Central Banks in the Digital Age


Tuesday, September 27, 2022

The 15th Asia Symposium will be held virtually on September 27th, 2022 from 5:30pm–8:00pm PST | September 28th from 8:30am–11:00am SGT. The Symposium is co-hosted by the Federal Reserve Bank of San Francisco and Monetary Authority of Singapore and will be open to the public.

Our theme in 2022 focuses on digitalization and innovation. Innovative technologies have brought profound changes to the global economy and enabled innovations in the financial sector. The agenda will discuss various ways that digitalization and technology are impacting central banks today, including implications for monetary policy, the public sector’s role in promoting and harnessing innovation, and the future of digital assets.


27 Sept (Tue), 5:30pm–8:00pm PDT | 28 Sept (Wed), 8:30am–11:00am SGT
5:30pm (PDT)
8:30am (SGT)
Opening: Gillian Tan, MAS Assistant Managing Director (Development and International)
5:35pm (PDT)
8:35am (SGT)
Fireside Chat: FRBSF President Mary Daly and MAS MD Ravi Menon – “Innovation and Central Banking” (60 min)

Panel Description: The rapid digitalisation of the financial sector has required central banks/regulators to transform their operational models and approaches to respond to the evolving financial landscape and technological advancements. This fireside chat will focus on the dynamics between innovation and central banking.

Moderator: Celine Sia, MAS Assistant Managing Director (Economics & Knowledge Management)

6:35pm (PDT)
9:35am (SGT)
Break (10 min)
6:45pm (PDT)
9:45am (SGT)
Panel – “Beyond the hype and crash: What lies ahead for digital assets?” (60 min)

Panel Description: 2022 has been a testing year for the digital assets industry. The recent crypto market crash amid the collapse of several crypto firms has revealed vulnerabilities associated with both business models and the underlying technologies. Notwithstanding these challenges, innovations in the digital assets space continue to accelerate, unlocking new opportunities for the traditional financial industry. This panel brings together regulators and market participants to discuss the future of digital assets.

Moderator: Tommaso Mancini-Griffoli, Division Chief, Monetary and Capital Markets Department, IMF


  • Sunayna Tuteja, Chief Innovation Officer, Federal Reserve System
  • Sheila Warren, Chief Executive Officer, Crypto Council for Innovation
  • Sopnendu Mohanty, MAS Chief FinTech Officer
  • Kwee Juan Han, Group Head of Strategy and Planning, DBS Bank
7:45pm (PDT)
10:45am (SGT)
Closing: Azher Abbasi, Executive Vice President of S+C, FRBSF

Opening Remarks and Fireside Chat from the 15th Asia Symposium held virtually on September 27th, 2022 (video, 1:08:56 hours).


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Gillian Tan:

President Mary Daly, Managing Director, Ravi Menon, distinguished guests, ladies and gentlemen, it is a pleasure to welcome you to the 15th Symposium on Asian Banking and Finance jointly organized by the Federal Reserve Bank of San Francisco and the Monetary Authority of Singapore. This is the third year that we have held the symposium virtually due to the COVID-19 pandemic and we are certainly hopeful that we can all gather together again in person very soon. We have a strong program for you today with a diverse lineup of speakers and panelists who will address the theme of how digitalization and innovation are impacting central banks today. This will include discussions on the implications for monetary policy, the public sector’s role in promoting and harnessing innovation and the future of digital assets. The symposium will kick off with a fireside chat between President Daly and Managing Director Menon on innovation and central banking.

This fireside chat will be moderated by Celine Sia, the MAS’s Assistant Managing Director of Economics and Knowledge Management. As part of the chat, we will get an opportunity to hear from President Daly and MD Menon on global inflation and risk to growth and discuss what global central banks can do to support sustainable growth. And looking beyond the challenging macro backdrop, we have also witnessed how innovative technologies have brought about profound changes to the global economy and in particular the financial sector. What are the risks and opportunities for central banks in this new era of innovation and digitalization? President Daly and MD Menon will share with us some thoughts on this and how other drivers have changed the way central banks think and work.

The final panel discussion will be moderated by Tommaso Mancini-Griffoli, the IMF Division Chief at the Monetary and Capital Markets Department. This panel will bring together eminent regulators and market participants to share insights on the future of digital assets. As we know, 2022 has been a baptism of fire for the digital assets industry. The recent crypto market crash, coupled with the collapse of several crypto firms, has revealed vulnerabilities associated with business models and the underlying technologies. Notwithstanding these challenges, innovations in the digital asset space have continued to accelerate, unlocking new opportunities that could potentially transform the traditional financial industry. And this panel is aptly titled “Beyond the Hype and Crash: What Lies Ahead for Digital Assets?” And we look forward to hearing our distinguished panelists give their views on this issue from each of their unique vantage points.

Before concluding, I would like to convey my appreciation to the moderators and speakers for their time and support in contributing to this symposium as well as my colleagues in FRBSF and the MAS for organizing today’s event. Let me also thank you, all the participants who are dialed in, for joining us today at what I’m sure will be a stimulating and insightful symposium. It just leaves me to hand over the floor to my colleague, Celine, to kick off the fireside chat. Over to you, Celine.

Celine Sia:

Thank you, Gillian, and warm greetings to everyone in this symposium across time zones. It’s a great privilege to be moderating this fireside chat between President and CEO of the Federal Reserve Bank of San Francisco, Mary Daly, and the Managing Director of the Monetary Authority of Singapore, Ravi Menon. Thank you very much to both for joining us today. Last year’s “In Conversation” between our two distinguished speakers was very well received and today’s fireside chat is no doubt eagerly awaited as well. So let’s get started.

As someone who straddles two very different areas of work, monetary policy and enterprise-wide data management, I work with teams who face rapidly changing circumstances either in the macroeconomic environment or in the evolving innovation space, which is not just about big tech, big breakthroughs but also incremental improvements to our existing processes. Central banks have to respond and make choices amidst constant change. And these choices ultimately have a lasting impact on growth and the welfare of the people and institutions we serve.

In this fireside side chat, I would like to pose questions to President Daly and MD Ravi first on the current microeconomic environment before turning to seek your respective responses to the impact of innovation on the work of central banks. I will invite one speaker to start for each question, but the other speaker can freely jump in as they like. It’s a lot of ground to cover in one hour, but we will try our best. The first question is about the impact of the shocks we have faced in recent years from the pandemic to the war in Europe. What do you think is the impact on monetary policy and longer term growth? May I invite President Daly to share your thoughts first, please?

