Blockchain for Interbank Payments: Run Faster, Safer, and Further

Transcript

next up as a topic um blockchain for interbank payments and settlements run faster safer and further so that's the question which will be discussed in the next panel and I'm happy to announce the panelists in Row first of all Marco Kesler from sdx Robert eard from ClearStream Benjamin Richa from Google Cloud Daniel Aiden from bis and the panel will be moderated by tilma G from Su payments and go tilmar is the CVA um education working group Chair by the way and very active and the dreamer

and the founder of the CVA research Journal please welcome on stage good afternoon everybody please have a seat we having a prepared a quite nice panel what I believe is an interesting topic so at this time of the day I maybe don't need to explain anymore what is the CVA um however inside the CVA we have a working group education which I'm heading inside this um working group we have one Flagship project is a research Journal so we Define once a year a topic we invite dedicated authors to write right according to this topic we compile

it the best papers in the end of the year and give this journal back to the industry for free download and this year's topic is onchain asset management so if you're an author or if you're an expert want to do an interview in this research Journal let's chat after after after the session and I explain a little bit more now today we want to talk about blockchain for interbank payments and settlements in my professional life I work for a payment processor and obviously we have a mix of local payment acceptance and crossborder settlements using stablecoin we put together quite an interesting panel and I would like to the panelist to quickly introduce yourself um to to give the the this panel is structure maybe Marco do you

want to start a few words to yourself yes thank you tar and hello everyone my name is well as you can see Marco kler six digital exchange I am the head of digital assets there so responsible for products services and uh well I've been on this journey I would say since a long time since the founding of SX uh close to 7 years ago and I find a lot has changed a lot has evolved since then and the fact of being here today talking about this topic uh in this in this venue I think it's it's a testament of how far the the the collaboration also came came to be uh between between the banking ecosystem uh Financial ecosystem and let's say more cative web three

ecosystem so thank you good you I'll go next hi everyone my name is Benjamin I work for Google specifically Google cloud and maybe you're wondering like uh how did I end up on this panel in between these more uh banking focused topics so this is my one goal I hopefully when you leave the session this question will be answered but uh I give you a little glimpse so Google is uh probably a search engine that as you know but there's a lot behind uh this like simplified UI there's a lot of global infrastructure and when we look at blockchain technology It's a combination of nodes that live on computers that are connected with each other and this is

something we believe we are really good at and we have lot of experience in that space so we are also putting a lot of effort into developing tools that make it even easier for others other companies other organizations and developers to also tap into our experience and focus on building cool decent decentralized applications and having less to worry about what's actually happening under the hood and connecting all these nodes and computers with each other but more on that a little later please Daniel very cool all right hello everyone hello thank you I know it's late in the day so hopefully we can be uh entertaining and educational at the same time um my name is Daniel Ean I'm an adviser and solution architect

with the bank for international settlements um I've been with the bank for almost 5 years now this is my second position I was out in Hong Kong for a little while and now I'm based here out of Switzerland in Basel where our headquarters is uh for those of you that don't know the bis the bis is colloquially known as the Central Bank of central banks so our services are given specifically to central banks we're owned and operated by the central bank community at large and the role of the Innovation Hub in particular is really to connect between Innovative Technologies and The Innovation agendas of the central banks and the local Regulators we have seven centers around the world World um and each Center has a little bit of a different flavor depending on the Mandate of the local central banks that um we're working with

um I particularly my background is computer science and engineering I focus a lot on blockchain and distributed systems and I run a lot of our crossb payment uh projects at the at the Swiss Center at the moment good afternoon everyone uh my name is Robert um I'm working for Clear stream I'm based in Frankfurt and I'm actually happy to be here in the in the crypto Val for the first time and it's been a great day so far and looking forward to to this panel so maybe a bit of background uh to to clear stream all of you of course um heard about uh um clear stream we have three um franchise we have the domestic CSD uh in Germany the domestic CSD in Luxembourg and the international CSD where we um do uh co-issuers U with

Euro clear um in the EUR bonds area um I'm work in the digital Security Services area where we have have rolled out a platform called D7 um I think we have almost uh issued uh 1 million um Securities on this platform digitally we also have a DT component uh on the platform and um we're also looking to um extend um to other asset classes like um Bitcoin and ether you might have seen the announcement two weeks ago we collaborate with um crypto Finance they're also part of Deutsche berer group and it's been uh picked up by the market quite well happy to be here thank you so as you can see we put together High calibra panel everybody coming from

a different institution obviously sharing their own uh opinion and approaches towards blockchain technology so now how this panel will continue I prefer prepared in the first step a specific question per panelist and then later a question where you all can give your answer maybe now since we are here in switzland and sdx is at the Forefront of the digital exchanges and obviously a known player in the industry maybe Marco how do you see the blockchain changing the way interbank settlements are conducted thank you thank you for the question what very very many ways I would say Obviously um there are different ways to slice this this question or answer this question let me bring maybe two cases two examples on the one hand I think from a technical

perspective you have to you you you you consider that blockchain different shapes and forms of blockchains uh allow for um mutualization of the technical infrastructure allow for a way to share uh a technical layer technical infrastructure to move value whatever value you know and then there are different ways regulated nonregulated assets cash and so on and this is very important this is a a paradigm shift I would say because I mean if you're a CTO in a company I mean what one of the things you care about a lot is the so-called uh total cost of ownership and you know moving away from each institution building their own and maintaining their own decade old uh you

know running machine uh which barely anybody understands by now anyway you know uh that's that's a big deal that's really a big deal that moves the needle seriously moves the needle so that's a that's a very uh you know economical answer so to say another one is is the is the exciting one I would say because it's really opens the doors of blockchain and the application of blockchain on on payments and settlements really opens the door to new ways of offering Services products and services I mean you know everybody talks about I'm sure you heard it hundreds of times about programmability composability you know instantaneous uh movements and so on those are all Key Properties key elements you know

fundaments that you need and when you put them into life into action then you can get to the real cool stuff you know like offering new services that PR previously were conceivable but not economically viable we are working for example on the application of fractionalization you know imagine being able as an investor of any kind of any tier so to say being able to you know on your phone to type up your investment preference your very own personalized customized investment preference you know and then just push the button and get it done instantaneously obviously I mean this is possible this was possible 10 years ago of course but it was way too expensive so normal people like me could have

never had a chance calling my client advisor and asking them hey can you get this done for me uh-uh you know I'm to a small number basically but thanks to this technology I mean these kind of things become possible you know you just need to put it into action and I think now is the time I I like what you said in terms of innovation and we all want to tap into your new market but this of course also comes with Associated risk right um if you're one of the first player you start start doing business in New asset class right you suddenly face different problems in terms of Regulation now then since you at the Forefront we have differently regulatory changes how does sdx address and and manage those challenges yeah I think I

mean well we are a regulator Financial Market infrastructure so by definition I mean we work very very closely and and very uh uh positively together with the Swiss regulator finma uh and of course that's allows uh to to you know to resolve uh and and find find ways to fulfill all the requirements and I call them features not requirements because I think you know people may see them as a burden but I see them as a value proposition actually especially at the institutional level so I I wouldn't really talk about kind of challenges but more if I look more at the international level I think some something that is a challenge is for sure the harmonization you know if you want to scale this

globally or or at least internationally with neighboring countries even hell then I think you need to be able to passport or to at least have compatibility between things you know like between concept of adalt security we know what it is in Switzerland we have a definition for it what about France what about Germany you know they have their own definition are the two definitions compatible to what extent you know and so those are key questions I think that will be important to continue on addressing and they are being addressed which is a good thing I think absolutely I can just you know from the fintech perspective uh look at this and say hey actually regulation is

not so bad it gives me as somebody who tries to run a project the legal security that what we do is good plus it gives the investor the chance to invest in a project and have the regulatory Clarity that things are things are going according to the rules right and you mentioned one thing International So Daniel Bank of international settlements um I'm aware that you or the you organization has been um exploring block blockchain for central banks could you give us an insight about maybe the biggest advantages and risk you're facing the biggest advantages of risks of that we Face bringing that type of Technology into the central correct spere okay um I guess the most important thing that I'll mention is I I the My

Views are mine only and not necessarily the views of the bank so I have to remind myself to always say that before I uh say anything that I regret um I I think the advantages and the risks are kind of the the two opposite sides of the coin I think Marco um kind of gave some insight onto what what some a leading organization here in Switzerland is doing uh when I think about specifically blockchain distributed systems I think a lot it's a lot about kind of the tokenization thesis and and at a high level that thesis would say that you know today all of the value is stored if we think about kind of the financial ecosystem it's a it's a huge kind of network of networks and all the value is stored at the nodes and the edges that connect the nodes are just

messaging on movement of value between the nodes but the the value actually stays kind of contained within their siloed ecosystems and that Silo is technological it's regulatory it's legal and so on and so forth and a lot of the costs are actually a function of of that um going along the same analogy with Marco with Distributing the cost in distributing the platform when you start Distributing the platform you start harmonizing as well so there's a lot of good reasons that are catalysts to bring distributed systems or Central Bank money onto distributed systems um or onto blockchains and I I think the three biggest things that I would highlight the first one would be digital assets so the more digital assets are adopted the more you would need a form of central bank money that is native in that world

to do proper settlement because central bank money is the safest settlement asset that exists the next one I would say is tokenized deposits or stable coins or things that are derivatives of of central bank money or private money that's issued on top of central bank money so again the closer coupled those two things can be I would say the more value proposition there is in that ecosystem and then crossb payments is another pain point in another place where there's a lot of value to add by bringing these systems uh these tools and these Technologies into traditional Finance um when we talk about the risks I mean the risks are again they're kind of the the flip side of the same coin and I can give a couple of examples you know when we think about the network effects and interoperability of these

type of systems the the going perspective is the the bigger the network the more interoperable things are the more value there is to be associated with the network which is absolutely true but the flip side of that and the thing that the central banks and The Regulators are often concerned about is what happens on a rainy day what happens on the 0.1% that something goes bad and where are the circuit breakers that if something collapses in one side of the system there's a circuit breaker that doesn't Cascade into another system per se so wherever there's a value there's usually a risk associated as well and I think that a lot of the work that we do at the Hub is to move this away from an analytical exercise where we just look at um systems out outside of the Central Banking community and we bring them in

and we try to build tools that the central banks understand in the context of central bank money and Central Bank services so that we can evaluate ourselves what are the risks and rewards and be able to kind of move forward in a in a in a measured and and reduce the risk associated with with this type of innovation I can bring a lot of examples but I think that that's kind of the what I think in particular is is impressive first of all of course you having you here on stage representing the B but I have been on several studies actually what what the Hub research is at the University of Zurich so very much positive Innovation um the you guys look at it which I coming from the industry particularly like that traditional institution pick up and try to integrate

this in a central bank context now we have another um traditional play here um with Robert and since clear stream plays the major role in traditional post- trade service how do you see the blockchain component being comp complimentary or disrupt existing settlement well I would say it's uh definitely um um complimentary um first of all um it's um it's a it's a technology we we put into the mix right we we don't say um DLT is a is a silver bullet um but it's definitely an important tool in the mix and um we have participated in the last year in the in

the e CB trials right to to also um showcase this we've participated um in um around 10 use cases um with um all all um Solutions offered by the um by the central banks to really um experiment with um settlement on chain and with um um central bank money which is which is key for us right um so yeah I would definitely say that's something um we we're closely following we're investing um Deutsche berser um clear stream being part of Deutsche berser group um it's it's um on the agenda uh also for our Horizon 2026 strategy so we have uh full

backing to um to further look into this technology um but um I would also say in Germany with the E Securities act um that was implemented in 2021 we already see a big step towards um um digitization materialization right um on our platform D7 um it's scaling um almost processed 1 million issuances right um so that's that's the one step and then the next step is really to identify the use cases the business cases for for um um the DLT um onchain transactions yeah I want to double tap on what you said since CLE stream offers

post Trade Services how would you see or the what are your concerns in do in terms of security post Trade onchain Services um level of adoption um I think it's it's it's really after the the finishing of the ECB trials um we really need a continuation so we have the on the one side we have the security leg right onchain and then the cash leg um that's provided by the by the ECB um they promised right that this will come in rather uh month than uh in years so that's I think uh very important for the level of adoption and yesterday I was visiting the the crypto assets

conference in Frankfurt we also had uh Pierro chipon from the ECB um and he he actually um considers himself being rather a a fast Central Banker so I think we are on a good track here yeah I I those three entities now um I like when we summarize this adoption is common you take care about it you see how you use this technology inside your organization but obviously now looking more from the technology side Benjamin um when we talk about security and scalability of course we know that that is an issue on on the on the blockchain level how does Google Cloud CH tackles those challenges yeah I mean when you shared this question with me up front I

actually wanted to challenge it a little bit because I uh think security that's kind of inherit of blockchain technology that what that's where blockchain technology stands out it's a trustless system that's why as long as it works there is a lot of extra layer of security you don't have to trust someone else when it comes to scalability um as I mentioned initially this is I think where we are really strong at like we have nine products now that have more than one uh billion users like and blockchain the technology also wants to span across the globe like that's the idea not to really connect uh everyone make it decentralized make it accessible and when we looked at this whole area we also noticed that uh stable coins alone

saw like a big increase last year I think the amount of stable coin transactions tripled last year so there's some public information up to5 trillion were transacted via stable coins last year to give you a reference Visa has I think 13 trillion of transaction volume per year so stable coins are already like halfway there and what I'm trying to say by this is that we can disc discuss as much as we want here on stage about blockchain uh kind of changing how International settlements and payments work but it's already happening out there like stable coins kind of just started doing this by itself and uh that's kind of the the interesting piece where we we believe okay like this is happening there's a demand demand for that and uh also there

is a good reason why the demand exists because traditional payment methods uh they have a lot of friction so if you again look on the global scale I think there's several trillions of dollars that are kind of lost in fees by just two people exchanging money with each other and that's a space where be looked at yeah that makes sense to me I mean of course everybody knows Google pay and all other other Solutions you have and and how would you describe how the cloud infrastructure enables faster and safer transactions yeah exactly so when I said we looked at this uh we didn't just stop there so since a couple of years we have a dedicated engineering team building blockchain specific products with the

idea in mind to make blockchain adoption easier for for other organizations and this week literally one hour ago we announced that we launched our own Ledger it's called Google Cloud Universal Ledger and that allows Banks to do crossborder wholesale uh payments uh quite frictionless low fees and easy to adapt so the as I said hopefully why maybe in the beginning you wondering why I'm here uh what be happy to hear feedback if that's something you're interested in please find me after the panel just want to make it very clear but the idea is really that we are really good at building Global infrastructure and uh Banks can do a lot of other things a lot better and we want to help Banks to kind of do these

transactions with each other across border and or at least offer a way for that to to happen easily it's a permissioned blockchain so it is a it is a blockchain but only you need have like certain certain access requirements at least for now until regulation uh might change and it's quite flexible like in order to onboard it's a single API call so you're happy to tell you a little bit more maybe after the panel so what we can see there are things cooking in the background and I can only imagine if you know Google comes out with their own blockchain wallet this will definitely Drive adoption of all the user base Google has right if just a percent takes over or you know funds the wallet on chain uh fantastic use case now looking um in the

light of the time um I prepared still one general question where I like to pick your brain individually uh giving you different perspective from the institution you representing so what do you think is the biggest Factor holding Bank mainstream adoption for interbank payments and settlements maybe we can start with Robert um interbank payments and settlement um yeah I I I always need to to bring in also the perspective of Securities right so because we at Clear stream we have um I mean over 20 trillion assets under custody and what we do is settlement right delivery versus payment and um the payment side is is only one side and um

and and then the security side is is is the other side of course um so I think um in the EU um regulation um provided Now with uh with with uh with Mika is a is a big step um and um definitely for for all the entities um active um in this space um it Prov it provides um a clear a Clear Vision and also a level of of comfort that makes sense especially you know the experience with the market it comes and I think one step closer going towards this direction of adoption is what what the B Biz does and maybe dannyel you can add a few more things is

of course working with the technology working on you cases trying to implement where do you see the challenges of adoption generally Dani yeah so um so the question specifically what's holding back adoption of interbank payments on blockchain systems uh I don't think anything's holding it back to be honest I think we we tend to kind of underestimate in the short run underestimate in the long run and overestimate in the short run I think we're on track for adoption at large um but I mean let's think about how we do interbank Payment Systems today there's real-time growth settlement systems realtime growth settlement systems are alive and active in most modern economies they have a lifespan of about 20 to 30 years so for most of the

countries that implemented rtgs systems in the 90s and early 2000s they're kind of coming up on that transformation and they're building for the next 20 to 30 years and we're likely to see a lot of these blockchain or tokenized or distributed Systems Incorporated in the next evolution of interbank payment systems um so I think I think we're on track but I think there's still a lot of things that are complex when we think about these systems relative to the systems that exist today that are being figured out as we go um one of them for example is when we think of a system that's always on 247 even though that's great for adoption how does what does that do to monetary policy transmission for example what does that do to how we calculate renumeration and interest rates uh things like that and when we start thinking about how these systems

interconnect with each other um so in again in the context of crossb payments or how a system like this would support uh clearing and settlement for digital assets I mean there are details there that really need to be figured out because the behavior of these systems is uh at its core fundamentally different than a lot of the centralized systems that we have today so I don't think that there's anything holding holding us back I think we're completely on track um and I think in the long run that will be self-evident yeah and there are sometimes those questions do we really need a chain right do we not just create a problem and have a blockchain or what what the real use case here right another good question is hey great 24/7 markets but do I want this right maybe it's good that we have Saturday and

