How Central Banks and Commercial Banks Approach Stablecoins and CBDCs l KBW2024

[Applause] so hi everybody I'm J professor of Finance at snu business school I'm moderating this last session of the day so we are going to talk about how central banks and Commercial Banks approach stable coins and cbdc a lot of discussions have already you know been done on the stable coins but as we all know stable coins have become the you know one of the central payment mediums in the blockchainbased digital Finance ecosystem since the collapse of the algorithmic stable coin like a tera the industry has shifted its focus you know toward more stable single Fiat you know packed stable coins like a usdt and then USD coin but these stable coins are collateralized with the Assets in the tra traditional banking industry and also you know their values are directly tied down you know to the Fiat currencies so as a result you know these intermediary driven stable coins bear a strong resemblance you know to the central bank digital currencies that many central banks are considering adopting or issuing in the future so today we are very fortunate to have these three experts in the field as part of our you know panel to discuss about these important issues so please introduce yourselves and then I will ask a couple of questions to begin our discussion so how can you can start first hello yeah uh yeah thank you very much for having me uh here and this in this last but not least panel of today so my name is hakan oklu I'm a an advisor in technology and Innovation at the bank for international settlements uh my background is also computer science at most of uh other panelists here today um and then I worked in the payments industry uh in Consulting including infosis Accenture and then before the joining the bank for international settlements I was with MasterCard working on Innovative Payment Solutions like uh in the FI field of open banking open finance uh today at the BS Innovation Hub uh I'm working on um yeah new Payment Solutions crossb Payment Solutions using wholesale cbdc um just to just an interest for you to expl tell you what uh for those who don't know the bank for international settlements uh so we are a AAL organization uh headquartered in Switzerland in Basel so we can be called kind of as the central bank for central banks um so uh one of the uh new kind of developments uh within the bis is the Innovation Hub so the Innovation Hub was founded 2019 to help central banks the central bank community to use novel Technologies to then strengthen the um monetary system and the financial system uh as a whole um using blockchain technology AI open finance uh and and uh cbdc for example but yeah very looking forward to have a discussion today on on the developments of cbdc hi um uh my name is k wood uh Tong so I'm now currently working at scvx uh one of their largest bank uh in Thailand I'm now currently H the R&D and Innovation lab department basically what we're doing is try to adapt the Technologies to to serve our clients and um being here around uh Korea uh working closely with hash and shart lab on number of blockchain initiative and very good to be here hello this uh I am Anna from St chter Korea I'm the conservative generation is I working at bank more than 30 years so uh first time when I see the coin is concept uh 20 uh 13 uh we identify Bitcoin at the time we had a lot of study what is bitcoin how Lisk on the money lering the how in main mass in the our industry but uh suddenly 10 years later it's totally different world we we are in so at this time is I I has a lot of the uh careers in the this new world and and thinking about what kind of the law and responsibility will be set take by the uh traditional Legacy Bank and Industry I'm really uh happy to join this uh session thank you yeah I prepared a couple of questions to deeply discuss on the stable coins and cbdc so as a beginning uh I want to start with this question so what are the differences between cbdc and stable coins and how should they coexist in the market are they substitutes or complement and how should we view you know you know their coexist in the market yeah so if I may may start so please um so in in our Innovation Hub we have uh you know different projects uh you know using C DDC uh tokenized deposits for example you mentioned stable coins but uh stable coins is more like uh an area where the private sectors is is Building Solutions including tokenized deposits which is the tokenized form of deposits that is anyways um private money right but just tokenize um from a cbdc perspective um so that's you know Central Bank digital currency which is a tokenized form of central bank money in the end right so the m zero money that is the safest form of money is tokenized and the idea is to use cbdc to be integrated into uh the new space of Novel you know um we call it unified ledgers like as a overarching term for new type of solutions that require ledgers where tokenized assets come together tokenized monies and then running on on on on one Ledger or multiple ledgers how how they interoperate with each other and certainly there are also different forms of monies in place like stable coins that play a role in the ecosystem and um you know there are different forms of that for example the way how they are backed could be like Securities or any other assets it could be also cbdc so where for example the the stable coin is fully backed by cbdc uh that's another form of a stable coin um but the the space where we are um specifically con concentrating on in the Innovation Hub is how cbdcs can be used to bring value to the current um yeah kind of monetary system as well as the payment system so there's one project called embridge that is our Flagship project in in uh the Hong Kong Center so we have multiple Innovation centers uh globally uh seven in total and one of that is in Hong Kong so Ambridge is a wholesale cbdc payment platform uh running on a evm compatible blockchain um um permissioned like private permission so just central banks have access who are part of the platform at the moment we have uh five year restrictions uh which with Hong Kong uh and then mainland China uh we have also um Thailand and and UAE and just recently joined Saudi Arabia with the respective central banks that run their own cbdc on the platform and do PVP um kind of you know uh