Mary Daly:

Of course. And thank you so much for having me. This is a terrific conversation. I look forward to it every year, so I appreciate that. So that’s a very important topic is how will the shocks that have hit our economies globally, the pandemic, the terrible war in Ukraine throughout affect monetary policy, but also longer term growth? And let me start with monetary policy and the important thing that’s going on right now, which is inflation is high in almost every country. And that’s really an outgrowth of the fact that we recovered demand more successfully after the pandemic first hit, then we have recovered supply. And so there tends to be this large supply and demand imbalance across the globe. And that demand and supply imbalance was worsened by the war in Ukraine, which further constrained energy and food supplies.

So inflation is high and that affects monetary policy directly because one of the goals that all central banks have is to keep inflation low and stable. And in the United States, we have to balance that off with our dual mandate with full employment and trying to navigate that to bring inflation down while we do so as gently as possible not to tip unnecessarily the economy into a downturn that actually influences the full employment part of our mandate is a struggle.

The important thing about all of this right now is that we’re doing this not alone in the United States, but of course globally. Every central bank is really having to raise interest rates, and we are looking at some of the same factors affecting all of our economies. It’s one of those times central banks make policies for their own country, but we always have to have a global mindset. And now, more than ever, has highlighted that what one country does affects the prosperity and the headwinds or the tailwinds of every country. Right now, all of us have pretty fierce headwinds blowing against us. These are things that are affecting our today, but I’m always mindful of how they affect our tomorrow. That’s why it’s so important to me, frankly, to navigate through this high inflation environment as carefully as we can so that we don’t leave longer term damage to our labor market or to our expectations, things that generations after us will pay the price for. That’s a lot of work, but we are resolute and committed to doing it.

Celine Sia:

Thank you, President Daly. MD, if I could ask you for your views too perhaps including what role central banks play in restoring growth to its long-term sustainable path?

Ravi Menon:

Thanks, Celine, and happy to be back for the San Francisco Fed MAS Symposium and a big hello to Mary. Great to see you again. Mary has covered the ground quite well in terms of the conjunctional challenges that we’re all facing: high inflation and declining growth. And it’s always a tough situation for central banks to be in. Engineering a soft landing is no mean feat and all of us are trying to bring inflation under control without excessive damage to the economy. The slowdown is inevitable, it’s necessary, it needs to relieve demand pressures. But we hope to do it in a way that is not too painful. We’ll see. We’ll see.

Since Mary has covered that ground quite well, I just want to touch on some of the medium term big issues relating to inflation that have been brought forward by this episode. I think we’ll get the current bout generally under control, but I’m more concerned about the medium term inflation outlook. It does look like it’s going to be higher than before.

The three big changes brought by the pandemic and the war: (one,) changes that are going on in the labor markets, which I think all of us are trying to better understand; two, supply chains, something is going on there which we need to get a better handle on; and three is energy security and what it means. Let me just quickly take each of these in turn, and it’s important for central banks to understand these things.

First, our labor market: there are some transformations in the labor market that may turn out to be long lasting. First is the transition to remote work and what it means. Both Mary and I are doing this from home so that itself tells us something. I guess for both of us, it’s more convenient to do this from home than from the office. Now this larger shift towards hybrid work arrangements in many ways have probably an efficiency and productivity enhancing, but it also has implications for location decisions and travel decisions. And these have implications also for productivity, for inflation and for growth. In a city state—it’s easier for Singapore—working from home in the office, you’re still contained within the city. But in larger economies like the US and UK, working from home may well mean working in the suburbs or in a different state. And that, I think, is one of the phenomenon that is playing out.

The second, there’s a shift in worker preferences away from what you might call contact intensive work, partly driven by the pandemic, but a general sense of vulnerability. And we are seeing, at least currently, labor shortages in so-called contact intensive sectors. Now, whether this is going to be extended, we don’t know, but it is leading to tight labor market and strong wage growth in these sectors. So, this is another medium term phenomenon we need to watch.

Of course, there’s a reduction in labor force participation. This used to be more pronounced in the US. There’s been some recovery. Though at the pre-retirement age, it seems that it is a little bit more structural. Again, too early to tell. And I’m sure people at the San Francisco Fed and elsewhere are studying these questions very deeply. But all of them have deep implications.

Now, monetary policy can’t do much about labor supply. We need to understand it very well, because it has got implications for productive capacity and for inflation. So, it’s not an appropriate response to long term supply site factors. But we need to understand these structural adjustments. And we need to work with our governments on appropriate and smart labor policies that can maximize the labor supply and optimize the labor supply.

Second, very quickly on supply chains. There is a tendency to put greater emphasis on resilience than on efficiency. And I think for very good reasons. Different countries and different companies and firms are doing it in different ways. Diversification is one. Nearshoring or friend-shoring or onshoring, these are other ways in which this is being pursued. There is a risk that some of this may generate excessive inefficiencies, fragmentation of the global economy, reducing the interdependence between countries, and also reducing cross border interactions. So, there are serious questions about what this means for technology transfer, for productivity and efficiency gains, and so on. But the reasons underlying these shifts are also very understandable. The pandemic and the war have made it quite apparent. How this plays out remains to be seen.

The third and last one, very quickly, energy security. So now, there is greater confluence between the objectives of tackling the climate crisis, enhancing energy security, and addressing inflation. They can be complimentary. In the short term, there are conflicts and tradeoffs. But in the longer term, addressing the climate challenge and enhancing energy security go in the same direction. Rather than depend on imported fossil fuels, we’re all better off from energy security and environmental sustainability point of view by switching to renewables in our own markets.

But in the short term, it is going to come with a cost. Phasing this in may have an impact on inflation, because at this point, clean energy is still more expensive than hydrocarbons in many parts of the world. The transition costs therefore could affect price stability. And we’ve seen some of this impact arising from the war in Ukraine, which has driven energy prices. Energy prices are now having a more pervasive effect across the economy compared to 20 years ago. And then a switch to clean energy will mean demand for a variety of components and minerals that are used in solar farms and wind farms, electric vehicles and so on, items like lithium, nickel, cobalt.

And so, there is also concern about “greenflation”, at least in the short to medium term. Though in the long term, technology should drive those costs down and supply should increase capacity. But it interplays with the earlier point I made about supply chains. Now, you have new supply chain configurations in the clean energy space that would also draw a lot of attention.

