RAW FILE

ITU‑T
JUNE 13, 2019
9:00
ITU DIGITAL FIAT CURRENCY SHOWCASE

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This text is being provided in a realtime format.  Communication Access Realtime Translation (CART) or captioning are provided in order to facilitate communication accessibility and may not be a totally verbatim record of the proceedings.
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>> Hello.  This is a test, a microphone test.  I'm speaking to verify if the microphones are working okay.
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>> Good morning.  Welcome.  I will be doing the opening remarks and also opening the meeting on behalf of David, who unfortunately, cannot speak.  He has a throat issue and can't really talk, so you have to get very close to David if you want to talk to him.
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I have the pleasure to do this workshop today and showcase.  So David Wen, Chairman.  Good morning, it's a real pleasure to welcome you all to this digital fiat showcase event.  We are meeting the conclusion of the work of our ITU Focus Group on digital fiat currency, DFC.  This group has been very successful in bringing together the wide range of interests investigating digital fiat currency.
DFC is complex.  It raises challenges, questions for policymakers, businessleaders, and technologists.  Our focus group has offered a venue for all DFC stakeholders to learn from one another and clarify their respective roles in the DFC ecosystem.
We have seen a keen focus on learning from experience, central banks have shared insights into their experiments with DFC, this analysis of digital fiat currency use cases has been a key driver for our Focus Group's work to explore enabling technologies and how they might come together as part of a viable DFC solution.
It is in the Focus Group's reference architecture for DFC that we see the result of this work.  This Reference Architecture touches on all considerations relevant to a DFC solution.  We will learn more about this Reference Architecture as well as the other deliverables of this focus group in the course of the DFC Showcase Event.
Let me take a minute to highlight the significance of this work from the ITU perspective.  The timing of this group's establishment was impeckable.  We have seen DIS and IMF publishing a range of DFC studies over the past two years, studies which highlight that all DIS member central banks are conducting research on DFC.  These studies also show that around 50% of central banked have reached stage of proof of concept and about 10% have launched pilot programs.
As interest in the topic has grown, the focus group has offered central banks a venue to find expertise to assist their DFC investigations.  Understanding convergence always begins with an inclusive dialogue.  This dialogue enables new partners to move forward on a basis of mutual trust and understanding.  ITU standardization work is supporting digital transformation in areas ranging from energy, transportation, healthcare, agriculture, Smart Cities, and of course the financial services.
The ITU Standardization Platform for many years, central to building trust in the ICT Sector, is now helping the ICT Sector build trust with its many new partners from motor vehicle to FinTech to healthcare and many more.
It takes time to reach the common understanding necessary to develop common technical standards.  ITU is in the business of brokering international, technical agreements.  We start with dialogue, but that dialogue is a means to lay the groundwork for these international agreements.  This Focus Group has hosted this dialogue for DFC.  The griewp's final deliverables provide the framework for more expansive collaboration.  We will move ahead with confidence that we are speaking on the same terms.
This DFC Showcase welcomes a excellent lineup of speakers and a diverse expert audience.  I'm glad to say that this is a typical ‑‑ this is typical of events arranged by our Focus Group on DFC.
We will hear from central banks, FinTech companies and universities.  We will take deep dives into different applications and architectures relevant to retail and wholesale DFC, as well as cross‑boarder DFC, and we will conclude with a very important discussion around how we could best sustain the momentum created by this focus group.
ITU aims to be a valuable partner to all industries undergoing digital transformation.  We have spent many years building new partnerships, bringing ICT decision‑makers together with decision‑makers in other sectors.  This hard work has been crude years of dialogue have created the conditions necessary to deliver influential ITU standards for sectors such as motor vehicle, healthcare and FinTech.  Membership in ITU standardization arm has taken a sharp upward trajectory.  In 2018 we welcomed 45 new members, including mobile virtual network operators, mobile virtual network enablers, manufacturers of unnamed aerial vehicles, unmanned aerial vehicles, motor vehicle companies, over‑the‑top applications, OTT application providers, FinTech providers, energy utilities, and companies specializing in quantum cryptography and quantum communications.
We are on course to welcome a greater number of new members in 2019, so I encourage you to join the growing community.  Joining ITU will enable you to influence the development of international standards that encourage and protect key investments, standards that are helping us to tab into the full potential of the digital transformation.
Let me conclude by thanking David Wen and the Management Team of the Focus Group on Digital Fiat Currency as well as the participants and experts that contributed to this work.  We have shown that ITU is certain to make a key contribution to the future of finance, and I thank you for the significant part that you have played in that.  Thank you and I wish you the most informative workshop and enjoyable stay in Geneva.  Thank you.
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So next our Chairman says that we have a coffee break, so please we'll take 10 minutes or 15‑minute coffee break and then come back, and a group photo.  Okay.  We have a coffee break and a group photo and then we start Session 1.  Vijay.
>> Yeah, I think the photographer is on the way.  I think we take the coffee break and then move to the photo.  It will be done outside the building, I think.
>> We start with the coffee break and when the photographer joins us we'll go outside for the photo.  Thank you.
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>> Okay.  We're going outside for the group photo, so can you all follow me outside. 
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>> In charge of the ICT development in the region and it is working on the states.
I'm very pleased to be the leader of the session today and I'm very honored to introduce you in a few minutes to our first distinguished speakers in this session.  We have 1 hour and 45 minutes of the session will deal with use cases and architecture and retail central bank digital currency.  And also CBDC based on digital collector coins.
So the DFC, many issues have to be addressed, as you may know, and among others whether cash and bank deposits are exchanged for CBDC at ratio one‑to‑one, or whether or not the CBDC would be or whether to assure the currency directly via, technology provider point of views ‑‑ we'll hear from distinguished speakers, they have learned from their experiences and discuss the DFC implementation or introduction on national ecosystems and necessary steps, hopefully, for a country one thing to introduce retail in the DFC.
We will have at least our session, three experiences from three different countries.  Our session is the following, so we start by a keynote presentation from IMF about the work on CBDC.  Then we move to a presentation from technology provider, eCurrency, and then we start the panelists and then at the end we move to Q&A program.  So we have a busy program so let's start from now.
Our first speaker and keynote is Mr. John Kiff.  A senior financial inspector ‑‑ since 2005 and prior to that he worked at the Bank of Canada for 25 years.  Where he spent most of his time and founded an investment of the government exchange service and including its large interest rate and currency book.  The IMF has been part of the team that produces this in the Global Financial Stability Report and more recently he's focusing Fintech issues.  John, you have the floor for 10 minutes, please.
   >> JOHN KIFF:  Thanks.  I'll start my timer here.  So most of what I'm going to be talking about today reflects the work that was done in the context of this paper, which I'm going to show you on the next slide, if it will move for me.  Excuse me.  I just need to get this clicker in order here.
There we go.  A few technical problems.  Now we're done.
So, it reflects this paper that was published in November 2018, that essentially gives the 20,000‑foot view of the policy issues surrounding the Central Bank digital currency and gives a brief landscape of who is doing what.  What is interesting about this paper, this is published in November 2018, and there is a table in there that I think has about 10 or maybe 12 or so central banks we identified as being central banks that were doing some serious work on CBDC, and I'll show you, the new version of that table shortly but it's now expanded to 34 so it shows you how fast moving this area is.
And I should tell you also that we're doing some follow‑up work now that should be published in the next, I'd like to say, next two or three months on implementation issues around central bank digital currencies, we call them nuts and bolts, and this paper just basically looks at the very high‑level policy issues.
First of all, some of you have seen this yesterday in yesterday's session, but it's our money matrix, which is a work in progress.  Still not sure if I got it right.  I was talking to Simon earlier about his view of the landscape of CBDC and I'm going to take a look at that and see what I can learn, but this is the current version of our money matrix where we try to isolate what the important features are of retail Central Bank Digital Currency versus cash and it's important to emphasize here that I am talking about Retail Central Bank Digital Currency which is Central Bank Digital Currency meant for general usage as opposed for wholesale for inter‑bank transactions and so on, and so I like to start from the ‑‑ actually from the right side and move up.  So first of all, on the right side you have Crypto‑assets like Bi tCoin, and all of that.  It's legal tender and any of these could be defined as legal tender which would give them more moneyness, and in fact that has happened in the marshal islands they're issuing a Crypto‑currency that is not anchored to the fiat currently which is a defined aspect to the central currency, that it's anchored or pegged to the country's currency, so this is a float‑in ‑‑ a floating Cryptoasset that will deemed to be legal tender.
