Podcast Intro 00:00:01 Hello. Welcome to P.I.T. Exchange, a podcast by Currency Research. Join us as we discuss the latest in payments, innovation and technology with the industry’s most innovative thought leaders. Today’s payments are changing and moving around the world faster than ever before, and P.I.T. Exchange gives you the knowledge and insights to keep up. Sit back and relax as we join Currency Research exchanging ideas with today’s special guest.
Matt Lewis 00:00:33 Hi everyone. Thank you for joining us on the exchange where we talk about the latest in payments, innovation and technology. I’m Matt Lewis. I’m the vice president of Asia Pacific for Currency Research and I’ll be hosting today’s podcast. I’m going to be joined today by Doctor Michael Salmony, the CEO and founder of Payments Innovation Consulting and we’ll be discussing digital assets including CBDCs, tokenized deposits and payments. So first of all, welcome, Michael.
Michael Salmony 00:01:05 Thank you, Matt, for a pleasure to be with you.
Matt Lewis 00:01:08 So, Michael, I know that normally you’re based out of continental Europe, but you are doing this podcast from Tokyo. So I thought I was one, you know, you might be able to let us know what you’re doing in Tokyo.
Michael Salmony 00:01:22 Well, the real reason is I like Japanese food, but actually, I was invited by the Japanese central bank, and I’m, while I’m here, I’m also meeting a few of the other stakeholders in, in payments.
Matt Lewis 00:01:36 That’s brilliant. So, as I say, I’m, I’m the same. Japan, I think, is a wonderful country. I’ve been fortunate to visit on a number of occasions and I so I do like Tokyo. It’s it’s such a vibrant city. So. Yeah. Absolutely. Enjoy enjoy your stay. And I hope you have a successful trip.
Michael Salmony 00:01:50 Thank you. It’s really one of my favorite cities in the world.
Matt Lewis 00:01:54 Absolutely. Now also, would you mind giving us a little bit of background about yourself?
Michael Salmony 00:02:01 Yeah, sure. I work in, payments and especially in innovations in payments. So all the crazy stuff that is happening around, digitization, identity, tokenization, connecting to invoicing, global cross-border, anything, that’s where payments is different and not the old standard stuff.
Matt Lewis 00:02:24 Wow. So as I say, that’s a very broad base of, payments that you’re working across there.
Michael Salmony 00:02:31 I actually came from the more traditional area. I used to work for worldline, which of course is the champion in Europe and, number three in the world before that in central bank and before that at IBM. And I’ve always been telling the bankers all this digital stuff will come, and not everybody believed it. And now we’re in the middle of it. And there’s, as you say, more to do now than one can possibly imagine.
Matt Lewis 00:02:55 Yeah. Correct. Correct. All right. Thank you for that. So just to set the scene, we have our currency research payment coming up in Paris from the 17th to the 21st of February, February. So this consists of our central bank payments conference and our Global Payments Summit, where Michael will moderate a panel on digital assets, which will include CBDCs, tokenized deposits, stablecoins and digital wallets. So what we thought is a prelude to the event, we would touch on some of the topics that will be discussed.
Matt Lewis 00:03:29 So maybe what we might do is set the scene a little. And you did mention that digital assets have been evolving rapidly. You know, in particular in recent years. And maybe you could touch on where you think the current state of, of the digital assets are in the broader financial ecosystem.
Michael Salmony 00:03:47 Yeah, sure. I mean, one thing that we’re seeing, I think, is the sort of tokenization of everything, which means that you can just pass, assets it’s like money or real estate or gold or carbon credits or many other things, just from one person to another, just by wrapping it into a little cryptographic envelope and moving it from one place to another. So if I tap my phone onto your phone, €5 can move directly from me to you without using any of the old clearing and settlement systems, in fact, without even touching banks or bank accounts. That is, part of the story where this all began.
Matt Lewis 00:04:29 Yeah. You’re right. As I say, innovation is is moving quite quickly in the payment space.
Matt Lewis 00:04:35 so one that I will touch on now is I think we’ll, we’ll have a look at CBDCs because they, and that’s central bank digital currencies. Of course, they’re, come up in the media at the moment with some announcements coming out of the US. And I was wondering if you might be able to touch on where you think the challenges are going to be with central bank digital currencies and and where some of the central banks are in in their journey.
Michael Salmony 00:05:05 Sure. But maybe before we get into that, maybe it just might be worth giving a quick overview of what is happening in this corner of the the digital finance world, where CBDC and tokenization are just just some of the elements, just to give a more sort of structured overview. I mean, it really maybe began with crypto, right? We all know Bitcoin and and and all that. Then there are the stablecoins which don’t have the volatility. They are sort of typically pegged to a dollar or to a euro. So they are equally digital, but they are much more stable.