Central banks and monetary policy, we are not at the forefront of all these structural changes. But our role cannot be underestimated because amidst all this. We need to maintain price stability that gives confidence. It is a pillar of an efficient financial sector and of course also financial stability so that these necessary technological advancements and adjustments are not disrupted due to liquidity shocks.

I would just close off by saying that I know there’s a debate about how much central banks need to be involved in some of these broader areas. Speaking purely from the MAS perspective, two areas where we have leaned in. One is the promotion of digital technologies in the financial sector. It doesn’t necessarily draw from our role as a regulator, though it is related, but because we have a developmental mandate, digital technology is an area we have been pushing quite hard. We are also leaning in hard on supporting climate policy objectives. Again, not in a direct way but an indirect way. And I think the facilitative power and convening power of central banks and regulators of this regard can’t be underestimated. Yeah, I’ll stop here. Thanks, Celine.

Celine Sia:

Thank you, MD. President Daly, would you like to add to those really quite sticky issues that we now have to worry about?

Mary Daly:

Well, I think what I’ll do is—Ravi, that was really well said, all the details of that—I’ll just lift up to what does that mean when we look out on the landscape and how does it look different, the future landscape, than it did when we entered at the pandemic?

Prior to the pandemic, we were certain about these things. And certain is always a bad word to use in economics or anything dynamic like the economy. But we had a lot of certainty that globalization and supply chains and this drive to efficiency was undisruptable; that basically this was going to be present. We also believed strongly that we were going to have a low neutral rate of interest coming out of “this is going to be with us” and that this was going to really make it hard for central banks anywhere to get inflation up to target. And we had struggled for a decade in the United States to get inflation up to target. So we thought those were things that were happening. And then, we thought that the push to be more climate friendly with our energy policy was going to be at odds with everything else we were trying to do as nations. And so we would find that battle to be one fought only in that area.

And now we find ourselves in a completely different world just looking at those three things. Supply chains now are something where globalization, as you said, resiliency is the new efficiency. Really what we’re hearing is we want to have inventories that we can manage as opposed to inventories that are cheaply made far away from us. And I think that we will not likely settle out as global as we were in terms of those interconnections, but we’re probably not going to go back down to just my own country and everything else. That’s just not sustainable. So finding that right balance isn’t going to be easy and I don’t think it will evolve overnight.

The second thing is that it’s clear now that some of the factors that were pushing inflation down and even keeping the neutral rate of interest so low may be changing. And how exactly they’re changing and how large the magnitudes of the changes are, it’s yet to unfold. But Ravi, as you said, we have to be very mindful that we don’t have an environment where we can just depend on inflation coming back down and struggling to get up to target. We might very well come out of this episode with higher inflation and be in a world where we’re trying to balance inflation to the target from pulling it back down as much as we’re pushing it up. And I think that’s a real revelation that we have to take in. We have certainty of knowing something’s going to be different, we just don’t know what the certainty of the different will look like.

And then on the climate, I really like your comment about energy security climate initiatives. There’s a dovetailing of ideas, but there still is this fundamental fact. And the war in Ukraine and the rising energy prices are putting a lot of spotlight on that. There’s a short term issue and there’s a long term issue. In the long run, you don’t get many people who disagree we should move to renewables and be able to generate more of them without fossil fuels. In the short run, the transition costs are high. And we’re about to go into the European winter, and we’re going to see how hard those transition costs are. Because as much as they want to move to this more renewable state footprint, they are pressured by the fact that you have to be able to cook your food, heat your homes, run your factories, and energy supplies are constrained.

So the whole dynamic of how we as a society, a global society, take this on has fundamentally changed in the last couple of years. But we still have to plan effectively for the transition, because otherwise, the transition costs are far higher.

Celine Sia:

Thank you, President Daly. So we are in this high inflation environment right now and for various factors that both you and MD have mentioned. And we have been grappling about whether it’s supply side or demand side depending on whether monetary policy can address it and grappling with the issue. Could I ask how do you think monetary policy can best address this high inflation whether it is due to supply or demand side?

Mary Daly:

Who should start?

Celine Sia:

President Daly, if you could share your (thoughts).

Mary Daly:

Absolutely. Of course. So I think there’s a little difference in how much is supply and how much is demand by different countries. So let me speak specifically about the United States. This is a now well studied topic because we’ve had high inflation for over a year. And the consensus seems to people argue about is it a 10th here or a 10th there or a percent? But the consensus seems to be about 50% of the excess inflation comes from excess demand, and about 50% comes from excess supply. And there’s a variety of ways people have decided or tried to estimate that, but that really shapes up that way. Now in terms of what the monetary policy can do, well, our tools are designed exactly to bridle demand. So we raise the interest rate, which we have been doing, that pulls back the reigns on demand and brings demand more in line with the available supply.

The hope there is, and we’re seeing some signs of improvement, the hope there is that while we’re bringing demand back where it needs to be, that supply is also recovering. And while we don’t have direct levers to pull on supply, we’re already seeing some of the supply issues start to improve. Now the ones that are improving are the supply chain disruptions mostly caused by COVID. But we still will, Ravi, you mentioned this, I think is a really important one. The part of the supply that’s really hard to pinpoint how quickly it can recover is labor force, because we’re having supply shortages simply because we don’t have workers to staff the production. Now firms are entrepreneurial, they adjust, but it takes time. So their adjustments will be invest more in capital, automate, find other places where you can do the same work.

But that takes time. And so that supply chain recovery, that supply recovery, one of the mysteries I think for most economists and generally most producers is why didn’t they recover faster? And I think it comes back to some of these fundamental facts. And it’s not simply COVID. COVID absolutely was the first in deep shock, but subsequent to that, there was an adjustment in labor force, there was adjustment in where people get things made. And this is just a transition now that we have to work our way through. And so supply has been slower to recover means that more of the pressure on central banks to bring inflation down through demand and bringing demand—remember we have a tool that brings demand back in line with the existing supply. The hope, again, is that supply recovers to some extent while we’re doing this, and we get to meet in the middle. But that’s the remaining open question about do we meet in the middle or do we have to bridle demand a little bit more to meet the supply [inaudible]. Sorry, I muted myself accidentally by hitting the space bar. You’d think that I would have a learning by doing and that over time I would just get better at this. But I find that the same mistakes just creep up on me unexpectedly.

