Modernizing Cross-border Payments with Digital Currencies [Episode #5]

Podcast Intro ((00:00:00)) – – 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.

Shaun Ferrari ((00:00:33)) – – Hello, everybody. Thank you for joining The P.I.T. Exchange podcast where we talk about the latest in payments, innovation and technology. I hope you’ve enjoyed our recent episodes, and we’re really happy to bring a special presentation to you today. We recorded a LinkedIn live session with folks from Accenture, World Economic Forum and the BIS Innovation Hub, talking all about cross-border payments and digital currencies and how that area of payments is really evolving right now. So we are going to bring that to you now. We hope you enjoy the discussion and, yeah, enjoy. Can’t wait to talk to you again on a next episode. Coming up shortly.

Shaun Ferrari ((00:01:16)) – – Here we go. Hello, everybody. Welcome to Currency Research’s LinkedIn live presentation, where today we are going to talk about Modernizing Cross-Border Payments with Digital Currencies. We are thrilled to be chatting with you today in preparation for some of our upcoming events, specifically in Kuala Lumpur at the beginning of June, June 10th to the 14th, where we will be talking all about digital currencies, cross-border payments, and all sorts of real time payments, instant payments, everything having to do with, global payments. So today we are thrilled, without further ado, to talk more about what’s going on in the world of cross-border payments. It’s a hotly talked about area right now in terms of how to make them more efficient, and fast and cost effective. So with that, I’d like to bring in our guests today, that will join us and we’re going to start with, here they are, welcome, everybody, and we have a great panel. We have Cam with Accenture, Leanne with the BIS Innovation Hub, and Sandra with the World Economic Forum.

Shaun Ferrari ((00:02:22)) – – Thank you all for joining us. I know it’s everybody’s different times of the day. So thanks for coming on. Pleasure to have you all. Maybe we can start with just a quick intro from each of you and then we’ll get into the topic. so, Cam, I’m going to kick it over to you if you want to say hello.

Cam Nili ((00:02:39)) – – Yep, sure. Hi everyone. My name is Cam Nili. I’m a Digital Currency Strategy Director at Accenture, and I am aligned to our capital markets and banking practice where I work, most often with, some of the largest financial institutions in the world, enabling them to pursue tokenization and applying that to their business model. So very excited to be here.

Shaun Ferrari ((00:03:00)) – – Awesome. Thanks, Cam. Leanne, how about over to you?

Leanne ((00:03:05)) – – Thanks, Shaun. Hi, everyone. My name is Leanne, and I’m an advisor at the Bank for International Settlements or BIS Innovation Hub Hong Kong Centre, and I work on our centre’s various CBDC projects and very excited to talk about wholesale CBDC, especially in the context of cross-border payments with you all today.

Shaun Ferrari ((00:03:26)) – – Great. Thanks, Leanne. And Sandra.

Sandra Waliczek ((00:03:30)) – – Thanks so much, Shaun, and thank you for having us here today. Really looking forward to the discussion. I’m Sandra Waliczek. I work with the World Economic Forum and lead work related to blockchain and digital assets.

Shaun Ferrari ((00:03:44)) – – Awesome. As everybody can see, we’ve got a well-rounded panel here today and maybe before we really jump right into the topic, Cam, if I could turn it over to you for a second. I know, Accenture with the World Economic Forum, recently released a paper on this very topic. So if you just wanted to say a couple words, about that and then we’ll, we’ll launch into the topic.

Cam Nili ((00:04:06)) – – Yeah, sure. Thank you. Shaun. Just a couple of weeks ago, Accenture, in collaboration with the World Economic Forum, published a paper called Modernizing Financial Markets with Wholesale CBDC. And in that paper, we were really hoping to take a really holistic view as to where were the areas of value that we believe wholesale CBDC could address in financial markets.

Cam Nili ((00:04:27)) – – So much of those areas actually relate very squarely to cross-border payments, which is one of the areas we felt there was a immediate need for modernization, especially, specifically as it relates to foreign exchange settlement and other components that we’ll get into in this discussion. So we do encourage those in the audience to quickly do a search or look at the Currency Research site, for the link to our latest paper, which was published by the World Economic Forum. So, and we’ll probably be able to share that link here, with all of you guys. So we look forward to getting some more feedback from the community on that.

Sandra Waliczek ((00:05:07)) – – And I just wanted to add that we had a really great group of stakeholders from the public, private sector, academia, civil society, including Leanne, that contributed to the paper. So it’s quite a robust group of folks that contributed, so we’d love to hear any more feedback from the folks that take a read.

