It is easy to fall into the trap of treating monetary innovations such as Stablecoins in isolation, or as a final destination, when innovation is in fact constant and individual innovations are merely components of much larger secular trends driven by technology and the interaction of technology with the wants and needs of households and businesses. One organisation that has not made this mistake, and places Stablecoins firmly in the context of a financial system evolving towards programmable money, is Quant. Dominic Hobson, co-founder of Future of Finance, spoke to Gilbert Verdian, CEO of Quant, about what he sees in the Stablecoin phenomenon.
Dominic Hobson 00:14: Hello, I’m Dominic Hobson, co-founder of Future of Finance. My guest today is Gilbert Verdian, CEO at Quant, which is dedicated to making blockchain work for banks, asset managers, insurers and technology vendors, chiefly by ensuring that blockchain protocols and traditional systems can inter-operate successfully. Our topic today is an innovation that lies at the heart of that growing convergence between blockchain-based and traditional finance – namely, Stablecoins. Gilbert, thanks for joining us.
Gilbert Verdian: 00:45: Thank you, Dominic. It’s great to be here.
Dominic Hobson 00:49: Now, we see regulatory developments across the EU, the UK, Japan, we’re seeing something very similar in Singapore and Hong Kong as well, that suggests that central banks strongly favour banks as issuers of Stablecoins rather than non-banks. Do you think that is a sensible approach? Do you welcome it?
Gilbert Verdian 01:10: I think what we’re seeing is a reaction from different regulators in different jurisdictions to manage risk in the system. And I think this is really caused by the recent events with contagion risk, with things such as FTX, such as Terra. And what we’re seeing is different regulators, including the US now in the last couple of weeks, really stepping up their efforts to issue guidance to banks, when they’re dealing with Stablecoins and those types of crypto assets, and issuers of those who haven’t registered correctly with the different regulators, to a form of enforcement. And I think that the reason behind this is really, in reality, preparing the financial system for regulated institutions to issue new forms of money, which are programmable, leading to Central Bank [Digital] Currencies [CBDCs], and being done by trusted and insured issuers rather than private entities without any consumer protection or risk protection to the end-user and to businesses. And we’re seeing that step up into these efforts in very recent times.
Dominic Hobson 02:45: I’ve used this term “Stablecoin” as if it’s very obvious what it is – it’s just one single type of instrument. In fact, there’s an awful lot of variation in Stablecoins, not just the asset-backed variety, not just bank issuers and non-bank issuers, but algorithmic ones, crypto-backed ones, and so on. But one model which a number of banks have followed is this tokenised deposit model. We’ve seen the J.P. Morgan coin, one from Wells Fargo, and now we’ve seen two banks in Australia, NAB and ANZ, issue Stablecoins of that type. I am not sure I am allowed to call them Stablecoins. Perhaps they should just be called tokenised deposits. What do you see as the differences between a tokenised deposit and a classic asset-backed – backed by money market instruments, essentially – Stablecoin?
Gilbert Verdian 03:35: I think what we’re seeing is kind of a transition from Stablecoins in terms of the legacy thinking and that was very associated with crypto, what you mentioned in terms of algorithmic Stablecoins, and one of the larger ones such as Tether, which is some sort of backed Stablecoin without a clear audit trail of what it’s backed by. And I think what we’re moving towards is to the institutions issuing Stablecoins. They don’t see it as Stablecoins, but what they’re doing is they’re issuing tokenised forms of money and commercial bank money, which is most likely bank deposits. And so, if you look at that, it could be bank liabilities and bank deposits and commercial money. It’s backed by real world cash. It’s regulated by regulators with the institution issuing it. And there’s a bit more trust in that system because it has the consumer protection; it has the right rigour and regulation behind it. And being issued by an institution, businesses and consumers can use it in the same way as cash. And I think this is a precursor to central bank money, where the same will happen with a retail or even a wholesale CBDC, where the central bank will be authorising the issuance of these. And if they do it directly, the central bank will deposit the retail CBDC with that institution. And then it’s up to the institution to use it with their customers – consumers and businesses within the financial system. So I think we should start thinking about it as smart money or programmable money backed by bank deposits, in the real sense of the word.