So I finish that thought by saying what I think about really a lot as a central banker, a policy maker, is that we need to bring demand down and we want it to meet in the middle, 50% supply, 50% demand. But that depends a lot on the supply chain’s recovery. And so while there’s hopeful signs, I’m always mindful that we might have to do a little more on demand, because supply chains are just sluggish. Our supply is sluggish to recover and that means that we still have to get inflation down, because as Ravi said, your price stability is fundamental for the financial system to work, but it’s also fundamental to how people live their lives.

I really have heard again and again when I’m out in my District and across the United States talking to businesses, communities, workers, that people want both jobs and price stability. It doesn’t serve you very well to have a job if your real wages fall every month, because inflation erodes them. So these are things that fundamentally go together and our job is to do as much as we can to generate them again.

Celine Sia:

Thank you, President Daly. MD, your thoughts too please on these issues that confront us.

Ravi Menon:

I think Mary has put it very well. I’m thinking what else is new that I can add. I’ll just say that I agree that the inflation has been the result of a combination of both supply and demand. I think that debate is passé. The exact combination varies from country to country.

I would say Singapore is a lot closer to the US that it is both supply and demand. We have a tight labor market, we’re facing some of the same issues that the US is. In the US, the labor supply has declined because of participation rates. In our case, supply has diminished because non-resident workers have left and not come back in full force yet.

The UK situation is similar to Singapore post-Brexit and pandemic. They lost a lot of their labor supply and that hasn’t come back. I think the UK is also closer to Singapore and the US, a combination of both. Continental Europe, I think, is more supply. They have access demand problem, no doubt. Not as acute as in the US and Singapore.

I think in much of emerging Asia, it is mostly supply. They have not been growing too fast. In fact, they have been slower to reopen their economies. So if you look at Asia, they’re not having excess demand on a big scale, but they are facing serious supply shots and it’s just filtering through.

The question that arises is that it would help if we took a risk management approach in seeing where the balance or forces is likely to be. And maybe it is time to revisit the old adage of looking through temporary supply side shocks. I’m trying to learn from the experience we’ve all had last year when many of us thought that these supply disruptions were temporary. And unfortunately, we use the word transitory inflation, but it turns out that supply side shocks can transmit into longer lasting effects. Again, goes back to a point I made earlier, we need to understand these supply factors and supply chain effects much more. I mean, the world has seen energy price hikes many times before, and central banks usually look through it. You don’t try to offset it, maybe you lean a little against it, and you watch for second round effects on general inflation, and you guard against that.

This time, it’s quite striking how much energy price increases and food price increases have permeated across the production network and across prices. So the structure of our economies are also changing. I suspect we are more energy intensive and electricity intensive in both manufacturing and services. And that may be one reason. So I think it’ll do well for central banks to focus on understanding the supply side capacity of the economy much better. The other point is that sometimes the distinction between supply and demand is a bit blurred, and supply side shocks may have demand side effects if they are asymmetric across sectors. So if you have a temporary increase in some imported input price for instance, it should be examined under the lens of whether it has an impact on demand.

And so, we do need to develop better granular sectoral expertise in terms of industrial linkages and horizontal enablers. This also means the way we build our models, the way we do our forecasting and so on would have to be upgraded to take into account some of the modern features of economies. Thanks.

Celine Sia:

Thank you, MD. So we clearly have our work cut out for us. So turning to MD, in your role as a central banker and leader of a large organization coming out of this pandemic and all these worries of changes in the environment that we are facing, what has changed about the way you work?

Ravi Menon:

Some of these changes were underway before the pandemic, and I think the pandemic has accentuated them and added urgency. And in my work, I’ve always felt there are three fundamental trends or drivers that we need to pay close attention to.

One is technology. It is changing the world in ways that are far more transformative than before. And the pandemic has just accentuated that.

Second is sustainability. Climate change is the biggest problem we’re facing. It’ll be the central preoccupation of most public officials and businesses in the years to come. It is already happening. Climate change is already happening, it’s going to get worse. And so sustainability is a key theme.

And three, people. I touched on this a little bit earlier about the labor supply situation. I think it reflects a deeper change in how people view work, especially a younger generation. And it’s something they’ve been cognizant of. And I think it is, again, post pandemic and with the war situation, something we need to pay close attention to.

Basically to treat people as in their own right rather than as a human resource or as an input into the production process. I think we all kind of subscribe to that as leaders, but I think it has become a lot more of obvious in the last few years. So technology, climate and people, I think, are the key factors.

And in MAS, even before the pandemic, we embarked on a multi year journey of transforming. Transforming the organization and transforming how we do our work, transforming our workplace, and transforming how we deal with the financial industry and broader stakeholders and the economy at large.

So we had this vision of creating, of being digital, of being agile and of being efficient. Digital meaning end-to-end digitalization of our processes and to think digital and to live digital. Agile, faster ways of working, which in most public sector organizations is more the, let’s say, the exception than the rule because we have lots of processes and governance mechanisms which are necessary, but we got to figure out ways to do this in a more agile fashion. The world is changing too fast for us not to be able to be nimble and then to be efficient. And here I think the focus is on working smart, not in the traditional sense of doing more with less, because doing more with less just means you spend more time at night working. I think we need to be smarter about the work we do.

And so these are some of the changes, some of the directions we’ve been pushing in to varying degrees of success I would say. And not forgetting that it’s not just about being digital, agile and efficient, but also driven by empathy and being centered on people. It goes back to my earlier point of the three medium term issues.

People are central. And so the organization has to live that centrality of people in everything it does. And the best way in which we can serve our stakeholders as well as our own people is to be driven by empathy, to put ourselves in their shoes to see how they feel about things.

In the business jargon, we call it customer centricity. Walk the customer journey, see how the customer views things from a consumption perspective, not from our perspective as a producer or provider of services. So, these are big changes. These are transformational changes. They’ll take years to bring everyone on board. And I think everyone is on board. I think to develop the instincts and skills and capabilities and organizational processes to do all this well, now that’s a bigger effort. But at least the first part, I think by and large we are there. People have bought into this vision, they think this is what’s necessary for the future and are doing that. And I just thought there are lots of examples I could give and maybe we’ll come back to it in the discussion, because I’ll also like to listen to what Mary thinks about this and what they’re doing at the Fed.

