so bad. So this is the whole system that I'm talking about. So the, so the nodes in the decentralized network, these are commercial banks. I think we are now moving very much into very technical aspects of the discussion. So, and if I understand you're right, you're saying that CBD C is improving the efficiency of cross-border transactions. And I think there is no disagreement between you and Gary that this is something that needs to be explored. But I would have a different question to Chris. For example, if there were a foreign CBD C, could this challenge the status of the U.S. dollar in your view? And is there a first mover advantage regarding CBD C issuance? So we know that the Chinese are very advanced, so other central banks are also doing CBD C pilots. So do you think that those central banks are probably having a first mover advantage in issuing an international currency? So again, if we're going to talk about retail, CBD C, I'm going to focus my comments on that. I mean, what is the PBOC done? They've allowed Chinese households to have a bank account with the PBOC so they can pay their electric bill. That's it. That's all they've done. So I always have a puzzle as to how allowing Chinese citizens to either use Alipay, WeChat or the PBOC threatens the international status of the dollar. This is a mystery to me how this works. Now, I could certainly envision how retail direct access CBD C at the Fed could threaten currencies in other countries if you allowed foreigners to have accounts at the Fed. There'd be such a crush of demand for these accounts that other governments and other central banks would have a problem. But I don't see how having payment accounts at a central bank threatens the dollar in any way shape or form. Now, if you were to go to a wholesale CBD where it's in a particular country and somebody doesn't lag and all firms get onto a platform that will take that CBD C as the payment. Yeah, then I could see something like that being a concern. But I certainly don't see it with any kind of retail payment CBD C. I agree with that. I actually agree with that. I think Chris has it has it exactly right. You know, what is a retail CBD C? It is. Yeah, it's a ledger that the central bank. Well, depending on the on the, you know, depending on the design and the one in China is exactly this design. It's a ledger that the central bank maintains. It's a it's a record of who pays what to whom. Now, one of the consequences of doing it that way is that to be able to use the CBD C to use the EC and why you have to be allowed onto that network. So, you know, it in order to be able to transact in any CMY you have to be a member of that and therefore you have to have, you know, be on the list of the people, you know, between which can actually transact so it's not like briefcases full of cash that circulating in a black market. So I think that's the first thing to say. I think the, the, the much more plausible scenario. And this is something that emerging markets, of course, do worry about. And especially with regard to cryptoization. I think much more plausible would be a private sector player a stable coin, for example, as Gary mentioned. And the onboarding of customers is done, you know, through a purely private service provider that does not have. And if it operates and scrambles across borders, and it operates in a global currency. I think that's much more likely to lead and that's a scenario that is much more conducive if you like to the encroachment of a a forum provider encroaching on, you know, a monetary system. So I think with CBDCs, if anything, you're actually building in safeguards against the, the monetary encroachment in the sense that first of all, the issuing central bank has to give you permission to use it outside that jurisdiction. And secondly, this is where, you know, central banks who can cooperate within institutions like the BIS can actually make sure that we have monetary cooperation between central banks where the system works for the public interest. I think stable coins, which you mentioned Hyun are really the relevant thing here, right, because that's the competition. If stable coins end up being used. I mean, right now there's not much use for stable coins you can lend it out to somebody can take a levered position and Bitcoin or something, but it's early days and they're already very large and they affect the commercial paper market for example. I think the issue is the one I said, you know, we tried to solve 100 years ago, if stable coins, you know, become much more widespread and they have much more uses. Then we then we I think we have a problem. I think the Fed has a problem. And it, you know, it's, it's already I think kind of going towards a financial stability problem. Right. I mean, it's not very big yet it's about 200 billion outstanding. But it's, you know, all these issues that Chris mentioned at the beginning, scalability interoperability these things are are being worked on and it's changing really fast. And I venture to say that the stable coin lobbying group is already very powerful. The president's working group report on stable coins didn't even mention the 800 pound gorilla in the room which is that you know this is going to be a rival for the government's money. So that the stable coin money is not going to be a retail product. Right, it's going to be a global supply chain product where they're already using NFTs and they just need something to pay. And they could pay with cash, you know, but there's all sorts of interoperability problems because none of these guys are linked to the current payment system. And the Fed doesn't want to let anybody in they have, you know, they pulled up the gates so that no new kind of bank can even have a limited, you know, access to a master account. So I think I think, you know, a lot of this is going to be dictated by stable coins and stable going to have nothing to do with this retail stuff. I agree with Chris the retail stuff is a red herring. Well, let me let me. So there is, there was one very. So first of all, when we