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HSBC’s Sibos Spotlight: Using CBDCs for Cross-Ledger Multi-Asset Transactions
31 Plays3 years ago
Why should treasurers be interested in CBDCs, and how can they prepare for an environment where these types of currencies are commonplace? This episode in our Sibos podcast miniseries follows last year's digital asset deep dive, with HSBC’s Mark Williamson once again joining TMI's Eleanor Hill, alongside special guest Søren Mortensen from IBM to explore how attitudes have changed to CBDCs over the last 12 months. Our guests also provide insight on a ground-breaking project between HSBC, IBM and Banque de France that leveraged CBDCs to create an FX settlement capability.
This is HSBC’s Sibos Spotlight, a podcast mini-series in collaboration with Treasury Management International (TMI). Throughout this series we will explore the critical topics impacting the transaction banking landscape, specifically looking at sustainability, digitisation and innovation. We will examine the opportunities and challenges disrupting the areas of payments, trade, custody and traditional business models.
To find out more about HSBC's transaction banking insights and presence at Sibos 2022, visit here.
Hosted on Acast. See acast.com/privacy for more information.
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Transcript
Podcast Introduction
00:00:02
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:16
Speaker
Thanks for listening.
00:00:17
Speaker
And now onto today's show.
Experts Introduction
00:00:22
Speaker
Welcome to TMI's TreasuryCast and HSBC's Cyboss Spotlight.
00:00:26
Speaker
I'm Eleanor Hill, Editor of TMI, and I'm delighted to be working with HSBC to bring you an in-depth look at the events from this year's Cyboss.
00:00:34
Speaker
Throughout this series, we will explore the critical topics impacting the transaction banking landscape, specifically looking at sustainability, digitization, and innovation.
00:00:43
Speaker
We will examine the opportunities and challenges disrupting the areas of payments, trade, custody, and traditional business
Roles and Collaboration
00:00:49
Speaker
models.
00:00:49
Speaker
So we have a really fascinating topic for you today, namely CBDCs.
00:00:54
Speaker
And we have two experts here to help us navigate this up and coming area.
00:00:59
Speaker
They are Mark Williamson, who's Managing Director, Global Head of Ethics, Partnerships and Propositions at HSBC, who some of you may recognize from our 2021 Cyboss podcast, during which we covered the basics of CBDCs.
00:01:12
Speaker
So Mark, great to have you back with us.
00:01:15
Speaker
And Mark is also joined by none other than Soren Mortensen, who is Director, Global Financial Markets Transformation at IBM.
Understanding CBDCs Growth
00:01:24
Speaker
And Mark and Soren have been working closely together on a joint project with the Banque de France, which we'll get into shortly.
00:01:31
Speaker
But I think first of all, guys, it would be great if we could just set the scene a little bit for this podcast.
00:01:37
Speaker
So I mentioned, Mark, that we spoke last year.
00:01:39
Speaker
We did a kind of intro session
00:01:41
Speaker
session around CBDCs, etc.
00:01:44
Speaker
But how much progress do you think has been made in those 12 months in terms of the general awareness around CBDCs?
00:01:52
Speaker
You know, where do you feel people still have misconceptions, maybe gaps in their knowledge, etc?
00:01:57
Speaker
Well, firstly, thank you very much, Eleanor, for hosting this podcast.
00:02:01
Speaker
It's great to be back and talking about central bank digital currencies again.
00:02:04
Speaker
And really pleased to be joined by Soren, who's my partner in innovation and all things CBDC.
00:02:09
Speaker
So really looking forward to this
Countries' CBDC Approaches
00:02:12
Speaker
particular podcast.
00:02:13
Speaker
In answer to your question around how much progress has been made around the awareness of CBDCs in the last 12 months, I think the awareness has grown.
00:02:21
Speaker
I think people are now familiar with what CBDC stands for.
00:02:25
Speaker
So again, you know, 12, 18 months ago, maybe that wasn't the case, but people know that it stands for central bank digital currencies.
00:02:32
Speaker
And also aware that there's differences in approach and types of central bank digital currencies, so whether that's wholesale, retail, token-based, account-based, domestic and cross-border.
00:02:42
Speaker
So there's certainly been a great amount of awareness and research and experiments and knowledge that has increased over the last 12 months is my observation.
