#28: Talking CBDC with Barry Tooker of TransactionBanker.com

Speaker A: Hey everybody and welcome to the Pay CLT Payments Hub podcast sponsored by Endava. I am your host Scott Harkey. And this is the podcast that takes a deep dive on topics from our Pay CLT speaker series and adds additional industry perspective to explore the topic further. Hey everybody, welcome. And we're excited today to be talking about crypto. I uh, not, not just any kind of crypto but more specifically central bank digital currencies which actually some of you may not consider crypto. So that'll be fun to get into uh, to have that conversation. We have a guest today is Barry Tooker. Barry, how are you?

Speaker B: Doing just fine this morning. Thank you very much Scott. Um, and looking forward to uh, the conversation this morning.

Speaker A: Awesome. Well, thanks for being here. Why don't we start out by learning a little bit more about you and your background. I see that you're uh, the principal or I guess probably the founder of Transact Banker. Tell us a little bit more about that.

Speaker B: Well, transactionbanker.com is a payments consultancy. Um, and really drawing on um, my um, experience in both domestic and international funds transfer. Um, I have been um, both I have been a banker, I have been a software vendor, um, I have been a consultant but always in and around domestic and international funds transfer. I have helped banks um, do the transformation and modernization projects for many and very different banks around the world. Um, when asked how long I've been in this business, someone once told me not to use the number of years anymore, just use decades. Barry. Um, it's much easier to talk about it that way. But I have run day to day operations for many and very different banks, all of whom have different names now. Um, in between I've worked for hardware and software companies. Many of those have different names now. Um, but as I said originally always in and around domestic and international funds transfer. So um, uh two years ago I went off on my own um, as an independent consultant. Um, and that's where transactionbanker.com came from. Um, I have the honor and privilege of serving as the US FAFSA Payments Council's uh, chair of their cross border payments, um, payments work group and also do work with another organization called the Bankers association for Finance and Trade where I sit on their payments committee. So that's the, that's the short version of the long journey.

Speaker A: Well plugged into the financial services community is what I take from that. Right, so clearly you can have some good perspective here. So we're talking about CBDCs, um, help set us up here. What is the central bank Digital currency. How would you describe it to uh, uh, someone who maybe not know, maybe who doesn't know much about it.

Speaker B: I think the easiest way is it's a digital representation of a country's national currency. Um key thing, it's issued and backed by the central bank, making it a government form of government backed form of digital money. Um, they can coexist with physical cash and they can also um, coexist with commercial bank deposits. Um, but they do represent a new form of currency but it's issued and regulated by a central authority, typically a country's central bank. One of the things we might want to talk about is what it's not. Um, yeah, let's do it.

Speaker A: What is it not?

Speaker B: Um, contrary to some of our legislators beliefs it is not the new Fed. Now it is totally different from that and having not nothing to do with that. Um, while CDBCs are digital currencies, um, and to your opening thing they are distinct from cryptocurrencies like Bitcoin and Ethereum. They are not anonymous. Um, they are not a replacement for traditional banking, it is not a stablecoin, it's not a different form of money and it's not a replacement for physical cash. So any analogies that you have heard about in the industry, um, you know again the important thing to note is that it is, it is a digital form of a country's national currency and I think that that's primary, you know, the primary thing. And lastly just before we go on we should Note that there's two forms of CDBCs. Wholesale which are used by financial institutions and um, wholesale and retail which are really designed to be used by the retail public.

Speaker A: So it's interesting the kind of taking the perspective of what it's not and talking through some of that. Um, if currency today or money today is largely exchanged from bank to bank through ones, uh, and zeros, there are ledgers that get sent back and forth and ledger balances that get updated. What is really the point of a central bank? Digital currency. In a world of digital currency or I'm sorry, I shouldn't say it that way, in a world of digital money representation in the financial system.

Speaker B: Um, I think you have to take a look uh, perhaps at some of the, you know, maybe the key features of CDBCs and maybe the motivations for CDBCs. Um, you know the CDBCs are purely digital in nature. Um and that allows for easy and easy and um, efficient digital transactions. Again you know I'm going to keep coming back to it's government backed. Um, there is a centralized control and there's, you know, there's privacy and transparency. Now the privacy issue gets to be a bit of a problem uh, depending upon, you know, the country that you're in, the way that they perceive the central bank, the way that they perceive the government. But really when you look at it, um, the motivations for this are um, financial inclusion. Um, a CDBC can, services, can provide services um, for people that don't have traditional bank accounts.

Speaker A: But ah, tell me, tell me more about that. In what way? Right, like how does, how does a central bank digital currency, how does a digital currency change the availability of the funds to the unbanked today?