Dominic Hobson 05:39: So it’s a starting point, not an end-state. But one of the characteristics of that start point, of these tokenised liabilities, these tokenised deposits that you’ve referred to, is that at the moment they’re usable only within the closed network of the bank itself – in effect, on a private permissioned blockchain network, not a public one, and therefore it’s restricted to transactions between existing clients of the bank – although I did see that J.P. Morgan is working with the Monetary Authority of Singapore on its coin being used on a public blockchain network. I don’t think the results of that experiment have been published yet. So we have these tokenised liabilities usable within the bank. Do you think, as I’ve just said at the outset there, that that’s just where we’re beginning, and we’re going to end up with something very different – with programmable commercial bank money?
Gilbert Verdian 06:31: Yes, I believe so. And what we’re seeing is the initial steps of innovation and aligning to regulation by each bank within the jurisdiction. And that’s why it’s been a very limited, closed set of participants to make sure they get it right, and regulators understand what is being done and how it has the same controls in terms of regulatory requirements in place. And what will eventually happen is similar to other payment systems. Not everyone will be using the same bank for every single transaction. Not everyone will be using the same merchant for different types of e-commerce, for example. All of these systems will need to be linked together, and they need inter-operability between them because customers will be banking with their preferred banks, and they would like to be able to use the money in their bank account in terms of acceptance in other areas outside of the bank. So what we’ll see is a link-up of commercial bank deposits between the banks themselves through some sort of inter-bank network – an existing one or potentially a new one. And then, wider than that, we’ll see inter-linking and inter-operability between jurisdictions, within one jurisdiction to another country – global cross-border use cases where money can roam between different systems and have the same rigour and compliance with what regulators expect, domestically and internationally. So it’s quite an exciting evolution of where things are heading. But it has to start somewhere. And that’s where we are today.
Dominic Hobson 08:15: I’ll come back to the point you raised, which is an important one about how Stablecoins relate to CBDCs. Before I do, can I ask you a very basic question, which is why are banks – and I gave a list there [but] there’s several more initiatives, including a consortium one in the United States – why are banks interested in issuing these Stablecoins? Are they thinking of this in terms of what I’d call a wholesale or institutional market they’re going to service? Do you think, in the long term, as you’ve begun to begun to say, I think, that this is actually a retail play, we’re going to end up with inter-operating private bank monies on these networks which can enable the users to transfer value between them irrespective of which bank you start with?
Gilbert Verdian 09:06: In terms of banks, they are benefiting from the existence of digital assets in the form of a tokenised deposits or tokenised money. They’re able to use that in conjunction with cash but as a replacement for cash, as a digital asset replacement for cash. And what that means is, on the wholesale side, banks who have settlement between them, large value transfers happen in almost real time, that can be used to fund the liabilities between them. And what that means eventually is freeing up cash that the bank needs to hold to be able to be used for lending and payments and pushing through for their customers and into the system. So it frees up a lot of liquidity. And it simplifies settlement between different types of banks on the wholesale side because you can swap an asset very easily between them – a wholesale digital asset, for example. And then eventually that can be redeemed for cash as a central bank deposit if they need to. On the retail side, what’s really exciting for banks is this is a new payment instrument. So if you look at money today, it is quite limiting, because the architecture of money is quite binary. It’s a buy and sell. It’s a push or a pull. And that’s the most you can do. With a tokenised money, with a tokenised deposit, or a tokenised liability, money automatically has the ability to be programmable, and logic can be applied to money. So you can ask it to do things which traditional money just can’t do. And that means, in a real sense, businesses and consumers can really simplify and add steps for money to take until they’re happy with an end-result in terms of a transaction or a settlement or completing a house purchase, for example. So a good example of that is, if you’re a buyer, and you’re looking to procure a large service from a vendor of some sort, the vendor is there to deliver whatever you’re contracting [to buy], there’s a lot of counterparty risk, so you’re not clear on how well they can deliver that service until the end. On the vendor side, they’re taking on a contract with a client, they’re not sure if the client can, firstly, pay, or during the lifecycle