instant payment between the tions using wholes cbdc so it's novel technology applied on existing you know problems so how can I make a crossb payments accessible cheaper faster for everyone so that's our contribution of solving problems with novel technology using uh tokenized central bank money all right so let's add more colar from the commercial Banker's point of view all right so um yeah so so so that's a cbdc right and another thing is um stable coin so stable coin can be you know backed by you know Fiat backed by crypto you know or you know back bar algorithm right like like what what what we knew uh I I want to introduce another concept that just um we are talking about tokenized deposits tokenized deposits is um the the the blockchain based form of the the currencies that uh issues by the the Commercial Bank uh is it's been introduced because of the stable coin before right uh there's no regulatory framework to govern it so you have to check yourself whether um what they promise um to be fully backed by each type of feat is true or not so those are like a stable Co you have to go look at the the the you check that balance you know here and there but but but but the tokenized deposits basically back by own by your own deposits and it can it can be used in the number of use case it has a characters on programm abilities Atomic um you know near uh the Swap and and also it's it's currently uh under the current uh um regulation basically uh the bank that want to issue this uh has to be perform it under the regul the reserve and everything so those are the concept that's now bring um by uh mostly by many commercial Banks right now that bring kind of the good of both world where you know you have a regulations where people can um be um be uh Peace of Mind where the money is there but at the same time they got the features where you know programm abilities and you know all those are near terms settlement is there so those are another type of stable coins that we currently uh working on Anna maybe you can add your own opinion actually I has no idea at this moment but might be 10 years uh uh five years later we don't know what happen but uh SP group level is Hong Kong ESP Hong Kong already involved in Hong Kong ma for the uh stable coin structure but it's all da so we don't know what happen mightbe Hong Kong mightbe China might be decide Hong Kong you only to use the cbdc might be we don't know that are and might be in Korea in Korea still is behind and the other country but I read some the paper the government has some plan might be some the baby coupon only the using the cbdc might be it's one of the sample to the uh uh the customizing for the our whole industry but in the Legos Bank perspective we need some we we always thinking about the client protection the if we use if we invest any money for the higher risk product uh at the time we should make the some the control measure for the client customer protection so the the the me the reason is I was said conservative client so uh I'm not sure at this moment might be might be in my case my I which one is the best to the product for the the cbdc stable coin related products might be our set backed by Traditional Bank asset it's more stable than other than but mightbe it is the first stage for the Commercial Bank but might be a 30 years later we don't we has no chance to see the physical currency and might be I said my grand grandchildren you know the the the coin the the the the some the paper note they say what is that might be might be we can image that yeah so we based on your opinions I think we are already talking about what might be the best form of private money right stable coin and we also talk about the tokenized deposits the letter seems to be more regul conforming to the regulation right so is there any other you know view maybe hakan you might have you know one might be the has the which form has the the maximum potential you know to be used as the you know means of this payment eventually so as I said I'm from The Innovation Hub so we explore uh different you know how different forms of money can benefit uh the economy for certain use cases you know for you know you you need different forms of money for different use cases right so so maybe we can open the discussion to the maybe use cases very natur embridge as I mentioned is wh cbdc it's for for the big pipes for you know trade global trade right to make big payments between companies for example which is today being used through correspondent bank in it can be done now directly between the the the countries between the central banks and then connecting the Commercial Bank so Commercial Bank a sends money to Commercial Bank B through the platform instantly using wholesale cbdc so that's the one use case for example then uh continuing on the cbdc there's retail cbdc but there's you know we have counted around I think 130 countries jurisdictions are exploring cbdc like retail cbdc wholesale we see um uh then in different stages pilots and and and and poc's and so on so forth so but the outcome of that was that uh specifically most jurisdictions that are looking after retail cbdc are those who um have kind of a lack of existing payment rails for individuals like uh a faster payment system doesn't exist or card card scheme doesn't exist a national one so in order to Leap Frog retail CBC can be used right but then there's digital Euro as well so there are different initiatives in that side to facilitate the need of individuals then uh tokenized deposits um at the moment is being explored on specifically on the wholesale side so we see like there is one project a fairly new one also from the BS Innovation Hub called Agora um which is a a project that is uh between seven jurisdictions including uh Korea so the bank of Korea is also in this project um so in that one uh these jurisdictions want to explore how the correspondent banking Network the existing one can be um improved through tokenization so what can be changed through tokenization to improve the correspondent banking network uh using tokenized deposits but the the answer is not there yet because it's an innovation project we are exploring it um under the roof of the bis in a safe and secure environment between jurisdictions to yeah to see okay what is possible what's not possible what can we improve right uh and and and we also actually seeking insights from Academia as well like from professors from universities as well because these are you know issues that we see right now today that cannot be solved probably with existing software solution that are on the market but it needs to be actually uh explored and invented really to improve uh the the syst system so as you see there are you know these different monies serve different purposes different use cases so I in some I cannot answer the question which one will win or so I think there will be different forms of money that have its place in this whole ecos system yeah and I think that it would be beneficial for us to hear more about the use cases in the other in know region like uh what's the development in tent yeah so so as a Commercial Bank we try to serve our customers by lowering lowering the cost right so either the the the the the bank course or the uh customers course for example most of the um the bank actually run the payroll system for for the companies right so just imagine where like why can I'm not sure if you're think about like why why do we get a money uh salary we call it monthly salary right but why monthly why not weekly why not daily because of the administrative cost associated with that payroll system is quite high so if we start to implement this kind of digital you know the the distributed Ledger system you can think about uh paying your employees by by day or by hour or by seconds because that that's the kind of the nature of the programm abilities of the the blockchain based money so that that's one thing right so so you can get the features that's um beneficial for for your client that's one thing another thing is lowering the cost of credit for your customers for example you know uh in Thailand there are number of smmes who not not get the loans or even they get the loans from the bank it's quite expensive right but if you have the features of this programmability where you can rense the the usage of the loan right so so we can so as a bank we are uh happy that you're not you know using the loans for other purpose except you know invest in your plans or you know invest in the productivities so that way if you can ensure that with the technology so we can bring the interest down and that's a win-win situation so so we're actually tightly focusing on the use case where it can uh lowering the cost and beneficial to customers and by ringing the technology so so these are some of the use case where uh it's not like a you know retail payment kind of thing but it's it's something that we run uh it's it's a main business for us and if a technology works is that's a big benefit for for the the bank and also for the client as well in the commercial Banker side thinking about the IM we how about we has some image all Swift message change the uh cdbc some train and all Korean uh currency clearing system change something cbdc or stable coin how many cost can we save think about there's huge huge Clearing House they get a huge money but in the future everything everything is a coinbase process and the Very simply the real time based clearing and payment will be done the totally changeing our traditional banking industry and if all fi industry get the huge impact it might be in the future we not we might be no need credit card no need PG payment gate no need any intermediary payment system so what kind of the F will be survive might be 10 years later might be retail banking hold totally change only some internet Bank cover that the hab is our traditional big Bank CT HBC like that what kind of the our Ro mightbe we make the some the uh Bank fund only entity or fi so I'm so nervous my 10 years later might be my job will be disappear thinking about the now is how many how much money will in for the legator compliance cost kyc money lering transaction monitoring and and maybe you get the some the information TD Bank in Canadian bank they get the uh 26 billion might be 2 point three billion money that they should impose as their penalty but in the future the CPD can okay we know which person get the this coin we don't need more transaction monitoring we don't need any more reg compliance process this is my our future but I'm not sure what kind of the infrastructure should be considerate by the this this industry but the one thing is important thing will be changeed quickly so I think I think the maybe it's kind of good time maybe we still have some two minutes so I think uh we haven't talked about the programmable money or smart contracts the power of it when it's combined with the blockchain infrastructure so regarding that you know what might be the benefits in this coexisting cbdc and stable coin infrastructure that could bring in you know to the banking industry as a Innovation or as a way to make them you know survive and then you know grow together I think maybe the h can you may know any you know you know cases that uh you know central bank and then commercial Banks they collaborate and try to create some Innovative you know actions using you know smart contracts and blockchain Technology yeah I think in Korea it's the case right with cbdc and then the the private sector building applications on top and and certain like the vouches or so right so there are examples where like central banks collaborate you know with the with commercial banks in terms of providing the Bas the foundation the infrastructure and then letting the commercial Banks the different the industry to develop smart contracts on top of it for certain use cases they want to offer but then one other topic to be considered is privacy so uh privac so privacy is the main concern uh when it comes to specifically on retail cbdc for example and and then on top of that uh the programmability right so for example digital Euro the ECB says you know uh and this the idea is to make it completely private and and and uh that the data is not tracked and that nobody knows who spent the money and so on so forth so privacy and privacy enhancing Technologies are quite important these days to to to enable you know fast payments but at at the same time to ensure privacy of the data so that's something to be considered and and programmability is is something that really depends uh you know on the country and on the preferences on on culture because you know people probably don't want programmability because you can track and there's some form of control too on the other side you have also use cases that you can build on top right but it depends on the architecture how you build it right as long as the the the the Central Bank you know the authorities they don't see the transactions which is the ambition of the most of this cbdc project is to retain uh privacy but then on top of that there's a layer for the private sector to create the smart contracts and the use cases where there is some form of traceability because there is a use case on top but they can see it consumer can see it and the the Commercial Bank can see it but then the the the the actual the core infrastructure doesn't track that for example so it really depends on how you design it but um we we have seen different examples so far in the market I mean nothing really to emphasize but again Korea is is running such a use case as well yeah so just the one last question to the commercial Bankers because it looks like the cvdc is quite convenient but it actually makes some problem in terms of privacy once the government can oversee every transactions that individuals do so from your commercial Bankers point of view in the stable coin or any private sectors you know the activities that can actually complement or help avoid you know this issue or with there be any ideas yeah I I think definitely so but I think it really depends on the context on the policy of the countries right because um yeah there be some countries who you know care about privacy some care about productivity so it's it's quite I think that's like a a country's policy like for for example in Thailand we are working closely with um uh the Central Bank on how how we can you know develop the things that hak said and is very important is the interop operability because um you you cannot start from day one design everything and force everyone to do the same thing right at the end of the day there will be a number of infrastructures but the technologies that need to be defined to interoperate between each blockchain technology that is is very very important so those are the areas where I think the central bank and the Commercial Bank being you know talk and and mostly the the cbtc right now you know there are you know many countries been working on um 90% of that the country said they had been you know doing a POC and all those but uh I haven't seen much on the the linkage right now with the cbdc and the the Commercial Bank because uh right now mostly cbdc uh initiative been initiated from the central bank they they initiate the the Technologies but it's not yet going to the market yet it's now it's in the POC phase and now it's basically Commercial Bank working together with them to provide an input and also you know bringing a small group of customers to test it out but is just to be seen on how this play out in the mass adoption we already talk about how you know should they collaborate so I think the an maybe as a final takeaway and giving some final wrapup message actually each one of you right so how central banks and Commercial Banks approach stable coins and cbdc okay I just focus on the little bit lat scope in the in carea thinking about our regulatory environment is it possible the stable coins cbdc stays at same physical place I'm not sure that I'm not sure that in Korea I I keep saying the conservative yeah at this still until now our regular regulator concept is so clear coin any type of coin is too higher risk it doesn't matter how many percent uh client real involved in the money laundering economic s it doesn't matter their concept still is that they focus on the Legacy Traditional uh banking fi industry so my personal view the for the time being it it is not uh exists at same time might be we our Central Bank more focus on the cbdc and then might be we uh look around other countri and then some some country has some successful story at that time Korea is possible to starting those business this is my view yeah Tom you can also wrap up by just adding one and then H you can uh okay uh I I will start yeah I'm I'm the yeah okay yeah I'm so uh leg person I don't like the Bitcoin higher risk product but my son uh generation ask Mommy why you the inut your money in the Tom deposit like Els like that I cannot answer that so this is a real situation this is so we thinking of the what is traditional fi law and uh in the future future pin Tech based industry role so I keep watching what happen in the future thank you so so one last thing I think is um I'm also working in the Innovation function in the the big corporates I think um the the Commercial Bank and also you know the the entities in the financial industry need to keep Innovative and and working closely with the regulators and keep them informed and and and you know at the end of the day um you you you just need need to communicate and and get get the stakeholders to be on board in order to to execute so um but but the future is there so um yeah yeah I mean I can just equo this in terms of you know collaboration so that's the nature of the what we do in the bis it's collaborating with different you know all the central banks as well as with other International organizations and also with the private sector right so um in the end the use cases are created and run by the private sector it's not the central banks doing this but however the backbone uh needs to be modernized and made fit for the future in the world of digital you know currencies and and tokenization of assets there needs to be also representation of the current world in the future world which we want to facil uh provide to to have the the kind of a backbone Financial system to facilitate the the the future yeah so I think the let's wrap up and then looks like the the message is strong message it seems to be the commercial sector commercial Banks central banks they need to collaborate very closely try to try to do many trials errors and then you know Let The Regulators learn about in what they do so that we can you know continue to innovate so that maybe we will know what's going to happen you know through this Innovation attempts right so let me close our session you know now then give a big in hands to these you know panelist and thanks for the audience thank you so much for sharing your Insight ladies and gentlemen as we wrap up today's incredible series of discussions and insight