Speaker B: Well they, they may not necessarily have an account with their, with their local bank, credit union, um, what have you, um, and a central bank digital currency backed up by the government. So you're not dealing with a private institution anymore, you're dealing with your government. So it's going to allow more um, access to banking services than potentially that they have today with going in. They may not trust their local bank, they may not even have a local bank with where, uh, you know, depending upon where they are. Um, a lot of these things are all done now, um, in different countries, uh, with their telephones and the reliance on mobile banking. But just the same you want to have something that's backed up safely and soundly and this is where the financial inclusion and benefit of CDBC is with the central bank banking.

Speaker A: So the idea being that if you've got a central bank, bank backed digital currency and it was the uh, intent of that uh, government entity, then distribution could extend outside the existing financial network into other products or industries to reach customers. Is that the idea?

Speaker B: It's partially true. But again now you're taking away reliance on physical cash. All right, and so that you don't have to have physical cash anymore. Now more and more countries are going cashless. Uh, Brazil is a great example of that with pics. Um, also the Nordics are looking at going cashless. So you don't necessarily have to run down to the atm, um, to get cash anymore. Um, you're able to do this with a digital currency backed up by your central bank.

Speaker A: We hit a little bit on a comment around the trust of the central bank. And I know this is a topic that's come up a lot and there's probably two of this to me. One, one is countries where there's just general distrust of the government and their monetary policy. And you know, Argentina is probably the most uh, uh, I would say obvious example, but certainly the one that makes the m. Most headlines Just, just given the destabilization ah. Of the currency there. Um, and that. That's one extreme. Right, but there also is. Is something like the US Even where to a large population of Americans that wouldn't be an issue. But, but as you, as you kind of reference, right. We even have our own part of our government maybe unclear about what central bank digital currency is and isn't. So how does that then find its way to the people, right? Would people trust it and use it or is it kind of get. Is it. Is that not have an opportunity for success given maybe some points of view about whether or not to trust the government in this respect?

Speaker B: Uh, you know, look, at the end of the day, a CDBC trust of a government, um, will. Or not trusting the government will certainly impact that government's ability to roll out any kind of central bank digital currency because the general population will just think it's just another uh, big brother continuing to watch me. Okay. And I think you have to really then take a look, Scott, at the way that these central bank digital currency projects are being rolled out. Said before, some are wholesale, some of retail. There's much, much more work being done on the wholesale side of it. Okay. So it's replacing a lot of the traditional ways that funds are moving specifically across border. But I mean to answer your question specifically, uh, if there's not a trust in the government, there's not going to be a trust in a central bank digital currency. Um, and that's going to take a whole lot longer to come to be. You reference what's going on in United States. Um, you know, 19 of the 20G, 20 countries are looking at CDBCs. The one that isn't is the US um, and for just a whole lot of reasons, um, you know, one of the uh, House of Representative committees has said, um, there can be no central bank digital currency without a congressional mandate. Um, and we all know how hard it's going to be to get anything through a Congress m. No matter what. Um, CDBCs are also becoming a big deal in this election year. All right. Um, and you know it. Every once in a while it gets, you know, raised up in some of the debates or in some of the public discussions.

Speaker A: So it is, you know, I kind of know the answer to this, but just to push on it a bit, right? Like why is it a political issue? Why does it come up in politics as opposed to being about the utility of it or Its ability to provide value to end consumers, etc.

Speaker B: Yeah, I mean, I think you have to take a look at the depth and the breadth of the U.S. okay? And just, you know, in countries where it's succeeding, um, you know, you know, you don't have the 9 or 11,000 banks depending upon which way you're counting here in the, here in the, you know, as you do here in the us you also don't have the multi of regulatory bodies. All right? So getting anything to be accepted by the general populace of the US without any kind of a backing, where you're seeing it successful and where it's working is where the government is standing behind it. All right, there's 134, uh, countries right now around the world that are looking at, in one way, shape or form, uh, a central bank digital currency and where it's backed up by, by that central bank. Those projects are moving along much more rapidly than they are here in the US where it's just you're not getting general acceptance. Everything is being looked at through a political lens, uh, uh, not an economic or realistic lens. And um, I think if anything the prospect of potentially a wholesale CDBC, maybe retail CDBC in the U.S. man, that's a long way, know, a long long way away and a stretch at this point.

Speaker A: Yeah, definitely agree with you there. So, so let's, let's pivot away from that a little bit. Let's talk about, um, we can use the wholesale examples or, or look at international money movement more broadly if we want. But where, where do we see CBDC projects getting traction and, or use cases kind of in the market that have proven to be really successful?

