How Technology Helps Reimagine Payment Systems – Ananya Kumar [Episode #3]

Speaker Intro** ((00:00:04)) – – 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.

Speaker Ferrari** ((00:00:36)) – – Hello, everybody. Welcome to the next episode of The P.I.T. Exchange by Currency Research. I’m your host today, Shaun Ferrari, VP here at Currency Research, and we are thrilled to be bringing this series of The P.I.T. Exchange podcast to you, where we are discussing the latest in payments, innovation and technology. We’re thrilled today, to bring on our special guest, Ananya Kumar from the Atlantic Council. Hello. Nice to see you. We are happy to chat today about many things but we thought one of the things we’d love to chat with you about, Ananya, is your recent article among other things you do at the Atlantic Council, you put out a lot of good thought leadership there.

Speaker Ferrari** ((00:01:21)) – – And, your one of your recent pieces was on the Palestinians need for a reimagined payment system to rebuild their economy and, being a hugely, topical item at the moment. I’d love to get your thoughts on that hear a little more about it. So we’ll spend a lot of time discussing that today. So, Ananya, first, maybe if you could just say a few words about yourself, and the Atlantic Council and then we’ll go from there.

Speaker Kumar** ((00:01:47)) – – Great. Thanks, Shaun. Thanks for having me. like you said, I work at the Atlantic Council, which is a foreign policy think tank, and I work in one of, 16 programs within the Atlantic Council. My, center is called the Geoeconomic Center. And we really work on issues at the intersection of economics, finance, and foreign policy. A lot of the work that I do at the council has to do with, payments, infrastructure, how money moves and, you know, what, what its future is going to look like.

Speaker Kumar** ((00:02:16)) – – So, really aligned with what Currency Research does as well. And in, in terms of your convenings and, your work. But yeah, like you said, I wrote a piece recently, fairly recently on, the payment system in Palestine and this really came out of, you know, the news that we’ve been seeing for about six months now, coming out of Israel and Gaza, particularly, after the attack on October 7th. You know, obviously we’ve seen what has been the decimation of Gaza over the last few months. And, me and our team wanted to think a little more creatively about how reconstruction development could happen, in the future. And this is, of course, coming in, in with the background of, you know, the UN security resolution as well as, you know, calls for a two state solution. So, we wanted to think a little more creatively about the payment infrastructure as it exists in Gaza. So you’ll see that the first part of this piece, which is titled, Palestinians need to Reimagine Payment System to Rebuild Their Economy, talks about what it is right now in, Palestinian territories, which of course includes Gaza, West Bank, parts of East Jerusalem.

Speaker Kumar** ((00:03:33)) – – What parts of it are not working right now? What parts of it have changed since the war, and how can we really change it for the better for the people that live there? And then of course, with, you know, parts, of the Middle East, like Gaza, there’s an increasing problem of AML CFT, about how do you look at regulation a little bit more creatively so that people who want to transact, who have good intentions can transact, but you can still prevent any kind of illicit flows and illicit finance, in that region. So, what this piece does is look at a little bit about the payment system in Gaza. You’ll see that it’s extremely cash based and entirely dependent on the Israeli shekel. And what we found was that because correspondent relationships had been cut off over time with, banks in Palestinian territories, people had more and more relied on cash. Now, you know this as well as I do when people rely on cash a lot more, there’s a lot more leakages into illicit finance.

Speaker Kumar** ((00:04:38)) – – So it kind of exacerbates the problem that countries face when they try to, you know, look at illicit finance and try to curb it. And eventually, the solution that we thought about that could actually work, given the economic situation in Gaza, given that they have huge amount of shekel reserves that they aren’t able to cash out to, was a shekel based stablecoin. And what that would be is a sort of, a stablecoin that’s pegged to the value of the shekel the Palestinian Monetary Authority already has. That would allow an increased degree of transparency for AML CFT concerns, but would also allow for faster payments. And, you know, you think about what reconstruction is going to look like. It’s going to look like a lot of aid payments in the near term, but it’s also going to look like a lot of remittances into the region. So it’s going to allow for those advantages as well. looking into the future.