And then you move to ‑‑ move a step toward the right and there you have, now you get ‑‑ you get the digital assets pegged, so closer to money, and several instances of this coin more token like tether or U.S. Circle Coin.
We just lost our picture.
So again, that's an option we could be legal tender but as far as I know no one has actually done that.  Mind you, one thing that didn't fit into this picture and we're still wrestling with this one, these are what they call stable coins which are Cryptoassets that are pegged to the currency, but certain kinds of e‑money fit in here somewhere and I'm still wrestling with how to fit that in there, so something like LEPay and so on would fit into there possibly.
And then something new that we're kind of inventing on the fly at the IMF is synthetic CBDC which would be issued by private institutions, it's another definition of it, a CBDC, would be that it's issued by the central bank, but this could be synthetic would be when it's issued by say a commercial bank, but the banking assets, the dollars that ‑‑ the stable coin held in the central bank and central bank account so gives it a lot less counter‑party risk, let's say.
Then you move up to the full‑blown CBDC Central Bank issued, legal tender, backed by deposits of the Central Bank, pegged to the fiat currency, could be used for peer‑to‑peer transactions, and one of the things that we think gives it potential to be superior to cash is that it can also be programmable and we'll talk a little bit later about the things that you might be able to do with programmability.
So in terms of the countries that are actually active in this area, the ones that we've isolated as being sort of the most hyperactive CBDC explorers, the ones publishing frequently on the topic, doing lots of research, possibly thinking about or have done pilots, and so we've identified five, six, seven of them here that we see as being on the cusp of possibly getting more serious about CBDC work.  There is one missing here too, it just popped up in the last week or so, which is South Africa, and so in here you have Bahamas, Canada, China, Ukraine, East Caribbean Central bank, and Uruguay, so those are what we view as sort of the front‑runners in the field, and motivations are diminishing cash usage, that's the case in Sweden that's what is motivating then, so cash usage is diminishing so private‑sector money operators are dominating flows in Sweden, so they're trying to pull back some control over the money that's being actually used for transactions in the economy by a digital alternative of corona and that comes underway of monopoly distortions and that's the code word or rash rationale named at reducing the private players in the payment system.
There is a big one, this is especially true of developing countries, which is that this is financial inclusion, that's an important motivator, particularly in the countries where banks aren't offering innovative products and so on, or you have we call the tyranny of geography where you have islands where it's very expensive to get cash out to far‑away islands, expensive, dangerous, and also to save some money by offering CBDC, the costs ‑‑ there might be some costs savings involved.
This is my current list of the countries that are actively looking at CBDC.  There are 34 of them here, and you'll see there is a question mark at the top and that's simply because the BIS has done a survey and they determined that there were 38 central banks that said they were doing some ‑‑ looking very seriously at CBDC, but they don't name the names, so I can't tell who.  All of this information here is based on public ‑‑ it's public information.  So in fact, I do know of some more that I don't have on here but I can't share it because we've come by the information on a confidential basis, but the yellowed ones are basically the same ones that showed up on the previous page that had the flags, and the blue ones are particularly interesting because in those cases, pilots have already actually been completed.  Ecuador did one some time ago, and I guess it didn't work out for them so they have not gone ahead to go beyond a pilot.
And Uruguay has done a six‑month pilot that ended last year, and now they're reviewing the pilot and thinking about whether they should continue with their program, so we're still waiting for more news on that.
So, you know, basically in terms of case for CBDCs, no one is advocating that this is the right thing for everybody.  It will depend, so in advance comments there may be scope for adoption of CBDC as a replacement for the small‑value pseudo‑ anonymous transactions and pseudo‑anonymous means we like to say in some cases traced anonymity, but traceability, and some formats of digital currency can allow anonymous transactions to take place, but in the event that any ‑‑ that the central bank or someone who reviews the transaction in the anonymous state, if they see anything that looks like it might be violating financial integrity, AML, CFT Guidelines, tax evasion and so on, they have the option in some cases to go deeper to find out, in the case of Uruguay, for instance, they can get a court order to break the encryption code on the wallet so they can determine whether payments were being made for illegal purposes.
And, of course, then there is as I mentioned before, there are the countries where the banking sector penetration is limited and they may have an inefficient payment systems and there the demand will be greater, and in many cases, I go back to the island economies, where it's difficult to get physical cash on site, but there is mobile phone technology and so on that is available there that is quite amenable to a CBDC issuance.
And then there is the hope that they might reduce the costs and risks of ‑‑ and I think with the Bank of Uruguay determined that on average the cost of managing cash was about .5% of GDP, so that's a pretty hefty number.
Now, I'll tell you later, there is no free lunch in the digital world.  There are expenses there too, but they may hope that in some cases the cost savings are available and then there is the financial inclusion angle; and also, this comes back to monopoly distortion argument that perhaps private monopolies are not offering exactly what's in the best interests of citizens and so the CBDC can step in and possibly ‑‑ possibly resolve that.
But at the same time, there are other options out there.  There is the synthetic CBDC, as I mentioned, where the Central Bank doesn't really have to absolutely be involved in the issuance.  There is also the fast‑payment solutions like TIPS in Euro‑zone and SWIF in Sweden and so there are other alternatives that one might view before jumping into the CBDC world.  Regulation really, that speaks to open banking initiatives, so that can often improve payment options for people.
This is just ‑‑ this is a work in progress that we're working on that describes on the left side, the circle of life for physical cash and the one on the right is the circle of life for digital cash, and you'll see there are very similar things happening in both, and this is why I say you can't assume that the cost savings are guaranteed here because there is a lot of work involved in issuing digital currency that don't come immediately to mind.  It's not just a matter of setting up a computer in the basement that's going to species outs digital bank notes.  You have to have appropriate cybersecurity in place and there is also questions about how you distribute the cash to the people.  You need some dimension often of bricks and mortar in order for people to trade their physical cash for digital cash, and so there is a whole bunch of things and I'm not going to get into them in detail here, but there is just a lot of work involved and the central banks, in many case, and in fact I say most cases, would be advised to outsource some components of this, like for instance using mobile phone technology, you got to have a wallet on it, a software wallet, a typical central bank.  Do you want to get involved in wallet production, I'm not so sure, so there are all these components that may cost money to purchase or engage.
And also, another reason why you might not want to jump in with both feet, and this is from a speech, Carsen, a neighsayer of Cryptoassets and digital money and there are a lot of unknowns and we don't really know the effect it might have an monetary policy implementation, and also CBDC is really attractively designed and it could potentially disinterintermediate the financial sector and people would shift money out of the financial bank accounts and put it into the CBDC, and that would then have ‑‑ that would then have ‑‑ (audio feedback) ‑‑ would be diminished in worst‑case scenario, so would be the things that the central bank needs to think about before leaping in with both feet.  In the case of Uruguay, technically it worked out very well with their pilot.  I think now they're reviewing some of these questions about whether we really should go in on this.
And there is also design features in policy that can help mitigate the risks.  I'm into my time so I'm not going to jump in too deeply here, but first of all, it's possible that what little research has been done on the monetary policy impact of CBDC, suggests that it's not ‑‑ it may be rather benign or may be even positive in some cases.
And also, there are ways that you can design out ‑‑ design away the risks so that the financial sector disintermediation and also on the plus side, you can design CBDC so they actually mitigate the AMLCFT risk too, and as I said anonymity and traceability, it's certainly less risky on the financial integrity side than pure cash which gives you no traceability and that's non‑traceability and so in a way that would be an advantage, possibly, over physical cash.
And this talks about some of the ways that CBDC can be designed to mitigate the financial integrity risks while maintaining privacy, so you can limit transaction sizes or holding sizes so that you mitigate the risk of the large sums of money being transferred to ‑‑ for terrorist activities or so on, or tax evasion, so basically make it like it's cash, and cash we don't carry a million dollars around in our pocket, and so that would be the kind of scope or the scale of a typical CBDC transaction limit, and make sure there is appropriate customer due diligence and know‑your‑customer operations in place, so for instance the people with wallets would have to submit to complete, know‑your‑customer rules, photo ID, and so on.  I've seen some of the wallets that are in AML CFT compliant that use sophisticated facial recognition technology and so on to make sure you know who is doing what.