Shaun Ferrari ((00:05:28)) – – Yeah, it’s a great point. I think as we were prepping for these discussions, it was clear in some of our conversations that a lot of the value in this area is from that exchange between peers and between people thinking about this and the paper and this discussion today are really aimed at encouraging dialogue.

Shaun Ferrari ((00:05:45)) – – So all of us want to hear from everybody out there. And to that end, if you’re listening and you do have questions or comments that you would like to chat about as we’re talking today, please feel free to put them in the comments, on LinkedIn or on YouTube, and we will see them here. And we will attempt to, address those as quick as we can. That said, so you mentioned Cam kind of the, you know, the goal of the paper and a goal of a lot of this work was to do what the title says, modernize cross-border payments. So I guess the first question I’ve had for you, would be, why? what’s going on with cross-border payments? what are some of the main challenges that we’re facing today?

Cam Nili ((00:06:28)) – – Yeah, sure. I think this is a great question. And actually, through our research, Sandra, myself and Leanne, as we’ve collaborated together over the past, I think 8 to 9 months, I think one of the common themes that we’ve observed is there’s oftentimes a lot of discussion around the need to modernize cross-border payments and make them more efficient.

Cam Nili ((00:06:46)) – – But to get a little bit deeper into what that really means, there’s actually a few components to it. So I think it’s important to first understand the types of cross-border payments. So, we oftentimes, I think when we refer to cross-border payments, we refer to the retail experience. And that really can take place, both at the remittances level. So if there is an individual that wants to send money back home to their family, oftentimes we see this from, you know, western countries sending money to eastern countries really as support and financial assistance for their family or loved ones back at home. And, you know, we did a pilot on this, with Western Union and the Digital Dollar Project a couple of years ago as well. So I think remittances is one type of cross-border payment. Another one is around retail. So retail, you can think of it as like a commercial or retail application of doing a cross-border payment. So it could be like a business in Australia, sending money or paying another business in Japan, for example.

Cam Nili ((00:07:45)) – – So I think there is like that retail larger value sometimes, but not extremely large value. And then lastly where Sandra, Leanne and I focus and I think is the crux of our, discussion today is around the wholesale application. So wholesale in this context and I’ll obviously I’ll, I’ll defer to my colleagues here to get deeper into this but wholesale really in the cross-border payments context means large interbank payments made between across countries and really what that means is using both a commercial bank money element. So M1 plus M0, which is a central bank money element, which we’ll get into, relates to the existing RTGS system infrastructure today. So there’s those three tiers of cross-border payments. And we’re going to focus on the wholesale side just to keep things simple. And I think some of the major challenges that we observed as it relates to wholesale, is that there is this friction, there are frictions related to regulatory interoperability across countries. So there’s different policies and procedures that, countries may adopt as they relate to KYC, AML.

Cam Nili ((00:08:55)) – – And so that results in some friction and manual effort that’s required to complete these cross-border payments. Another one is around foreign exchange settlement risk. So there’s this increasing, propensity for foreign exchange, to be under settlement risk. And specifically, we’ve seen this in the emerging market economy currencies, which, we have Leanne here to discuss a little bit more about some solutions that are going to address the EME currencies settlement risk, and that that being on the rise, despite having access to more PvP arrangements. And then lastly, I think this notion of AML, KYC in high risk regions, has also resulted in some extra steps that are required to fulfill a cross-border payment and so we oftentimes, you know, we think of slow cross-border payments. But actually in our report you can find that there is a map that we’ve discovered that thanks to Swift, that does articulate some of the average beneficiary leg processing times by region. And we found that in high risk regions or those regions that, you know, there might be a higher likelihood of, of crime or, money laundering taking place for whatever reason.

Cam Nili ((00:10:11)) – – that’s where there’s really slow beneficiary legs. But in a broad sense, actually, in most of the map, if you go look at it, there’s actually quite an efficient cross-border payment mechanism in place today across most jurisdictions. So I hope that helps. So there’s a lot of things there, Shaun. But, I’ll pass it or I’ll pass it back to you and see if you want to pass it to Sandra or Leanne on this.