00:02:54
Speaker
I think there's also due to that, some of the misconceptions is where is the starting point for CBDCs?
Progress in Wholesale CBDCs
00:03:00
Speaker
Yeah.
00:03:01
Speaker
So typically we see that some countries are starting at domestic and looking at retail.
00:03:07
Speaker
It's typically emerging countries, so the Bahamas, for example, who are looking at how can I serve the unbanked or underbanked within that particular economy and looking at how do I launch a retail CBDC?
00:03:20
Speaker
Whereas with more advanced countries, more modern countries, we're seeing that the focus is around wholesale.
00:03:26
Speaker
So we're seeing a lot of projects around wholesale CBDC and what that looks like for starting the journey with central bank digital currencies into that economy.
00:03:36
Speaker
And therefore, you look at that across the globe, you have some misconceptions around where is the best place to start.
Notable CBDC Projects
00:03:43
Speaker
And we're certainly seeing that across the board.
00:03:45
Speaker
Soren, do you want to pick up on some of the points there?
00:03:48
Speaker
Yeah, thank you, Mark.
00:03:49
Speaker
And thank you, Anna-Laura, for inviting me to this podcast.
00:03:52
Speaker
Certainly what we have observed is that most central banks are experimenting on CDBC.
00:03:58
Speaker
That's in excess of 85% of all the global central banks.
00:04:02
Speaker
Wow.
00:04:03
Speaker
And most of these projects are on retail CDBCs, basically echoing what Mark is saying, that most small economies will explore retail CDBC.
00:04:15
Speaker
However, wholesale CDBC projects,
00:04:18
Speaker
have progressed further.
00:04:21
Speaker
And these are projects that are being done in the more industrialized countries.
00:04:26
Speaker
And whilst they're less than 20% of all the CDBC initiatives, they have progressed much, much further than the retail CDBC projects at this point of time.
00:04:38
Speaker
And what we are going to be talking about here today is around the wholesale side, because that is a reflection of the trend.
00:04:47
Speaker
That said, many central banks are working on the retail CWCs.
00:04:51
Speaker
Yeah.
00:04:51
Speaker
OK, interesting.
00:04:52
Speaker
So, yeah, an awful lot's happened really in the last 12 months.
00:04:55
Speaker
And like you say, a lot more awareness, but also a lot more action by the sounds of things, which is great.
00:05:00
Speaker
Mark, you gave an example or two before, but I'm just wondering in terms of the central banks activity and their development of CBDCs.
00:05:09
Speaker
Have there been any pilots or advancements recently that have really caught your eye that you've gone, oh, okay, this is getting really interesting.
00:05:16
Speaker
Is there anything
Banque de France Project Details
00:05:17
Speaker
you'd single out?
00:05:17
Speaker
Well, I'd like to single out the experiment we did with IBM because I think that still stands up very strongly against what's been going on this year.
00:05:25
Speaker
I think other than the great experience we did with Banque de France and IBM, what's been interesting is seeing some of the emerging countries launching CBDC projects and pilots.
00:05:37
Speaker
And also China still is progressing with their CBDC distribution into retail.
00:05:45
Speaker
So we're certainly seeing that.
00:05:46
Speaker
And they're looking at beyond lottery, they're looking at using it for public transport and also potentially putting that into supply chains and by providing loans to building companies and then the building companies will then pay their supplies in CBDC.
00:06:01
Speaker
So it's still going through that process of looking at,
00:06:06
Speaker
Okay, we've got a base CBDC product.
00:06:08
Speaker
We've got millions of wallets out there.
00:06:10
Speaker
We've distributed billions of dollars and digital yuan into the economy.
00:06:15
Speaker
and looking at what are the further use cases of extending that into the broader population.
00:06:20
Speaker
So we're seeing those sorts of advancements.
00:06:22
Speaker
Yeah, absolutely.
00:06:23
Speaker
I know a couple of treasuries who are keeping a very close eye on the China side of things.
00:06:27
Speaker
Soren, anything you've seen?
00:06:29
Speaker
Well, I totally echo what Mark is saying.
00:06:32
Speaker
But I would also say that many of the projects are bound by secrecy because many of the central banks are
00:06:40
Speaker
want to progress their project before they announce what they're doing to the market.