Speaker Ferrari** ((00:05:34)) – – Yeah. No, I mean, I think that it was really enlightening as I kind of read through the paper, just, and I knew kind of you know intuitively that it would be a very cash based system, but kind of reading through it, it was shocking, just kind of seeing the some of the stats and some of the stories you put in there about how cash based, the system is in Gaza. And obviously when you start having a conflict in that zone and a war, it’s going to make flows, of any financial instrument. And, we can get to the stablecoin thing in a second. But, particularly cash or other electronic means very difficult. Do you think there’s, of the other piece I found interesting is that the, you know, when you transition to a stablecoin, a lot of times I feel like years ago, the view of kind of the, the crypto world was that, oh, these are more, more anonymous or these are more, able to be used in illicit ways than even the current financial system. So it’s interesting kind of taking the alternate look at what kind of stablecoin actually do on the compliance side, I thought was interesting.

Speaker Kumar** ((00:06:53)) – – Yeah and and you know, I guess crypto or stablecoin related kind of crypto is anonymous, but it’s not as opaque as cash is. So if it’s pseudonymous really that’s that’s kind of how, most crypto people would think about it now. And, you know, a lot of, blockchain analytics has evolved since that sort of thinking and what we and especially in the case of, Hamas is financing, the US and others have been really successful at actually finding sources of financing that terrorists have used that have come through crypto. It’s actually not been that much, but they have been able to find it, fairly easily. So capabilities have evolved. And the way that people think about crypto is anonymous, pseudonymous, less opaque has also evolved a little bit.

Speaker Ferrari** ((00:07:40)) – – Yeah. No. For sure. And I think we’ve we’ve seen it and you cite another couple of examples in the paper, but we’ve seen in other areas, like Ukraine or, or others, where solutions like this, have been implemented.

Speaker Kumar** ((00:07:56)) – – Yeah. The two examples I use is, Ukraine, where there’s also a hryvnia based stablecoin being developed, at after, you know, Russia’s attack of Ukraine. And this realization within the country, obviously, that they need a digital means of payment to be working, especially in a sort of protracted war scenario. The other example I used is Afghanistan, where there’s a specific, sort of wallet called Hezb Pay, created by the Algorand Foundation, that was used to provide money that still that could prevent the money going from, you know, the US or other places into the Taliban, but would still actually reach the people and you were able to track how the money was, was sort of working.

Speaker Ferrari** ((00:08:44)) – – Yeah. No, that’s a great examples. And I remember we had a, another speaker at one of our events, where they were talking about kind of blockchain, and it was another Ukraine example but it was how, how Bitcoin in this case, could be used, and was being used to, to get funding in and out, quickly.

Speaker Ferrari** ((00:09:05)) – – which, which is the problem with, you know, there’s, there’s one getting funding in and how do you just function transactions, but there’s also this kind of speed element that, particularly in a, in a war area, the traditional system, if, if it works at all, is going to be very, very slow. And these, these sort of stablecoin or blockchain, bitcoin type solutions, can work pretty quickly in addition to having some of the compliance aspects.

Speaker Kumar** ((00:09:36)) – – Yeah. And there’s definitely, you know, options available. The reason that we went with a stablecoin option as the solution is really because of, you know, to try and prevent volatility value and to try and think about the solution as sustainable. Right. Like to to think about it beyond the needs of today or tomorrow when reconstruction starts happening and a lot of the money coming in is in the form of aid, and you’re trying to move it quickly to what will actually people use to transact in their daily lives when they’re trying to buy something.

Speaker Kumar** ((00:10:08)) – – And it’s hard to think about, Bitcoin as sort of the currency of choice in that scenario.

Speaker Ferrari** ((00:10:15)) – – Sure. No. Fair enough. And you mentioned the as piece as a piece of that solution at least what what has worked in some other regions. You kind of need that that wallet infrastructure to go along with it. Right? You can’t just have here’s a stablecoin.

Speaker Kumar** ((00:10:30)) – – Yeah. No.

Speaker Kumar** ((00:10:32)) – – And that solution has actually never worked. The reason that I brought out the example of hazard pay and the Ukraine is because there’s an existing infrastructure or the need to educate people about how to build these, how to use the thing that they’re being provided. So there’s financial education that goes along with it. But then there is infrastructure widely. The reason why we need to think about it as digital development or digital infrastructure is because it’s beyond the sort of scope of creating a wallet or creating a product that people are going to use. It’s having enough internet, it’s having enough mobile phones, it’s having enough time to look at a mobile phone.