talk about a stable coin, most of these things peg themselves to the dollar. Yeah, so they're they're not threatening the US dollar or Fed authority or monetary reach at all anymore that commercial bank does with commercial bank money. No, I think it goes to your earlier point Chris that if they start to be used in international transactions. Then the question is, there's a financial stability issue. It's mostly about a financial stability issue when they get Gary which ones are you. I think we have to, we have to distinguish between the stable coins that are the poker chips in the DeFi and crypto right. No, I'll forget about DeFi talking about the top three stable. When we talk about in a retail use, you know, there was a Libra, you know, later, you know, there was a Libra and DM proposal, which, you know, which was very much this, you know, this retail use case. But I think that's now receded. So I just want to understand which state, you know, which type of stable. I'm talking about the top three stable coins, which are tether usd us. Yeah, but those are those three coins right now have, you know, they have an inconvenience yield. Right. Yeah, they're not they're not really useful in many ways. So those are not that they're yet. But as a crypto, but you know, those are useful transactions mainly on on, you know, for applications, you know, whether it's for whether it be for DeFi. I know that I know that I'm saying I'm saying that this this this space is going to grow. And the issues that we all are aware of that these guys have, they're working on. I mean, you're in the world, you're in the world of, say, 1970, where there was 300 different internets, and they weren't connected. And you could say, Well, why do we need them connected? And now I say, Well, we might have email. What's why do we need email? We just sketch out the area for us. So, so are you saying that cryptocurrencies will displace conventional money? No, no, wait a minute. First of all, I'm not talking about cryptocurrencies. I'm talking about stable coins. But the points you've just mentioned are the primary are the, you know, the exchange media in the cryptocurrency world. Yeah, but now it's in the cryptocurrency world. The question is what when when it's not in the cryptocurrency world, then what? Yeah, so that's what I'm wondering a little bit. What do you precisely mean by finishes stability issues. So I think in the context of CBDC, people are concerned that bank deposits can walk away to from the commercial banks to CBDC or to a stable coin. But it seems to me that you are more concerned about working of the money market and the reserve side of stable coins. So, right. No, I mean, I mean, I just want to set this retail stuff aside for a moment. Okay, this is like, I think I think you're gonna kind of got off on a wrong track. So it's very important pointed out stable coins, you know, are allegedly pegged one for one. And their terms of service say that, you know, you can go back and redeem them for dollars one for one. So it's basically short term debt. You know, it's true that you can't do very much with this stuff now. But it's also true that you know, 92,000 computer scientists are working on these various issues. And so we'll see where it goes. The fact that it's short term debt means that it's vulnerable to runs. And the problem is that if it's never interoperable with the current payment system, you know, it has a limitation that again you have to overcome somehow, these stable coin guys. So, my, my point earlier was that we ought to learn about this. So that we're in a position to understand what the standards should be for for the projects that he was talking about the experiments, because at some point, the central bank is going to say, are these guys a competitor for us. The reason that 100 years ago we decided to have monopoly over money is for financial stability reasons. I guess regulation is one way to address this issue, and CBDC would be another way but I think there is much less agreement on CBDC than on regulation so Chris what's your view on that. On the stable coin, my question I always start to ask myself first is, what is the business model that the issuer has in mind. So, Gary's talking about ones that basically look like money market mutual funds that issue a token that gets traded for a variety of payments. The alternative is the Facebook DM model, which is, they're not interested in any kind of debt or interest arbitrage. They just want to take this thing. They would be happy with the following, give me a dollar, I'll put it in a fed master account, and then I'll issue you a DM to use on the Facebook network. Perfectly safe. There's no runnable problem with that. They want your information. They want your financial transaction information. That's what they're going to monetize. So that's a completely different concept of a stable coin than what Gary's talking about with a kind of a mutual fund approach. Well, it's not a mutual fund. It's a debt contract, but I agree with you, Chris, when you say if you said to me, what's their business model, the answer is I don't think they really know yet. They don't know. In fact, many of these issuers circle and Paxos, I mean, if you look at their websites, they're doing 9 billion different unrelated things. And I think the reason I don't really know what their business model is. And all of the top three stable coins all trade at the same price, and they all move together. So despite their efforts to kind of differentiate themselves in various ways, they have not been successful. The market just views them as all one big stable coin. So right right now, I mean their business model, they don't have a good thing Gary. No, I'm not sure because I would prefer that if there's a run that's a run on, you know, one of these stable coins, not on all of them. Right. And right now the run would just be we sell them and the price would go to zero. So I'm not, I'm not worried about, you know, financial stability issue right now, I'm worried about it in the future. I'm also worried about this