Yeah. Mhm. Hello, you're listening to copy Time, a podcast series on markets and economies from DBS group research and time Rebecca. Chief economist. Welcome to our 57th episode.
Today we have the honor of having with us all the way from Basel Switzerland dr hyun sanction economic advisor and head of research at the Bank for International Settlements that are known as B. I. S. Tune has been holding this position since May 2014, before which he was the huge Rogers professor of economics at Princeton University
In 2010. Only from Princeton, he served as senior adviser to the President of Korea, taking a leading role in formulating financial stability policy and developing the agenda for the G-20 during Korea's presidency. Now head of P. I. S Research, we can talk to him about global macro financial stability impact of the pandemic banking sector trends, corporate sector balance sheets. But today we
will do none of that. Instead we will focus on central bank digital currencies, something we follow very closely at DBS and Singapore. And it's an issue in which B. I. S. Has taken a leadership role in outlining the use case, best practice, innovation space and implication for backup policies and for societies in general. With that in mind, Hyun, welcome to copy time.
Thank you Time. It's a great pleasure to join you.
Uh Our honor uh is a central bank digital currency, nothing more than a digital background. And if yes, is it at all transformative?
Well, I'm not sure about nothing more, but it's certainly you can think of CBD CS as a digital form of cash. And the way you think about this is, you know, at the moment when an ordinary user makes a digital payment, you have to go through a financial intermediary, like a commercial banks. So when you make a payment digitally, what you're doing is transferring a deposit claim on your bank to the receivers. Because this balance at his or her bank. Now with the C. B. D. C. As you say,
it's like digital cash. You can pay someone just as you would by handing over cash. But you can do it digitally using your smartphone or other device is now by virtue of the fact that C. B. D. C. S. R. A claim on the central bank. And it's very cash light. It brings all the advantages that are normally associated with
central bank money. For example, it has the property of finality which means that once you've made the tank the payment is certain and final without leaving things to intermediaries to complete the transaction. And there's also a very important symbolic element here as well because just like cash CBD CS would also serve you like an a salient marker of the trust in sound money provided by the central bank.
That's right. And and speaking of central banks, you scan the globe. What kind of interest in c b D C s do you see among the community of central banks these days?
Well, you can imagine uh this is a very important topic among central banks right now. Uh the B. I. S. Hosts a number of central bank policy committees, a very important standard setter. That base at the G. I. S. Is the community on payments and the market infrastructures or C. P. M. I. Um and it regularly conducts surveys of central banks and in the last survey, something around 86% of the survey. Central banks have some kind of research going on at
the moment on CBDC. S. And uh you know, as of as of June 56 central banks as as far as I know here, uh this is a number that I have in front of me have publicly communicated about either their wholesale or retail CBBC projects and as you know, quite a few central banks, including the people's Bank of China, the brics Bank of Sweden are now piloting uh C B D C s. I think the short answer is there is a lot of interest and this is a topic that has a lot of momentum, I would say,
and I think it's a very it's a very good sign of where we are in in the current debate, both on the theory, but also on the, on the practice on the monetary system more broadly.
Okay, so I may be at risk of asking a dumb question, which is why what kind of payment settlement or societal problems that need to be solved that require exploring CDCs?
Yeah, I think the way to think about this is, you know, we're in the digital age. I think the most important property, the most important feature of the digital age is the centrality of data.
So in the in the digital economy there is a there is a massive amount of data that is generated in the ordinary operation of digital economy and uh the centrality of data both in business models and in in data governance and so on, generates a number of very important problems which I think you know have um emerged that were not perhaps as central as before. And uh CBD has really come into their own in this setting. You know, when when data
become so central to the way we conduct business. So to put it briefly because of their construction at the core of the system, C B D C s could offer if you're like a number of advantages flow from this importance of data. So, for example, if you're thinking of setting up a payment system with the public interest in mind, so that means, you know, we want something which is efficient, we want something which has low cost for the user.