Shaun Ferrari ((00:10:34)) – – Yeah. No, thanks for that. I think it helps to have that kind of understanding of. Of what the system looks like and, and how, you know, at a high level, these different types of, of payments that are evolving right now, whether that’s in the real time space or in the digital currency space, can play in this area which, which we’ll continue to chat about here. So maybe yeah Leanne, I don’t know if you want to think about or tell us about some of the main kind of digital currencies that are relevant in this kind of modernizing the cross-border space as Cam mentioned, there’s different types out there. And, how should we think about that?

Leanne ((00:11:10)) – – Yeah. Thanks so much Shaun and Cam provided a really comprehensive overview of the different monetary systems. And, you know, a lot of the work that’s been going on to modernize cross-border payments. So maybe I’ll provide some context from the view of the experimentation that we’ve been doing across our various centers at the BIS Innovation Hub around the world, because modernizing cross-border payments, tackling some of those key inefficiencies that Cam mention, you know, high cost settlement risk, credit risks, you know, high fees, slow settlement speed are all top of mind for policymakers. And in fact, the G-20 has made it a priority to enhance cross-border payments and a call to action to policymakers and jurisdictions around the world. And so, at the hub, we have been looking at various architectures, various monetary instruments to tackle this issue of cross-border payments, both in the CBDC space, which is a tokenized form of central bank money, central bank digital currency, but also non CBDC.

Leanne ((00:12:08)) – – So in the CBDC space, we have both looked at retail and wholesale. In the retail space, we have project icebreaker of the Nordic Center that looks at interlinking retail CBDC systems. But in the wholesale space we do have quite a lot of projects looking at this project Jura of the Swiss Center and also mBridge, which I’ve had the privilege to work on over the past close to two years, which explores the use of DLT and a common platform to on which multiple CBDCs can be circulated and transacted among the participating commercial banks for instant atomic cross-border wholesale payments. In the non CBDC focus space, we do have a recently announced Project Agora, which focuses on the tokenization of commercial bank money. So it can make this differentiation between M1 and M0. I think for end users, it’s usually hard to capture this distinction. But if you think about the cash that you hold in your hand, that’s M0. And that’s really all that the general public is exposed to. Most of the digital payments you encounter are actually M1 in the form of your commercial bank deposits or liabilities on e-money providers, etc. So in the background, though, you still have M0 or reserve money in the form of RTGS accounts doing the interbank settlement.

Leanne ((00:13:33)) – – But what you’re most exposed to and the greatest share of cross-border and digital payments today are made in M1 money. And Agora looks at the tokenized version of that. And then non CBDC related we have Project Nexus out of the Singapore Center, which looks at interlinking existing FPS or Faster Payment Systems through a hub and spoke model. And these are all sort of different examples of how we’ve been trying to tackle this cross-border payments issue through, you know, modern, architectures designs, modern technologies such as DLT but maybe I should stress that at the bottom of all of these solutions is still central bank money, and oftentimes in the form of a wholesale CBDC or wholesale payments, as you see in the RTGS system. So even in the case of deposit tokens, as I mentioned, Project Agora, you know, between bank settlement, you still need settlement on the central bank’s balance sheet in the form of M0. And similarly for correspondent banking payments that we see today, it’s still settled within the respective jurisdictions central bank balance sheet.

Leanne ((00:14:40)) – – You don’t have central bank money actually moving cross-border. But that’s the beauty of having the correspondent banks. And then in the case of Enbridge, you do have the CBDC central bank money moving cross borders across the different wallets of different jurisdictions, commercial banks. So maybe I’ll leave it at that and feel free to add anything, Sandra and Cam. Thanks.

Shaun Ferrari ((00:15:03)) – – Perfect. Thank you, Leanne. Oh, yeah, Cam. Yeah.

Cam Nili ((00:15:06)) – – There’s actually a very, very important point that Leanne brought up. I think in our research, and just as a general understanding of this space, when we discuss money movement across borders, this is actually in today’s world is really largely a message based infrastructure, which we can attribute, a lot of this to the network that Swift has built, which is highly efficient and I encourage everybody to go read some of their latest reports and statistics around meeting these G-20 goals. It’s actually quite performant in a broad sense. So I encourage everyone to look at that because it does this.

Cam Nili ((00:15:43)) – – It does, debunk some myths that are associated with how inefficient spaces. So I think it’s important to understand what Leanne was mentioning around correspondent banking, this notion of nostro and vostro accounts that are leveraged by banks around the world to move their cash, move, quote unquote but it’s really about it’s really just an elegant and complex accounting system that these banks have with each other. So there might be a bank and jurisdiction A and a bank in jurisdiction B, and they hold reserve liquidity in that local currency and debit and credit that account, depending on what customers, how much their customers are moving that day or that week or whatever settlement period, they’ve decided to, manage that through. So I think when we discuss inefficiency, inefficiencies, this is certainly one of the ones that is continued to be, one of the sticking points, I think, for the space is to optimize how much liquidity these banks need to hold with each other, and minimize that, really to keep it as efficient as possible, because the cash that’s being held elsewhere, let’s say in British pounds, by a US bank that that could be considered as, as not maximised capital.