And then there is also the, what I mentioned as with the case of Uruguay, you can also have it encrypted and anonymous, but would be cracked open in the case of anything that doesn't look quite right, and so you know, obviously, CBDC can undermine the integrity of photo anonymity and allow unlimited‑size transactions to take place.
You can have the option to pay interest to incentivize the option and some central banks may feel they can use they have the potential for negative interest rates to eliminate the effective low you are bound on interest rate policy, but none of the central banks we talked to mentioned that as an important motivator for their considerations of CBDC, and payment interest could be an operational challenge in some designs of CBDC.
You might also introduce transaction fees and one reason you might do that is to, is to mitigate the risk of a bad actor trying to overload or misuse the system.  And also, as I mentioned, programmability before so you might be able to unlock some interest in potentials, and one example we've thrown around is you might want to design a digital currency so that it's aware ‑‑ it's aware of the user's age so if it's a child under the age of 21 or 18 or whatever the age is in that country, can't buy liquor and cigarettes.  That's just one example where you might want to use that programmability.
And also, assuming you control for privacy and security, personal data in theory can be leveraged to implement monetary policy or fiscal policies and the Central Bank of Uruguay mentioned that one of the reasons they particularly moved to CBDC is they use some of the information they glean from this to put into their economic forecast, it gives them some realtime information on flows.
This is just another work in progress, but it's basically ‑‑ it gives a picture of all the elements you have to have in place, again, going back to the no free lunch.  This is not free.  It's not a costless operation, but you have to have the foundational elements like a solid legal framework, governance, risk management, IT backbone, those are your foundations for the house you're building here and then there are all these very country‑project specific elements that have to be in place, and all of this has to be consistent with central bank's overall objectives, and so there is a lot more to this than, like I said, than just setting up a digital note production and then getting wallets spread out to the general public, something to keep in mind.
And then finally, this just ‑‑ I usually like to put this slide right after the one with the Carsen, just to get a few laughs, but we sort of police ourselves as being the more open‑minded of the official institutions, and so our position, basically, we're not saying we're cheerleaders for CBDC, but we think they do ‑‑ they play an ‑‑ they could play an important role in some countries, but you have to be very careful about how you implement it because if you do it wrong, then it could just blow up in your face in so many different weighs.
And then the end, I've got some references for people that want to follow up on any of these interesting topics.  Thank you very much.
(Applause).
   >> SAMI TRIMECH:  Thank you, John for the view on the initial status of CBDC.  How sure I am of it a little bit of the global assistance and from the presentation I noted that Tunisia with around the last 38 countries are exploring CBDC as adoptions and one of them was Tunisia, the Republic of Tunisia, so the Republic of Tunisia is exploring this alternative and maybe this exploration came ‑‑ can come as an opportunity of an already existing project which was managed by the past in Tunisia and this project was initiated since almost 10 years, so the idea now, so in cooperation actually between them is to conduct a proof of concept of digital fiat currency with a payment solution that will include the Central Bank of Tunisia and knowledge economy, so the idea is to create an environment test that will cover the issues of digital currency, the distribution of DFC by bank to units, operating by two at least, service providers, and transaction using DFC applications and monitoring circulation of DFC adjustment of DFC circulation.
I'm presented with project as the next speaker will be Mr. Thomas from eCurrency, and will be one of the partners of the project to conduct between ITU as the DFC lab for that region, and this project will be conducted between the FCI, ITU, the Central Bank of Tunisia and Minister of Knowledge Economy, and so now I'll give the floor to Mr. Thomas Kudrycki, a Technology Officer of eCurrency and developed in corporate government from AT&T and labs to Silicon Valley, and is currently a officer and one of the founding members of eCurrency, a Silicon Valley company, and has over 25 years of experience in large‑scale technology development and management.  Thomas, you have the floor for 20 minutes for your presentation.
   >> TOM KUDRYCKI:  Thank you, Sami.  Good to be here.  I appreciate your time listening to me.  Keep me honest of my timing, please, because I tend to get off time.
So, I'll come back to the project that Sami just mentioned toward the end of the presentation.  I would like to give it some context, and actually play back some of the use case scenarios that we have put into the architecture document that is one of the results of the work that we are doing here.
So, let me start with that, and then we'll move on to Tunisia and, of course, I'm clicking my space bar as opposed to this.
Here we are.  So, sorry for the repetition.  I also love the quote here and she has certainly made my day when she said that first.
We are also ‑‑ and we also leverage the report here from BIS and we put slightly different numbers here typically, but we effectively say that 22 central banks see themselves probably probable to very likely to issue digital fiat currency in the next 5 years, so that represents a huge change from what we have been seeing for the past several years, eCurrency was founded over 7 years ago now.
The change is really due to a lot of research, a lot of efforts from IMF, various central banks on the forefront, on the cutting edge of cut discussing and researching and sort of wrapping our hands around what CBDC truly is.
One of the central banks that really stands out is, of course, the (?) bank and they just issued very interesting requests for proposals just literally a few days ago, and so did the south South African Reserve bank just about a month ago now, so a lot of things are happening.
Let's see.  This is also an extract from our architecture document in some various forms, and as John is saying, a lot of this is still a work in progress and so forgive some repetitions and perhaps this is such a new area for all of us I think in this room, that some repetition and some inconsistencies are unavoidable.
We collected this list, actually from quite a lot of experience working with central banks over the past several years, and our approach to CBDC has always been driven by ‑‑ it's really a product‑development exercise, driven by the requirements of the central banks, so here I'm not going to bore you reading this, it's going to be posted on our report, on our architecture all report, it will also contain that list.  That is a context for really driving an architecture.
To me architectural discussions are really driven by customers, by needs, by requirements, so that is a necessary precursor to some of the architectures that we are seeing.  I want to spend a little bit more time on this.
I see the architectural discussion mostly as being a three‑dimensional space, and one of the axes is what I call a value carrier, right, a token‑based namely a standalone digital object that represents value versus measure based which is a record of transactions that you can of course, derive positions from it and all of that, but the approach is fundamentally different and there are some advantages and disadvantages to that perhaps as we're discussing in the panel afterwards, then we can talk about that.
The second one is the topology of the pieces, right, centralized.  The Central Bank controls the entire infrastructure, I think that is what Ecuador had done, which in my humble opinion is actually one of the reasons why the project is now defunct and as John said, sort of failed.  We'll talk about advantages and disadvantages of it in a moment, hopefully.
The second one is as a service, and that to me means that there is a central authority that controls the necessary components, and you know, make it just necessary components, right, to keep that to a minimum.  The rest is a ‑‑ the rest is part of a commercial deployment.
And then fully distributed, in this scenario the central bank controls the source of DFC, printing, distribution, just like paper money, but theirs is distributed such as, you know, just like ATMs, for example, and banking systems are completely distributed.  It is ‑‑ it is in private hands and yet the money that flows, you know, the cash part of money that flows through that system is controlled by the Central Bank.
So that's the topology.  And then the third dimension is, and I was sort of hesitant to put it in here almost because technological implementation details should not really concern this body, frankly.  It is a matter of how the thing is built, but because DLT is getting so much attention, I decided to put it in, and to me the implementation technologies now, the dimension is really DLT, and all the rest of us can now talk about that in a moment.
So, a couple of examples, so Ecuador, I already mentioned, that was a centralized register‑based approach.  Uruguay, that John just mentioned, we actually have a use case contributed by IMF that describes this in more detail in the document.  It is to me centralized because it was really fully operated by the central bank, token based, and it is sort of a variant on a relatively centralized approach.
The as a service, either register token, I see the central bank or Swedish Central Bank or bank in RFI or RFP that came out recently as an example of it.  This diagram is actually directly from the RFP, and they talk about the e‑platform that they control but then talk about the surrounding ecosystem that will be interfaced with the central ecrona platform that they would control.  I think it's a step in a right direction from my perspective, most systems out to be distributed, in my opinion.
The third example I want to present is from the expression of interest by the South African Reserve Bank, and that diagram comes directly from that document, both of those are public and you can look them up.  They didn't really think about it just like cash in a physical form.  They talk about production, they talk about internal operations, distributions channels from the cash center outs for commercial banks all the way to ATMs in this case, and retail channels.
So, this is a ‑‑ on the one hand, it's a very conservative approach because it mimics cash behavior today, and John presented this circle of life.  It is the same circle of life, different bits and pieces are replaced by digital objects, right, and digital approach, but the approach fundamentally is the same as cash.  Transactions are performed in a distributed fashion through multiple cash modes and they are regulated but not strictly controlled by the central bank.
So from that, I believe, and contributed these three use cases to the architecture document, and they're three fundamental use cases, in my mind.  There is the issuance of the printing of digital money, there is the distribution of digital money across the ecosystem, be it mimicking exactly the distribution of physical cash or perhaps changing in the future.  SAAB were actually quite specific on that and want to start by mimicking exactly the distribution channels as they exist today and do not disintermediate the commercial banks, for example, but perhaps the future as experimentation is hopefully successful and they may evolve towards more direct distribution channels where you see a line from the central bank directly to a e‑wallet, Provider C, in this particular diagram.
The third use case is really that of transactions, that is what you and I will mostly see on this, a central bank or commercial bank or any wallet operator, right.  That is the providers of certain services, e‑wallets in particular, but not necessarily by the way, in a token implementation.  And then there is a public accessing that infrastructure, and that is an existing, somewhat modified, infrastructure.  The public access that infrastructure through a variety of channels, and then the assumptions are magic in between typically called a switch that interfaces different wallet providers and commercial banking systems so that magic like walking up to an ATM and putting digital version of currency on your phone can happen.
These are the use cases, the fundamental one, the rest are derivatives of it, and of course transactions can take tremendous ‑‑ they can be tremendously varied, right, but they're still transactions and namely value gets exchanged.
So that brings me to sort of what we do as eCurrency and that is I believe a hierarchical distributed architecture with effectively three layers mimicking those three fundamental use cases, or I should say reflecting or implementing those three fundamental use cases, in that there is issuance, and of course supervision.  John a moment ago talked about balance between privacy and being able to look into transactions under certain circumstances, and by the way this balance lies in very different places for various countries and regions, and so, yes, that supervision needs to exist in some form.  The exact nature of that form is something to be configured and delivered specifically for that region.  There is a multi‑tier distribution and this is not really a tree, although I represent this as a tree to just save me some arrows from the diagram, but it is a graph, right.  The commercial banks can sell DFC or CBDC to other commercial banks, for example.  So in a most generic case, this is a complex graph.
And then interoperable transaction layer says effectively that once you have a common use of account or store value, you can exchange it through a switch and it flows freely among different wallet providers and different devices, potentially hand‑held devices as well.
So what's next, I think?  So the momentum is building, and much work remains to be done.  By the way, the momentum is building partly due to the efforts of this body because one of the most scary things for central banks is the novelty of the whole thing and lack of cohesive representation of it, rights, and conflation of a lot of terminology and discussions that can not put my arms around them because they are sort of all over the place, right.
And then learn by doing, and our recommendation always is to divide it into reasonably digestible bites, so do a proof of concept, do some sort of a demonstration, do a pilot, and in that context, I'm very happy to be able to mention Tunisia, as Sami just mentioned, we are ‑‑ I have a separate slide in a moment on that, so I'll spend just a couple of minutes on that in a minute.
And then commercial implementation, you know, so the Swedish Central Bank, they really drew this multi‑year, multi‑stage process and they are very careful and specific about how they do it.  Certainly, in the Report 2 that was published back in, I'd say October of last year if memory serves, so they have a very, very well‑defined path.  It covers all of those steps, right, but it also predicts certain ways that it can be done.  We'll see how it all goes, right.  It's all quite new.
So, going back to Tunisia.  It's my pleasure and privilege to be able to work with the Arab ICT, the Central Bank of Tunisia, the Ministry to participate as one of the technology providers.  We do not have all the answers and do not have all the possible technologies, obviously, but we will ‑‑ we will do two or three stages of that, right.  We will start with a little simulation, it's going to be in the lab environment, we will demonstrate issuance, wallets, and interoperability.  We predict that that will be successful, obviously, we would not have done it if we didn't believe that, and that will lead to a proof of concept that will be a limited deployment in a full production mode but within limited geography, a certain number of participants, to mobile operators as Sami said, and potentially limited number of wallets and a limited geography.
And then assuming that is successful, then we will go ahead and roll it out to a much wider audience.  That to me is a great encapsulation of the approach that we believe is globally very successful, so that's ‑‑ that's that.  So the presentation title, initially it was just about Tunisia.  I apologize if I veered off of that a little bit, but our experiences, our DFC experiences of Tunisia, it would have been premature to talk about them.  We are, however, we have developed a very specific, very clear roadmap to derive those experiences and perhaps we will continue in some form this gathering and we will report on it, right, as time goes by.  Thank you.
(Applause).
   >> SAMI TRIMECH:  Thank you, Thomas for your presentation.
(audio feedback).
We think that we will start at least Phase 1 or Phase 2 and hopefully in the next workshops or meeting on DFC will be able to present findings and outcomes of this experience.
So now we can start maybe our panel, so we'll have our panel join us, three panelists, Mr. Barry Cooper, Mr. Egidjus Paleckis and Mr. Mikhail Moronov.  Mr. Barry Cooper is a technical director and part of the team since June 2013 and since joining CENFRI, collaborated on the retail payment thematic area and has been part of the initiative making access possible in countries among others, and in this process he has gained detailed knowledge of the financial community and supply‑side landscape, national payment systems, initiatives and different jurisdictions.
Previous to CENFRI, Barry started his career in the industry and moved to the bank industry with significant exposure to payment systems, wholesale and consuming banking as head of consuming banking corporations in South Africa and has digital payment instruments and currencies with an emphasis on the impact on financial regulation.
Next panelist is Mr. Egidjus Paleckis head of cash policy issue and total divisioned at Bank of Lithuania, responsible for developing the diplomatic cash policies, and he is also a digital collector, the digital collector coin project manager, and Member of the Bank of Lithuania Innovation Committee and Deputy Chairperson of the Bank of Lithuania Coin Creation and previously worked as communication officer at no time European Central bank.
Next Mr. Mikhail Moronov, worked his career with top banks ‑‑ large million dollars asset portfolio, and Mikhail is fluent in Blockchain since 2015 and he is at foundation council member of global ICU, and founding partner at SMC Capital Citi‑based investment and strategic advisor to ‑‑ he holds a MBA from the university of Wales and master's degree from international relations.
We start with the panelists and start with prepared presentations, we start the floor with Mr. Barry, please, for 10‑minute presentation.
   >> BARRY COOPER:  Thanks very much, so CENFRI is the central ‑‑ regulation and inclusion and what we deal with is particularly function integ in one hand and economic inclusion on the other, and merging those ‑‑ those two worlds.
And in our now research, we research across developing economies, and we have come across a big need for something to take place of physical cash.  What you often find is that in most developing jurisdictions, about the upper 80s or even 90% of transactions, member transactions, is done in physical cash, so all the work we're doing digital is only a small portion of what drives those economies, and we're really looking to other mechanisms, and mobile money was one of those, but it's not penetrating really to ‑‑ to the rural areas in many cases, so we started looking at CBDC and with a potential to impact developing economies, and particularly because developing economies have got a legacy of being left behind the digital progress or digitalization.
So that was ‑‑ we started both ‑‑ we did research on both the retail and wholesale CBDC, and then that progressed on to research into the mobile money implications, and Mikhail did the paper yesterday, and currently we're looking at proposals to some of the central banks and regulators.  We get inundated with requests from policymakers, regulators, and central banks to really understand the world of CBDC and how it could impact their jurisdiction.
And it's very complex, it's a complex problem, and to navigate that you really need to develop a set of tools to test and then to understand how to get ‑‑ what the best type of solution would be for that jurisdiction.
Too often, cut‑and‑paste solutions have resulted in very poor outcomes in developing world ‑‑ in the developing economies, and so that's what we look to assist policymakers to try and bridge that gap.
So, what we came up with is, and it's been used in a couple ‑‑ actually, today as we speak, it's kicking off in the kingdom ‑‑ that is part of the area in South Africa.  It's just a framework to understand the why, the if, and then the how of CBDC in the country.
What is probably quite dangerous is to just run into an architecture discussion and then an implementation when we don't know the why, the if, and the how.  That's often what we see in the wallet of mobile money, which has been quite haphazard and, in fact, ineffective in some instances, and inefficient.  Yeah.
So, the framework that we've put together in the era is first, understanding the demand side and looking at the current adoption of products by consumers to see what the base is for digitalization to start off with, obviously starting with a blank slate, and one is the financial education steps that need to be put in place, and then prior use cases preferred and channels and costs to the consumer to really understand if it is a case or if there is a compelling reason to put in CBDC, and then look at things like the average wallet or speed of clearing a settlement which directly has an impact on economic turnover, and then average cost of cash articulation, and that's a big one, particularly as is mentioned that in many geographies, it is very, very costly to move around cash, and if you are looking at 80‑90 percent of your transactions being cash, cash reticulation becomes a big problem and it's not only the physical cost but sometimes there are actual barriers like in one of the jurisdictions that can't get cash to people, so people use defunct notes, notes that don't have any value, as a means of bartering or transacting and that shows you cash reticulation so any means to bridge that has potentially has value for those jurisdictions.
And the cost of cash reticulation is also in terms of human life, in one market group in one country, they lose one person a month because of cash, and so that for us is a big issue, so that's the "why."  Do you have demand, is there sufficient reason to look at there.
The next part of the diagnostic, we look at the assessment of prerequisites, particularly infrastructure, ICT infrastructure, how can you support this kind of intervention in this economy, is it wise to do this intervention just yet in this economy?  So that goes to more of the "if."  We also look at the supply and demand side prerequisites, particularly the banking system, the payment system, how developed is it, can CBDC potentially leapfrog it or rely upon it, that's what we look at.
And then institutional capacity is a very, very important one, how developed is the regulation framework, is there a regulation framework that can easily be tweaked or easily be modified, or do you have to put this in from scratch, what does it entail, and how would ‑‑ what would a regulatory framework look like in each specific jurisdiction?  Because you really have to harmonize a regulatory framework within each jurisdiction because there is a lot of other factors and variables that you need to take into consideration.  The days of cut‑and‑paste legislation or one template of legislation should long be gone, it's very destructive, so that's looking at the regulatory and institutional capacity.
Then going off on that, we then look at the gap analysis and feasibility assessment, that's the "if," so the key gaps in the economic conditions and prerequisites, we look at the supply against the demand, and really actually institutional capacity, the institutional capacity is vitally important because in many jurisdictions, you do not have deep capacity, so you also have to look at what would the capacity requirement be to run this in that jurisdiction and would the capacity of running this be tripped from other areas within the economy?  It's very difficult to get capacity into developing economies because people just don't want to go there, and once people become very proficient at something, they disappear into the developed world, so that is a big issue and that is one of the key elements of, you know, if or if not.
And then looking at the feasibility assessment, including the policy regulatory changes, some of these policy and regulatory changes can take aim on one jurisdiction ‑‑ there was a legislative change, it was 7 years, and in many cases it's 2 or 3 years and never anything under 2 years, so there is definitely a very long timeframe for those kind of changes, or some regulatory changes you can do practically within a couple of weeks if there is a delegated authority to do so.
So that's very important to understand the feasibility and the timescale, and then we look at ‑‑ we workshop with all the stakeholders and that's kind of happening in a country at the moment and we're kicking it off and there are others that have asked us to really start putting the pieces together of this big complex puzzle into a diagnostic that they can really start understanding the outcomes, but then to ‑‑ it doesn't ‑‑ it's not a cut‑and‑paste diagnostic.  You have to really tailor it to every single jurisdiction, and then you really need to ‑‑ it's an ongoing process.  It's not an event.  This needs to keep on to really support or change the policy considerations.
And then the next phase is the potential introduction to the CBDC and based on a lot of the ecosystem understanding, that will ‑‑ that will point you towards the "how," how the architecture required, what needs to be done, what needs to be put in place, you can put a roadmap and a lot of things on it, or the "if not" and in some instances, certainly it's not, and you have to be very, very sober in these ‑‑ the way the policymakers are really looking for a very weighted opinion because they understand the risks and understand that this is national currency that is at stake and so that's ‑‑ so that's the current work that we're doing.  It's basically trying to make sense of a lot of disparate variables within developing jurisdictions.
And, yeah, if you have any questions on that, it's more on the ‑‑ on the implementation side of things, it's less on the theoretical side of things, so we really understand where the rubber hits the road ‑‑ well, if you can understand it, and we understand it at that point which we understand it because it changes all the time.  Yeah.  Thank you very much.
(Applause).
   >> SAMI TRIMECH:  Thank you, Barry, for the great interesting presentation.  The next speaker is Mr. Moronov, you have the floor, 10 minutes or so.
   >> MIKHAIL MORONOV:  Thank you.  First of all, it's my privilege to be here to share the realtime ‑‑ the realworld application.  I'm not a banker, I'm not a central banker, I'm an ex‑banker and I spent here at a number of banks and I was involved in the cross‑border payments and obviously I have some understanding of how cumbersome it is to move a piece of cash from one country to another.  Okay, in the European Union, we have finally, and then in the thing like the Netherlands we can move cash from an account to a account in different banks, so almost instantaneously now, but things are still quite different, say I'm moving ‑‑ I'm moving currency from South Africa to European Union, it can take up to 5 days and lots of ‑‑ lots of fees are going to be deducted and there are lots of intermediatories.  Obviously, this workshop is not the news, everybody know about that, and my presentation is quite different from you guys going it here to see.  It's not about the application, it's not about the architecture of designing the, say, the digital Cryptocurrency for a central bank.  It's a realtime application that our client developed.  Myself, I represent SMC Capital an investment and advisory firm out of the U.S.  We invested in the project, we thought it was amazing and it's a public Blockchain that is different from many other Blockchains in a sense that it's a very first Blockchain, okay, all right, on the market.  There are plenty of examples where people claim, wow, they're going to have so many transaction per second, but well what's different in it is first of all, all right, they have this, in Everitoken, first of all they have this ability to process your payments in 3 seconds which is very much comparable to Apple Pay and so on, but unlike those guys, you will not need to see banking as an intermediatory there, so helps on Blockchain.
In this case I'm going to show what is been done in Malaysia, so he's a very active person, loves business development, is both technical and both technical and very much person that is focused on business development and partnership, so he managed to convince a huge conglomerate in Malaysia to issue only coin of 500 million dollar backed by reserves stored at Malaysian bank audited by Price Waterhouse and right now being used in part of their business.
Without further ado, all right.  So in very simple terms, you know, I'm not a very technical person and so in my presentation, we're not going to have lots of nitty‑gritty on about architecture and so on, but what's important to understand about this Blockchain, besides that it's very, very fast, and I forgot to mention very user friendly, right.  Let me see if it's here.  Unfortunately, I don't have the slide that compares if you're talking to more than ERS, so on the theory we have a smart (?), right, as a developer you need to know sailty and those developer tend to be quite expensive and it takes time to develop this Smart Contract, and it's not a very easy process, and on top of that, the theory, we all know it's quite slow and can't process as many transactions as we need in real‑world transactions for transaction like peer‑to‑peer, C‑to‑C, or B‑to‑C, and we ask guys like Reper or Stellar focusing on exactly that, cross‑border transactions and everyone at this particular moment or C‑to‑C or B‑to C transactions and micropayments in transactions that are underbanks and obviously all of these workshops and conferences we hear a lot already, we have so many ‑‑ you know, like the underbank population is huge, bank accounts aren't available in Sub‑Saharan Africa, in Central Asia and so forth, and so actually EveriPay and EveriCard offer this type of solution.  So coming to the use case, I think it's interesting for use case in central bankers to see that there is a real‑world application, not only for stable coins like Tater, Paxis ‑‑ they use the coin backed by the circle, it's Goldman Sacs behind that and those are usually wholesale and before I start explaining how this particular stable coin is different from others, I would like to ask you, how many of you actually is using stable coins in one way or another in your daily, in your daily life?  You use DT, DC, Paxis, whichever stable coin, you name it.
All right, so nobody.  I can tell you the application that we have at SMC Capital, it's a venture firm, obviously you run a portfolio of different Cryptoassets and that comes to volatility, right.  Everyone was so excited in 2017, beginning in 2018 when all the Cryptoassets, almost all the Cryptoassets were going up and but then comes the volatility and all goes down and comparing to traditional assets like bonds and equity, you know, it's incomparable.
So you use DT, Tater and even with all of those scandals like reserves a company has or funds stolen, what's the alternative?  We use Tater ourselves in our venture fund to preserve the value, to transfer and shift the value from BitCoin that is more value than ‑‑ it's a stable coin representing the value of the U.S. dollar.
That's a wholesale application, right, the prime user of this coin is a ‑‑ in wholesale environment, a store operator in wholesale environment.  Whereas we're going to talk about the stable coin issued, it's a bit different, it's the first commercial stable coin backed by USDT, used in the real world, and so a lot has been said about unbanked population and a lot has been said about what is called, how expensive it is to run ‑‑ to process payments from merchants, right, if you take visa, if you take MasterCard, oh, God bless, PayPal, the conversion rate is huge, you know, like the percentage you pay, the percentage that you pay for processing the transaction can vary 5‑7%, so what's these guys in Malaysia did, they're one of the largest conglomerates in Malaysia, right, and with that they were the largest stable coin issuance in Southeast Asia and licensed stable coin and Money Broker and their business encompasses lots of different activities, they're the cruise ship operator, convenience stores, many different types of businesses, and so the simplicity of Everitoken that issued the stable coin backed by USD dollar and so right now what happened is you have the wallet with the QR code and you can use any type of commercial scanner that's available at the retail shop, you know, when you go use your credit card, you go to a retail and you buy a coke, you buy some clothing, and you pay and it's scanned, so with Everitoken and with this group of stable coin, you may pay offline, you know, like you may send, you may pay with a QR code, and right now it's being used for travel and entertainment, and so when you board the ship for the Cruise ship like you go travel with your wife, with your family, you have an option, actually.  You can upload, in many case, you can buy tokens, so it's the same with HWG Cash, you can upload that and get the rebate.
In these instances, this huge conglomerate saves lots of money because like the volume of cash in circulation is huge, so by reducing the ‑‑ by reducing even 5‑7 percentage of processing fee, and on top of that avoiding intermediaries such as banks, you achieve cost reduction and the consumer is happy because they receive rebates from this transaction.  And what's going to happen in the very future, so a group established a company in Hong Kong to push forward this type of transactions, and right now they sign a partnership with 7‑11 Convenience Stores in Philippines to use the same ‑‑ to use the same type of payment processing for like, you know, like payments just like you do with Apple Pay, just like you do with, you know, credit card to pay for food and beverages, products and services, and they're also exchanging Crypto‑exchange license in Malaysia, and so obviously can ‑‑ you can exchange this stable coin to other type of Cryptocurrency.
If you go to Everipay solution, I have it on my phone, so anybody who is interested in how it looks, and how consumer‑to‑consumer, or peer‑to‑peer, or B‑to‑C can look in Crypto outside of other guys like Apple Pay, it's the same transactions, it's the same transactions, so come up to me and I'm very happy to showcase how it looks.  This is already available in Malaysia and going to be rolled out in more and more and more countries in Southeast Asia.
Thank you so much for listening to this real use case application on Everitoken, and I hope if you need some more explanation on why this group or this huge conglomerate chose Everitoken instead of any other options available on the market, I'm happy to tell you more in details.  Thank you so much.
(Applause).
   >> SAMI TRIMECH:  Thank you, Mikhail, for sharing with us your experience.  So now, the floor ‑‑ I give the floor to Mr. Paleckis.
   >> EGIDJUS PALECKIS:  Hi, everyone.  It's always nice to be the last one on a panel discussion, especially when you're looking forward for lunch.
So I'm not going to bore you with another presentation about CBDC.  I'm going to speak about digital collector coin, which is quite another thing, and I'll join ‑‑ I'm pretty sure a money matrix, so I very much hope for that next time.
So, the three questions, why, how, and what?  This is how we start, I guess.  So last year, Lithuania celebrated 100 year anniversary, and we got an idea that we need to mark this occasion with something special.  We wanted to bring ‑‑ to bridge the history and the future of our rich history and the future we want to be a fast‑growing, tech‑friendly country.
So we got an idea with digital collector coin, but we didn't know how to do that.  We did a bit of research and we got the answer that it's possible to do it, but we didn't know how.  So we organized ‑‑ (audio feedback) ‑‑ we hired companies from all around the world to tell us how to do it.  Some from Lithuania, Cyprus, (?) and more or less five or six ideas how to do it.  Because it's new, nobody knows how to do it, we have a panel with different solutions and people are doing different things and nobody knows what is right or wrong.
So it took us a while to prepare technical requirements and how it could be implemented.  So what should digital Collector Coin be like, you're going to issue 54,000 tokens and going to hybrid Blockchain infrastructure, and that's the initial coin selling is going to be conducted on the private and fully controlled Blockchain network by the Bank of Lithuania with an opportunity for our customers to transfer those tokens from the private network to the public network, which is more or less like a cash.  Our customers cash from a central bank, but once it's out they can do what they want.  Nobody controls where you use your cash, so that's more or less we try to follow the same logic for this one.
We created a system which is going to force our customers to interact with each other, so it's going to be a bit of gamification, we are going to have like 20 different tokens, so we need to correct different things, to like let's see, win the game.  We really want to see how tokens are going to flow, more or less what we have with cash.  If people are, if the cash is going from customers to retailors, to retailors to bank, and vice versa and at some point come back to central bank.
The next thing, it's going to be digital tokens that bear assets, in our case by 4,000 silver coins, which are going to be kept at the central bank vault.
So more or less, the same system is out of gold.  Once you buy gold, usually you don't get a bar of gold to your hands, you get a piece of paper saying that the gold which is held somewhere in Switzerland or London or wherever it belongs to.
So what does it bring?  I just have one question for you.  How many of you are ‑‑ (audio feedback) ‑‑ anyone?  I have the perfect market.  (Laughing).
(audio distorted).
If I ask a younger group of people, let's say about 15‑24, I guess what the hell is ‑‑ so that's a bit of like in these markets.  We're proud to be the first ones or we try to do that to open the new chapter in the market.  The younger generation, people who barely use cash, and we now collect digital collectibles, digital kitties or whatever, and so we're trying to be with them and to provide something what is interesting for younger generation.
And we also want to have opportunities more in a real environment.  We all know new technology, nobody really knows how it works or how it would work, if it is used by let's say central banks, so we really want to do that and to really get to know the technology, and that would help us to shift regulatory requirements, and more and more FinTech companies are coming to us and getting licenses and building their business on Blockchain, and in order for us to be able to join what we can do or not do, we should understand the new business and technology, and so that's why this helps us.
The last thing is usually when we speak about CBDC, none of the cash department is involved in that.  I am from cash department and usually we're the only ones from central banks which who has an experience to provide some kind of services or goods to the public, but we are seen as guys bringing bank, coins, keeping old fashion business to themself.  I don't use cash myself, barely.  I mean, probably I shouldn't tell you that because you know if the guy sitting here presenting what his product is and now saying that he prefers Apple Watch, you wouldn't bay Rolex, but anyway,.
So but CBDC is more or less the same thing as cash, but just format is different.  What are requirements, are more or less the same.  I'm from Lithuania, yesterday was in Latvia, so we use Euro, today in Switzerland, franc, tomorrow is Ukraine, and if I have my wallet, I can put all the different banking in wallet, I don't need different forms for different currencies, so it's very important for digital assets, so for customers where we have one wallet, we can put any currency we have it in digital dollars or Euros or whatever it coming, and so that's important and I think that's where ITU can play a part in that.
Another thing, an example you know I got a 10 bill I could exchange to I guess 11francs and 300 (?) tomorrow, and it's so easy to do it.  You go to the exchange and you just basically exchange it.  So the same should be for digital assets.  The exchangeability, it's a key for customers, so it's like easy to use it.  I mean, I'm not a dreamer, I don't think so but anyone in the world at some point is going to use the same tokens or same currency, so it's going to be different things, but what is important is that people can easily exchange, especially when they travel when they have a business to do.
And the last one is the most important one, the security.  Believe me, for head of cash of any country to know that it's so easy to counterfeit the bank, so the same for digital things, and that should be secured and we should trust that thing that what you get it is from the central bank if that's important you get.  That's it from me.  Thank you.
(Applause).
   >> SAMI TRIMECH:  Thank you, Mr. Paleckis for sharing with us your experience.  So let's move to questions.  So I talked today about the new technologies and trends that can unpack (?) the national ecosystems and affect all the national players.  I came from a developing country, which is Tunisia, and also I'm presenting a regional organization which is governing a developing ‑‑ a large number of developing countries, which is Arab region and so my question is, how can within the DFC, most of these countries are looking to achieve inclusion, and so how can CBDC improve the financial inclusion?  What are the most or major consultations to achieve those goals, how in developing countries for idea to move to CBDC project, and so my question maybe I will start by Mr. John?
   >> JOHN KIFF:  That's a very good question.  I think it has multiple dimensions, and in some cases the inclusion, the lack of inclusion might be related to the penetration of the banking system so in that regard, CBDC might actually be able to replace the money in some of these areas where there is no banking operations at all, and I'm thinking of ‑‑ I'm thinking of ones I'm most familiar with like the island‑type economies where the banks don't build ATMs or the scale isn't there to build out the infrastructure to put banking operations in place, so people might want to be banked but can't be, and maybe the banks on the mainland or the capital city aren't interested in innovating enough to offer digital services to those people, and so in those cases, I think, CBDC can fall in.
But another aspect could be, and this is where things get complicated and we talk about the preconditions for CBDC, and in many countries, identity solutions are a problem.  People don't have any kind of photo ID or anything, so even before you start talking about CBDC to solve an inclusion problem, you have to solve an identity problem and so I think to me those are the major ones, and I mentioned before, we call it tyranny of geography, that was the first one, and the second one is more about the identity issue.
   >> SAMI TRIMECH:  Thomas?
   >> TOM KUDRYCKI:  A couple of thoughts.  A excellent question.  It is, I think, one of the foundations of a case for CBDC.  I would probably present a slightly different view of this than John has, and so specifically about identity, it is important, of course, but less important for CBDC than it would be for a bank account, right.
So as important as those ID schemes, national ID schemes are, I think part of the reason for lack of inclusion, right, is an ability to produce appropriate identity, but it is not really even about the piece of paper or a digital equivalent thereof, it's lack of address, lack of perhaps even understanding what an ID is, right, in some countries at a certain economic level.
So, I believe that CBDC can actually help that by introducing a level of security and visibility that banks have without the full fledge ID and access to banking system on that level.
A couple of other thoughts.  I think two layers, it's multi‑dimensional problem as John says, and so I'm assuming for a moment that we already have access to e‑money, right, because of course there is infrastructure, there is mental capacity to be able to use a smartphone or such, but let's assume that is already in place.  What is the additional benefit of DFC on top of that?
I think it is the security, it is the fraud protection, it is the visibility that the central banks gain, it is a sort of reputation in a sense that with e‑money, I think even a less educated or less affluent part of the public look at it as a large money or (?), and that has advantages and disadvantages and varies from country to country, but putting an overarching structure that puts the reputation of the central bank behind that money, I believe fosters financial inclusion, right, because now it is truly on par one‑to‑one equivalent to physical cash.
>> In many economies, the financial inclusion or economic inclusion was considered, you know, the gold standards with a bank account, so that's kind of selling a country club membership to somebody who just wanted water, so there needs to be a whole continuum of different solutions for people between a bank account and just cash on the one hand, and that's a potential for CBDC, particularly where there has been adoption of e‑money in one respect.
Another aspect that I see is very beneficial for the jurisdictions that we work in is the ubiquity of it so that it's fundable and can be changed from one entity to the another.  You don't have all the interoperable silos and particularly in jurisdictions where there are lower population levels, where it's easily possible to get something to scale.  What we do know is that we're cutting up the potential market into silos and in trying to make the silos interoperable making it ubiquitous across the lot is scalable, you can create scale out of what was fragmented, and well mobile money has done a great job, but if you have a look and see how that is packed together and how difficult it is to interoperate just within a country and in and across regions, it's very, very difficult because it's kind of going up from almost like as something that is better planned and that is more ubiquitous, I think has a better chance of scale and better chance of including a lot more people within the formal economy.
   >> SAMI TRIMECH:  How can the DFC impact mobile money.
>> Well, we've had a look at mobile money, this is DFC, and particularly looking at many of the mobile money schemes that are running.  It can simplify mobile money to a large degree.  It takes out a lot of the reconciliations and even the potential risk of having a teleco operator sitting with cash because that's their cash or they're actually not even the holder or the official holder of the cash, so it simplifies the potential, cuts down the risk, and it's, yeah, can can be a lot in terms of ‑‑ (audio feedback).
>> That is in certain implementations of DFC, one can envision quite easily, actually, an ability to perform offline transactions.  Obviously, we cannot perform them without electricity, right.  It is digital, afterall, but we could perform them without connectivity within certain policy bounds that the central bank can set, and that also, I believe, contributes significantly to financial inclusion because you can be in a place where connectivity exists maybe 8 hours a day because it's powered or in some sense, right.
   >> SAMI TRIMECH:  Back to John, what might impact the CBDC have on commercial banks and what can central banks do to mitigate this?
   >> JOHN KIFF:  I sort of brushed over that in my presentation but that's one of the problems identified by Mr. Carstens, the BIS, and it's a legitimate concern because in many places, CBDC, especially if you put interest on it, we talked about the possibility of paying interest, it becomes essentially risk‑free burden of a bank deposit and so ‑‑ so what we think is that you can design the actual coin or currency and the ecosystem around it to mitigate some of those risks.
And one of them, obviously, is not to pay interest on them, so you don't make it too super exciting for people, although in today in many places, the interest rates are so low that you can imagine that a few options of .2% at the local bank or 2% at the central bank you might find that quite attractive, but what you can do is design the coin, for instance, so there are limits on holdings so people can't use it as a de facto deposit account.
Another, perhaps more extreme option, is that if this does happen, the central bank would have the option of recycling the funds back to the commercial banks.  I mean, it's controversial because most central banks, they're enacting legislation directly not to take risks in operation so most only do collateralized lending and low‑risk lending so it would be a step out of their normal boundaries, but that would be an option and then I think there are also ways of designing the ecosystem so that ‑‑ I mean, Tom was talking about the different variations you have and how you structure the whole flow, as I called it the life cycle, and you could do it in ways where the banks are more involved and actually doing the grunt work, basically, of running the CBDC system and so they get opportunities for face‑to‑face contact with people to sell their products, not only deposit product, but they have a contact point where they can sell them investment products and so on, so we think some design features and you could use one or more of them to alleviate some of those risks, but there is that risk that the banks may be forced to look at other funding models for their operations and that might in some economies, they might have the option of going to market‑based funding, and in many of the countries that we're looking at that we're hoping to help with their deliberations in developing countries that don't have vibrant capital and money markets to turn to, so there are some design issues there for sure.
   >> SAMI TRIMECH:  I think it's quite clear.  Mikhail, you presented an experience already, so what are the main lessons that you have learned from this experience?
   >> MIKHAIL MORONOV:  It's actually a very good question.  So, so far, you know, when we speak with because I represent the investment vehicle, right, that put money into this project, really believing in the team and their effort and not only in their technology but also in their business development effort, and so so far the group has been implementing this payment solution, it's doing great because they have their own channels and they can offer clients using this app ‑‑ and this is strategic plan is to import and MOU in place in convenience stores in 7‑11 and they work on having an agreement with Family Mart and I'm not sure if you're familiar with Family Mart like 7‑11 convenience stores in Southeast Asia so but at the end of the day how do you convince consumer to download the happen, to use the app, to showcase the benefits.  Obviously, there are different incentive programs, you know, it can be magnification, it can be rebates that people like a lot, discounts, and so so far the main challenge is obviously the adoption, like for many other projects in the Blockchain space.
   >> SAMI TRIMECH:  Thank you.  Mr. Paleckis, a question as you're manager of the project in Lithuania, so what are the lessons learned from your experience?
   >> EGIDJUS PALECKIS:  Thanks, it's a good question, and you know I'm from a central bank and for this kind of project we're a bit of like FinTech company which is challenging current status quo and so what we learn is that at some point in Europe we have regulation which doesn't fit for innovations, and once you get like ‑‑ I think the digital collector card is there and you start checking if that is according to regulation, but apparently it's not, and to change regulation takes forever, so I think in one thing it's like Europe lesson from us that you have to speed up and to catch with the market to allow innovations and technologies to really be implemented.
   >> SAMI TRIMECH:  Thank you.  I have more questions, but I think we have more time, we still have 10 minutes, so maybe time to move to questions, so please present yourself and your question, please.
   >> AUDIENCE MEMBER:  Thank you, and thank you for a very interesting discussion.  I guess this question is mostly directed to John.  I very much appreciate the nuance that you're bringing to the discussion of privacy and different ways it could be structured, but I just had a question of when you discuss the idea of a separate database of identity acceptable by a court order, I, you know, without sort of putting in for particular countries, I know for example the NSA has broken financial ‑‑ and claiming it wouldn't and even in the system in India, there are cases people are not only coming into the system but people's IDs are being misused by other people there and I understand that could be a political compromise or the right design model for this technology, but it seems to me that is still quite something different from cashwash after the point of issuance, interests no entity affiliated with a particular balance and that it might be useful to have some way of making that distinction, you know, in the terminology or topology without sort of giving impression we're going to preserve all the features of cash, or alternatively if this is going to be, if this is a different category, thinking about conceptualizing whether a something entirely looking like cash would look like as differentiated to this even if only for them to dismiss it or something, so just curious about your thoughts on that.
   >> JOHN KIFF:  Yeah.  Interesting question.  One way to go possibly, I call it the two‑rail system, you could actually have two parallel CBDCs running in the same country, and one would be, say the account‑based one, the ledger‑based one like the Uruguay one where you do have anonymity but traceability and at the same time you could have a second rail which would be a purely token‑based CBDC that would be purely for peer‑to‑peers transaction like a smartcard you could load on.
I suppose I might have some clear IC at the point of the first interaction when you download the cash, but you also might have limits on it, so it is more like cash because like I said before, you don't carry thousands of dollars in your wallet, so that might be to do it.  Or single purely for those transactions and not have the second rail, and just the second rail use the existing digital money.  I mean, we already have digital money, the commercial bank money and just run a purely token‑based system.  I suspect that might be how to go in some instance.  Two rails for some countries might be an expensive route to go, but maybe for them it might be reasonable to go for that single token‑based rail, so I think that might be the solution.
>> (Speaking off mic).
>> Can you hear me now?  Oh, wow.  Going back to this whole concept of financial inclusion, I just want to ask some very basic fundamental questions, and the one is identity.  Okay.  We said, oh, gosh, financial inclusion, and Barry, this is a question for you.  So how do we create identity for someone who has absolutely no identity?  They're walking off the farmfield or out of the desert or something like that.  I could see it happening at the time of a, let's say at the time of a mobile phone or mobile wallet and you identify them biometrically at that time but they say who they are at that time and do you really know that they are who they are.
Second thing when I think of financial inclusion, I think a bit more in a sense of creating a bank account, so people who want to have an account with $25 or $50, which in most parts of the world, including the United States, no bank would consider and so that's the benefit of mobile banking, the creation of a bank account, so how do you go back to the identity and how do you solve that problem first before you create the account.
>> I've done quite a bit of research on identity across the globe for E and it is definitely a difficult problem, the problem is how do you create a digital identity, somebody that can be your digital self in the world that you can interact with.  And what we've seen, and there is no one solution for any jurisdiction, but we've seen that by metrics, it's playing a bigger role, but not only by metrics, it's identifiers, many different identifiers, simply in the mobile phone, you can create a whole lot of new different types of identifiers that are more robust than the current input identifiers that require you in terms of rules, and particularly where they don't have a risk‑based approach, we're advocating for a risk‑based approach to identity and so for instance, proof of address isn't a robust identifier and it needs to go.  You really can't identify ‑‑ you shouldn't be identifying people based on the 1970s banking (?) in the U.S. because that had its place and time.  We need to be able to look at other identifiers, and I think when we interviewed them, they said they were doing geo‑location or GIS, the data and then track to see you can create a identity based on your data where you are, and so there is many ‑‑ the field is opening up to create many different solid and robust identifiers, but I must admit it does require a network and it does require access to at least a smartphone and some feature phones, but it's not as simple as just an ID card or we see many examples of institutions and governments taking a stand, and the BVN in Nigeria is an example where they created identities because nothing existed.  Now the BVN is beginning to feed into the national identity, and so there are ways but it's not easy, there is a billion people in the world that do not have access to an identity.
   >> AUDIENCE MEMBER:  I would like to just ask a follow‑up question then, for example, you were talking about geolocation, so do you think the whole idea of identity then is a process?  Like for example, for me it's easy, I can walk into a bank, show my license, show my utility bill, I can show my passport, and is it a combination, let's say, in the developing countries to show ‑‑ you know, look at biometrics and then, for example, if they claim they live in a particular area, then follow them, right, through geolocation to say, yeah, they do live in this particular area so you have some form of validation, but again it's a process that takes time rather than an immediate, again, validation of the person.
>> Yes and no.  Sometimes it can be pretty instant if you've got a social media account that those kind of footprints are very robust, and it might sound odd but they are.  You just need to get away from the ‑‑ from the list of artifacts that you need to take off because in many cases, that's not very robust and it's not very effective as an identity or as in terms of curbing AML CFT, it isn't because none of the identifiers are verified, and even if they're verified, often it's just I'm just a person with a piece of paper.  It doesn't actually say that I am that person with the piece of paper.  You can verify as much as you like but you don't get to the crux of who I am as an identity, and with the advent of new technologies, it is a lot more easier to establish an identity, but it's not a list of artifacts that you need to take off and it's often not being face‑to‑face in an office.  Not face to face is very possible, we've seen it happen in Brazil and many other countries, where you don't have to be face to face.  Yeah.  But you do need technology and, you know, you need expensive ‑‑ well, this is very expensive for some, it's $1 or $2 a day.
>> Like you say, there are new innovations coming out all the time, but also going back to some of the things we talked about earlier, you could have a layered sort of tiered approaches where for low‑value transactions and so on, you have a lower standard for KYC and then you elevate it for larger transactions, that's one option you have and some of the vendors we talked to, it was a consensus last month, talking to the wallet vendors and found they have some pretty unique ways of dealing with this problem.
>> Yeah, and (?) to understand the whole market with the tiers, but you need have a risk‑based approach and understand the risk that you're trying to mitigate.  What is the inherent risk in the product that you're offering and what kind of identity would mitigate that.  In Australia, there is a very, very good example.  They give you different points for different types of identifiers that you can offer, and I know they are currently still based on a list of artifacts, but as that progresses, more digital means can have different risk ratings and different robustness and that gives you a better way of dealing with identity, and not requiring the gold standard or platinum standard for a lady who just wants to cash $20.
   >> SAMI TRIMECH:  Thank you, Barry.  Last question, please.
   >> AUDIENCE MEMBER:  I'm Calvin from Uganda, I have a question from the perspective focusing on economics, are there any other studies that showed whether society is ready for central bank currencies ‑‑ there may be a lot of physical barriers because normally when you introduce a new product, it's very important to first establish whether the users are ready for it, and then number two, whether it will be acceptable.
Now, in some countries, there is a apathy or rejection toward public institutions, and I think in some countries, and also I notice in some countries, central banks are facing a lot of fire, like in Uganda and South Africa, so I don't know whether there are ways to help central banks to address that issue.
Then the next question is to deal with the legal implications.  Now, I want to know whether we're in the position of addressing implication digital currencies, in some countries central banks issue (?) and allowed to issue digital currencies, so it's very important going forward to address the two issues, the economics and also the implications.
   >> SAMI TRIMECH:  Do you want to answer this question?
>> These are some of the issues that we were hoping to address in this paper, the follow‑up paper to our November paper.  We get right into the nitty‑gritty details of the necessary legal and regulatory foundations.  Like you say, you have those central bank legislation has to give the central bank the ability to actually issue alternative types of currency, and if anybody has worked in a legislative environment, and I have when I was at the Bank of Canada and we were actually involved in some revamps of the Bank of Canada, and it never goes smoothly, it never goes quickly, and it can take a while to do, so there are many important things like if you introduce CBDC, it has to be ‑‑ I think it almost has to be legal tender, right, so then you have to ‑‑ you may have to change whatever law specifies what is legal tender, and even there it gets rather nuanced because different countries have different views of what legal tender is, and in some cases, legal tender means that all merchants absolutely must accept that, and a violation of that could result in fines and so on, and then there are certain lower tiers of legal tenderness where I think in Sweden like a merchant can deny you the opportunity to use cash, and so that's a weaker form of legal tender, and so there is a lot of foundational aspects that have to be in place before you issue CBDC, and we're developing, basically, a detailed checklist of all of these different things.
   >> SAMI TRIMECH:  (audio feedback) (audio distorted).  Please give the panelists a big round of applause.
(Applause).
(session completed at 5:20 a.m. CST)

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