national security stuff in the future. It's not, you know, none of these things are going to be an issue for us until it's too late. That's what I'm mainly worried about. To carry I think I would just I think it's a good. I think it's a good time to open up for also for questions from the floor and there is one question which is really very close to what we were just discussing it's from Callum Levington. Yes. Do you think that crypto in its current form poses financial stability risks and if so, what is CBDC be a potential solution to this so I think we haven't touched on the second part so what there's no risk now there's no there's no risk now. The question is whether there's anything we should do now because we see that there may be risks in the future. So it's not the reason that governments decided to have a monopoly over money was because of financial stability concerns with privately issued money but we're not at that point yet. Yeah, I would say that look both of these cryptocurrencies these are not payment instruments and all these things my view is these things are just electronic gold their forms of storage carrying wealth across time. Look at art, look at baseball cards, look at all of this stuff that's intrinsically useless that people pay a lot of money and they hold on to, because they think they can sell it later and get their money back. No, but I agree with you about all that about NFTs and Bitcoin but I don't think that's really the issue. The issue is stable coins. That's the issue. And the question was about crypto. Well crypto we don't care about so tell say that to the audience. There's carries the answer. It's a stupid question take it back. Yeah, exactly. I mean it is as you say digital baseball cards and stuff. I have another question, which is related. And this question is, why would a USD denominated stable coin be any different from current commercial bank money. So why would it be a threat on the scale mentioned simply regulated appropriately and it shouldn't be really a threat so it's a question by Scott Henry. It's more than digital stuff. It's the first answer to the first question. And you know it could be regulated. But, you know, it does that doesn't address the financial stability concerns unless we're going to start ensuring at all, which I mean that's that's that's the critical. That's a critical point if you're going to allow stable coins with any potential runability, then you run the risk this happens. So why don't we have runs on retail banks in the US, because they're insured. Now firms are not uninsured corporate accounts are not insured, but retail we haven't had a bank run in 80 years. Yeah, we did. 2008. We had it we have wasn't retail that wasn't a read it was a bank run. It was in the wholesale market. Correct. It wasn't on the banks. Well, they just weren't called banks by regulators. You have to take charge. I mean they figured out why Goldman is now a bank. I have Charles Khan from the panel who would like to ask a question so Charles please go ahead. I've been enjoying the heat as much as the light. I just need something clarified. I'm not clear about the guys are saying that retail is not important but supply chain is important. I'm trying to figure out what the difference between the two is what are you talking about with when you say supply chain Gary. Okay, so let me give you an example. What is happening now in global supply chains. So global supply chains are going to blockchain and the way it works as roughly as follows I'm a shipper I have a container. My container is registered as an NFT it's on the blockchain. I go to him and I say, you know you take it the next step and he looks inside and says okay, that's fine. And then a smart console he accepts a smart track then change the address of the NFT, and it's registered to him, and we go through the chain like that now as soon as I get acceptance from human that I did my part. A smart contract could pay me right a smart contract could pay me and the question is what would they pay me with. Well, it's got to be something that's digital. Right it's got to be something that's digital. And the answer is either it's a stable coin or it's an NF or it's a central bank digital currency. Now this whole blockchain world in global supply chains is not an abstraction. That's already happening. That's that's a widespread phenomenon. That is right. And that's and so the question is in the global supply chains which are already going to blockchain. What is the means of payment going to be and right now that's a bit of a stumbling block. And, you know, see, yeah, it could be CBDC, which I think would be the best thing right because otherwise stable coins are going to take over and they're going to grow and then we're going to have a big problem. We don't even go by chains for for, you know, realistic uses. One of the first experiments that we did in our innovation hub was the payment versus delivery and payments versus payment. So typically when you know when we have security settlement, we have to wait a few days, you know clearing settlement with with with a stable coin. Sorry, with a CBDC. So one of the first experiments was, was, you know, within a single currency, you can actually, you know, program these things with CBDCs so that you can actually have the delivery triggered as soon as the payment is made and vice versa. So, you know, these things happen at the same time. The supply chain example is a more elaborate one and I agree with you that, you know, these are the examples where the smart contracts with these contingent in execution of payments are probably, you know, most, you know, most promising. And, you know, this is something that's already well known. It's already, it's already kind of pervasive. And by the way, that's where NFTs are also widely used it's not it's not as Chris said for baseball cards is for tracking payments across shipping across the globe. So just go back to an earlier point about could the dollar be supplanted. I think it's really the case that if, if there was a central bank or