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[MAR 2024]
What can be done now to overcome the absence of digital money on blockchain networks?
Key Insights from this interview
- Settlement of digital assets without fiat currency being available on blockchain networks is problematic, and central bank digital currencies (CBDCs) remain a distant prospect, but commercial banks are increasingly excited by the efficiency savings and service enhancements made possible by the programmability of digital money, including tokenised deposits.
- Claims that money is already digital ignore the fact that payments require push-and-pull exchanges of data to complete transactions, whereas truly digital forms of money enable the sequence of actions that complete a transaction, such as financial crime checks and the availability of money in an account, to be programmed into the digital money itself.
- Cryptocurrency will continue to exist as a speculative investment, though institutional investors will favour regulated cryptocurrencies and cryptocurrency investment vehicles such as the spot Bitcoin Exchange Traded Funds recently authorised in the United States, and the regulated variety of cryptocurrencies can be expected to drive out the unregulated varieties.
Tokenised assets markets, though rich in the promise of cost savings and higher returns on investment, remain disappointingly small. However, the obstacles to the scaling of the digital asset markets are increasingly well-understood, and gradually being cleared. Legacy laws and regulations are proving more workable than expected, and being adapted where they are not. Experiments by regulators, central banks and private sector firms, sometimes in regulatory sandboxes and sometimes at BIS Innovation Centres, may not have bred a new caste of blockchain giants but they have proved that the technology works and legal and regulatory constraints are not fatal. Established intermediaries are losing their scepticism and fear of disintermediation and exploring the opportunities to profit. Whole new infrastructures, such a unified ledger or single programmable platform, are being conceived. Ways of putting central and commercial bank money on blockchain are being found. So it feels like the time is ripe for a business such as Quant, whose founders recognised at the beginning of the Initial Coin Offering (ICO) bubble in 2015-17 that the digital assets industry was creating potentially existential problems for itself in its lack of alignment with existing regulations, its failure to develop regulated forms of digital money on-chain to complete the cash leg of transactions and the determination of competing blockchain protocols to monopolise activity rather than capitalise on the network effects of making digital assets portable between blockchains. Since its foundation in 2015, Quant has focused on adapting blockchain technology to meet the needs of regulated banks, asset managers and insurers, and reassure the regulators and central banks that supervise them, by developing tools that enable blockchain protocols and traditional systems to interoperate successfully. Dominic Hobson, co-founder of Future of Finance, spoke to Gilbert Verdian, CEO of Quant.
A full recording of the interview is available on this page. A transcript of the interview, which follows the questions below, is also available if you click on “Read the Transcript.” If you click on any question you will be taken to the exact point in the recording where the question is asked and answered.
Is the programmability of money the crucial innovation that digital money brings to payments?