Speaker Kumar** ((00:11:10)) – – It’s things like that that really matter, when you’re trying to build infrastructure. And so they shouldn’t be thought of as like one off things or just one product that you build that you sort of leave out in the world to, to be used, you need there’s a lot that goes into it.

Speaker Kumar** ((00:11:26)) – – And it’s.

Speaker Kumar** ((00:11:27)) – – With, with Palestinian territories that’s especially a challenge. There’s not good enough internet. A lot of it has been suppressed over time as well and then, you know, there’s not enough smartphones and mobile phones and things like that to go around. So it’s going to be sort of a holistic look at digital transformation there.

Speaker Ferrari** ((00:11:45)) – – Yeah. No. Absolutely. which kind of, you know, zooming out a little bit from that region ties perfectly into another paper you had written back in November, I think, really focused on the, the financial inclusion aspect, of digital currencies. And just what do you you know, how if I I’ll try to summarize it and then you can correct me, but essentially make sure you, you know, you focus on, on that design element.

Speaker Ferrari** ((00:12:13)) – – Like how how can people use it. Don’t, don’t just put a digital currency out there or CBDC out there and assume that it will work and solve all of the world’s financial inclusion problems. It has to be designed with the infrastructure behind it and with the the tools to be able to do that.

Speaker Kumar** ((00:12:29)) – – Yeah. And and you know, this came out of like you and I have similar roles here where we get to talk to a lot of central banks and they tell us, hey, we’re going to, you know, create a digital currency. It’s going to be the, the, the panacea. It’s going to be a silver bullet solution to a lot of the problems economies face. And unless you have that objective in mind when you’re trying to design a product, that’s not going to happen. A lot of that paper is inspired by how, you know, tech companies think about their products. They don’t think about them in isolation from other products that people have available that might be competing, from them, but they have a specific objective that they want to achieve with this for a specific project, not just a CBDC, but a stablecoin or anything that wants to look at financial inclusion.

Speaker Kumar** ((00:13:13)) – – You’re right. I think the way that you describe is, is correct. It’s like you have to think about that objective a little more deeply. And, central banks have to think about how they design for user experience, which is not something they’re very used to, doing at this point, but they’re going to have to shift their thinking a little bit when they think about, digital currencies. And, you know, the point of that paper is that access is not enough. Just having a product is not enough. You’re going to have to think about the broader, the broader ecosystem in which your product works.

Speaker Ferrari** ((00:13:44)) – – Yeah, for sure. And I think every what’s been interesting, looking at the world and where different cryptocurrencies and CBDCs are, are being kind of adopted and put in use, all of those use cases or all that that ecosystem is different. Right? So it’s not really. A global solution. It’s not a one size fits all, really. It’s what is that particular area or region or country or locality dealing with them?

Speaker Kumar** ((00:14:14)) – – Yeah and that’s why it’s useful to talk about specific examples and think about what it is that you can learn from an example that is similar but not the same as yours. So, you know, think about the Ukraine. You can’t really compare the Ukraine solution to a Gaza solution because they’re, you know, sort of two very different situations in the world right now but in the same way, you can’t really compare domestic economy needs across the world. What you can compare is here’s an economy that’s similar to mine, similar size, did it this way and this is what worked in their rollout and I think that’s how central bankers should be thinking about it instead of trying to apply one size fits all type solutions.

Speaker Ferrari** ((00:14:52)) – – Yeah, no, I would agree with that. And the tool that you all provide that I think helps people do that greatly is your, your flagship, CBDC tracker and it wouldn’t be a discussion with you and the Atlantic Council without, at least mentioning that. And, you know, every conference I go to, someone on stage at least once in the conference, pulls up the tracker and references, or at least references it, and takes a look at what does the world look like now in terms of CBDC adoption.

Speaker Ferrari** ((00:15:21)) – – So, I don’t know, just a personal interest question in my end, how, you know, did you think when you kind of first started the tracker that it would be this flagship global referenced, thing all over the place, it would take on the life that it did?