of a project, will they exist, is there going to be some sort of issue with payments and receiving what is contractually owed? So to manage that counterparty risk between these parties, you can use programmable money for the buyer to basically digitally escrow the funds. And that means they’re good for the money and they can pay for the services once they are complete. And then it’s an incentive for the supplier to deliver really good service and make sure the client is happy, because what will happen next is a third party can come into this transaction, verify that whatever the service or the goods that was purchased, is in accordance to the contract, it’s been delivered to code, it meets all the requirements, and it’s independently assessed. And once that’s done, they will sign off that this money can be released and then automatically the money can be sent to the actual vendor. So it makes the supplier’s job easier, because they know they can get paid. And it makes the buyer’s job easier because they know that it can be independently verified according to what’s been contractually agreed. So that’s just one step that you’re doing that is different to today’s transactions. But it’s an important step because it removes a lot of friction, a lot of counterparty risk, a lot of uncertainty. And then it makes sure that participants are delivering according to the rules, and it’s independently checked. So it’s a great new type of use case that you can’t do today without a lot of complexity and without a lot of third parties.
Dominic Hobson 13:27: And you see it as a significant advance upon e-money?
Gilbert Verdian 13:34: Yes. E-money? You know it exists digitally. It’s a dollar and a pound and a euro that exists in your bank account as digits and they are in its nature digital. But it’s the transacting and the executing of e-money that we have limitations with today. So we’re not easily able to complete a complex business workflow or a process with current forms of money. And that’s why we have a lot of checks and balances in the transaction. We need independent auditors to verify things. We need third parties to reconcile accounts on both ends to make sure things balance from an accounting perspective. And then the time that it takes to do this and the cost it takes to do this is huge for organisations. And what this new form of money does is it removes that complexity and applies better risk mitigation by managing counterparty risk.
Dominic Hobson 14:38: It’s a much more flexible instrument, isn’t it? Because the problem I suppose with e-money is that this money has to sit there, be segregated, it can’t go anywhere, the bank can’t make a return on it. Whereas with the Stablecoin model, they can, so it kind of makes commercial sense for them as well does it not?
Gilbert Verdian 14:55: Yes, and by having idle deposits of commercial bank money being tokenised and utilised in a new form, it really creates a lot of liquidity in the system. So it opens up a lot of potential for innovation and growth. And it really manages the risk to the system better because you’re really understanding the velocity of money and the transactional use of money in real-time, because you can see this according to a blockchain ledger, for example.
Dominic Hobson 15:27: And have you seen evidence that the regulators are up to speed with the implications of tokenised deposits, tokenised liabilities? I’m not quite sure what I’m asking here. But I’m thinking of things like what happens to deposit insurance if a bank in effect sells some of its liabilities through the issue of a Stablecoin?
Gilbert Verdian 15:48: I think they have, and they’ve really gone back to economics, and basically the letter of the law. And we know central banks have been looking at this for years, because CBDCs have been ongoing for almost ten years today. But what we’re seeing is they’re treating it as an equivalent of cash, and a new form of a payment instrument which represents cash. So all the same rules apply, all the same regulation applies in terms of what a liability is, how much cash can be in the system, and what is the acceptance of cash, and a digital form of cash has to have the same acceptance as a physical cash – it can’t be refused just because it’s digital. So we’ve seen central banks go back to law, hundreds of years old to apply this thinking, and it’s still valid today.
Dominic Hobson 16:41: When I look at the regulations being put in place across all the major financial jurisdictions, two things stand out. One is that algorithmic Stablecoins have been completely anathematised. The other is that bank issuers of Stablecoins are privileged to varying degrees. My question is, what does that mean for non-bank issuers? They at the moment appear to be outside the regulatory perimeter and in this less reputable area. Yet if we think of the two biggest Stablecoins that have been used in the cryptocurrency and DeFi markets in recent years and [which have] played a very important role in in trading – I’m referring here to Tether USDT [and] the USDC issued by Circle – do you have a sense yet of how they are going to be regulated? Do you expect them to bite the bullet and apply for banking licences or are they going to be put into some other type of category? Do you have any sense of how regulators are thinking about them?