00:06:46
Speaker
So I would say in general, the market is much more progressed than what's in the public eye at this point in time.
00:06:52
Speaker
But we can't share that because it's both Mark and I are bound by secrecy with some central banks.
00:06:58
Speaker
So it is something that the central banks are taking seriously.
00:07:02
Speaker
It is something that the governments, even in Western countries, are taking seriously.
00:07:09
Speaker
And the governments are really trying to see how this can progress and really work on the value propositions for the CDBC within their jurisdictions.
00:07:21
Speaker
So we see a lot of work being done on this.
00:07:24
Speaker
For me personally, I see the time frame for something becoming more real, getting shorter and shorter.
00:07:31
Speaker
I think there's a number of submarine projects out there.
00:07:34
Speaker
It's just when those submarines are going to pop up and the timeframes for them to go into production will be...
00:07:40
Speaker
Exactly.
00:07:41
Speaker
I've got visions of you both in some kind of James Bond film centred around CBDCs now, but anyway.
00:07:47
Speaker
Naturally.
00:07:48
Speaker
You look at Soren and I, of course you'd be thinking of James Bond.
00:07:51
Speaker
I can see that.
00:07:53
Speaker
Great stuff.
00:07:54
Speaker
All right.
00:07:54
Speaker
We've teased the audience a little bit with your joint project with the Banque de France.
00:07:59
Speaker
So come on, let's get into it.
00:08:01
Speaker
Let's hear a little bit more about it.
00:08:02
Speaker
So Mark, tell us about this project.
00:08:04
Speaker
You know, it's designed...
00:08:06
Speaker
with HSBC partnering with Vonderhorsen and IBM, but sort of designed to show how CBDCs can cross every divide.
00:08:13
Speaker
So it's cross-border, cross-digital and real-world currency, cross-asset, cross-ledger.
00:08:18
Speaker
Go on, give us the lowdown.
00:08:20
Speaker
Tell us about what's been achieved so far.
00:08:22
Speaker
Happy to.
Technological Challenges & Achievements
00:08:23
Speaker
So if you remember last year when we were talking about this and we were talking about how do we solve the Rubik's Cube of CBDC, how do we solve for wholesale, retail, token-based, account-based, domestic and cross-border?
00:08:35
Speaker
And given the wholesale focus that we have, and I sit within markets, so wholesale is important, we wanted to come up with a use case that satisfied solving the Rubik's Cube and also was relevant to wholesale markets.
00:08:51
Speaker
And also importantly, be relevant for that really important connectivity between central banks and commercial banks, because that first connectivity, that first link in the chain is really, really important.
00:09:05
Speaker
So the experiment that we did, and I'll go through this very slowly because I think it's worth taking time going through it, is that we worked with Banque de France and IBM.
00:09:16
Speaker
And on day one, Banque de France issued a Euro CBDC bond.
00:09:22
Speaker
And that's in the primary market.
00:09:24
Speaker
HSBC then brought that CBDC bond.
00:09:28
Speaker
We then put that into our digital vault.
00:09:31
Speaker
So we stored that into our digital vaults.
00:09:34
Speaker
And then we sold that in the secondary market to one of our clients.
00:09:38
Speaker
And so we've gone through primary and secondary market.
00:09:41
Speaker
We've purchased the bond.
00:09:42
Speaker
We've put it into the digital vault.
00:09:44
Speaker
We then rolled forward that experiment one day and we received a coupon payment from Bonk de France.
00:09:52
Speaker
And then we, per our client's standard settlement instructions, we converted the coupon CBDC amount into a synthetic CBDC,
00:10:02
Speaker
and paid it into their retail bank account.
00:10:04
Speaker
So again, if we rewind a little bit and think about what we were trying to achieve there, we looked at wholesale, retail, token-based, account-based, domestic, and cross-border.
00:10:17
Speaker
And also, from a market perspective, from a wholesale perspective, we're looking at primary, secondary market, and into foreign exchange.
00:10:25
Speaker
Now,
00:10:26
Speaker
I'll let Soren talk about the really cool stuff between the two different blockchains because the interoperability between the two different blockchains was super important because one of the big challenges that we foresee across solving that Rubik's Cube 64 times across the globe is going to be the interoperability between the different technologies that are going to be implemented.