Uh There is a competitive level playing field uh and that you're interested in the payment system being inclusive, so you're not going to be excluding people uh due to their high cost or you know, through not having the right kinds of, you know, credentials to join. Um then CPS has really come into their own. Now, at the at the same time, of course, given the centrality of data, we also need to bear in mind the importance of other safeguards. For example, data privacy and uh data
governance rules. More generally. While at the same time, we also need to have a system which also enables integrity of the payment system to be maintained whereby when I say integrity, I mean protection from illicit activities and uh the system being used to facilitate financial crime. So it's uh so ensure what I would say is uh C B D C s are important because of data and the data has emerged because of the digital economy and it's less about the technology and more about the economics,
I would say. And the and how you can channel the digital um how you can channel the economic forces in a digital economy in a way that would serve the public interest
even just as a thought experiment in the middle of the Covid outbreak, say last summer, if there were indeed CBBC facilities available in countries that were being afflicted by the pandemic,
what kind
of gains would we have seen in terms of distributive policies or policy action?
Yeah, I think this is a very good question in uh an entry into the point that I raised earlier about the public interest. So, so what could we have done with C B D. C. As well? I think the answer is um the technology as such is probably secondary. But the way that you design the payment system with the public interest in mind is more important. And I think the, so let me just put it in
very broad terms then I'll get to some details. So I think the the proposition that I put on the table is it's much more important that we bear in mind the architecture rather than the technology, but the technology will enable architecture which is more versatile. So let me give you a specific example. Um and this is something that you raise just now which is uh during the pandemic, we have a sudden stop of economic activity.
Um There are you know there is financial stress because of a a stop in the cash flows and many businesses and there are households that are uh that are seeing um hardship and so on. Now one way you can deal with this is to infuse fiscal transfers directly to businesses and households. Uh So one part of that could be just direct transfers, a fiscal transfer if you like. They could also be uh you know, guaranteed loans and so on.
Now if you have a payment system that has a has a fairly complete record of the of the users in the system. Uh If everyone has a bank account um and you have a good record of uh uh the participants in the economy through the payment system, you could uh you know, once there is a political will to do this, you could quite easily make fiscal transfers through the banking system.
So uh you know one example I would I would uh you know, put here, I think Singapore was a case, but in many countries when you know, the banking system itself is pretty well established and uh you have a very inclusive payment system, um you can make those transfers directly through through people's bank accounts. You have a good record of uh of the users from the from the banking system itself, you can you can use that for the public policy purposes.
And so it doesn't really need a C B D C. As such to to really put that into effect so that uh so so Korea was a was an example where you could, you know, once there was the was the political will to do this, you could actually put it into practice in a matter of days. Now, what you can also say at the same time, if you had a retail CBD see as well, um it would be like having the same kind of architecture,
but on a much firmer footing. Um, and so there are things you could do on that platform that even the well functioning banking system, you know, retail fast payment system could not have done. And uh so I think that would be, you know, one way to think about this now, the important thing is just to reiterate that it's about the economics and the public policy oriented goals of the payment system
rather than the technology. The technology is pretty neutral as to the outcome in that, you know, the same technology that could lead to this virtuous circle of greater inclusion, lower costs, better innovation could equally in, you know, less favorable circumstances lead to the opposite outcome. It could lead to a much less favorable loop, a feedback loop of, you know, walled gardens, um, greater shielding from competition, greater data. Uh, you know,
holding and entrenchment of incumbents. So it's less about the technology and much more about the architecture would say.
Absolutely. And I want to talk about some of those things a little later, but I since we are doing a thought experiment, indulge me for another moment, please. Um um, liquidity trap is one area where, you know, you issue a lot of banknotes, you carry out asset purchases, but they just end up as balances in the central bank because banks don't have the confidence to land or even if people want to, you know, have people have the cash, they don't have the confidence to spend savings straight
jump. So
the ultimate time bomb helicopter money I issue CBD sees that expire in a week, which forces people to spend. Uh that's something that no cash or anything
else can do, right? Yes. You know, there are things you could do with C. B. D. C. S, that you could not do in the conventional banking system. Um And what you described as a version of what has been called programmable money.
Now, in a sense, the term programmable money is a bit of a bit of an oxymoron because, you know, the nature of money is um of something which is immutable, something which uh you know, is not information and sensitive, you know, the uh in the economics literature, uh you know, liquidity and manliness has to do with the fact that it is it is non contingent uh programmable money. You know, you could think about that
as a kind of a voucher. Uh It's a it's a claim that has certain contingencies built into it. So you can do that. But I wouldn't pin the rationale for CBD CS on merely its program ability. I think those are kind of, you know, additional features that you could you could build on top. Um But I think the much more important point is that CBD CSR A um she like another incarnation of the classical notion of money, which is as a non contingent plane.
It's something which does not change in value because of certain circumstances. The economy, you know, it is the it is the promise. It is a foundational promise, if you like. From which all other promises in the economy then follow. So yes, we can talk about programmable money, but I would think of it more as vouchers rather than money. Um and we can do, you know, various clever things on top, but I would think those are pretty second
great. Um So so far we have talked about payments in the domestic setting. I want to sort of switch a little bit toward the cross borders aspect earlier this year. I think it was in March, there was a B. I. S. Working paper and I think it began with cross border payments are inefficient and technology could play a role in making them better. One means could be through inter operating central bank, digital currency Cbc's forming multi C B D. C, or M C B. D. C arrangements.
So if
you would help us unpack some of the notions embedded in those two sentences First, how big are cross border payments and how do we measure the degree of inefficiency in this area?
Yeah, So that's, so this is um, you've raised a very important policy issue. It's one of the uh, one of the top policy questions In the G20, for example, in various multilateral setting, I think the first thing to say is uh, you know, we've so far talked about retail payments. It's it's for ordinary users, uh, household small businesses. Um, there is, of course, a much larger volume payment system
among financial intermediaries. And so the first thing would be to to distinguish, if you like, the retail CBBC discussion from the wholesale cBBC discussion, which is about the payments between financial institutions, which tend to be, you know, in in uh, face values much larger than the retail payments. So, there is a discussion on multi
cBC arrangements uh, in the wholesale setting. The for example, you may have seen this week that the B. I. S Innovation have announced the the euro project, which is this a joint project between the Central bank of France? The bomb to France with the, with the Central bank of Switzerland, the Swiss National Bank and the bees innovation hub is also part of that, together with the private sector consortium. And there the idea is, can we link the payments
across borders and across currencies? Because, you know, Switzerland users with franks France uses euros. Uh can we think of uh linking the payments between the financial systems of uh, of Switzerland and France using a C B D C, uh, you know, architecture. And you know, there are similar projects going on in Asia.
You know, there was an earlier announcement which I'm sure you've seen uh, of the, of the circle c b D c bridge between the Hong kong monetary authority and the back of Thailand, you know, which is now expanded to include china and the United Arab Emirates. Uh that is also a wholesale CBBC project.
So, you know, there are projects like this going on and and they're the main advantage is that because we're talking about financial institutions, we we have fewer players that are involved the issues to do with data privacy and uh you know, invasion of personal data, that kind of thing. That is less of an issue because these are all regulated institutions, you know, we uh we have a much more direct way of just extending
the current system which is already, you know, digital. I mean the the helpful payment system is already digital um in that banks have an account at the central bank and the settlement is done you know, digitally, but the but by bringing in a cBC in that context, you can bring in additional features like the fact that um you don't need to, you know, wait for settlement
to take place. You can have an immediate settlement. So you can have, for example what's called a payment versus delivery type of setting where in the context of a securities transaction, you can have an immediate settlement without having a separate process which takes some time, which brings an operational list and so on.
And in a cross currency setting, we have the payment versus payment idea where you can have an immediate transaction across currencies without necessarily having uh this awkward, you know, gap where you have some some settlement. So there are these additional advantage which somewhat hard back to what we discussed just now on the on the program ability. So there are ways of building in these automatic features on top of the system. Now, those are wholesale systems.
Um, and so they are not something that ordinary users would necessarily notice that even if they are rolled out, what's really, I think a much more ambitious project is what's going on, for example, in the financial stability board in the G 20 which is about how do we improve the retail payment system. So this is about ordinary users about remittances. Um, so, you know, workers sending money back home
uh and tourism, for example, tourism expenditures. Now, uh the figure that we should have in mind is, you know, just before the pandemic, we had something around. Um So in the whole of 2019 were something like $720 billion dollars in in in remittances cross border. Uh you know that that sounds like a big number but it's probably you know smaller than it could be because this is a system which has a lot of frictions, its high cost, it's about access. Uh huh.