Gilbert Verdian 17:48: Yes, and we’re seeing the first steps of that regulation in terms of enforcement coming in. So what we saw recently was the SEC threatening to sue Paxos for issuing an [unregistered] security, which was the Binance USD (BUSD) without authorisation. And that was in effect a way to discourage the use of Binance USD by people in the DeFi/crypto market and eventually take it out of circulation. And what we see happen quite often is there’s a very rapid reaction from users and consumers and businesses, and that’s a flight to safety. So when you see something that’s risky, it’s human nature to either run away or fight or flight. And what we’re seeing is institutional money that’s been put into the system moving to more regulated safety in a way. In the sense of an unregistered, privately issued Stablecoin, eventually that won’t be a trusted means of currency. And what consumers, institutions, businesses use would migrate to is something that they know is safe, that they know is backed and issued by a bank and, if something happens, there are guarantees and consumer protection insurance built in, and they’re able to recover their money. And I think recent events have shown, especially with things in the media such as Celsius, [that] if you don’t own the keys to your money, it’s not your money, and people have lost savings and personal money on these things. Whereas if an issue happens with the bank, you know that the regulator can enforce and you will, in most cases, if it’s fraudulent or accidental, in some cases get your money back. So, what people would do is migrate to a bank-issued, trusted, equivalent money. And that could be a commercial Stablecoin, it could be tokenised deposits, tokenised liabilities, or a central bank digital currency. And then we’ll use that for the new type of payment instruments, which is quite a novel and innovative way to use money that’s fit for the 21st century.
Dominic Hobson 20:36: I’d like to pick up a point you made earlier about how you expect this future to be characterised by banks issuing their own forms of programmable money. Now, banks have, of course, always issued their own forms of money. If we go back a couple of 100 years, bank liabilities became the main form of [,money], particularly of paper money. And of course, since we’ve had central banks, the bank money has been available only in a kind of generic form as commercial bank money. It’s been layered on top of central bank money. So it’s all been fungible sets of national fiat currencies. Now, if we are entering a future of the type you’ve described, where banks are issuing their own forms of money, these Stablecoins, which may be programmed in different ways, is there a risk here of localisation? You’ve explained how making these networks on which these bank currencies are issued become interoperable, but is there a risk here of some kind of localisation or balkanisation of the monetary system or of monies getting trapped? I’m not sure that’s necessarily a bad thing but, money getting trapped in particular geographical areas? Do you see that as a potential problem or are all these forms of money going to remain fully fungible?
Gilbert Verdian22:08: These forms of money will continue to operate in the system as cash does today, so it is redeemed and accepted anywhere. And the eventual migration to a digital form of programmable money doesn’t mean that there will be 20 different types of pounds. A pound will be a pound. If it’s digital, or cash, or e-money, it’s still a pound that’s issued by the central bank. What commercial banks can do is take a form of money and use it within their client base and [within] their perimeter, in a way. But that money is not allowed – it won’t be allowed – to only be limited to be used on ATMs that are only issued by that bank or point-of-sale systems that are only linked to that bank’s merchant system or accounts that are only opened with that one bank. That creates silos. And that’s not what regulators want. Regulators need a free-flowing financial system that’s interoperable and redeemable by any form of money that’s issued on it. So we’re just going to see an evolution into programmable smart money. But it can be used in any system in any form across the financial system. And the exciting thing is, in having smart money and programmable money, we’re not going to be limiting bank accounts to be only used domestically within that financial system. So we have the opportunity of allowing risk-free, seamless acceptance of your bank account, almost anywhere in the world, without worrying about large FX fees. Maybe credit card debt, for example, can be reduced, because you’re doing bank-to-bank transactions, cross borders, in the same way that you would in your own jurisdiction.