One of the focus we have is on data, to become a more data driven organization. Because even before you talk about being digital, doing artificial intelligence and all that—and, Celine, you know this well because you look after this area—knowledge management. And knowledge management in turn rests on data management, on how data is organized. It’s a very basic unglamorous thing, but it’s so essential to everything we do. And so in our prioritizations, we put that at the top: to build a data knowledge platform where people can search and obtain relevant data in as quick a manner as possible from multiple sources straight into their work benches and integrated into their workflows. And this is absolutely critical. And we need to do the same vis-à-vis the financial sector where we can’t wait for returns to come at the end of the month. We can’t wait for annual returns and surveys. We got to find ways in which data flows seamlessly. And the big tech companies do this very well and it’s time that regulators and the financial industry also get their act together. So much of what we do in RegTech and SupTech is to be real time and focused.

Finally, I want to end off with coming back to people. One of the things that I’ve realized during the pandemic is how stretched people can be. They’ve all risen to the occasion. They’ve all gone beyond the call of duty given the crisis, both a health crisis and an economic crisis. But this is not sustainable. You can’t be in a crisis mode all the time. And I think protecting personal time is an important thing that we have done, where we do not intrude into a person’s personal time after work. And we got to be careful about that because technology has a way of blurring those distinctions and making people feel enslaved to their emails and their computers 24/7. And we don’t want that.

People need to move away from those things. And so we have norms in place that you don’t have to respond if it’s after 6:00 PM. You don’t have to respond if it’s a weekend. Of course if it’s an emergency, we will tell you and then you have to respond. But otherwise, no. I think protecting time is important and reducing unnecessary work is important.

And I’ll end off by saying increasingly organizations need to pay attention to staff wellbeing. Wellbeing in an integrated holistic fashion, both physical wellbeing and mental wellbeing. Again, the pandemic, I think, has heightened some of these risks and problems that used to be beneath the surface and more people are coming forward with these issues. And I think organizations need to address them and leaders in organizations need to pay personal attention to wellbeing issues. And it, I think, ought to become one of the metrics by which the organization and its leadership judge themselves. I’ll stop here. Thanks, Celine.

Celine Sia:

Thank you, MD. Indeed these are some of the tensions that we face each day in trying to do the job well while not causing staff to be overwhelmed. President Daly, may we have your views on this too, please?

Mary Daly:

Sure. And since so much of what, Ravi, you went over the same kinds of things we’re focused on, I’ll try to be additive because this is a really robust… it’s a fruitful line of inquiry. We have a lot of things to offer.

But one thing I will remark on right out of the start is that what’s interesting because the pandemic has been something that we all globally experienced together. And I speak to many leaders in many different organizations all over the world. And what I’m finding are some of the same themes: that the epiphanies really that we all had were very similar. And they were these, if I can, they’re the same ones that I’m reflect on as a leader is that we know technology is transformative, but I don’t think we really realized what we were capable of until the pandemic hit. And we all went home within basically a week in the US, and we used our technology in a way that kept us connected.

And that was something that… The barrier was never technology. The barrier was our inertial practices that prevented us from thinking about how would you use that. And so the pandemic becomes a forcing function, if you will. It accelerates technology. And what I’d love to see us pull through is that innovative spirit to how can we use this to better ourselves without the, I think you said it well, the enslavement of technology that came from having both a crisis and technology available when many, many of us in central banks across the globe were up in the middle of the night to late to bed, early to rise, always on and every weekend was a blur because we had people working every day to try to do things that would support the economy.

So there is a way to pull through the dynamism of recognizing that some of the bridles on technology are our own inertial practices. Letting those roam free, thinking about how to do them well without taking on the enslavement that comes with it that we’re already in a crisis, because we can’t be in crisis mode all the time.

I think the other forcing function that this did is we had to realize because we were all home or because people were very ill and dying and we lost a lot of people globally, that in the end people are not just widgets or inputs that we put into a machine and we spin them out and that’s how we do our production. They’re actually individuals. They live in places like mine or places like yours and they work and they have families and they have babies and they have older parents and they have neighbors and they have their own needs.

And so just that experience, I think, has humanized our teams to all of us. And I hear it from leaders. We have to be more people focused because using them as if they’re just inputs in a chain, one, it’s not very productive in the end. But it’s also not very empathic. It’s not who we want to be as people. So there’s this way now which we can get out of the work-life trade off and start thinking that people are work-life integrated, because they’re individuals and we have to make sure they have time.

I had a phrase that I used a lot during the pandemic, and it was just one example of parenting is also essential work. And I think the idea that we allow people time to be parents, to be grandparents, to be daughters and sons or community members just themselves. Just getting breathing time. That’s a really important thing.

We are working hard on that in San Francisco about how do we learn from those things. Why are we continue to be productive individuals in our work that we’re doing because our work is so mission driven. One thing that I think is really important, and I don’t know the answer, but I have a certainty of purpose and an uncertainty of how we get there.

It’s one of those classic moments in central banking, but this is about people, is that I really like the flexibility that we all learned we could have. Here I am, I’m about to go on a trip so I can work at home today and you all are not evaluating what’s in my room. You’re still listening to what I say because we’ve been training ourselves to not worry about how your room looks. I mean the Zoom room, people do that, but we don’t do that. We just listen. So that’s a very good thing.

And this idea that we can work away from each other and still be productive together is a very good thing. I think it cuts down a lot of barriers. But there is an energy that forms when you’re in a room with people: the ideation, the innovation, the white boarding. And those things, I just don’t know that they’re completely replicable in a technology environment. So it’s about striking that balance between having the freedom to do these things from home, but also having the interest and the return of that investment of being with each other and finding spontaneously something together you would not have found if you were on a Zoom scheduled meeting, because you would never have even conversed about it. You would get your business done and move on. So those are things that I’m really focused on because the long term growth of our economy depends on how people think about work, but it also depends on the generation of new ideas.

And the two things I hope we take from the pandemic is that the idea space is big, and sometimes we’re bridled by our own inertial practices. But the idea space is also really generated by the coordination and collaboration of humans. And we do it together, we do it better typically. We have better ideas. So finding that balance. And I think that’s true not just in our own workplaces where we’re out in hybrid mode. So we ask people to come in two to three days a week and we’re winging up to two. If we get to two and a half, I’ll be throwing a party, I’ll announce it, you all can look at it. It’s something that I find with purposeful presence. We’re trying to create purposeful presence. Why should you come in? Not to be on Zoom, but to be together thinking, ideating, learning, mentoring, growing. And that’s important.