Uh If you compare that with tourism, so tourism was something in the order of double that 1 1/2 trillion. So tourism expenditure in 2019 is around 1.5 trillion. So that even compared to tourism expenditure, remittances
were fairly small. And so I think this is the area where uh there's probably more scope but this is also the area where the challenges are much greater because if you want to extend a retail CBC into a cross border context, I mean there are lots of both technical issues but less technical but more policy issues. For example, if you want to extend the retail CBD see abroad,
how do you manage the ledger? how do you manage the record keeping that actually makes the retail cbc work because a retail C. B. D. C. Is in essence a digital ledger of who has made a transfer to who and therefore who owns what balances at what time. Now, if you want to extend that to the cross border context, you need to have some way of keeping track of what people abroad are doing. And uh so issues like digital I. D. How do you operationalize across border digital I. D. Can we even
think about a super national ID? So those are really very very high level questions now. Uh It's I think fair to say that although these challenges are very large, there are ways of circumventing uh you know, some of the uh you know, there are ways of overcoming, I would say you know, some of the key challenges and this is an area where we need to work much harder because it is, it is something that needs a lot,
uh, a lot more forward. So, uh, so ensure, so this has been a very long answer, but in short for wholesale CBD CS, there's been great progress. And I think from the point of view of a commercial bank, and I'm sure that you've been following this very closely for wholesale settlement. For cross currency, For securities settlement, there's been great progress. I think we have a pretty clear view, I would say, of how these systems would work.
Um, you know, there's a great deal of, uh, you know, continuity with the work that's already been done. Um, it's more of an evolution because, you know, CLS is something that is already there And it's a well established piece of infrastructure 20 years old. And these new infrastructures are going to be just building on that retail c b D c s, that's a whole different matter. And domestic retail CDCs present challenges to do with privacy, digital idea.
And so in the cross border context, there are some really very difficult policy question.
Right. Um, so one thing that we have been looking with some degree of interest in our part of the world is that blocking scheme that central Michael cambodia has come up with precisely to help 10 million workers in Thailand and elsewhere to send money back home. And they have gotten in touch with a Japanese dlt companies who use that distributed ledger to create a trail so that workers living in Thailand can send money home and be sort of, you know, secure in
the trail with which the money is going. And of course the transaction costs interior will be substantially lower. But you're right, this is you know, early days what's going on.
So, you know, you've already
touched upon some of the potential frictions and operational challenges, um, from a theoretical perspective shared with us the ideal design feature, I mean how would you design like a perfect cbc?
Yeah, I'm not sure that you know, there is a there is a perfect one. I think the the way that one would go about doing this is you know, there are some things that we cannot really change or you know, we shouldn't try to change. So for example, if uh you know, we have sovereign countries and so, you know, they sovereign countries will have their own uh, you know, data frameworks. They will have their own approach to how to think about the linking of administrative dataset and so on.
Uh there are different philosophies and you know, different political imperatives if you like. So there are some things which are just you know uh features that we have to take is given. And the question is when we take those features is given and those are like beyond the technical design elements.
What are the design features that we could um that would put in place that would maximize you know, that would promote the public good in a way that is um going to respect both of those uh you know, both the underlying circumstances that we cannot change but also tackle uh the frictions that are you know much more amenable now I think one issue is uh so there is a set of issues which are technical uh you mentioned back on coin which I think is a very important development.
Uh I um um you know it's been a couple of years actually when uh uh since uh since since back and corn was launched and I've been following it very closely obviously.
Um So there are uh technical issues for example, you know, should we used a distributed ledger approach or is a centralist ledger approach more appropriate and different jurisdictions that will follow, you know, different parts um In in china of course it's uh it's more the centralised level approach uh which has you know, some some technical advantages which have to do with greater greater processing capacity and uh uh there are things that you know, you can also do with centralized system
um which might be easier to link to the to the current two tier system and so on. Um So there are a number of technical issues which I think we can uh we can tackle. Um and there I think the circumstances in each jurisdiction will take. You know which way you go. I think the much more important than more difficult issues the ones that have to do with policy. So I've already I've already raised one issue which has to do with digital ID. So you know 11 fork in the road when we
design CBD. So just do we want to go down the route of a I. D. Base? Digital I. D. Based account based system where uh membership of the network is um is granted by virtue of the fact that you are a uh that you have a digital I. D. In the system and you're granted accounts uh in a financial intermediary whereby you become a member of that network. Or do we go down the route of a token
based system? Uh You know like Bitcoin where um you are a member of the network through by by virtue of the fact that you have a private key to accessing, you know, your address in the inner network in the Blockchain. So there uh in the case of Bitcoin you have uh you know you have a private key, that's your address but you can mask your true identity behind you know that private key. Now I think there is pretty broad consensus, I would say.
Um but it's not universal uh especially among the among the crypt a crowd, but I think there's pretty broad progress that if we want to improve the current system, it's almost certainly going to be the case that we will need to go down an account based system with with with a verified digital I. D. It's just I think uh just infeasible to think that we can build a whole system around something is elaborate and uh you know, something is awkwardly um uh something is awkward to use as a kind
of private key based uh a pseudonymous system, but once we go down the digital idea route, we have to think about how do we link the digital ID systems across jurisdictions?
Um And here, I think this goes back to the policy question, this is not about about the technology, it's about sovereignty, it's about, you know, the the will of the people, if you like, because I think that the idea that a foreign entity would have access to the digital ID in your jurisdiction, I think that would be a very uh you know,
high hurdle to actually cross. So if we want to link C B. D. C systems across borders, there would have to be a way of respecting each other's sovereignty while allowing each of these uh of the jurisdictions to make use of the EID systems in the other jurisdictions. I think here a cross border cooperation is going to
be very important and there are ways of doing this. So, you know, one principle that I think is very important here is uh we can link payment systems without needing to have a, you know, super national I. D. Uh infrastructure, so there's no one single entity that is the all seeing eye over everything. We can actually each have a piece of the jigsaw puzzle.
Uh I think of it like the jigsaw puzzle, each entity has a piece of the jigsaw puzzle, so no one actually has the full view, it's only the individual that has the full view over his or her personal details, um but each party has a slice of that. Um But there are ways of linking each of these uh you know aspects or slivers if you like and making the cross border transactions operational. So you know it so this is where we need to
draw on cryptography. So it's the same kind of principles that power cryptocurrencies in the whole point of cryptocurrencies is that you know we can use these digital signatures that come from the from the private keys to validate transactions. You can use the same kind of technology but in the current system with digital IEDs that mask most of details except for the ones that are absolutely essential for that piece of transaction.
And this is something that's already in place uh in many of the retail systems um where you know if you have an A. P. I. In the retail payment systems, you know you can open the app of one bank and check the balances in the other bank. Um And you can do that because you know when when you when you log onto the app of one bag, you can send messages to the other bag that authenticate the fact that you are the person that you claim to be.
But the other bank doesn't divulge everything to bank A the other bank would only divulge the absolutely central pieces. So you know, it will tell you your balances but not for example your address or your payment record and so on. So the technology is not that special, it's already there. And what the C. B. D. C. S. Would do
is just make this more seamless. And I guess, you know, it was something it would be something that uh would just take what's going on right now but make it technically smoother and uh and more efficient. So sorry for the very long answer. But I think that's a you know this needed to be said
great okay so moving on from the architecture issue to the issue of exchange rates. We live in a world of currency trading. Fx rates being quoted by dealers on a second by second basis. How would that be impacted by an M. C. B. D. C. Type arrangement and will actually make things more stable?
Yes. I think this goes back to our previous conversation about program ability. Um So at the moment there's a whole um uh you know intermediation system is built on the idea that payment is made when you you know debit the account of the of the center and you credit the account of the receiver. Um And if the receiver is uh in another jurisdiction um and using another currency you need the whole chain of intermediary, you know to make that uh you know to make that transfer to make that work.