Speaker B: Um, the Atlantic Council and the CDBC tracker has an amendment, amazing amount of statistics if you're interested in delving down into some of this. It is phenomenal what they have put together in their CDBC tracker. And I would strongly recommend that, um, as I said, if you take a look right now, um, 134 countries are looking at uh, CDBCs, um, and exploring digital versions of their currency. Um, there's a lot of talk about potentially a digital euro. Um, as an example, if you contrast that with just about four years ago now, only 35 countries were even thinking about it. Um, and 68 countries right now are in advanced state of development. Um, and that means either they're in development pilot or they've already launched. Um, and these are amazing statistics when you take a look at the development of it, um, just in the last four years, that 134 countries represents 98% of the global economy. You know, when you think about that, the US is on the, and I know, keep coming back to this. The US is on the outside looking in. Um, and uh, you know, the progress on a CDBC in the US has stalled. Um, and there's a widening gap between even the G7 banks. Um, and this is becoming an ongoing issue within the G7 and in the larger G20 community.

Speaker A: So what should we be doing as financial services professionals? Whether you're working at a bank, your payments company, et cetera here in the US Is it just try to get educated at this stage, what can people do?

Speaker B: Uh, I think you go out and you take a look at some of these projects that are going on globally, whether they're retail or wholesale. Take a look at what that means. Um, specifically take a look at, um, the different projects that are out there. Um, again, I know I keep coming back to the CDBC tracker, but they have a number of projects, um, that they talk about, some that come to mind straight away. Um, Project Enbridge, um, which is a joint effort of Thailand, China, Hong Kong and the United Arab Emirates, um, Project Mariana, France, Singapore and Switzerland. So you can see that this is, you can see as this is being rolled out. Take a look at what the motivations are, take a look at what the perceived benefits are and then really drill down and say, okay, how is this relevant to potentially my needs? Um, depending upon from a bank, um, there are certainly impacts from corporates. It's going to make it easier to be able to move money, um, um, and even individuals. It's going to make it easier to move money. There's going to be less hops, there's going to be less, um, you know, there's going to be more transparency. Um, so I think you have to look at, look at the benefits of it and take a look at, or take a look at some of these projects that are out there that have been incredibly successful, um, in looking at these different, uh, ways to implement.

Speaker A: And when we think about the, you know, um, I guess I'm trying to think about the international aspect. Right. What does it look like? There's been quite a few pilots and some of which you've referenced with uh, you know, banks in multiple countries or entities in multiple countries participating together across different CBDC use cases is that the kind of most immediate, uh, area of opportunity is in more international money movement and other international activity, um, given just some of the stalling that we have here in the U.S. well, I mean

Speaker B: I think you take a look at some of these pilots, okay? Um, and they are central bank to central bank, just amongst commercial banks and uh, also between commercial banks and central banks or available to um, all players including retail customers. Um, but they're looked at differently and as I said some are wholesale, some are retail, some are domestically focused and some across border. So I mean I think you have to take a look at a particular need in a particular country, um, in a particular region. Um, and then you know, uh, and then take a look at really the 13 different uh, cross border CDBC projects that are going on and really taking a look at as I said about what are the motivations, what are the considerations, um, for each of these and they are unique depending upon, you know, the particular country and particular region,

Speaker A: what's your favorite use case or what's your favorite pilot example, etc.

Speaker B: Uh, I'm a big fan of Project Enbridge, um, just because of the way that it's being done. Um, also the thing to note here, um, is a number of these projects have the backing of the bank for International Settlements. Uh, they are an integral player in some of these projects. Enbridge is an example. Mariana is another example. Um, just yesterday they announced ah, a Project Angora which is now looking at, this is a BIS initiative. Um, and they're taking a look at things differently than they ever have before, um, and expanding out the different possibilities that are out there. Um, and looking at central banks, um, and cross border to explore the tokenization of cross border payments a little bit far afield but, but it can improve the central bank money and commercial bank deposits. So the BIS is very, very active in a lot of these global projects. And Enbridge, just because I come back to why is it one of my favorites, it deals with multiple countries in multiple geographies and really talks about the ability of these uh, cross border projects. And again secondarily take a look at Project Mariana. Okay, with you know, you're talking about now, you know, France, Singapore and Switzerland. Uh, you know, think about this, you know, how many years ago you didn't want to know anything. Switzerland wouldn't tell you anything about, you know, if you had an account in there. And now they're cooperating on a global basis with France and Singapore and the bank for International Settlements.

Speaker A: Yeah, that's really interesting. Um, what are the risks? What are the challenges? Uh, what are the things that, other than the government aspect which we already talked about, what are the things that are going to slow this down?