Speaker Kumar** ((00:15:39)) – – No. Because that would that would, that would, give me psychic powers and I wouldn’t be doing this if I had that. no, we didn’t. I think, I think the sort of genesis of this project came out of like an Excel sheet that we were all looking at. So it really humble origins to now, you know, we have engineers working on the back end of the, the, the project. No, I think we’re very proud of the project and of course, it informs a lot of thinking around CBDCs. But, you know, the objective has always been the same. We’re not trying to say that CBDCs are good in every case and every scenario or for every economy. What we’re trying to say is here’s what the landscape looks like around the world.

Speaker Kumar** ((00:16:21)) – – Here’s what countries are doing, here’s why they’re doing it and, central bankers can take some sort of, learnings from, from this project. But like you said, we’ve been, we’ve been working on it since 2020 and, at the time, there were about 35 countries in the world that were looking at CBDCs. We currently look at 134. So that that jump has been very significant and 134 that are actually doing it, which means that we look at closer to 200 countries and analyze where they are, you know, in sort of their phase of CBDC exploration.

Speaker Ferrari** ((00:16:56)) – – Yeah, that’s a lot to keep track of for sure. And, and I think a lot of people thank you, including myself, for doing that because it makes our lives quite a bit easier in terms of keeping track of, of what’s happening. So it’s a great product for sure. And I know at our event last year, you mentioned, another tracker, that, that you all you kind of launched that I don’t know if you want to say a few words about how that one’s going.

Speaker Ferrari** ((00:17:20)) – – I haven’t heard it referenced everywhere yet, but I’m sure I’m sure it’s coming.

Speaker Kumar** ((00:17:24)) – – I mean, you know, these things take time. You shouldn’t compare siblings to each other, sort of thing. But really, it’s a sister project. And as over the years of we’ve worked on CBDCs, what we’ve also seen evolve is crypto regulation and around the world and there’s a few more sort of jurisdictions that are doing regulation. It’s a different project because, you know, you can’t really compare regulatory environments, but what you can say is where countries are across a certain set of benchmarks and where global regulation is because crypto assets are really sort of borderless and global, and any kind of regulation that, you know, governs it in the Bahamas is going to have to, comply with a set of global regulations at the end of the day. So the whole point is to say, here’s where people are across a set of benchmarks on crypto asset regulations and we have about 60 jurisdictions represented now. There’s a big update for it coming, this summer and July.

Speaker Kumar** ((00:18:21)) – – So, you know, something to look out for.

Speaker Ferrari** ((00:18:24)) – – Yeah. We’ll have you back on after that to chat about the update and what you see. No, that’s awesome. I know you’ve you’ve done some, some work with the or continuing to do work with the, with the Digital Dollar project here. and, I know you had a great, seminar at the end of last year and I think planning another one this year, looking at what’s going on. So, congrats for that too, and that partnership. Any other, any other topics or any other highlights you want to mention from the Atlantic Council perspective for, for things our listeners would or should know about?

Speaker Kumar** ((00:19:03)) – – Sure, So Josh and I, Josh, who’s my boss, and I, we wrote a piece recently about the need for innovation and the Fed. I think that’s, I think that would be interesting to your viewers as well. And really, not just about CBDCs. That’s across a range of, technology and technology products that the fed puts out is to think about innovation a little bit more creatively.

Speaker Kumar** ((00:19:24)) – – And as you know, we think that as the issuer of the world’s reserve currency and, you know, across the range of, advantages the dollar provides, not just the US but the global economy, there’s a there’s a need to think a little more holistically and creatively about, innovating on the dollar. So, something for the for the listeners.

Speaker Ferrari** ((00:19:46)) – – Yeah. No. Awesome. No, I think they would. They would love reading that. Yeah. And, it’s also a good plug we’ve got, an event coming up in London, in September where we’re going to have a lot of the central banks, including the Fed there, talking about things like that, about their innovation projects and what’s happening not just in the digital currency space, but also other innovative areas like AI and that sort of stuff. So, they’re working on it but yeah, as as all central banks, the progress, their risk averse progress is slow.

Speaker Kumar** ((00:20:18)) – – You know, their risk averse for a reason. It’s it’s good for, you know, a central bank which holds a lot of power in an economy to be risk averse about and not want to disrupt things too quickly. But, you know, it’s also a little bit my job to, say they should.