Um If you have a C. B. D. C. Potentially what you can do is to use its functionality to have an immediate transfer payment versus payment, so to speak, in the jargon transfer um Where you can, you know debit the account of the of the center and credit the account of the receiver instantaneously. Um Now for that to happen you need if you like the infrastructure that not only allows cbs you use in each jurisdiction, you need also some infrastructure that connects the two C. B. D. C. Systems.
Right? And and to the fx market because at the end of the day
you need to the fx market so you will need, so if you like, you know that infrastructure would need to you know have the capacity to have a kind of instantaneous uh transaction across currencies as well as the transfer across accounts you know across the jurisdiction. So there are two dimensions as they cross jurisdictional dimension if you like. A cross border dimension as well as the cross currency dimension. That's right.
Um Google financial transactions are dominated by the U. S. Dollar uh used widely for payments, invoicing goods and financial assets pricing and so on. Do you see the proliferation of C. B. D. C. S changing that in any way?
Um I think you know um perhaps over the very long run but I think it's important to bear in mind that the payment system doesn't you know, float in a vacuum uh float separately from the underlying economic transactions. Um The role of the dollar and in fact the role of any international currency um uh is really predicated on the need of the users.
So you know, before the dollar was uh it was pound sterling or even gold even before then and they're the currency becomes international because users demand that currency for the transactions. Uh It has to do with trade, it has to do with the certainty of the settlement, it has to do with the legal framework it's on.
So I would say that we should not put too much emphasis on the technology as such, so just because the currency is digital, um it doesn't mean that that's somehow going to be adopted universally, there has to be an underlying need and so it's the combination I would say of the need um and the technology which is going to facilitate a currency to become international,
right? Uh And I like the combination aspect that you just mentioned because then when I think of china being such a large source of global trade and intermediary of capital inflows and outflows as they make their currency for international. It would seem to me just from a logical perspective there will be greater demand of holding it so far. We haven't seen much of that, but perhaps the E. C. N. Y. On a cross border basis compliment that that move, we'll have to see about that.
Uh You know, I wanted to ask you about stable coins, why can't private sector stable coins solve all the problems that we talked about earlier about the inefficiencies associated with cross border payments.
Oh yeah, so this is a very very good question and you know this is a this is a live policies who and we have that debate about libere a couple of years ago. Um I think the the first point to make is that you know, the currency is a promise of the central bank. So even for stable coins, they derive, you know, their value, that the stability of their value from the fact that it is building on the conventional financial system. It is, it is built.
The fact that it's a stable coin um is by virtue of the fact that is that is building on conventional currency. So, you know, either uh bank deposits or uh government securities, you know, they're holding some assets that back the value disabled coins now to that extent, um you know, you can think of stable coins as being um a few, like an appendage of the current system, it's
not a separate system as such. Now, the problem, if a stable coin were to take off is that, you know, one of the features of the monetary system is the importance of the coordination effect. Uh the coordination problems that are solved by money. Um There was this natural network effect where the more people use one currency, the more people want to use that currency. Now if you have a stable coin, what it does is it fragments that payment system.
So it's like saying, you know, we have uh the uh the currency which is the promise of the central bank and it's you know being used by the commercial banks. Um And in turn it's being used by all the retail customers. If you have a stable chord, it's like having another kind of um another entity which then has its own closed network. Now if you can somehow ensure that there is interoperability between the stable coin and the conventional financial systems have resulted.
If you open, you know you're banking app and you can just make a payment to a user of the stable coin just this way, just in the same way that you could um to the users in another commercial bank account, then I think that would still preserve that network effect and the feature of money as a coordination device. But if somehow that stable coin were to build its own close network a walled garden and it has proprietary information it uses,
you know, it affords data of its users. Perhaps it's a big tech firm that has a social media business or e commerce business and the commercial banks cannot access that information. And that's something which would go against this idea of the monetary system as a coordination device. And it would lead to I feel like a fragmentation of the monetary system. And uh it also gives rise to problems that we spoke about at the very beginning, which is about data privacy, about money as a public good.