00:10:46
Speaker
So to do that across IBM's Hyperledger and across R3 Corda,
00:10:51
Speaker
using the Weaver protocol in between was also an additional challenge that we gave ourselves and we met.
Project Testing Insights
00:10:58
Speaker
So, Soren, do you want to talk a little bit about the technology side of things?
00:11:03
Speaker
Sure, Mark.
00:11:04
Speaker
Interoperability between networks is key, and it's key to successful for CDBCs in general.
00:11:11
Speaker
And what we set out to do from a technology perspective and the challenge that we gave to the team was we had also together with HSBC and Bonne-de-France and a whole wide range of other banks developed the platform to issue, trade and settle securities on blockchain against CDBC.
00:11:32
Speaker
And that's subject to another experimentation where there was a white paper that came out last year in October.
00:11:38
Speaker
We leveraged that platform, but the challenge that the team was given was we want to have interoperability across networks that are built on different technologies.
00:11:51
Speaker
So across networks, across technologies, across time zones, and as Mark highlighted, token-based, account-based, and what have you.
00:12:01
Speaker
We achieved that on this project where we had the interoperability not only with blockchain networks, so Mark highlighted R3 and Hyperledger Fabric, but we also connected to the traditional networks so that we could exchange data between these networks.
00:12:20
Speaker
Another thing that we set out to do was to ensure that the issuing central bank that issues the CDBC has full visibility of their currency in circulation across all of these networks.
00:12:35
Speaker
And this is why this project is so important.
00:12:39
Speaker
Because unlike many other projects that looks at interoperability between two networks with the same underlying technology, here we have gone completely beyond everything.
00:12:52
Speaker
And both the traditional networks, the new types of networks.
00:12:56
Speaker
And through that technology, the IBM Weaver, which is, by the way, now open sourced, we have proven together with HSBC that we can have these payments cross-boulder, cross-network,
00:13:11
Speaker
cross time zone, cross technologies, pretty much cross everything, and still have the central bank having full visibility of the movement of their currency.
00:13:23
Speaker
And that's why it's so
Overcoming Challenges
00:13:24
Speaker
hugely important because it will give the flexibility for CDBCs in the future to basically operate on any platform that they want, yeah?
00:13:36
Speaker
While keeping that control.
00:13:38
Speaker
And that's why this is so important.
00:13:40
Speaker
great stuff so sort of laying the groundwork and opening the door for many things in the future and like you say there's there's interoperability and there's interoperability uh kind of underlying bold capital letters and you're very much at the the latter stage uh with that one so it's great to hear a little bit about the techie side of things i'm just wondering if we can get into maybe a bit of more detail around the testing uh that you did because i'm sure our audience would be interested in that so mark
00:14:08
Speaker
How do you actually go about testing that full front to back life cycle from the bond issuance that you mentioned through to that foreign currency coupon payment?
00:14:16
Speaker
What's been the process there?
00:14:18
Speaker
So a lot of coordination, a lot of late nights, a lot of coffee, a lot of strong coffee and some very committed and diligent technology teams that were committed to the cause, which was super helpful.
00:14:32
Speaker
But to answer the question, the process was that we had to set up the environments between the different systems.
00:14:38
Speaker
And as Sauron was talking about, we need to connect into traditional systems plus the newer DLT or blockchain-based systems.
00:14:47
Speaker
So we had to set that up.
00:14:49
Speaker
We had to have a separate environment to do that.
00:14:52
Speaker
We also allowed ourselves quite a bit of time to do it.
00:14:55
Speaker
But what was interesting, and what I mean by that, is that Bonk de France were expecting us to take several days to go through this particular experiment.
00:15:04
Speaker
But actually, when we plugged everything together and the way that we had coded it and the interoperability between the different systems enabled us to do it within a matter of hours instead of days.
00:15:15
Speaker
Wow.
00:15:15
Speaker
because it was connected and because it worked so seamlessly with all the hard work of her developers and technologists and architects and the teams around the globe to do it.
00:15:25
Speaker
It was very good to actually see it in action because there's a lot of hyperbole, there's a lot of documents that can be written, but
00:15:33
Speaker
To actually see it live and see it operating and to see the tokens move across the system, to see the payments move across the system and be surfaced in different GUIs, etc., was hugely impressive.
00:15:45
Speaker
So that was the...
00:15:47
Speaker
the way that we did it.
00:15:48
Speaker
And what was key to that was not only the underlying technology, but actually surfacing the movement of the bond and the token and the payments through GUIs that we had between the two different systems.
00:15:59
Speaker
Great stuff.
00:16:00
Speaker
Well, it must have been so satisfying as well to sort of have had that couple of days window available and then only needing a couple of hours because it all works so seamlessly.
00:16:07
Speaker
Oh, great stuff.
00:16:08
Speaker
Soren, anything you wanted to add on that?
00:16:11
Speaker
Yes, what I would add to that is the collaboration between the teams.
00:16:15
Speaker
how well when you are innovating and you're challenging all three organizations, Bank de France, HSBC and IBM, how well the teams came together.
00:16:26
Speaker
So we have Mark and his teams leading the overall project supported by IBM and Bank de France, IBM more on the technical side.
00:16:35
Speaker
But the way the teams work together, although they were challenged to the extreme, was very, very impressive.
00:16:43
Speaker
I mean, that's gratitude to HSBC project leadership for Mark's team.
00:16:47
Speaker
But I was really impressed how well they work together.
00:16:51
Speaker
And the success of this project is down to that collaboration as well.
00:16:55
Speaker
Yeah, always so important.
00:16:57
Speaker
You mentioned this and the successes, but I have to ask, were there any particular challenges along the way?
00:17:02
Speaker
Obviously, we spoke about the interoperability and that was a challenge to overcome.
00:17:07
Speaker
Anything else you'd highlight?
00:17:08
Speaker
I think given the innovation and collaboration is super important, that comes with opportunities and some threats or opportunities and things that need to be managed.
00:17:19
Speaker
Yeah.
Importance of Use Cases
00:17:20
Speaker
Because we're breaking new ground, because you're testing technologies to the limit and you're testing new paradigms and the use of these technologies, that's where some of the challenges came across.
00:17:32
Speaker
And so you come across these really gnarly problems that haven't been solved before and getting together and working out how do I solve those challenges of moving tokens between two different blockchains, for example.
00:17:47
Speaker
Yeah.
00:17:48
Speaker
was challenging, but hugely rewarding once it's been achieved.
00:17:52
Speaker
And that took some of the best and brightest minds within IBM and HSBC and Bonk de France to really nut through and work through how are we going to solve for this problem?
00:18:01
Speaker
You know, what are we seeing?
00:18:02
Speaker
How do we achieve the objective that we'd set out to achieve?
00:18:06
Speaker
And what was interesting there was that not only was it three different organizations, it was different development teams across different geographies.
00:18:15
Speaker
So we've got a team in India that were
00:18:17
Speaker
developing this, there's teams in Europe, et cetera.
00:18:20
Speaker
So we're really trying to pull together not only the three different organizations, the different time zones that we're testing across and technologies.
00:18:28
Speaker
They were some of the challenges that we saw.
00:18:31
Speaker
And key to any good collaboration is that honest and transparent feedback and doing that feedback loop and making sure that's constant and just keep grinding through
00:18:43
Speaker
to getting to the end goal.
00:18:44
Speaker
But yes, there were some challenges.
00:18:46
Speaker
It wasn't all cartwheels and laughter.
00:18:47
Speaker
There was some stuff that we had to work through.
00:18:51
Speaker
Okay, understood.
00:18:52
Speaker
Soren, anything, any particular challenge you'd highlight or just echo what Mark had said?
00:18:57
Speaker
All projects have challenges, but I think one of the things that we did to mitigate the challenges was to set out the use cases and set out the clarity of the use cases that we wanted to test up front and share that with the whole
Commercial Banks' Role in CBDCs
00:19:11
Speaker
team.
00:19:11
Speaker
Yes, we were pushing the boundaries.
00:19:13
Speaker
Yes, we were pushing the teams as far as they could go and the technology.
00:19:18
Speaker
But that clarity and then the transparency of progress, communication between the teams was absolutely essential.
00:19:27
Speaker
Yeah.
00:19:28
Speaker
So that everybody understood when we hit a niche or a problem that was resolved as part of the team.
00:19:34
Speaker
Yeah.
00:19:34
Speaker
Still with clear visibility of what the end goal would be, what we wanted to achieve with that.
00:19:41
Speaker
So I would say, yes, we had some glitches along the way, but I think they were resolved very, very quickly and smoothly through that collaboration of the teams.
00:19:50
Speaker
Yeah, it's always exciting to have a bit of a challenge, isn't it?
00:19:53
Speaker
Let's be honest, you know, keeps you motivated.
00:19:58
Speaker
If we don't have challenges, life would be too boring.
00:20:00
Speaker
Exactly, exactly.
00:20:02
Speaker
OK, Mark, one of the other things I wanted to ask you about was the sort of debate that comes up in some of the conversations I have around CBDCs.
00:20:11
Speaker
which is where commercial banks actually fit into the whole model.
00:20:16
Speaker
So bearing in mind this successful experiment that you've done, how does this strengthen the business case for commercial banks to actually be involved in CBDCs?
00:20:25
Speaker
Yeah, I think it's worth restating a few goals and objectives of BIS and other central banks.
00:20:32
Speaker
And one of those key objectives is do no harm.
00:20:35
Speaker
And secondly, just to call out that if you look at M0 that's in circulation, it's about 15 to 20% of money that's in circulation.
00:20:44
Speaker
And then 80% is private money.
00:20:46
Speaker
And that's credit creation, typically from commercial banks, and that goes into the retail world.
00:20:53
Speaker
So...
00:20:53
Speaker
Again, this, I think, cements the relationship and that really important link that I talked about before between central banks and commercial banks being distributors of commercial bank
CBDCs in Corporate Treasury
00:21:03
Speaker
money.
00:21:03
Speaker
So I think it's helped from that perspective.
00:21:06
Speaker
And the business case is that we are here to create credit.
00:21:09
Speaker
We're here to, we have a license to pay into many different RTGSs or central banks across the globe.
00:21:15
Speaker
And we are here to do the AML, the KYC,
00:21:19
Speaker
to provide mortgages, to provide loans, to provide credit cards, et cetera, right?
00:21:23
Speaker
So that whole credit creation piece is really important.
00:21:26
Speaker
But where it does help strengthen the business case, as the question is outlined here, is looking at how do we improve that link?
00:21:36
Speaker
How do we help accelerate payments and visibility or transparency work for an audit trail between central and commercial banks
00:21:45
Speaker
for the M-Zero or for central bank money.
00:21:48
Speaker
And we see that this has been a really good way to prove out that if you have the right technology, the right transparency workflow and audit trail of where your central bank money is at any time throughout the lifecycle of bond creation through to payment within a retail account, then that can help with things around intraday liquidity and how that's managed between
00:22:09
Speaker
central banks and commercial banks, and also for our clients in moving into corporates and into working capital.
00:22:16
Speaker
Okay, perfect.
00:22:16
Speaker
Sauron, any further thoughts?
00:22:18
Speaker
I hear a debate in the market where people are saying, oh, we don't really think CDBC is going to work because the commercial banks feels that they're going to get disintermediated by the central bank.
00:22:31
Speaker
And my response to that is I'm involved in quite a few CDBC projects.
00:22:38
Speaker
I don't see that message from the central banks.
00:22:40
Speaker
On the contrary, for example, for retail CDBC, the central banks, the projects that we are involved in, all have the commercial banks as a key to distributing the CDBCs.
00:22:51
Speaker
The central bank is just issuing.
00:22:53
Speaker
They are not going to replace the commercial banks.
00:22:57
Speaker
On the contrary.
00:22:58
Speaker
On wholesale, same case.
00:23:00
Speaker
We do see some potential risk to some of the processes currently managed by commercial banks.
00:23:06
Speaker
But what we see is that the central banks are working with the commercial banks to see how we can alleviate this.
00:23:13
Speaker
So I don't see a threat for commercial banks on either retail or wholesale CDBC.
00:23:19
Speaker
On the country, I see the central banks...
00:23:24
Speaker
reinforcing the, as Mark mentioned, the do no harm, or let's not change it, let's leverage what we have.
00:23:33
Speaker
And in there, both on wholesale and on retail CDBC, the commercial banks are critical for the success and the roll-up.
00:23:43
Speaker
Yeah, absolutely.
Impact on Liquidity and Capital Management
00:23:44
Speaker
There's an opportunity and the door is open and it's there.
00:23:47
Speaker
So it's up to the banks to take advantage of that and get involved.
00:23:51
Speaker
But Mark, I wanted to just come back to something you briefly mentioned, our wonderful audience, obviously corporate treasurers.
00:23:57
Speaker
So why are CBDCs sort of strictly relevant for Treasury?
00:24:02
Speaker
Now, obviously, it's good for people to know about it in a wider context of what's going on within the financial world.
00:24:07
Speaker
But how could CBDCs actually potentially benefit Treasury, maybe potentially
00:24:12
Speaker
sort of around liquidity, working capital management, et cetera?
00:24:15
Speaker
Yeah, I think there's a few different aspects to it.
00:24:18
Speaker
Firstly, as touched on, if you have better transparency workflow and audit trail of where your money is throughout the lifecycle of funds being settled...
00:24:29
Speaker
and CBDCs could play a role in that, then that's going to help investment decisions and working capital decisions from corporate treasurers.
00:24:37
Speaker
I think also with the use case that we went through of primary bond issuance and that bond being issued on chain, I think there's a bunch of opportunities around how corporate treasurers have access to that and have visibility around those central bank bonds that have been issued.
00:24:57
Speaker
And that could also lead into different investment decisions around delivery versus payment.
00:25:02
Speaker
And so how that gets sped up because you've got this all on distributed ledger technology.
00:25:07
Speaker
It could also go into fractionalization of those bonds, et cetera, because you have a digital representation of it rather than a paper copy.
00:25:14
Speaker
As we touched on a bit earlier, I think as some of the use cases that have been explored around the globe, the China example that I mentioned,
00:25:24
Speaker
If governments are going to be issuing loans in central bank digital currencies out to different government suppliers, then what does that mean and how do we need to think through that?
00:25:34
Speaker
Ultimately, it's all about how are we looking at different stores and values of payments on distributed ledger technology and blockchain.
00:25:43
Speaker
CBDCs will be part of that ecosystem.
00:25:46
Speaker
They won't be the only one by any stretch of imagination.
00:25:49
Speaker
So corporate treasurers need to be aware that, hey, there's this broader landscape here of different stores of value and payment that I need to be able to process and accept within my risk management systems, my treasury management systems, my enterprise resource platforms.
Advice for Treasurers & Banks
00:26:05
Speaker
And how am I going to treat those and store them and treat them on my balance sheet?
00:26:09
Speaker
So I think there's a few different aspects there that corporate treasurers need to be aware of.
00:26:14
Speaker
But the key point is that if you do have that better transparency workflow and audit trail of where your money is at any time from time of, say, deal capture to settlement,
00:26:27
Speaker
then that gives you a whole bunch of different decisions that you can make in order to better manage your intraday liquidity, for example.
00:26:35
Speaker
Yeah, that makes sense.
00:26:36
Speaker
Sauron, anything you'd add?
00:26:38
Speaker
Yes, I would add to this.
00:26:39
Speaker
With the interoperability that we have been working on across all networks, all technologies,
00:26:47
Speaker
we're also looking at interoperability into supply chain networks.
00:26:51
Speaker
And certainly getting that interoperability and IBM Weaver is already being a part of our global supply chain networks.
00:27:03
Speaker
You have that interoperability between the payment providers like HSBC and these global supply chain networks
00:27:12
Speaker
where you have opportunity to do financing and payments and so forth.
00:27:17
Speaker
And through this, basically have instantaneous exchange of assets, instantaneous funding, payments, and what have you.
00:27:26
Speaker
So certainly whilst we are looking at CDBC, the opportunities are endless through what we actually proved with HSBC on the new project.
00:27:38
Speaker
Okay.
00:27:39
Speaker
Opportunities are endless.
00:27:40
Speaker
Excellent stuff.
00:27:41
Speaker
That's what we like to hear.
00:27:42
Speaker
So final question before I let you get back to your lives as secret CBDC agents.
00:27:48
Speaker
I'm just wondering, because we've covered a lot of ground in this podcast.
00:27:51
Speaker
So do you have a key takeaway, next step for our listeners, you know,
00:27:56
Speaker
whether they be banks, whether they be treasurers, how can they prepare for this environment where CBDCs are more commonplace?
00:28:03
Speaker
And also wanted to see if I can pin you down on a timescale.