The final thought I’ll leave you with is that ultimately I think some of these messages are really important as we think through the longer run. So, Ravi, you mentioned sustainability, which I completely agree with. We have a critical need to think about how we organize our energy production so that we can absolutely have renewables and not harm the climate and find ourselves in now a worse situation. We have the technologies and people to think about it, and I think now we have the will to do it. So that’s a good outcome, but we have to be focused on it. The thing that’s really important that’s also longer term and sometimes gets lost in our discussions about, oh, how do we figure out how to do hybrid? How do we figure out how to harness all this technology? And that is ultimately we’re lifting several next generations to be the people sitting here in these rooms right now.

And to do that, I was reminding my own team when we were younger, when I was younger, some of my best learning came from sitting next to somebody. Sometimes it was on a plane traveling with somebody and I was the deputy on the trip or something and I just watched how the person interacted. I worked for Janet Yellen when she was president. And so how does she manage herself? How does she respond to questions? How does she do things? How is she in the world? And how does she run meetings? And just that day to day contact with people actually taught me a lot about how I lead and what I think about and how I look forward. And so I want to make sure that we’re being attentive to giving that to our younger generations who are just coming into the ranks, because I think it might be challenging for them.

You come out in a pandemic and you see people a lot less and you don’t get all that jump starting that I know I was a beneficiary of when I started my work career. And so I just want to be mindful of that as we go forward and pull that through. And that’s another piece of the puzzle we’re focused on in San Francisco.

So to end the whole thing in a summary—Ravi, what I find so interesting is we’ve been separated for two years, I guess the third year, with a pandemic. And I left our event in Singapore that year prior to the pandemic thinking, “Wow, MAS in San Francisco Fed are doing so many things that are nearly identical. We’re just doing the same things.” And three years later separated by all this time from the health, we’re still doing the same things. We’re talking about technology, agility, people, putting those things first, looking at the short term crisis we find ourselves in our short term work we find ourselves in but looking forward. And I just think that’s another indication that we’re humans, we’re working on the same tough problems and we do it together, we’ll do it better.

Celine Sia:

Indeed. Thank you, President Daly.

Ravi Menon:

Maybe a quick point, Celine. I just thoroughly enjoyed listening to Mary, and how similar our challenges and our instincts are separated by an ocean that is one third of the Earth’s surface. Just two points. One, fully agree, Mary. We know we’ve learned now to, during these Zoom meetings, listen to the person rather than look at what’s in the room. Though I should add, most of us would’ve noticed the boxing gloves hanging in Mary’s room. That can’t be avoided. The other point is I think both of us mentioned sustainability and I just wanted to step back. And as I reflect looking back over the decades given where I am at my stage in my career, the critical importance of sustainability in its broader sense. Everything we do as central banks and as regulators, and I would say also what good governments should be doing is to think about sustainability.

The macro economy is about sustainability. You grow too fast if demand is too high relative to your supply capacity, you get inflation and you get instability and you get erosion of people’s purchasing power and their prosperity and living standards. And it’s a very vital thing. And it’s great to be part of that mission to ensure macroeconomic sustainability. It’s something that central banks are focused on. The popular commentary will criticize us because why are you slowing down the economy? Why are you slowing. But if you’re growing too fast, you have no choice. You have to slow down so that you can have more sustainability over the medium term. It’s a very important orientation.

The same applies to the planet. We use resources in a way that is not sustainable today and we need to find either more efficient ways of doing things or reducing some of our demand for a more sustainable planet. And energy is critical to this. And the way we’ve been using hydrocarbons because it’s cheap and plentiful is just not sustainable. And we’re paying the price today in climate change and we need to reverse that by moving towards renewables. So that, again, is sustainability.

And the last element in sustainability is people. I think both of us have said, I think many of us, if required by circumstance, by our country, we will put in an all-nighter, maybe two. You can’t keep doing that week after week. And I think it is important that we take our people as people in and of themselves. And there is, again, I think when people have time to rest, recharge and do other things, they do become more creative. When you’re rushing every day, you are not innovative. You are just doing the drudgery of work. You do need to take your mind off in order to be more creative, more vibrant, more innovative and to think longer term as to what’s lying ahead. You can’t do that when your day is overcrowded. So, again, it’s sustainability. It was striking and it came to me while I was listening to Mary, and I thought it’s something that we as leaders should pay close attention to. Thanks.

Mary Daly:

I really like that, Ravi. Yeah, that’s really good. Sorry Celine.

Celine Sia:

Okay. Please continue.

Mary Daly:

No, no. I just wanted to say I really liked Ravi’s point. That was really terrific. But now back to you.

Celine Sia:

Thank you. Yes, I was just going to say that it really resonates everything that both of you have said. And it is indeed about how even in the midst of really intense situations, we still have to keep ourselves in a sustainable state. Whether it’s personally, globally or in the organization. In the interest of time, we have about 10 minutes left. If I can quickly turn to the topic of key risks and opportunities for central bankers in this area of rapid digitalization. MD, could we invite you to answer this question first, please.

Ravi Menon:

Thanks, Celine. So maybe I was thinking of covering a few things, but in the interest of time, maybe I’ll just cover one aspect of digitalization. It’s actually not central to digitalization, which I think is a broader process, is the whole crypto phenomenon. And maybe it’s fresh in my mind because we just had a panel discussion organized by the Banque de France. There is tremendous potential in this phenomenon. And it can be truly transformative in increasing economic efficiency, in improving financial inclusion, and unlocking economic value. And by this I mean the broader digital asset ecosystem.

This whole concept of taking any asset, tokenizing it in a form where the legal ownership rights over that asset is represented as a token in digital form and putting it on a distributed ledger allows it to be programmable, allows it to be seamlessly traded and exchanged and a ledger is kept that’s immutable. That basic concept I think is hugely powerful. Maybe potentially as powerful as the internet. I don’t know. Even if it is not, I think it has tremendous use cases that can add up to quite a lot. Now that basic phenomenon and ecosystem is worth building up. And I think in both Singapore and San Francisco, they’re vibrant. And I think both our regulatory approaches are facilitative and I think that is a great thing that we have going.

At the same time, this ecosystem or elements of this ecosystem, I think, pose us quite tremendous risks. Again, something that this—I’m sure the San Francisco Fed and definitely the MAS, I can speak for MAS, are very concerned about—we need to address this conundrum and this dilemma. How do you harness these benefits while addressing the risks? And the risks are real.