Dominic Hobson 24:19: I’m glad you brought up that cross-border, cross-currency point because it occurs to me that, although the regulators and all the major jurisdictions are going down a common path in terms of how they plan to regulate these Stablecoins, they’ve also all been equally enthusiastic about the possibility of Stablecoins doing exactly what you’ve just described – making those cross-border payments cheaper, faster, more accessible, and indeed, the costs of doing them more transparent. Do you worry, though, that that regulatory consensus might not hold and might not even be advantageous? In other words, some of these jurisdictions may start to get concerned about that and impose tougher regulations on Stablecoins, while others might want to go for more liberal regulations, so we’ll get this sort of regulatory arbitrage emerging in Stablecoins and a race to the bottom in terms of the assets that back these Stablecoins. What’s your feeling on the balance of advantage between a common regulatory approach across the major currencies and major jurisdictions versus a bit of regulatory experimentation between jurisdictions? In other words, a bit of localisation in regulation might throw some grit into the machine, into the flows? That might be a good thing as well as a bad thing. Where do you think the balance of advantage lies between local regulation and global regulation?
Gilbert Verdian 25:50: I think regulators have to balance what’s right for their jurisdiction and domestically for their citizens and for their domestic banks. But they also have to balance what is right for the country globally, and its presence in the wider global market. And what we see is really an alignment of regulation in slightly various forms within different regulators. And they’re most likely saying the same thing, but just regulating in slightly different ways. So customer funds ring-fencing, investor protection, consumer protection, all the things that they’re building in. But they’re also encouraging innovation, because innovation means better competition, better choice for consumers and businesses, lower fees, and more growth, potentially. So we saw a very good example of this in Open Banking. When it was introduced by governments, it really was led to allow consumers and businesses to have access to their own data. It shouldn’t be the bank’s data; it’s your transaction; your history; you should be able to know and own your own data. And by regulating Open Banking, it forced all banks to act, and they had a deadline to act. But it also, surprisingly, led to a lot of innovation by having that overlay of Open Banking enabled for the banking system. And that led to a lot of innovation from FinTechs, a lot of KYC innovation that was happening. Looking at transaction history trends. All these wallets that are managed and assess your spending patterns, and how you can save better, and all these offers. So it flourished, the eco-system flourished. By thinking globally, others in other jurisdictions started mimicking the UK and doing the same thing with Open Banking and just calling it a different thing. But that led to a real global effort of consumer innovation and payments innovation by having access to the data that consumers should have access to. What we can see with this is regulators will balance what’s in the best interests of their citizens and domestically in their jurisdiction, and what else they can do to make that jurisdiction on a par with the rest of the world in terms of regulation, and what they can do from an innovation perspective to differentiate, to attract more investment, to attract more innovation and, hopefully, resulting in a growth economy. So it’s yet to be seen. I think once we have the capabilities of tokenised money in the financial system, there’s a whole lot more products and innovation that will occur that we just don’t know [about] yet.
Dominic Hobson 28:58: Your point about central banks, regulators, needing to make sure that their own jurisdiction is regulated appropriately is extremely well-made. When I look at the regulations that are being published in the sphere of Stablecoins, I do detect that all the central banks are thinking globally in at least one way and it’s an expression of concern, almost of fear. After all, if we look back, what really woke them up to the threat of Stablecoins was Facebook’s announced decision to create this global Stablecoin called Libra, later became known as Diem, that drew this reaction out of the regulators. I detect in a lot of the regulations which have been published that that fear hasn’t entirely gone away. There is a concern that a non-bank global Stablecoin might start or even a bank Stablecoin might start to get traction [globally], and that will reduce the control of the central banks not just at the national level, but possibly in terms of global monetary conditions as well. Do you think the central banks are right to keep that fear, if you like, in mind as they regulate the evolution of the Stablecoin marketplace?