00:28:07
Speaker
I know you've kind of alluded to it, but I'm just wondering if I can get you to be a bit more specific.
00:28:12
Speaker
So I think the way treasurers can be prepared is to, of course, listen to these great podcasts.
00:28:19
Speaker
There's lots of really great research materials out there, whether that's from IBM, from HSBC,
00:28:25
Speaker
From BIS, there's some really good papers out there.
00:28:27
Speaker
So there's lots of research material and also news that comes out on a daily, weekly basis on how the CBDC market is evolving.
00:28:37
Speaker
And it does evolve rapidly, but also slowly at the same time.
00:28:42
Speaker
So whilst there's a lot of research, et cetera, great technology innovation that's going on, it is going to take a little while to actually get into the marketplace.
00:28:52
Speaker
So, you know, be aware, be, you know, keep an eye on how developments are going, keep an eye on how that's going to potentially pass through government and what it means for corporate treasuries who operate globally, because I think that's the other key aspect.
00:29:08
Speaker
If you're operating globally, then you need to be aware of what the developments are and what that means for each of the jurisdictions that you operate in.
00:29:16
Speaker
So I think it's going to take a little while to get out there, whether it's in the next two years, five years, 10 years.
00:29:23
Speaker
You've got to times that for, in HSBC's case, times 64.
00:29:27
Speaker
So just trying to keep abreast of what's going on across all those different countries and jurisdictions is important.
00:29:33
Speaker
why
Future of CBDCs
00:29:34
Speaker
we're excited about doing this particular project, because if we're able to solve that Rubik's cube and then be ready for the different types of CBDC implementations across the globe, that puts us in good stead.
00:29:46
Speaker
Yeah.
00:29:47
Speaker
Okay.
00:29:47
Speaker
Super.
00:29:48
Speaker
And Saren, final thoughts from you?
00:29:50
Speaker
Yes, my final thought is point one, technology is no longer the issue.
00:29:54
Speaker
We have deployed this on the hybrid cloud.
00:29:57
Speaker
We can interoperate with any type of network in any time zone on any type of technology, both new and old technology.
00:30:07
Speaker
So for this, technology is no longer the issue.
00:30:10
Speaker
The issue is how do you roll this out?
00:30:13
Speaker
And the use cases are going to be many.
00:30:15
Speaker
But what we do see is many central banks moving quite fast forward.
00:30:21
Speaker
So my personal view is that we're going to see these types like CBDC being in production more towards the five year mark than the 10 year mark.
00:30:33
Speaker
Yeah, yeah.
00:30:33
Speaker
It's real.
00:30:34
Speaker
It's something that corporate treasurers should think about right now and should engage with innovative banks like HSBC to really understand the implication on their business in more detail.
00:30:47
Speaker
But it's going to happen five years rather than 10 years.
00:30:50
Speaker
Yeah, yeah, like you say, it's real.
00:30:52
Speaker
It's certainly coming and preparing now and asking those questions and just laying the ground for what is coming in the future.
00:31:00
Speaker
Well, thank you both ever so much for joining us today.
00:31:03
Speaker
It's been a pleasure to have you with us.
Closing Remarks
00:31:05
Speaker
It's been great to have you back, Mark, and to hear all about what's gone on in the last 12 months and soren to hear about all of the work that you've done on the project and the interoperability kind of progress that you've achieved.
00:31:17
Speaker
And I do hope we can tempt you both to come back maybe next year and give us an update on what's happened in the meantime.
00:31:22
Speaker
Thank you very much, Eleanor.
00:31:23
Speaker
It's been a pleasure.
00:31:24
Speaker
Thank you very much.
00:31:25
Speaker
Well, thank you all for listening as well.
00:31:27
Speaker
This has been HSBC's Cyboss Spotlight, a podcast miniseries produced especially by TMI for HSBC Global Viewpoint.
00:31:35
Speaker
To discover other episodes in this series, search for HSBC Global Viewpoint on Apple and Spotify or head to gbm.hsbc.com forward slash cybos, where you can also find out more about HSBC's transaction banking insights and presence at Cybos.
00:31:51
Speaker
Thank you for joining us.
00:32:04
Speaker
Thank you for joining us at HSBC Global Viewpoint.
00:32:08
Speaker
We hope you enjoyed the discussion.
00:32:10
Speaker
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