other stable coin that was used for this purpose, it would easily be adopted. Chance, would you like to have a follow up. Yeah, yeah, but then, but then I guess, why isn't the dollar already been supplanted by treasuries if I were going to play this game wouldn't I be just playing you with. Well, I'll give you a short term treasury rather than paying you in dollars in the first place. Well dollar of the short term treasuries have supplanted dollars. I mean the convenience yield on treasuries is much larger in dollar amounts than you know, I mean, if you track the convenience yield on cash versus the convenience yield on treasuries which you can actually calculate. What happened was that the wholesale market became much more important starting about 30 or 40 years ago. The problem with global supply change is you can't use treasuries really. Right, I mean you can't pay with treasuries because there's only interest calculations I mean you could do with a smart contract come on that's that's silly that's a silly objection if I'm doing all this other complicated stuff I can certainly multiply. Well, the thing is that the other complicated stuff involves the technology. So, and those guys had multiple. You're kind of belittling the main point Charlie which is that global supply chains are already using blockchain. They're already using NFTs. The thing that they're not doing quite yet is paying. Right, so rather than I ship my, I turn my container over to Hewn, and then I send a bill to somebody I could get paid right then. Gary, I think we have to be careful not to suggest that the payment is taking place. You know, the blockchain to track shipments across supply chains and this is, you know, we know that blockchain is just a database it's a distributed database. And it has this virtue that you don't need to, you know, trust anyone you can actually have everything that, you know, everyone has identical copies of the. On blockchain databases don't have smart contracts. No, of course you know. But, but we should not give the impression that the payments already taking place in those blockchain that are in a tracking shipments. There's no payments quite yet though. Right, that's something people are working on but as of now there's no payments. So the payments to, you know, wait for the development of these cross-border EDC systems. And, but, but it's certainly, you know, given the successes that has already been documented with security settlement with, you know, payment versus delivery these types of, you know, contingent contracts. You can certainly be done. But the, but up to now the use of blockchain in supply chains has been mainly to keep track of shipments as a distributed database. I understand that we're in early days. I'm telling you how it could likely develop. No, I'm not contradicting you, Gary. I'm just saying that, you know, we're in early days. Yeah, we're going to break off here. So we have another question by Dirk Neepert. So Dirk. Yeah, thanks. It's rather a comment, not a question. So I agree that for the supply chain payments, it would certainly be very beneficial to have CVDCs to make that easier. But right now it seems to me that the trend is not going in that direction. So what I, what I have recently looked at is both the white paper by the German banks that was issued a year ago and then apparently there's also some new plans by the Japanese banking system. So what both of these have in mind, according to my understanding is that they have bank specific stable coins, essentially deposits on whatever kind of format they would be issued. And then the whole settlement between these guys in the end would be as complicated as it is today when the different deposit, you know, payments across customers have to be settled. So they are apparently not expecting a CVDC to be available for that payment that would be consistent or according to the industry 4.0. So my question maybe to Catherine or to anybody from the ECB would be, is this a consequence of the fact that the digital Euro, if it ever came to life is not really an instrument that could be used for the supply chain management because of the caps that would be imposed on that. Is this a killer basically for industry 4.0 these kind of models. Thank you. I think that's that one's for you, but I can come in after you. I think I'm more here as a moderator rather than to report on the digital Euro project but just saying, well, we are still investigating the issues that arise from monitor policy and financial stability perspective which is something that we touched so much upon in this round but it's something which we probably can still discuss. But the the international use and the supply chain management is something that I in my view would come second after having a digital Euro. So I think about how to use it in international transaction because I think it matches with what you said that first you need to have the central banks and setting up a system before you can think about how to make them interoperable. You need when when you talk about design you also have to keep that in mind but in the digital Euro project the main focus is clearly the intro Euro area retail perspective. Yeah, I think the example that you cite I think it's you know we we do have in a digital bank deposits, you know, JPMorgan coin is a very good example. What are the possible advantages of having JPMorgan coin versus correspondent banks well I think one of the reasons that they rolled it out was because you can economize on the on the, you know, Nostra accounts. You don't need to have balances throughout the correspondent backing chain for you to make those payments. Although you know there's a there's a debate about you know whether you're actually achieving the economies in deposits because ultimately, if you have to issue them in New York but then you're distributing them presumably the deposits are in New York. You know, rather than distributed throughout the, you know, throughout the supply chain, but be that as it may, you know, I don't see anything, you know, particularly problematic about a commercial bank, you know, issuing a digital version of its own deposits. For you some in in this kind of supply chains and it's worth bearing in mind that cross border payments, you know the origin of these things came from supply chains. As Gary rightly points out, you know in in the in the 18th century or even before bankers were you know bankers were also merchants, and hence merchant banker. And that was because payments and credit relationships were really two sides of the same coin and bills of exchange we use and the issue with using digital deposits and the global supply chains goes back to our earlier brief discussion about deposit insurance. Right, I mean, payments and global supply chains are going to be large they're going to exceed the limit for deposit insurance. So, you know, we go back to, you know, what happens if you know there's a pro a run with that kind of stuff. Right, I mean because the global supply chains are not retail, the payments involved are you know hundreds of millions. Yeah, it's wholesale so it's as safe as any commercial bank depositors. I have another question on from silver money from the audience so which is related to the financial stability concerns so put the programmability of stable coins prevent French stability concerns that have been raised. For example, the stable coin could stop convertibility after some threshold and commitment is not an issue because of the smart contract features. No, then the run would just happen earlier we tried that with money market mutual funds right we said oh we'll put these gates in well the run just happens earlier. Right, so, you know it that that's not going to work and if you start programming things then nobody's going to want it because they don't trust it. Right, I mean a central bank digital currency that has negative interest rates nobody's going to want it. Yeah, I mean I think going back going back to the supply chain I think what you're trying to get at is. I mean we really do already have central bank digital currency in the US it's called reserves of the banking system and the way you'd want to do what Gary suggesting is you want to tokenize banks would be able to tokenize their reserves. And then those tokens could be used across an Ethereum network or whatever. Yeah, and then we get settled across central bank so we've already got the object. All we're talking about is how do we take the object that's digital on the central bank's balance sheet and get it on to the Ethereum network base layer and these chains. That's really the question. Yeah, I agree. We have another raised hand by Michael league. Michael. So, I have a question for John kind of relating to thinking about kind of the advantages of having a more parsimonious wholesale payment system that can be used for cross borders. One concern or aspect that I kind of think about is the potential for greater concentration in the financial system, even though in principle we might think that the availability of a CBDC could allow for more decentralization. I mean is this something that you have thought about and I wonder if this could be a factor to consider when we're thinking about, you know the the costs and benefits of a CBDC. I think you're exactly right Michael by the way hello. The reason that there's so many stable coins is because it's a sort of tournament competition. Right. I mean, not all of these coins are going to survive. So, eventually there may be one or two. And I think that is a problem for financial stability. I mean it's true in this whole space generally right I mean there's 1500 blockchains 250 defies. You know, there used to be 483 automobile manufacturers in the US and now we have three. So this whole space is, you know, experiments and failures and a tournament to see who's going to survive. Michael on your question about about the architecture. I think the way that these experiments have been structured are in terms of having a very, very simple structure where the commercial banks are the ordinary nodes in the network. The central banks are if you like the validating nodes. So that there's one way out. There's one way of actually doing this, you know, that that has exactly that kind of structure. But then you would have you would actually have a platform where a lot of the payment instruments are already pre funded so you need a pre funding there to make sure that you know you have in you have enough liquidity. In all the currencies involved so that you can have the effects transaction be implemented instantaneously as the, you know, as the payment is made. So I think on the on the concentration, you know, provided that you have the pre funding provided that you have the fact that you're transacting CBD season therefore there's no credit risk. You know, those kinds of issues quite well. And what you're doing is you're really making a huge advance relative to a system where you are stringing together many sequences of transactions across banks, and where you're holding where you need a padding of liquidity at every point in that system. So this does tethers reserves count as pre funding. Tethers reserves funding Gary. Yeah, because you know what I'm talking about I'm not stable coins what I'm talking about our transactions and central bank digital currencies. Right. I think you should talk about stable coins because that's the competition. Yeah, but that's not the system that I'm talking about Gary. So I know you're leapfriending over stable for the CBD C network would work. I'm not talking about stable coins. I know you're way off in the mists of the future. No, no, no, this is actually happening. This is actually happening. I mean, Catherine, I mean, I do have a slide on this but I'm not going to. So we are almost running out of time and there are still a lot of questions. So I would like to go to completely different topics. So and maybe this is the question for for Chris there have been a few questions with I which I summarizes that might either CBD C's or stable coins change the feds ability to implement monetary