Gilbert Verdian 30:14: One of the main concerns of central banks is managing the resilience and the risk in the system. And if you look at the history of how they’ve looked at crypto, it was always too small to worry about. And they let the market evolve, just took an observatory view of the market to understand where it’s heading. And then [act] once it became big enough that it was seen as a potential risk to the system. Look at what happened with FTX, again Celsius, Voyager – they were all Lehman moments within the financial system. So there was a resilience and a systemic risk of contagion to what the central banks [see as their] mission to protect the resilience of the financial system. So they’ve had to react the way they have so far. And that’s because it became too big and too much of a risk to the rest of the system. So from their perspective, I think what they’re doing is, in a controlled fashion, taking small bits of enforcement to stabilise and regulate the market the way it should be, but then also legitimise what the technology can do when it’s issued and used with the regulated institutions. So they’re not banning it, in the sense there are not concerns that someone would do what a central bank does. I don’t think, by all accounts, and by law, it’s not enabled or capable of doing that. What they’re doing is kind of embedding the features of this new type of money and new type of programmable, smart money, into the existing system. And that just means a migration to the safety of a regulated environment. And that’s what’s happening today.
Dominic Hobson 32:30: Do you think the risk I alluded to a moment ago of a race to the bottom on collateral quality is a real concern as Stablecoins evolve? Banks start to issue against the latter-day equivalent of Lehman Brothers commercial paper? Is that a risk we should be [concerned about]?
Gilbert Verdian 32:52: I don’t see banks issuing against commercial paper or risky collateral. They won’t be permitted to with the same way money is issued today. And I think that this transition into programmable money is going to be led by collateralising against real world cash backed by the central bank. If it’s a liability, or deposit, it’s the same. So we won’t see risky backings of these new types and new instruments of money. But we’ll see a digital evolution of e-money into programmable smart money.
Dominic Hobson 33:39: So banks are not going to compete on collateral quality, lowering collateral quality. How are they going to differentiate themselves from each other? You mentioned a number of times programmability, obviously, and perhaps you could talk a little bit more about how banks will use the ability to programme money to make their money competitive with the money issued by other banks?
Gilbert Verdian 34:07: Yes, it’s a good point. If you look at Open Banking, the underlying offering is the same. Every bank has the same Open Banking overlay to meet what the regulation and the requirements are. But where they’re differentiating is different types of products and services that use that overlay that fit their customers best. And if you think about programmable money, some banks may issue, let’s just say in the example that was given, the potential to settle invoices quicker by offering a discount of that if you use a bank-provided, third-party assessor in that transaction, so they can do the assessment services on behalf of that transaction between the buyer and the seller. Some banks can add other types of overlay services. So if you’re doing FX, they can make your transaction settle in another jurisdiction because they’re a global bank, and they could use both sides in order to do that. And some banks can create new types of neo-bank, FinTech products using programmable money. And we saw some demos recently in this space where parent/child accounts can be created using these types of money. And it’s conditional payments, it’s programmable money, where the parent releases the funds only if the child has completed a task, like cleaning their room, for example. So offering new products that fit the market in their jurisdiction. But these products don’t exist today. So this is all new technology, new products based on programmable money.
Dominic Hobson 35:51: So you’d expect consumers and companies to use different banks’ monies for different purposes? Is that very different from the way they use different banks for different purposes [today] or is it going to be a whole new world? Not just a change from what we do today – a modest change from what we do today – but actually something very revolutionary? Is using money from different banks for different purposes very different from using different banks for different purposes?
Gilbert Verdian 36:20: I think so. And as consumers we live in a very digital world today, and the way we interact with any platform or with any entity is very digitally native. So consumers’ behaviour and businesses’ behaviour has changed and evolved quite a lot since ten years ago. We’ve moved from very accepted paper-type of transacting to almost all digital with no human interaction. And that’s where society is heading, and it’s going to get even more digital as we progress. So consumers need and businesses need the right type of money for the way they live today. I think things are very different to the way they were ten years ago. So the new types of products that can be created on top of a programmable money foundation would shape how people can best use their money for different use cases. And we’re seeing that, in today’s world, some consumers have different types of accounts. They ‘ve got virtual cards with one bank because it’s deemed safer, because they don’t want to carry a physical card and have the risk of someone stealing it. Other consumers are using traditional banking in a different way, because it provides them with the ability to do foreign exchange better, because it fits their requirements from a B2B perspective, for example. So consumers will no longer need to be banking with the one bank. They have choice and payment choice is a great way to create innovation. It really opens competition up, and it pushes the industry to create the right products for consumers and businesses and serve that market. So we will see new forms of products and new forms of money from lending and payments and savings and other things that can be done with programmable money which we can’t do today. And people will adopt different types of money and different types of banks for their particular use cases.