Um and the importance of having a competitive level playing field. So if you have a closed network um that is very uh you know that's going to undermine this public good nature in some respects and that uh to be a user of that network, you have to be a member. You have to if you like consent to your data being used only for that network. And there are not the links that will ensure the interoperability. So in short what I would say is stable coins uh you know
might be okay. They are not a game changer in the same way that cryptocurrencies are but they may not ensure interoperability and in that respect that you know they may fragment the monetary system and go against the public good nature of money.
I think we've seen some of these discomforts um displayed by the Chinese authorities in recent years, especially with the Alibaba and 10 cents. And their nature of those you know there are so large and their networks are so powerful in some ways. The way the nature of money from depositing to lending to intermediation, everything is happening within those networks and from
PBS is perspective. I think it was becoming challenging just to keep a track of what was going on independent of the notion of those guys coming up with their own stable coins. Already. It was becoming challenging. So yeah, um questions something that you have touched upon earlier uh issue related to data privacy will see BDC's undermine that
I think preserving the safeguards on data privacy will be a very important design feature of CVD six. But I think it's um it is actually you know uh having um safeguards on your on your personal data. This is uh not simply an economic issue, it is something which is even more basic, it has the attributes of a basic right and uh you know, there are some differences across jurisdictions, I think some countries put more weight on this than others,
but those are small differences compared to. I think the main point, which is that there has to be design features which safeguard data privacy. On the other hand, we have to make sure that the payment system isn't just going to be a playground for criminals. So we need to make sure that just as the current system that we have the way to preserve uh that you know, uh integrity of the payment system that we can guard against illicit activities as well.
I think this is where we have to go back to that earlier discussion about ways of designing safeguards, where no one party has access to the full set of data. Um The the you know the idea of an all seeing eye that has access to everything about you, you know your personal details, where you live, uh you know what kind of brand of toothpaste you by, where you had dinner, uh you know what was on your menu and so on.
So that's really a kind of caricature but that's the kind of um So if you like the limit of that spectrum where if one party has every piece of information, you could potentially have this concentration of data, you know, which would undermine this idea of data as a as a you feel like a basic right? And so we can take a leaf out of the way
that the data privacy issue has been tackled already. Um So for example if you know I have a mobile phone and I can access a payment network through the mobile phone number. Um there's no reason why you can go from the mobile number two, everything about who you are and what you've done and what you've bought in the supermarket.
So um if we can keep each of these pieces of information separately and have safeguards, which means that you know the central bank who is going to be executing these transactions uh only have access to that piece of data. Those pieces of data there are absolutely essential for that transaction to take place without having um you know all the information that also could be assembled. So you know the full picture can only be gained
by the individual concerns only. You know what you thought, you know what brand of toothpaste report, you know what money you have transmitted and so on. Um for the operator of the payment system. They don't need to know you know what brand of toothpaste you book. Um They only need to know that you know there was this account that remitted that money to that account. And so we need to design this kind of you
know Federated system if you like. Where uh we have uh each Piece of the system has one sliver of the data. Uh so that if you collect all the slivers you can construct the whole picture so each person has so each party has a piece of the jigsaw puzzle. But if you connect the dots and construct the whole picture you can get the full picture. But there is no need for one party to have full access to everything. So I think once we think along these lines and cryptography has really advanced
a lot. And so if you like the the power of public key cryptography is going to be a very very sexual pieces of technology for us to For us to build on. And this technology has been around for decades. I mean this is a technology that comes in 1970s and it's already used in um in the current system. So for example you know we talked earlier about the open banking system where you open the bank of of one bank and then you can check the balances in all your other accounts that is currently based on
the same technology. So it's just a matter of taking you know that kind of architecture and making sure that we can preserve privacy um all along the way.
Is there a fiscal policy
dimension to all this? Yes. Absolutely. And so so this is something that we talked about earlier about. How do you disperse um payments to households businesses in an emergency like during the pandemic. Um So if you had these personal details and the uh and the account details you can do that through
the banking system. So you know um if you have a retail payment system that is set up already that respects this inclusive nature that everyone has access to a bank account, everyone has access to digital payment. You can already do it um Using the conventional banking system. So there's nothing you know knew about that. The C. B. D. C. By itself is not going to change that. It's just another way of
building that inclusive payment system. Um There are some additional features that we talked about like the program ability to some extent they are you know if you like the you know the cream on the top. But I think that that would be a secondary feature compared to the the universality of access and inclusive natural payment system and that's already in place. Uh And you can go a long way um uh
without having CBD seeds. And I would say that uh you know for many countries you don't need a cbc to have these good features if you're already you know pretty much there. But he was in the
last few decades, maybe in the last half century. We have talked about central bank independence and giving the central bank semiautonomous.
But the way you're
describing the means of transferring benefits and it seems to me that monetary fiscal are all coming together. One entity is issuing the currency. The other entity typically is in charge of transfers. But it seems like now it's all together,
I think we have to separate those. Um So I think we need to think of this very much in terms of the dispersement. Um So once the political decision has been made, once, you know, there has been a fiscal decision to distribute um you know, these dispersants to households and firms, then it's a you know, then it's a matter of getting the money to people who need it.
I think what you're describing is what uh commonly is referred to as helicopter money, where we can just, you know, blur the lines between monetary policy and fiscal policy and just you know, uh use the central bank balance sheet to distribute money. Now that's something that is separate from, I think what we've been talking about, that's more about the nature of the central bank, uh the nature of
the separation of monetary policy and fiscal policy. So I think that is um uh an issue that would arise even in a conventional payment system. It's not really about the payment system which is which is about, so, you know, it's worth bearing in mind that um the level of cash, so the amount of cash in circulation is typically a
very small fraction of the total bank deposit. So bank deposits which are used as a store of value and which are used as a funding source for the loans to borrowers, you know, that's a much larger some than the cash in circulation. You should think of. The C. B. D. C. S is very much as digital cash. So we're trying to make the access to cash more efficient.
Um And we should not, you know, overdramatized um the uh you know, these other aspects which I think uh you know uh it's easy to see why we can uh overdramatize them, but, you know, it is important to bear in mind that those are separate issues that would already arise in the convention system and they go well beyond the issue of dispersement and the payment system itself.
Well, in a way you brought us back to exactly where we started trump is a very nice look too close. Um Finally, bit of prognostication, Your vision for CBD CS, five years from now,
CBD from five years from now. So, you know, we've made, if you if we look back five years, I don't think many people would have uh you know, forecast that we would have made so much progress by now, I think from, so five years from now, I would say that some countries would have made a lot of progress for C b D c S. Um I think some jurisdictions which are already fairly close, we'll be rolling them out.
I think some jurisdictions, they will say, well, you know, we we can already achieved most of the benefits of CBD CS and we don't really need C. B. D. C.
S as such, to read those benefits. I mean, I think it's very interesting to contrast, you know, china on the one hand and India on the other, India already has the U. P. I. System which is based on other the, you know, the the biometric digital ID, it already has this uh you know, these features of universal uh universal universality of access um and the efficiency and the public good national payment system,
so there you've already captured most of the benefits. Um whereas in china, as you said, you know, that that's a very different system where, you know, you have the big text are playing a much bigger role, where the public good nature of the payment system, you know, needs to be if you like a re established.
So um countries will go in their different ways. Uh I think we will see certainly in the wholesale space much more progress, but in the retail space in the retail sphere, I would say that you know, you would see a diversity of approaches and you know five years, although it sounds very long is going to approach us very quickly and uh these projects take a long time and a lot of it is unrelated to the technology. A lot of it has to do with the underlying institutional changes
um and the underlying policy changes. Um and the political conversations that always accompany does
well, we'll look forward to B. I. S. Bringing us continue to bring us you know, sort of in the latest views and analysis on this issue for those five years that I can't wait to watch Hyun. Thank you so much for your insight. This was a terrific conversation.
Thank you so much. It was a pleasure to join you.
Thank you to our listeners as well. Uh Kobe time was produced by martin Tuckey, daisy Sharma and violently provided additional assistance. It is for information only and does not represent any trade recommendations or views. All 57 episodes of copy time are available on Youtube and all major podcast platforms including apple google and Spotify. As for our research publications, webinars and live streams. You can find them all by googling DBS Research Library. Have a great day.