Cam Nili ((00:17:01)) – – Right. So, so that’s kind of the game that these institutions are playing or to optimise how that cash is being deployed. So as it’s sitting in a nostro account, for example, it’s not being optimally used if, if it’s not being completely used by the bank’s customers. So I hope that helps also from a liquidity risk standpoint, that has continued to be one of the sticking points. And I think around this notion of deposit tokens and what Leanne mentioned, like Project Agora, that’s one of the, the objectives, objectives is to figure out how to optimize for that.

Shaun Ferrari ((00:17:36)) – – Great. No thanks for that. And thinking through kind of that optimization maybe Sandra, if you if focusing kind of on the, the wholesale CBDC aspect of this and then Cam maybe we’ll pop back over to you and talk a little more about deposit tokens. I think that would be really interesting but Sandra, on the, the wholesale CBDC side, what kind of specific role can that play? Hey, to address some of the challenges Cam was talking about or how to derive some differentiated value from a wholesale CBDC in this aspect.

Sandra Waliczek ((00:18:07)) – – Thanks Shaun and I just did want to refer back to the important point that Leanne made, being that, M0 money is most important in the system, that settlement will have to occur at some point in central bank money. And so that’s kind of a finding of our report, is that when we’re looking at modernising these systems, that’s a differentiated role that wholesale CBDC will play. It’s the safest form to settle all of these transactions. And looking at this report, we looked at the industry challenges in financial markets. And we wanted to analyse where in particular wholesale CBDC might be able to add value to the most. And there’s a lot of challenges in financial markets. So we took a critical role, critical look at where where this could be. And we found four areas where especially for cross-border payments, this might be most impactful. So a finding of our report is, in fact, that cross-border payments is an area where wholesale CBDC would be important because a lot of existing domestic payment systems in countries could be efficient.

Sandra Waliczek ((00:19:20)) – – It really depends on where and which jurisdiction. But I think that cross borders where we really see the value at and when it comes to the four areas of differentiated value, we looked at disparate settlement cycles. So for this one, there’s several reasons why, right now, when you’re settling payments between trade and settlement, it could take extended periods of time. That has to do with, banking hours, different jurisdictions, different timings that banks are open in, in different countries. And at the moment, not all systems, not all real time gross settlement systems or banking systems are 24 by 7. So a wholesale CBDC could add value by, creating that global settlement window and increasing the amount of time that large value payments could settle. The next area that we found differentiated value was in solving the operational risk and settlement failures. There’s a lot of, transactions that occur today, whether it’s related to SSIs or other risks where payments do fail. If we look at wholesale CBDC, it could, add value by creating a mutual data sharing system where these SSIs could be shared across the board, and there would be a decrease in settlement failures for cross-border payments.

Sandra Waliczek ((00:21:03)) – – The third area where we saw risk was related to FX settlement. And when we look today, a lot of the FX payments are settled via CLS, which deals with 18 of the largest currencies, settling cross-border but, there are an increasing number of emerging market currencies that are being transacted in today, and PvP arrangements are not present for all of those and payment versus payment is the safest way to settle FX payments. And so when we look at wholesale CBDC, this could really add value, by decreasing risks for FX payments, for an increasing number of currencies that are being traded in today. And the last area where we found differentiated value had to do with, tokenized assets, When we’re settling tokenized assets right now, there’s actually not a credit risk free way of settling them. Central banks today are experimenting, with the BIS, and they’re working on issuing, tokenized bonds, which is fantastic experimentation. But we need a credit free risk way to settle it on the currency leg. So when we’re talking about wholesale CBDC, this could be the way that we could do, delivery versus payment of the asset, the tokenized asset with a tokenized cash form.

Sandra Waliczek ((00:22:43)) – – So, those are the four areas that we found differentiated value for a wholesale CBDC. And hopefully those make sense. but I’m sure we’ll keep discussing, a little bit more as it goes along. Back to you, Shaun.