Dominic Hobson 38:42: I promised to come back to the relationship between Stablecoins and CBDCs, Central Bank Digital Currencies. Whether Stablecoins are going to be programmable or not, they are all going to be pegged to their native currency. And that native currency may possibly be available in a CBDC form. And an easy way to think about how that might look – a way I find it easy – is to think of money in layers. So you’ve got all these commercial bank monies layered on top of the foundation of a Central Bank Digital Currency. Am I missing lots of advantages from a pyramidical structure like that, which we haven’t had before? So we have these Stablecoins, they are pegged to these CBDCs. Is that going to open up whole new possibilities or will it operate very much like the monetary pyramid does today?
Gilbert Verdian 39:45: I think if we come back to the [Bank for International Settlements] BIS paper from 2019 I think it was – [the one with the flower diaragam showing] the financial system [as a] flower. I forget the right term they called it but it showed where money fits – wholesale money, commercial [bank] money, liabilities, cash, and in the middle was this base for central bank money and with that commercially issued tokenised money or tokenised deposits, such as Stablecoins. So they all have their place within the system, and they all have different features and functions within the system. On the wholesale side, the evidence is there. It frees up a lot of liquidity and cash between the inter-bank participants and the central bank. And that creates a lot of opportunity to push that money into other systems, such as consumers or retail or otherwise. And then on the retail side, programmable money, such as a commercial Stablecoin, or a retail CBDC, can be used as a form of acceptance for different uses. So I don’t think they compete. Their use and functionality overlap. And it’s the same as the system today. I mean, you’re not using a retail PVP payment to pay for a house purchase, which is done on the CHAPS system because it’s a large value settlement. And you’re not using batching in a BACS type of system to pay a retail payment that you would when you’re buying a sandwich for lunch. So they all have their uses. And they all have their complementary features that allow them to work together to deliver what the regulators in the financial system need. So I think it’s to be seen how they all fit and work together once they are actively used out there within the financial system, and on various different types of use cases.
Dominic Hobson 41:52: I regret I’d forgotten about the flower, which was why I referred to the pyramid. I have one final question for you, Gilbert. And as a result of my failure to choose the right metaphor, this question may be a bit too linear. But what is fundamentally going on here? Do you think Stablecoins are leading CBDCs or CBDCs are leading Stablecoins? Or are these running on parallel, sometimes overlapping, tracks? But are they part of a much broader movement towards this smart, programmable money you’ve come back to again and again during this conversation? Who’s dictating the direction or the pace of progress here? Is it central banks? Or is it innovators in the commercial banking and non-banking sector?
Gilbert Verdian 42:44: I think it’s consumers and business [that] are in the driving seat, because the habits and the different uses of money for what today’s very digital businesses and consumers need, has been shaping what central banks and commercial banks need to create to meet that demand. And there’s been good learnings from the crypto and DeFi markets that have been around for over ten years. And there’s been a lot of proof points to see what’s possible. And having that testbed in such a global manner has been great for regulators and great for the industry because they understand what needs to happen for smart money and commercial bank money or central bank money when it’s deployed into the system, because that shows what consumers and their behaviours and how they transact and how businesses transact globally, what they need. So it really is people shaping what they need from the financial system because we’ve evolved from relying on a very binary format, which is buy and sell and a push or a pull, to a more complicated, multi-step programmable format of money. That’s where we’re heading.
Dominic Hobson 44:16: So this is demand-led not supply-driven, right?
Gilbert Verdian 44:20: Yes, yes.
Dominic Hobson 44:22: Gilbert Verdian, thanks very much for taking the time to talk to us. It’s been a very interesting conversation.