Unfortunately, one part of that digital asset ecosystem, which is manifested at so-called crypto assets or cryptocurrencies, have taken off life of their own outside of the blockchain. They have become instruments of speculation in and of themselves. And I do worry about retail investors getting hurt, and all over the world they are getting hurt. I know they’re enjoying good gains for some of them if they bought it at low prices. But if you look at what’s happening and what can possibly happen, I think with further tightening of monetary policies across the world and higher interest rates, there’s going to be a move away from these risk assets. And I do worry about the people who have invested in them. It is really harmful. And we’ve got to find a way to keep people out of harm’s way with respect to these investments in cryptocurrencies.

The other one of course is money laundering risks and so on, which I think generally we are addressing reasonably well. They have not become a major source of illicit finance risk or sanctions evasion for that matter. But it bears very close watching and you can’t let up on this. And financial stability risks at this point are small, but as the interlinkages between traditional finance and the crypto ecosystem grows, you do get all kinds of contagion possibilities that we need to be watchful of.

So you have a whole range of risks that we need to watch. Not to mention cyber and technology risks in this space. At the same time, I know some countries have banned them, and we’ve done very hard on them. I do think that’s not the right approach, because I think you are forfeiting the possibility of huge potential benefits for society and for economies. And so this is a very tricky balance.

Of all the digitalization conundrums, I think navigating the crypto space is probably the biggest challenge for many regulators and central banks today. Finding that right balance not to undermine innovation, but unfortunately it’s in the nature of innovation that a good part of it goes into, let’s say, socially unpurposeful ways and in some ways socially harmful ways. And you got to be quite careful in how you manage it. I think that that’s one point I’d like to raise. Thanks.

Celine Sia:

Thank you, MD. President Daly, in San Francisco, you have a front row seat to some of these developments in digitalization. Would you like to add to what MD has shared?

Mary Daly:

Sure. So in the interest of time, I’ll just try to [inaudible]—Ravi laid it out; you laid it out very well. Let me talk about, I think, one of the areas or points of confusion really in this space, and you mentioned it a little bit, is that there’s a growing confusion among retail investors in particular, but I’d say sometimes broader than that, between the technology and what the technology can do and the naming conventions and the product lines that are being sold.

I know this because we have someone coming over to do some things around our house, and she asks me, “One of my clients wants to pay me in Bitcoin. And he said it’s a coin, so it’s going to be okay. It’s just like a currency.” And I said, “Okay. No, it’s not… Just because coin’s in the name and stablecoins, are the really big culprits, right? You say stablecoin and people think, ‘Oh, dollar for dollar exchange.’ Oh, until they’re run on and then they’re not the dollar for dollar exchange.”

So I think what’s what has happened is that all the innovation coming out of this is fantastic. And the regulation’s catching up. But the awareness of the public about even how to sort these things. Many people, many, many people I talk to don’t know the difference in Bitcoin, stablecoin, and a digital currency, or certainly not a real time growth settlement system. And so then you start pulling this apart and you realize that the retail investors, the retail players are extraordinarily vulnerable. And that’s where we have to, I think, really amplify what we’re trying to protect in a way. I think we’re more further along on money laundering and other things because we’re very good at this in other spaces. We can borrow from those learnings.

But we’re not that great at protecting retail investors from putting their money in a bank because we have already gone through that crisis many years ago and know about insurance and safety and soundness. So I think that’s an emerging risk that really we have to pay attention to.

The other thing is always this way—and, Ravi, you put it well. I just want to highlight it or amplify it—that financial systems, economies need innovation. We don’t even know what digitization is really capable of. I think of it as someone… One of my colleagues describes a digital currency what are the purposes of it? What are the use cases? And he says, “Well, when we got the iPhone, we thought it was only going to make calls. And today, it’s so much more.” It’s because when you build something, then people find ways to utilize it.

And I think that’s a space we want and we know the risks we need to help manage. But we have to be mindful of this for a long time, because risks will emerge that aren’t even clear to us. And we want ultimately this to be a helper for us, not a way for things to go to becoming unstable either in the financial system, to harm people and leave a lasting impact, or to disrupt so that inequalities or other things form between those who are knowledgeable and those who are not. And all of those are big open topics. But the worst way to do this, and I completely share your view, Ravi, is not to beat back on people and say, “You can’t innovate”, because the innovators are like water. They’ll see bend. You’ll plug up one crack, they’ll see bend because that’s their nature is to innovate. And entrepreneurs, the same way.

So instead of just saying “No, the Luddites tried that back in the 1800s,” instead of saying no, we should say, “Okay, welcome. Let’s think about this. Let’s put this together so there’s a nice, strong regulatory and supervisory environment for it and we do it in a healthy and sustainable way.” Back to sustainability. So I think that’s where the countries are now forming. I know, Ravi, you were on this panel with Chair Powell and Christine Lagarde and Chair Powell said these are important things we have to do and we’re not ready to do everything yet. And I think that’s exactly right. I’ll just amplify that message.

Celine Sia:

Thank you, President Daly. I think we can extend that question and the topic a little from protection of the consumer to perhaps about how digitalization can be harnessed by central banks to reduce barriers to economic inclusion. We can also extend the time a little bit because this conversation is so engaging. So we are good for time if I may.

Mary Daly:

I just don’t want to miss my flight or anything.

Celine Sia:

President Daly, would you like to elaborate on how economic inclusion can be enhanced through digitalization?

Mary Daly:

Sure. I’m just going to use these phrases with intention and thoughtfulness because digitization has a lot of… I mean, think of how wireless helped people who could never get lines to their places because it was too expensive to put them in poor communities, and emerging nations really faced this. That’s the same type of thing that can happen. You don’t have to go to a bank where there’s either stigma, fear, structural barriers, et cetera. You could use the idea that you can transact without going to a place as a benefit. You can use your phone to get… Ravi, when I was there, you were showing me how you can use your phone to pay your son 50 cents or something. It was really quite nice. You can do these things, but you can’t just think that they’re going to form without some intentional work.

And I’ll give you this example. FinTechs are often… They’ll come and they’ll say, they’re really fun people to talk to, but they’re not… they’re business people. So you can’t become confused if you’re in a government or a regulatory environment or supervisory environment that they’re all about making access for poor individuals their number one priority, because they’re trying to run a business. And so they’re telling you what the use case is that could help those individuals, low and moderate income communities, people who are underserved in the financial system. But that’s not their leading goal in most cases. And so then we have to be intentional about, “Okay, you’re going to be doing these things. Tell us how you’re going to accomplish these other goals that we have as banks to accomplish in the United States?” And so I think that’s the real role that we can play as regulators and supervisors.