Shaun Ferrari ((00:22:58)) – – Great. Thanks for that. Yeah, I think the. There’s definitely some clear advantages that the wholesale CBDC has compared to some, some different, other options out there. And then I guess, Cam, there was some mention of tokenized assets there and bringing in deposit tokens to, to this curious how deposit tokens play a play a role because you, you could see a way where things go from wholesale CBDC to a retail CBDC or wholesale CBDC to some other method of, of payout. But where do deposit tokens kind of enter this this picture?

Cam Nili ((00:23:35)) – – Yeah. And, you know, I think ultimately my fellow colleagues here might agree with me that these things are converging in the future anyway. Right. So I think the general momentum that we’ve seen through our research is that there’s a variety of tokenized payment instruments that will become available based on who you are or what purpose you’re using it for, etc..

Cam Nili ((00:23:58)) – – So I think, as we’ve noted with our paper on wholesale CBDC, there is already live transactions today, with wholesale CBDC, in Switzerland. So I think there is certainly momentum. Although that is a limited phase pilot. There is momentum, there is actual experimentation with live currencies and live real transactions. and so I think these things are ultimately converging is my is my short answer. And my long answer is that, it will converge and change for a variety of populations, as it relates to wholesale CBDC, that’s really for financial institutions, whether they are, licensed banking entities or non-bank payment service providers that might have access to central bank money. Their experience will change. They have the opportunity to modernize some of the areas of their business that Sandra mentioned is four areas that we highlight in our report. But then on the end user side, I think this is actually where, a lot of the focus generally in the world iS applied is around the retail and user experience And we see kind of the, the commentary from, from the general public around retail CBDCs, which oftentimes I think can be, misconstrued and misunderstood.

Cam Nili ((00:25:14)) – – But then there’s this other notion of tokenized deposits or deposit tokens. So deposit tokens, in short, are tokenized payment instrument that is akin to the deposits that you hold at a bank at a commercial bank. So, for example, if you know, you bank at Bank of America or Wells Fargo here in the United States, the account that you have with them is commercial bank money. So that’s the money you hold in your in your checking account. And, that is what would be akin to a tokenized deposit. Now, the benefits of this are that there’s a few one of the areas of modernization that, wasn’t explicitly highlighted, I guess, in the, in some parts of the report until you get to the back of it. So just as a preview, was that wholesale CBDC could enable a variety of different tokenized payment instruments just by being tokenized itself, so it can interact with and work with systems such as deposit token systems more effectively. So what this all means is that the end users can then, transact just as efficiently on a 24 over seven basis, just like the large institutions would that are using wholesale CBDC.

Cam Nili ((00:26:28)) – – Except the big difference is the degree of access that they have to that specific, payment instrument. So I think deposit tokens, that’s where a lot of the emphasis is. Now, there is a need to figure out how we harmonize these two systems together, wholesale CBDC and deposit tokens, so that we can optimize for some of those issues that we discussed in the beginning, which is, making sure that we’re making the most use of the nostro accounts that are being held between banks and other jurisdictions. So, for example, will deposit tokens actually help us make that more efficient? Or will we still have to hold the same level of liquidity, to fulfill the needs of our customers? So, I think that’s one of the other benefit that I would just add here is the deposit token narrative, as opposed to the retail CBDC narrative we’ve observed is one that avoids the notion of bank disintermediation, because deposit tokens aligns with the existing business practices of the largest banks, any deposit taking institution. So it avoids this fear that retail CBDC or the federal government might be imposing some of their technologies and instruments and, I guess cannibalizing the industry from, the banking industry.

Cam Nili ((00:27:47)) – – So that’s one thing. And the last thing I’ll add before I pass it back to the team is, this notion that deposit tokens do play within existing KYC boundaries. So they are actually quite compliant in the way that they’re deployed. And anybody who would have access to them would be somebody who is onboarded and registered and verified as being somebody that is allowed to transact in that currency. So I think there’s a lot of benefits to it.

Shaun Ferrari ((00:28:15)) – – Great. I think it’s interesting how all of these things, as you said at the beginning, kind of fit together. You get the benefits of, of the, the interbank transfers and then the benefits of kind of the within jurisdiction or within a certain banking peer, benefits as well, depending on the type of, currency we’re talking about. So, I know we’re, we’re starting to run short on time, so we’ll, we’ll ask for some kind of shorter answers. But there, there are a little bit of, a couple more topics I think folks would like to hear about.