policy either for good or bad. Yeah, I mean, I guess if we go back to this idea of the stable coins peg themselves to the dollar. Then we know just from any international finance any country that pegs in exchange rate the import us monetary policy. Right. And that's true with the banks the banks peg their commercial bank money to the dollar. Anything that we do or we make decisions it gets transmitted through that so stable coins peg to the dollar, even if it might be loose and there's sense of tether. If they try to somehow maintain that they're just amplifying us policy. They're not diminishing it at all. But digital dollarization would raise senior for for the fed. So if foreign countries adopt the dollar this would. Yeah, I mean like. So would you count this as a benefit how how to disentangle costs and benefits from from that perspective. So I just let's leave aside the run aspect financial stability of stable coins I'm just simply trying to point out that any stable coin that's peg to the dollar is going to amplify us monetary policy it's not going to diminish. Just like dollarization and other. Yes, exactly it's dollarization. So I think Catherine I think when we when we talk about CVDC them and monetary policy implementation I think clearly that you know the answer depends on the design of the CVDC. Now, some people raised possibilities of interest bearing CVDCs. But I think it would be fair to say that the central case that most of the of the discussion has has revolved around has been just a digital form of cash so non interest bearing. And therefore, for you know very much to oil the wheels of the payment system, rather than for these other flourishes to do with monetary policy implementation. Okay, thank you so and there is a final question, which goes back to the regulation issue and so it's from Francisco river to Gary. Why would regulation of the new forms of money be inferior to the issuance of the CVDC. I understood you that you're saying regulation is not as good as having a CVDC so we should be prepared to issue a CVDC. Well that's the question that we posed 100 years ago. Right, why do we want to have a central bank monopoly of money. And I think part of the answer is that you know you can't regulate everything because things seep through the cracks I mean remember. In 2007 2008 there was a $10 trillion shadow banking system which nobody happened to notice. So I think I think a central bank digital currency can eliminate those vulnerabilities. But I think what countries decided was that it's the best way to mitigate those kind of vulnerabilities. Right, so if we could, you know, use central bank digital currency instead of stable coins, we might be able to avoid a crisis with stable coins. This is very forward looking right right now stable coins can't be used for very much at all so we're talking about developments in 10 years but I think the scary part is the, you know, financial times published a little bar graph of the amount of money spent on lobbying by stable coin issuers and it's already you know, kind of amazing. And you know they, they, they're already kind of anticipating us and they're ahead of us. Then how do we know that we got the answer right 100 years ago. Well I think I think we can wait 10 years and we can reconvince you in the next financial crisis if you can't learn from history will just repeat it. And then you can learn how's that we did that 2007 2008 we can do it again. But Catherine I think when we when we think about the question of this panel which is, should central banks issue CBDCs. I think the answer comes in, in two parts. If you don't have a well functioning retail fast payment system that has all the, you know, documented benefits, then that is the low hanging fruit, and that's where you should go first. Having said that if you already have such a system, be aware that the extra step to going to a CBDC a retail CBDC is not that great. So the only difference. So you already have a digital ID system, you have the API that ensure privacy interoperability. The only difference would be that you would have rather than having transactions on commercial bank deposits, the commercial banks would be there operating wallets on behalf of their customers. So that will be the only difference. And I think when we put it in those terms, the difference is not really between CBDC and the current system. I think the big debates and the biggest welfare gains will come when we actually go to the top of the range retail fast payment systems. And that's the exact and the case in Brazil is actually a very interesting case of this CBDCs is just another small step on top of that. And, you know, would you want to go there? In my view, yes, because there are additional benefits, these international applications, these programmability that are this this payment versus delivery and so on. And in any case, we have to formulate policy with a view on by anticipating possible developments, not simply standing where we are and looking back and saying do we need it right now as things stand. That is not the right question in my view, but the right question is, given what the other possible technological developments might be in the next 1020 years. What is the best way of actually our heading that off and having a system that would be in a fit for purpose for that case. I think we all agree on that that we should be forward looking and the time is up so I'm sorry that I have to close now and I would like to thank all of you for the very lively and very engaged discussion. So it was a pleasure to moderate this discussion and with that I would like to hand back to Jonathan. Thank you again to Catherine Chris Gary who for the very active and thought provoking discussion and to all of you for participating today. We hope you will join us again next month on April 22 when and when Martin will talk about optimal design of tokenized market. And she will help will discuss the paper and will go both will moderate the session until then I hope you have a pleasant day and a nice weekend. Thank you all.