Michael Salmony 00:05:37 And then there’s e-money which has been around for ages. Right. You find that in PayPal and in Starbucks wallets and everything. Then there’s commercial bank money, the money you get from Barclays or from Deutsche Bank or from Bank of America. And then there’s central bank money, which comes from the ECB and the Bank of Ghana, etc. so those are the main categories crypto stablecoin, e-money, commercial bank money and central bank money. And there’s quite some confusion, in many people’s heads about what is what and what they’re talking about. Some people put everything under crypto, although it isn’t. Mica is trying to put some clarification on that. So that’s a really groundbreaking regulation in Europe, which defines stablecoins as e-money tokens. And so it’s also linked to the topic of tokenization that we had before. So that you wrap up money in these new cryptographic elements and pass them around. Now that’s all a bit complicated and bit technical, but just to give a maybe just some indications of the relative sizes of this, the, you know, everybody’s talking about crypto, but the real money is all still in commercial bank money.
Michael Salmony 00:06:51 The money that is being generated and held at Deutsche Bank. At Barclays Bank. At Bank of America. That’s about $95 trillion globally, which is being held there. Compared to that, crypto is only $3 trillion. That’s still a big number, but it’s a lot less than that. And of course, the 3 trillion some people say is just a number got out of thin air, because that’s what people in this hype space are paying for it. I can issue a crypto coin, 1 billion crypto coins and sell one of them to my friends for $1, and suddenly I’ve created billions of dollars of value. So this isn’t always real value. So maybe these 3 trillion, it’s somewhere between 3 trillion and 0. So that’s that’s crypto. But the others are of course, very, significant, especially stablecoins. They are really going places. They’re already at $11 trillion in value. They’ve gone times 10 in 2 years. And now they’re being regulated and being issued by very reliable partners. I think this is going to be a very exciting topic to watch.
Matt Lewis 00:07:58 So that was going to be one of my questions actually, was which which area do you feel is the, you know, the real emerging and exciting area you see? So stablecoins is one that you see as that area.
Michael Salmony 00:08:11 Absolutely. But as I say, there are other things going on and they are also not going away. And they also have their value. Right? There are people who want to speculate and they want they then use crypto. There are people who put stuff in PayPal and in Starbucks wallets, and that’s that has a lot of money in there. And CBDC, which you originally asked about, is also a super emerging topic. So if you like, we can spend a few minutes on that.
Matt Lewis 00:08:38 Yeah, maybe if we, we, we move to CBDC now and you know, what are your thoughts now and, you know, where where do we think it may go?
Michael Salmony 00:08:50 Yeah. Let’s, let’s talk a bit about that, I mean, CBDCs really emerged when Mark Zuckerberg decided to launch his own money.
Michael Salmony 00:08:59 That scared the living daylights out of the central banks around the world. And they said, okay, if this Libra thing is coming, we better think of a digital money ourselves. That was the catalyst, in my view. And that caused, I think, 134 central banks around the world to start thinking about issuing their own digital money. And that’s that’s what CBDC is. It’s a digital form of the euro or of the pound or of the dollar. And some people say we already move our money digitally. I already send my euros and my pounds around in an electronic form. And that’s a that’s a very valid concern. And we can we can dig into that. And maybe because of this and a few other questions, the CBDC topic is actually deflating a little bit, if 1st May say so. Of the 134 countries, there are only very few left. There were a few pilots in the Caribbean and in Africa who didn’t get a huge amount of traction. China issued its own CBDC. evil people say that it’s for surveillance reasons because they don’t like their population handing banknotes to each other.
Michael Salmony 00:10:09 They prefer to be able to watch which transactions are going on. And Russia likes CBDC because they can avoid Western sanctions. So those are some examples which are maybe not role models, but the one that is really forging ahead is the ECB, the the digital euro. That is one that has really got a huge amount of momentum behind it. They are investing billions in it and we will see where that goes. And we can talk a little bit about that now. And I’m sure we will talk about that during the panel too.
Matt Lewis 00:10:42 That’s very good. And you’re right. It’s it’s interesting where the different central banks have first put their attention. But as you said, you’re right. I do think it’s it is losing a little bit of momentum. A question I have is with digital assets and tokenized payments gaining traction, how do you see the role of traditional banks evolving? Maybe. And, you know, within that process?
Michael Salmony 00:11:09 I think it’s something we we’ve seen in the past. You know, there was a time when when mobile payments came, mobile banking, everybody said the banks are going to disappear.