Shaun Ferrari ((00:28:45)) – – And Leanne, maybe just quickly on on Project mBridge not to, not to like, you know, give it not enough time. But, maybe just some quick thoughts on how that is playing in this space and some, some things to look out for with that.

Leanne ((00:29:00)) – – Yeah. Thank you Shaun. So maybe just very quickly I think Project mBridge as I mentioned, is a multi CBDC common platform for wholesale cross-border payments underpinned by custom built distributed ledger technology, a comprehensive legal framework and a governance framework that’s tailored to the unique decentralized nature of the platform. Which central banks running the validating node, operating the consensus mechanism on mBridge and commercial banks, you know, transacting with wallets of different CBDCs on mBridge. And, a key benefit of Mbridge is this direct bilateral peer to peer connectivity between any two banks that are onboarded to the mBridge platform. So both Cam and Sandra talked about, you know, correspondence banking and especially the challenges for emerging market economies and cross-border payments and BIS research has documented a retreat in the correspondent banking networks and services since the global financial crisis, primarily due to the reasons cam mentioned, you know, de-risking AML, CFT, etc., and the costs that are associated with that.

Leanne ((00:30:07)) – – But this also leads to a lot of jurisdictions not having sufficient or affordable access to the global payments network to settle in their local excuse me and their local currencies for international trade, for capital markets transactions. And so, mBridge, we really aim to tackle this, this key pain point, as well as to support the use of central bank money and cross-border payments, which, as Sandra mentioned, is virtually free of credit risk. It has instant finality upon settlement, atomic settlement transactions within seconds. And also, the FX nature on mBridge is PvP. So as Sandra mentioned, you know, now a lot of transactions, ethics transactions are actually not outside of PvP framework, CLS has, you know, is great for providing this mechanism, but it only covers certain number of most liquid currencies. And so with the increasing use of emerging market currencies, a lot of them are subject to significant settlement risk. On mBridge, we use a payment versus payment simultaneous transaction, simultaneous exchange of both legs of the currency to to reduce this, this credit risk.

Leanne ((00:31:13)) – – So, the project, you know, has it’s been a multiyear project. The founding members, central banks have been hard at work deploying their infrastructure and their nodes, integrating their domestic payment systems, such as RTGS to the mBridge platform and, you know, continuously progressing the technology, governance and legal aspects with a view of testing if the platform can become a minimum viable product or an MVP. And, a couple of years ago, we actually did some real value transactions on mBridge in the form of a pilot representing sort of the first of its kind, having real transactions settled on a multi CBDC platform. And we’ve learned so much from that. And based on those learnings, we’re continuously progressing the platform. And do, you know, stay tuned for some of our publications, going forward where we’d be happy to provide more details. But we are also very happy to be featured in the World Economic Forum report in the context of how whole wholesale CBDC can help to to support and modernize cross-border payments.

Leanne ((00:32:17)) – – Thanks, Shaun. Back to you.

Shaun Ferrari ((00:32:18)) – – Awesome. No, thanks for that. Clearly an important project in this space and it’s really, everyone’s looking forward to, to continue to progress there. So thank you for that. And then, Sandra, should we expect all of this to, to revolutionize cross-border payments and is it a panacea moving forward or are there some remaining challenges out there that we should be mindful of?

Sandra Waliczek ((00:32:42)) – – Think, Shaun. No. Definitely. We. We don’t want wholesale CBDC or any of these, technologies or digital payment solutions to come across as a silver bullet. It’s not going to be one thing that can change and solve all of cross-border payments. So when we were doing our research for the paper, when we identified the challenges, there were some that we identified as being persistent, even if we were to implement wholesale CBDC, or maybe more research is required to see exactly what changes would need to be made in order for wholesale CBDC to provide greater value in those, challenge areas.

Sandra Waliczek ((00:33:24)) – – So the reason for that is, is it’s going to require a confluence of elements in order to solve some of the remaining challenges, whether that’s legal, regulatory, governance, other technologies that need to be implemented. There’s just so many different moving pieces. And, and one, these days is also geopolitics, that is causing increasing challenges for our cross-border payments. So when we looked at the existing, challenges that will likely be persistent. Those included, regulatory interoperability, technical interoperability so if we’re looking at a legacy systems or a real time growth settlement systems, and we’re trying to implement DLT or new technologies, that’s going to be a challenge. Liquidity optimization is going to be difficult as we move to, T plus one or T plus zero, as well as, when we look at those high risk regions, there’s only so much we can do when it comes to technology or digital payments and improving those. So, this is just to say that that more research and more teamwork is required to solve all those challenges.