Speaker B: Um, I think it's you have to take a look. Um, I think interoperability is going to be a big deal as you're moving things back and forth uh, between different countries. Um, I think that you have to take a look at um, um some of the lessons that have been learned in some of these projects. Now we should be going on for quite a while. Um, there is no universal case for cdbc. Um, and to come back to um, security and privacy are paramount in the discussions. Um, you're going to need absolute cooperation between the regulatory bodies, the standards bodies and ensure that these, these things as you're introducing this new currency that they're interoperable. Um, and you need to really be careful about how the standard setting and I think the other important thing is there are lessons learned from all of these projects share that knowledge. Um, and the other realization is ah, and the continued realization is you're no longer in a batch based world, you're in a 7 by 24 by 365 world and central bank digital currency currencies as is a lot of these real time payment systems are taking advantage of that new reality and new payments processing paradigms.

Speaker A: That's a good point. I was going to ask about what operationally it looks like inside a bank to be leveraging a uh, central bank digital currency. But before I go there it sounds like a good mental model for is to think about how banks are having to adjust to deal with, with, with real time payments. Right. Whether It's RTP and FedNow in the US or other networks in other countries. The idea of if operationally from a money movement standpoint they're used to batch processes and the timing of those during normal kind of business hours if you will. Right. Having to build everything from liquidity management to reconciliation to all the exception handling et cetera to operate 24 hours feels like a good starting point for how to start to think about this. Is that fair?

Speaker B: Yeah, no, absolutely. I mean I think you have to take a look um, at just the impacts of real time payments. Okay. Um 7 by 24365 um it touches every single um step in the workflow. Um because you have to be able to process that payment and be ready to do it. Um, if you look at um has really changed the way you look at uh RTP and Fed. You know they're the you know, updated versions of Venmo and Zelle and really taking advantage of the backing of the financial institution FedNow. When you make a payment with FedNow, your account, you know the sender's bank is being debited in real time. You know, the beneficiaries bank is credited in sending you money in real time. If you take a look at that and extrapolate that out. CDBCs have the potential to streamline and simplify existing cross border payments. Um, you can make the payment uh, via a distributed ledger and cut out the correspondent banking that's been done in there and it's going to result in lower cost. Um, and it's really changing the relationships um, that you have globally.

Speaker A: That makes a lot of sense. All right Barry, as we, as we wrap up this conversation today, what else should people know about CBDCs? What should they be thinking about that we haven't hit on?

Speaker B: Um, I think you really have to take a look. You know, um, you know, certainly watch this space. Um, you know a shameless plug. If I met, if I may, um, the US Fast, the Payments Council published um, it's out in the public domain three bulletins on, on uh, CDBCs. Um, and you know they're out there, they talk. One's a primer and then the following two delve deeper into the subject and really look at how the clearing and settlement is done. What are the potential impacts and implications and a whole lot more than we could cover in our time here this morning. But I really think you need to be able, you know you got to take a look at the Atlantic Council, take a look at uh, the uh, US FAFSA Payments Council's website. Um, they are out there in the public domain. Uh, and those are the things really take a look. Um, just to summarize real quick, um, it is a digital form of currency. Um and the central banks are looking to improve their financial systems, enhance inclusion and really adopt the digital economy. They do have the um, potential to transform cross border payments, um, and enhancing the efficiency, reducing cost, um, and improving transparency. There are challenges and you know you continue to watch the evolution, um, and the continued um, rollout of these different projects and these different things that are going on. Um, but you know the benefits are going to be there once this is all uh, in place and adopted.

Speaker A: Awesome. All right Barry, we thank you for the conversation, thank you for the insight. Where else can people find out more about you? I think the Faster Payments Council call Out is a great resource and certainly people check that out. But where can they learn more about you and what you're doing?

Speaker B: Uh, just go out to transactionbanker.com um and you know take a look at um, the profile and some of the things that I've been doing and some of the things that are coming up. Um, and you know, uh, watch the, uh, Faster Payments councils. Um, look, look for some future, um, future, uh, press releases coming out in the short term, uh, covering a whole bunch of things in and around Faster Payments and up, and obviously including, um, central bank digital currencies. But please feel free to visit me out@transactionbanker.com Fantastic.

Speaker A: Thank you. All right, everybody, that wraps up today's edition of the Pay CLT Payments Hub. Uh, I want to thank everybody for listening. As always, if you have feedback, please add it, uh, across the various platforms. Let us know what you like, what you don't like, so we can continue to adjust the show as we go forward. Appreciate everyone listening and we will talk to you next time.

Speaker B: Listeners.

Speaker A: It's Nick Williams, the producer of the Pay CLT Payments Hub podcast sponsored by Endava, alongside the phenomenal production crew of Nate Deacon and Chris Webster. This episode may be over, but check out the episode notes for further exploration of the resources mentioned. We'd like to thank Endava for their generous support and thank you for listening today.