Michael Salmony 00:11:18 It’s going to be taken over by Vodafone and everything. Nothing. Right. And, you know, when the internet came, all the banks are going to be gone. No, actually they developed online banking. And when blockchain came, you know, all the banks are there. So we keep seeing that, that every the banks at the end of the banks is, is happening due to some technology logical shift. I never believe that. And I don’t believe that now I think tokenization is a threat and opportunity. But as a cliche, those banks that are smart are already beginning to engage in tokenization, and some of them are setting up really smart new networks amongst themselves to exchange value between them and with their customers and setting up their own, digitized accounts and also setting up their own stablecoins. And some are waiting back and seeing if, if maybe this will go away before the CEO retires and he can just carry on doing his thing until that.
Matt Lewis 00:12:18 Yes. No. That’s right. So let’s see what else.
Matt Lewis 00:12:23 Regulation of course, comes up a lot. And I was wondering what you might see both as a barrier and as a necessity, you know, to ensure that we, we get the framework right for the adoption of digital assets.
Michael Salmony 00:12:37 Well, I’m a bit of a fan of regulation. I know this isn’t a popular opinion, but I actually work a lot with regulators around the world and find it is very important to have some sort of guardrails in, otherwise the market sometimes does, rather too many crazy things. It shouldn’t. Obviously, it should be technologically neutral and evidence based and not too prescriptive and, you know, all those good things. But I think, regulation done properly, really helps because then one knows what is allowed. It sets a level playing field, etc.. And I think an example in the space we’re talking about now is mica. I think that’s a really groundbreaking, regulation which Europe has come up with, which says how stablecoins can be done in a safe and secure and fair way.
Michael Salmony 00:13:26 And that’s actually why we’re seeing that, some even some of the big, players in the US are now emitting stablecoins in Europe ahead of everywhere, anywhere else because they’re at last, they have a stable place where people can put investments in, and people can trust this money. So that I think is an absolute advantage in Europe. And, that’s that’s an example where regulation is absolutely helping. And we will see, I think, as with many other regulations that have come out of Europe from privacy onwards, these will spread around the world and and maybe become adopted in other regions too.
Matt Lewis 00:14:05 And you’re right, regulation. I think getting the framework right. and I know there’s a lot of work going on around the world with that. As I said, looking ahead, you know, is there any, any one digital asset that, that you feel, you know, may gain traction earlier than, than another one?
Michael Salmony 00:14:25 I mean, one day this, crypto bubble is going to burst, just like every other bubble has burst, right? That the tulip bulb times are going to be over.
Michael Salmony 00:14:36 And I also think that people don’t want a dodge coin or a some other coin. They want a dollar, or they want a euro, or they want a pound and they want to move that digitally. And that’s why I think stablecoins are going to win out in this tokenized money. I mean, as I tried to say at the beginning, you know, if I just touch my phone to yours and I can move £5 from my phone directly from me to you without going through any of these complex infrastructures that we have now, which were built for historical reasons, because in those days where computers were slow, telecommunications was expensive and slow. Now we can actually move money directly from everybody to everybody globally instantly. And so this new infrastructure is is obviously going to win over over time. And as I said, the smart banks and the smart infrastructure players are already embracing that. And that is surely the future. So stablecoins which sort of are based on dollars and on pounds, which are built on these new modern, tokenized infrastructures, seem to me very clearly in the future.
Matt Lewis 00:15:40 All right. So that’s very good, Michael, and thank you for sharing. You know, where your thoughts are on digital assets and where you think some of the key, strengths will be in the future. Thank you for joining us. It’s been a great conversation, and I hope that the listeners learn more about the digital asset landscape. is there anything else you’d like to finish off with before, you know, before we close off?
Michael Salmony 00:16:02 Well, before I go for my sushi this this evening, maybe just, as a as as one little indicator that maybe this stablecoin thing is, is really the thing to watch. one of the main issuers of stablecoins is tether. They made a profit of $5.2 billion in in the last half year, in the last six months. this is not how much money they moved or how much revenue. This is profit. So you can see that this is an area which not only makes intellectual sense because just tapping two phones together or, or sending money directly from my account to your account is obviously a much better way of doing it than sending it through corresponding banking hops around the world.
Michael Salmony 00:16:47 So it makes intellectual sense and it obviously makes financial sense. And therefore I think even though Mr. Trump might like crypto, I’m putting my money on stablecoins.
Matt Lewis 00:16:57 That’s good. And you’re right. It’s great to have a commercial case. They’re, coming behind this. So that’s wonderful. Michael, again, thank you for joining us. Thanks to everyone for listening. remember, we have the currency Research payment week in Paris from February 17th to the 21st. We would love to see you there. With that, we will wrap up our podcast today. This was the exchange. Please like, subscribe or follow us and we look forward to our next episode.
Michael Salmony 00:17:25 Very nice to be with you.
Podcast Outro 00:17:28 Thank you for listening to The P.I.T. Exchange, a podcast by Currency Research. Check out our upcoming events and publications at currencyresearch.com and join us for our next episode to hear what’s trending in payments, innovation and technology.
