CBDCs are coming, but what does this mean for consumers, banks and capital markets? Gilbert Verdian from Quant has some answers
Following his speaking slot at this week’s Innovate Finance Global Summit (IFGS) 2023, Gilbert Verdian, chief executive officer and founder of Quant, expands on the future of central bank digital currencies.
What is your background?
I founded Quant in 2018. The whole idea was to solve interoperability between blockchains. The blockchain economy is expected to grow to $39.7 billion by 2025, but many businesses struggle with the cost and complexity of blockchain projects.
There are many different blockchains in use—both public and private—and to reach potential digital assets need to work across these different networks and borders.
At Quant, we created a platform called Overledger, an enterprise standard for blockchain interoperability.
The work we are doing now is largely around tokenised money and CBDCs. We work with central banks, which have gone from the theory stage to implementation.
The Bank of England have said a CBDC will be implemented in the UK by 2030, the European Central Bank said 2026, and the US is still undecided.
What this means for us as end users is a new form of pound, dollar and euro.
This new form will be programmable, which differentiates it significantly from existing currencies. It will be possible to add logic to a CBDC.
For example, a consumer could programme their money to release payment for a delivery that arrives on time. But if it’s late, they could only release 90%.
This introduces a level of flexibility in currencies that we don’t currently have. It also allows banks to create new payments and banking products that can do a lot of different things.
We have become a very digital society and the form of money we have is not fit for purpose anymore. We are quite limited in how we can use it.
What are the biggest barriers to entry for CBDCs?
I think it was regulation, but a lot of progress is being made on this front. There’s still the consumer perception of privacy. Some people think if they have a CBDC, the central bank can spy on them.
But there isn’t a loss privacy. A user will get more privacy because personal information will be encrypted, which means the central bank will be able to see risk in the financial system as a whole, but it won’t be able to see individual information.
What about all negative news around crypto?
Crypto has been a technical test case for what digital money can do. We have seen what’s possible with a peer-to-peer system, and now regulators have stepped up and have rightly started clamping down on what crypto can do and how it’s regulated.
We are going to see more of that, which will pave the way for CBDCs. And what it means for consumers is they will be more trusted. The choice will be between a central bank-backed pound or dollar or a stablecoin, such as Tether, backed by who knows what.
All these issues with FTX and others shows there is a demand for digital assets and money, but people will move to a regulated version.
Can you give an overview of the session you spoke at—Love Actuary: Are CBDCs a Risk or an Opportunity for Capital Markets?—and the key takeaways?
CBDCs are coming. They are hugely beneficial because they transform things that were illiquid in capital markets, such as private equity and physical assets, into more liquid investments via tokenisation. There will be a whole world you can sell that asset to and investors who have access to it.
CBDCs will remove a lot of barriers, because traditionally you need to have a high net wealth to get access to these things.
A digital asset also removes friction, because you can buy fractions of something.
Settling with tokenised money also removes a lot of inefficiencies in the system, on the institutional side.
What brought you to IFGS 2023?
We are Innovate Finance members and it’s a great epicentre of financial services. It brings together regulators, institutions and fintechs all into one place.
The event shows that the UK is innovative in this space and operating in a global manner.
This year can really set the standard for digital assets and what that means.
Which talks were you most eager to drop in on?
Being from a government background, I was excited to hear from my ex-colleagues at the UK Treasury and the Bank of England.
It is reassuring to the market and the rest of the world that our regulators understand digital assets and are doing something about them.
Other countries are behind, still trying to figure out what this looks like, and by the time they act, it will be too late.
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