The Board of Governors makes policy, I supervise that policy or we supervise those policies, but that’s where we’re really leading in. We have people in our supervision group, in our community development group thinking about what do these borrowers need, whether they’re small businesses, individuals, and how can we help them connect to the rails. And then how can we communicate that back to these developing FinTechs and other groups so that they know what the value proposition is.

But I really do think that this could be helpful in the end because it has a way to lower… It’s basically a lowering the cost. Lowering cost reduces barriers, makes it easily accessible to people, puts it on devices that they’re really used to, and allows them to build and save in the same ways that so many others have access to. But ultimately, it won’t be done just by sitting back and letting it happen. I think we have to play a grounding role in talking about where the issues are, where some innovations would really improve them, and then hold these emerging companies accountable for participating in the same way that we historically have held other financial institutions that have been longstanding.

Celine Sia:

Thank you, President Daly. In the last few minutes, MD, may I invite you to add to these thoughts?

Ravi Menon:

Let me just say that I think the way central banks can contribute to economic inclusion is through facilitation. It’s a bit different from our direct roles in monetary policy or financial regulation. I think there are two ways in which MAS is very involved in.

One is payments. Payments is like a gateway into financial inclusion and economic inclusion. If you can receive and pay money in a digital way, it is potentially very liberalizing and democratizing because it gives you access to the economy in ways that you did not have before. And which is why we are pushing very hard on payments connectivity, which we’ve achieved by and large within Singapore. And you make it costless. It has to be costless, it has to be seamless, it has to be absolutely secure.

The next challenge is cross-border. Many small and medium enterprises and individuals and migrant workers, the people who are not at the center of financial inclusion and economic inclusion, they transact across borders. And they face paradoxically higher cost and greater inconvenience than those who are better off, who have very good banking services, or the larger firms who have all kinds of very favorable arrangements with their finances. We need to solve this. And I think the Bank for International Settlements Innovation Hub is focused on this. And the language we use is for central banks, this is a global public good.

Payments is central to central banks and the commercial banking system. And we’ve not done a good job. We’re still in the stone age of payments. It has hardly moved until about ten or five years ago. And we need to catch up given where the internet has gone, given where telecommunications has gone. I think payments, cross border payments, are still too painful a process. So that’s one way in which we can promote inclusion.

The other one I mentioned earlier on is digital assets. And in particular, the concept of tokenization. If you can tokenize your assets, especially intangible assets, and assets that traditionally today you cannot monetize and you cannot use as collateral and you cannot trade, I think that is hugely liberating. And here I’m talking about the assets, intangible assets of smaller and medium enterprises of farmers, resources, and livestock. Lots of such examples. And Mary gave the example of when FinTechs come and make a case for inclusion, they’re also out to make money. So I know there are some of them who do these good things, using tokenization to expand financial inclusion, but many of them don’t. They talk, but they don’t do.

I remember asking one of the FinTech applicants for a license from the MAS, “Can you tokenize the accounts receivable of a small and medium enterprise so that he can actually use that as collateral? He can use that to facilitate his business.” He said, “Yeah.” Then I said, “Are you doing it?” “Not quite.” What are you doing mostly?” “I run a crypto exchange where people can trade and buy cryptocurrencies.”

Now this goes back to the potential is huge from tokenization, but it requires a bit of hard work. It’s not going to pay off in a big way, in the short term at least. But if we can promote those kinds of activities, I think that is going to advance inclusion a lot more than traditional finance can. So I am a fan of these alternative methods.

And in terms of disbursement of loans, for instance, I’ve often said it’s easier to borrow a million dollars from a bank. It’s extremely difficult to borrow a hundred dollars from a bank. And many mom and pop shops, small and medium enterprises who face day-to-day shortages, cash flow issues, they just need a thousand dollars to tie it over. You can’t get that from a bank unless you do a personal overdraft, which comes with big risk. But these FinTech types of banks who use large amounts of data and so on, they are able to. And in China, we hear stories with so far at least very low non-performing loans—able to approve a loan for $100 or $500 overnight. And then just last week I met a banker, this is a global bank, able to give a mortgage loan in five minutes.

So I think these are the kinds of technologies, using data and analytics and very quick agile systems that have huge potential for financial inclusion with manageable and low risk. And if we can achieve that, that’ll be great. And I think that’s why we want to promote activities and innovations in this space that is outside of traditional channels, but we have to manage those risks very, very carefully. Thanks.

Celine Sia:

Thank you, MD. We have unfortunately run out of time for this very engaging conversation. It just leads me to thank President Daly and MD Ravi for spending your time with us in the midst of a very intense time for central bankers as we have heard in the past hour. I’m sure I speak for all the audience when I say it’s been an enriching hour for all of us. Thank you so much.

Mary Daly:

Thank you very much. And nice to see you, Ravi. It’s been a pleasure.

Ravi Menon:

Likewise. Good to see you again, Mary, and hope to see you next year in person.

Mary Daly:

Exactly. Okay.

Ravi Menon:

Thank you. Bye-bye.

Celine Sia:

Thank you.

Mary Daly:


Celine Sia:

Have a good day.

Panel and Closing Remarks from the 15th Asia Symposium held virtually on September 27th, 2022 (video, 1:10:08 hours).


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Tommaso Mancini:

All right, welcome back, after this inspiring fireside chat. I’m Tommaso Mancini from the IMF and it’s my great pleasure to moderate this next panel on “Beyond the Hype and Crash: What Lies Ahead for Digital Assets.” And I have a wonderful team here with me to discuss this topic. I’ll introduce you now to Sunayna Tuteja, who is Systems’ Chief Innovation Officer at the Federal Reserve System. Sheila Warren, who is CEO at Crypto Council for Innovation. My friend Sopnendu Mohanty who is Chief FinTech Officer at the Monetary Authority of Singapore. I’m always very jealous of that title. FinTech chief, FinTech officer. And Kwee Juan Han, Managing Director and Group Head of Strategy and Planning at DBS. Very warm welcome to all of you. Panels don’t get a lot better than this.

We did hear from the fireside chat that it’s unfortunate that we’re not all together. Yes, it’s true that the energy level is perhaps not quite the same when you’re not in person. I don’t completely agree. I’m very excited to be here and to hear from the panelists.

So to get us going, I would turn first to Kwee Juan and I’d like to ask some questions about what is really going on; what are the building blocks of what we’re seeing; and then we’ll go to other speakers and then we’ll hit another topic which is the role of the private sector. