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How digital pound could benefit the UK | The Crypto Mile

On this week's episode of Yahoo Finance's The Crypto Mile, our host Brian McGleenon spoke to Gilbert Verdian, founder of Quant and chair of the UK's National Committee on Blockchain and Distributed Ledger Technologies. Verdian shared his perspectives on the rise of Central Bank Digital Currencies (CBDCs), seeing them as a way to adapt money to suit a progressively digital society and economy. He touched upon the UK's pursuit of creating a digital pound, comparing its progress with other regions like Europe and the US, and highlighted the benefits of programmable money in terms of streamlining transactions and enhancing customer experience. Addressing concerns, Verdian emphasised that the security and resilience of CBDC infrastructure would be paramount, and unlikely to be outsourced to public blockchains due to control and trust issues.

Video transcript

BRIAN MCGLEENON: On "The Crypto Mile" last week, we are joined by Gilbert Verdian, founder of Quant and chair of the UK'S National Committee on Blockchain and Distributed Ledger Technologies.

Central banks, such as the Federal Reserve, the Bank of England, and the People's Bank of China are piloting central bank digital currencies or CBDCs. Their answer to blockchain-based innovations, such as Bitcoin and Ethereum. Critics argue CBDCs could increase government surveillance as transactions can be easily traced and also programmed giving possible control over how, when, and where users spend their money.

Today, we'll discuss the development of a digital pound and the potential of CBDCs to transform the financial landscape. Gilbert Verdian, welcome to this week's episode of "The Crypto Mile."

GILBERT VERDIAN: Brian. thank you. It's great to be here.

BRIAN MCGLEENON: Gilbert, let's begin with, is there a need for CBDCs? Are CBDCs, central bank digital currencies, are they really a solution looking for a problem?

GILBERT VERDIAN: I think we need to evolve money. The current form of money is not purely a digital form of money. It's electronic. And it was invented 30 years ago, when we moved to electronic finance and electronic money.

So as a society, we've become very digital in terms of the way we interact, the way we transact. And having COVID accelerated that adoption to digital. So we think money is not fit for purpose. The current form of money is not fit for purpose. And we should have the opportunity to evolve it to be something that is fit for the future and appropriate for a digital society.

So it is a solution that we are looking at. And is it a solution to a problem? I think so because society is asking for it. And business is asking for it.

BRIAN MCGLEENON: I suppose more and more of life is migrating online. And it's a problem that is significant at the moment. And it probably become a lot more significant in the future, which is leads to my next question. So the UK Treasury are trying to do something about this with the UK digital pound. Now, what stage is that project at? And when can we see a UK CBDC released?

GILBERT VERDIAN: We've seen a lot of consultation from the Treasury and from the Bank of England on CBDCs. But there have been mainly economic and policy driven to understand what does this mean from an impact perspective to the country. What does it mean for consumers? What does it mean for businesses?

And what we're seeing now is the actual implementation and the testing of a real CBDC. And that's the work that we've been involved in with Project Rosalind, and with the Bank of England, and the BIS, where they've moved away from just the economic and the policy thinking to the practical.

What is a CBDC mean for a bank? What does it mean for a consumer? And they were all tested as part of the project. And it is an ongoing project. So the deadline that the Bank of England has set is by the end of the decade when they decide or if they decide they want a CBDC. It will be implemented by then. But for the first time, we actually have the opportunity for commercial banks to be ready for CBDCs, to be ready for a new payment infrastructure.

And they have a seat at the table. They are actually working alongside regulators and co-designing and co-building this new infrastructure, which they will all be using for the next generation of money as CBDCs.

BRIAN MCGLEENON: But this not mean that there would be a direct CBDC released by the central bank direct to consumers?

GILBERT VERDIAN: It's a new form of money for commercial banks to embed within their core banking systems. And offer new forms of product, and new forms of payments, and new forms of lending, which they couldn't do before with the legacy form of electronic money. So the legacy money that we've been using today is binary. It's a push and a pull. And that's the most they can actually do.

But now, moving to digital money from blockchain-based technology to CBDCs, to tokenize bank deposits, we're able to code logic into money, to automate lots of things, to get it to do new types of payments, new types of lending, new types of products. And the banks are all behind it because it allows them to really innovate.

They can offer different types of payment products. They can take a lot of friction out of the system. And they can streamline how business and consumers deal and transact with money in a new way.

BRIAN MCGLEENON: Now, there's been a few arguments that this could potentially create more surveillance, more control by the government. And people from certain sectors are saying, this could possibly lead to some kind of Orwellian state. What do you think of when you hear these arguments against programmable money?

GILBERT VERDIAN: So the deputy governor of the Bank of England actually stated that CBDCs and this new form of money is going to be private, but not anonymous. And it's going to be in line with the existing form of regulation, the existing form of compliance at all banks and commercial banks need to do. It's not going to be any different to them. And it's not going to be any different to consumers and to businesses.

I guess the concern has been, can the government look at what I'm doing? If there is a legal need to, they don't need a CBDC. The government has the powers, the regulation. The laws are there. Law enforcement can ask for data, if there is something happening within a suspicious account. That will not change.

But what will change is the central bank having the ability to understand the systemic risk in a financial system. By having central bank money, we could actually potentially prevent the global financial crisis that we had in 2008, 2009 because you're able to see and understand the flow and the risk as a whole.

BRIAN MCGLEENON: Can you give any real world use cases where programmability could be brought into use?

GILBERT VERDIAN: As businesses and as consumers, we have programmability in the way we use the internet. And that is very unique and useful to us because we're able to automate a whole bunch of things. We can schedule emails. We can put APIs together to say, if something happens, then do Y using internet technologies that we have at our fingertips.

We can actually apply that same type of logic to money for the first time by having money become smart and become programmable in a new way. And so what we can do, as consumers, is potentially remove a lot of friction that we have today.

So, for example, you're expecting a delivery. You've paid to the supplier. It comes. And it's the wrong delivery. And then you have to go and get a refund, send it back. There's a lot of friction, a lot of pain points. But with a programmable type of money, you can actually say, if the delivery arrives on time, it is the right size, it is the right goods that I ordered, then release the funds. So you don't have to go and do refunds.

Another example is direct debits. Everyone gets their payments from their employer at the end of the month, or the middle of the month. And you have direct debits going out. But sometimes, it's different when it's processed. So you can't control. When utility goes or your mortgage goes, you can't control which time it goes out. So with programmability, you can actually say, when my salary comes in, take the mortgage, and then the utility bills one hour after. So you don't get overdrawn. And you don't have those issues that people face.

So there's a lot of benefit to that.

BRIAN MCGLEENON: A lot of these innovations have been, I suppose, developed in the blockchain space. So where do Quant come into this? So how are Quant affecting these developments?

GILBERT VERDIAN: So we're a technology company where we are the infrastructure and the platform to be able to use different types of digital assets, interoperate with different types of blockchain networks. But also, integrate very seamlessly for banks, central banks and institutions into their payment flows, into their banking flows, and into their core banking.

So we are the world leading in this space. And we're quite proud of the work that we've done with central banks like the Bank of England and helping shape the future of what digital assets and tokenized money is going to look like.

BRIAN MCGLEENON: So if we look at like, across the world, a lot of central banks are trialing these CDC systems. It Looks like of all the industrial nations, China is slightly ahead. If China does get ahead and maybe there's a delay in outputting a digital dollar or a digital pound or digital euro, could this affect the hierarchy of dominant currencies in the world?

GILBERT VERDIAN: We don't see the risk of the US dollar not becoming the Reserve currency in the near future. There's a lot of initiatives that China is involved in, the Belt and Road Initiative to help streamline how they get paid in renminbi. That is not as big as the Reserve currency of the US dollar. And it won't likely be in the near future.

Where it goes? It's to be seen. But it's something us, as the UK, we're aware of. We're looking at. But our position is there could be an opportunity for the UK to be the neutral digital pound that's preferred for digital transactions in the future.

There's an opportunity for us to be able to not be involved in the geopolitical debates, but also be innovative and be agile and provide a new form of currency that is preferred for most transactions that are digital.

BRIAN MCGLEENON: If we look at where the UK pound is in its pilot, in its scheme to create a digital pound where the treasurer are at, how far or how ahead are they with the ECB in Europe and with the Federal Reserve?

GILBERT VERDIAN: I think Europe, as a whole, is quite ahead compared to the US. The US has been a bit distracted. And regulation hasn't been very clear cut for the markets and businesses to understand what do they mean, and how do they apply.

So I think Europe has been very proactive. We've understood what the potential can do very early on. And we've implemented the right frameworks in place to be able to clearly state. This is what a digital asset can do. This is what's regulated. This is what regulation it falls in. And that's given clarity to institutions and to financial services to be able to adopt it in a safe and regulated way.

So I think, as a whole, we'll see the issuance of a digital euro or digital pound in the next couple of years in pilot and in testing. And then it will go live if that's the decision by the end of the decade for consumers and businesses to use.

BRIAN MCGLEENON: There seems to be an argument as well, particularly from people in the crypto space that they're looking at the governments around the world using the innovations from the blockchain space to create their own CBDC projects from scratch. And they point to the likes of public networks, like the Ethereum network. And they say, well, why don't they just produce a CBDC and run it on an already robust, tried, and tested blockchain i.e. Ethereum? What would you say to such an argument?

GILBERT VERDIAN: We don't see that likely happening. And the reason being is when you run a payment infrastructure, it deemed critical national infrastructure. There has to be resilience, security, confidentiality, integrity, availability, everything built in because the country relies on that infrastructure. And that's what we've got today. So all the payment institutions are running on 100% available payment infrastructure because the economy depends on it. The country depends on it.

So the central bank digital currency infrastructure has to match or be even better than what we've got today. And putting that on public blockchains is not the answer. There are multiple public blockchains out there. But there are multiple limitations of public blockchains. You do not have the ability to fix an issue that happens. It's outside of your control. It's decentralized. It's permissionless. You do not have the ability to 100% trust the security of it.

And we've seen time and time again with not properly implemented projects in DeFi and crypto constantly being hacked because they've had a very amateurish view of security, or they haven't programmed to the right level, and haven't had the experience to program to the right level the security requirements built in into a payment system.

The payment systems that we have today have been running at 100% available with no downtime and no security incidents or compromises for the last 10 plus years. So we are going to see the same level of security and resilience built into CBDC networks because they're going to have the same levels of security controls, the same level of protection that we have today.

So it will be unlikely. And it'll be very difficult to hack because it will be pretty much the same infrastructure at the same level of security as today's payment infrastructure.

BRIAN MCGLEENON: Going forward, is there going to be a complete migration to CBDCs? Or is it going to live alongside cash?

GILBERT VERDIAN: You see a coexistence of cash, electronic money of today, and CBDCs. And there'll be different forms of payments that you use. Some will be the same as it is today like, direct debits. But there could be smart direct debits as a new innovative direct debit that is released by one of the banks.

So we're going to see that small transition into a better, smarter way of managing money with the new technology. And eventually, they will either match or people will prefer something that's better for them or gives them more features than what they've got today.

BRIAN MCGLEENON: Gilbert Verdian, founder of Quant, thank you so much for coming on this week's episode of "The Crypto Mile."

GILBERT VERDIAN: Thank you, Brian.