Speaker Ferrari** ((00:20:34)) – – Yeah. Yeah. Well, it’s that right balance, right? It’s like how risk averse versus falling behind right and leading. So where is that on the scale, yeah for sure. Cool. Well, thank you for those thoughts, that has been a great discussion. we’ll have you on again in the in the future, I’m sure. And we’ll, we’ll see you out and about at various events, ours and others, all around the world. So thanks for joining us. We appreciate your thoughts and, have a great rest of the day.

Speaker Kumar** ((00:21:02)) – – Thanks, Shaun.

Speaker Ferrari** ((00:21:03)) – – Great. Thank you. Thanks, everybody for listening. We hope you enjoyed the discussion, and we look forward to bringing more, of the the best payments, innovation and thought leaders around the world to you to hear what’s going on with with the latest trends in the industry.

Speaker Ferrari** ((00:21:19)) – – So stay tuned. Please like, subscribe, follow our P.I.T. Exchange podcast and we look forward to seeing you around the world and talking to you again soon, here. Take care.

Speaker Intro** ((00:21:33)) – – 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.

Hello, fellow podcasters and enthusiasts of technology and finance! We recently had the pleasure of hosting another thought-provoking episode on our podcast, where we delved into the intricacies of payments innovation and technology.

The Need for Payment System Innovation in the Palestinian Economy

Our esteemed guest Ananya Kumar, who works at the Atlantic Council’s Geoeconomic Center, joined us to discuss her recent article on the urgent need for a reimagined payment system to rebuild the Palestinian economy. The center, where Ananya contributes her expertise, is at the forefront of addressing issues that lie at the crossroads of economics, finance, and foreign policy, with a keen focus on payment infrastructure.

The Challenges of a Cash-Based Economy

During our conversation, Ananya shed light on the challenges faced by the Palestinian territories, including Gaza, where the payment system is heavily reliant on cash and entirely dependent on the Israeli shekel. This dependence has been exacerbated by the severance of correspondent banking relationships, pushing people towards an increased reliance on cash. This shift has unfortunately led to greater leakages into illicit finance.

A Stablecoin Solution

To combat these issues, Ananya proposed an innovative solution: a shekel-based stablecoin. This digital currency could offer a much-needed increase in transparency, particularly for anti-money laundering and countering the financing of terrorism. Moreover, it could facilitate faster payments for aid and remittances, which are crucial for the region’s economy.

Addressing Misconceptions and Enhancing Financial Flows

We acknowledged the cash-based nature of Gaza’s economy and the complications arising from conflicts in managing financial flows. A significant concern is the perception that stablecoins and cryptocurrencies might be more anonymous or prone to illicit use. Ananya clarified that while cryptocurrencies operate under pseudonymity, the capabilities for tracking illicit finance have significantly evolved, making them less susceptible to misuse than many believe.

Learning from Global Examples

Ananya brought to our attention examples from Ukraine and Afghanistan, where stablecoin and blockchain solutions have been successfully implemented to address financial challenges in conflict-affected areas. She stressed the importance of digital infrastructure and financial education to support the introduction of such technologies, especially in regions with limited internet and mobile phone access.

The Importance of User Experience in Digital Currencies

Shifting the conversation to digital currencies and financial inclusion, Ananya emphasized the necessity of designing digital currencies with user experience in mind. It’s crucial to consider the broader ecosystem in which these digital products operate to ensure they meet the needs of their users effectively.

Tracking the Global Landscape of Digital Currencies

We also discussed the Atlantic Council’s flagship CBDC tracker, a comprehensive tool that analyzes the exploration of central bank digital currencies worldwide. This tracker is a testament to the council’s commitment to staying at the forefront of financial innovation.

Assessing Global Crypto Asset Regulations

In addition to the CBDC tracker, Ananya mentioned a sister project that assesses global crypto asset regulations across different jurisdictions. This initiative aims to provide clarity and insight into the evolving landscape of cryptocurrency regulations.

The Federal Reserve and Innovation

Ananya touched upon the need for innovation within the Federal Reserve and the Atlantic Council’s contributions in this area. It’s clear that as we move forward, central banks and financial institutions must adapt and innovate to keep pace with the rapidly changing financial ecosystem.

Listen to the full episode to discover more!

We invite you, our listeners and readers, to stay engaged with these critical topics. Keep an eye out for more episodes where we’ll continue to explore the cutting edge of payments innovation and technology. Together, let’s stay informed and ahead of the curve in this dynamic industry!

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