Sandra Waliczek ((00:34:41)) – – And it can’t just be, fixed with a magic wand there.

Shaun Ferrari ((00:34:47)) – – All right. No, thanks. Thanks for that. it does take work from everybody all over the industry, for sure. And with that, maybe we’ll just do a final round of last thoughts from folks. It’s been a great discussion, but I’m wondering if you have any final thoughts or recommendations for folks to take away with them today. So, Cam, I’ll start with you.

Cam Nili ((00:35:08)) – – Yeah, sure. I think the final thoughts on, you know, where the industry is headed and what I think we all would encourage people to do is to continue to do public private sector collaboration. I think that’s the key to all of this, the public sector being one that can convene the private sector and work together to continue to press ahead. And I think there’s some relevant initiatives that are going on right now. As we’ve mentioned, Project Agora is ramping up, and they’re beginning to onboard private sector institutions to partake in that experiment, which is squarely in the tokenized deposits and cross-border payments space.

Cam Nili ((00:35:43)) – – So the private sector has the opportunity to participate there. And then, funnily enough, the ECB calls for expression of interest for testing out three interoperability models. for wholesale securities settlement with central bank money is the wave two of applications is closing today. so I think that’s another opportunity where in the euro zone a private sector can get involved and work with the public sector on experimentation. So I think getting involved and, raising your hand as a financial institution and continuing to set the standards as we move forward. That’s my final thought on this.

Shaun Ferrari ((00:36:20)) – – Awesome. And thank you for that. Leanne, how about some final thoughts from your perspective?

Leanne ((00:36:26)) – – Yeah. Thanks, Shaun. I think Cam provided a great private sector view and maybe I’ll provide sort of the public sector view. so for jurisdictions, you know, exploring or venturing into the area of modernizing cross-border payments. As Sandra said, there’s no silver bullet. There’s no one size fits all. Every jurisdiction has their own set of economic and financial priorities.

Leanne ((00:36:50)) – – You know, cross-border payments, international trade may be relatively less or more important for those jurisdictions. And we do see a lot first, prioritizing modernizing domestic payments before they venture into the cross-border space. But in doing so, it’s important to really keep in mind the future possibilities of integrating with foreign, foreign jurisdictions, payment systems or, you know, interlinking or common model. So this issue of interoperability is especially important. And to take it into account early on in the design and thinking, I think also, you know, collaborating and working with foreign jurisdictions, with multinational organizations like the World Economic Forum and the BIS, and, you know, learning from others experiences is extremely important, sharing experiences and working together in a multilateral context, and also taking into some of these, persistent challenges into account as, as Sandra pointed out, we’re really just at the beginning of the road of exploration. There’s so much still to be answered. You know, just from doing Project mBridge alone, I’ve learned so much.

Leanne ((00:37:55)) – – The technology is really the easiest barrier to overcome. It’s more about the policy considerations of, you know, opening up your balance sheet or allowing foreign institutions to transact in your CBDC. The governance considerations working with multiple jurisdictions, multiple central banks, multiple payment systems, the legal considerations how do you account for differing legal frameworks, differing treatments of the CBDC or settlement finality? How do you put that all together and, you know, use one platform for cross-border payments? So these are some of the things that, that I would recommend and close with. Thanks.

Shaun Ferrari ((00:38:29)) – – Terrific. Thank you very much and, Sandra, you get the honor of, last words here. Bring us home.

Sandra Waliczek ((00:38:37)) – – Thank you. No, I think I think Cam and Leanne summarized it well. I think top few things to consider when modernizing cross-border payments is public private cooperation, global cooperation, and just making sure to customize each solution to each respective jurisdiction. I think the BIS, the forum, Accenture, we’re all creating these reports that add value and are helpful, but each jurisdiction needs to look at it itself and see what, what solution will be most beneficial and use those strategies accordingly.

Sandra Waliczek ((00:39:12)) – – Thanks so much, Shaun.

Shaun Ferrari ((00:39:14)) – – Great. Well, thanks all of you for participating today. I think it was a great discussion and overview of what’s going on in the world of cross-border payments and wholesale CBDCs and deposit tokens. A lot of the projects that BIS has ongoing right now. So, thanks for sharing that. We enjoyed the discussion thoroughly. So, thank you all for joining us. And then folks listening, please, if you want to carry on these discussions and engage in, further dialogue with your peers from around the world, please join us in Kuala Lumpur, for policy and strategy discussions on payments and cross-border payments at the beginning of June, June 10th to the 14th during our payments week in Kuala Lumpur. And if you want to dig into digital currencies some more and really get into the deposit tokens and digital asset stream, join us in London the week of September 23rd at our Digital Currency conference. With that, I bid you a good morning, good afternoon or good evening, wherever you might be listening to us from.