Sunday off right maybe Maru I haven't heard you from you for some time where do you see the biggest CH challenges holding back mainstream adoption yeah I think well first of all I fully shared the view of Daniel I think especially if you've been here a while you you you you would have witnessed The evolutionary steps which took place over the past years so I think we are we are really on track but having said that how did we get there right especially in Switzerland I think you need to look at what what are the ingredients you need to to get to this point where we are today and to go into the future and some we mentioned already you know you need regulatory Clarity we have it take the Box in Switzerland at least very much so uh I find we you need to have uh a high

quality best quality settlement asset and guess what we have it in Switzerland take the box I mean you heard in the morning uh the keyn note of Robert from SNB s National Bank I mean the El a pilot is a unique pilot I think in in in internationally actually at this level the level of progress where we can use productively wholesale cbdc uh uh provided by SNB uh on a in a unified Ledger I mean referring to what Robert was saying before at scx we have a UniFi Ledger of Securities and cash on the same Ledger opens many doors so you need that we got that then you need to bridge the traditional world with the with the digital reward you know no digital

Islands you know no experiments which are isolated somewhere on whatever technology and we get we got that by building you know a tokenization of existing assets and vice versa so this all sounds easy but this took years to achieve and we we did so now now we really get to implement and we see a a a paradigm shift again where banks are really uh voicing their their desires and their expectations in terms of use cases that that you mentioned uh proactively uh because to recognize okay we did the groundwork you know like building a house you need to start digging the hole you know that's been done long ago so now we can get to to talk about the things which everybody

wants to actually talk about but few have the preconditions for for actually getting them done at the institutional level like we have in Switzerland and obviously also with sdx now what is great to see is obviously that those institutions um they look at the use case see how we integrate this but when I look from what we doing in terms of payment processing and uh crossborder transaction this use case does not really exist in Continental Europe because if I send a separ to Germany nobody cares right but in Latin America all the countries are fragmented they all have their own uh payment system getting local currency brl or or MXN into US dollar sending AC cross border

ladies and gentlemen I can tell you it's a nightmare and it keeps me awake all night so and last but not least of course Benjamin from your perspective where do you see the blockers for mainstream adoption yeah I mean I don't have a New Perspective beyond what I already shared I think the stable coins are a great example how it's I would say like a silent Evolution um mean anyone could basically invent stable coins and start issuing this kind of new type of money and uh these numbers that I mentioned before in terms of transaction volume just give one one more reference I think 1% of all US dollar is now held in stable coin like this is really a significant amount like uh if you think

about like how much is controlled by the central bank and how much is in stable coins and I think the adoption also as as you you you just said it's multiple steps there has to be the technology has to advance people need to be educated about it and then they have to and the last piece of course or not last piece one important piece is regulation and I feel like this is still even though in Switzerland we have it solved but when we talk about crossb payment it needs to be solved at least in other countries as well and that's definitely where stable coins are lacking and that's why they're not like the only solution to to figure this out but yeah like it's an exciting time to live in I mean uh this mean happens every year and probably and we meet again next time uh

we will already talk about another evolution in this and even if I mean we all want to hopefully drive this but it also happens in a way naturally I would say yeah absolutely when I compare this panel nowadays to the panel we had maybe already 2016 clearly we see the the tread fight guys and jumping in they see the value right um I think maybe the next panel for the next conference we have is somewhere how how does BTC work in in government treasury right but uh summarizing say I see that the traditional uh um players they jump on they have their use cases they research uh go Google with their own technology they try to get a foot in the door and I'm sure as a tech provider they they will do the so and once they do I think

it's clear that uh it is here to stay but even more afterwards now we almost finished with this panel however as little thank you um to the panelist I prepared a little gift for you if you want to stand up and get your copy and please Applause for the road and it's a book I wrote together with a professor in Thailand from the University of CM Science and Technology College Dr PUD and um I encourage you somebody could take a picture maybe Alex you with everybody with the book in the hand that would be great and then I wish a present afternoon and for any question in terms of the asset management research please let's meet outside of the the room the

photographer is already here perfect thanks fantastic