Shaun Ferrari ((00:40:19)) – – And thank you for joining us and have a great rest of your day or evening. Take care.

Podcast Outro ((00:40:26)) – – 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.

Welcome to our latest episode, where we delve into the transformative world of cross-border payments and digital currencies. We had the pleasure of moderating a riveting discussion during a LinkedIn live session with some of the most brilliant minds in the industry. Today, we’re excited to share the insights and key takeaways from that conversation with you, our fellow podcasters interested in technology and finance.

The Future of Finance: Tokenization and Digital Currencies
Our esteemed panel included Cam Nili, Digital Currency Strategy Director at Accenture; Leanne (Si Ying) Zhang, Advisor at the Bank for International Settlements (BIS) Innovation Hub; and Sandra Waliczek, a representative from the World Economic Forum. Each brought a wealth of knowledge and experience to the table, discussing their roles in shaping the future of financial markets. Cam Nili opened the dialogue by explaining his pivotal role in assisting financial institutions to integrate tokenization into their business models. Leanne shared her expertise on central bank digital currency (CBDC) projects, with a focus on the wholesale CBDC space. Sandra Waliczek led the conversation on blockchain and digital assets, highlighting the collaborative efforts of various stakeholders in modernizing financial markets.

Modernizing Financial Markets with Wholesale CBDC
Accenture and the World Economic Forum recently published a paper on the modernization of financial markets, emphasizing the urgent need to address inefficiencies in cross-border payments. Cam highlighted the paper’s focus on foreign exchange settlement and regulatory interoperability, while Sandra pointed out the inclusive approach of gathering feedback from a diverse range of community stakeholders.

Addressing the Challenges of Cross-Border Payments
The panel delved into the complexities of cross-border payments, discussing the hurdles of regulatory interoperability, foreign exchange settlement risk, and AML/KYC requirements. Leanne provided insight into the BIS Innovation Hub’s experiments and projects, which explore both retail and wholesale CBDC solutions, as well as non-CBDC alternatives to enhance payment efficiency.

The Value of Wholesale CBDC in Global Finance
Sandra underscored the significance of wholesale CBDC in overcoming challenges such as disparate settlement cycles, operational risks, and settlement failures. The consensus among the panel was clear: wholesale CBDC presents a differentiated value proposition, offering a safer and more efficient method for settling cross-border payments.

The Convergence of Tokenized Payment Instruments
Looking ahead, Cam Nili predicted the merging of various tokenized payment instruments, including wholesale CBDC and deposit tokens. This convergence is set to revolutionize the experience for financial institutions and end-users alike, paving the way for modernization and improved user experiences, particularly in the retail CBDC space.

Tokenized Deposits: A New Frontier in Payments
Our discussion also touched on the concept of tokenized deposits, which are akin to the deposits held at commercial banks but with added benefits like enhanced efficiency and round-the-clock transaction capabilities. The panel emphasized the importance of harmonizing wholesale CBDCs and deposit tokens to optimize cross-border payments and tackle liquidity issues.

Project mBridge: A Beacon of Hope for Cross-Border Payments
We explored Project mBridge, a multi-CBDC platform designed to address the challenges seen in existing cross-boarder payments. The project underscores the necessity of public-private sector collaboration, global cooperation, and tailored solutions for each jurisdiction in the quest to modernize cross-border payments.

Embracing Collaboration and Customization
While wholesale CBDCs and deposit tokens hold great promise, the speakers acknowledged that they are not a panacea. Legal, regulatory, governance, and technical interoperability challenges must be carefully considered. The path forward requires ongoing research, teamwork, and multilateral collaboration to overcome the persistent obstacles in cross-border payments.

Join the Conversation!

As we wrap up this insightful journey, we invite you to continue the dialogue and participate in upcoming events focused on payments innovation and digital currencies. Your engagement is crucial as we collectively strive to modernize cross-border payments effectively through public-private sector collaboration and global cooperation. Thank you for joining us on this exploration of the future of finance. We look forward to sharing more insights and fostering discussions that drive the industry forward. Stay tuned for more updates and thought-provoking content from the “P.I.T. Exchange” podcast.

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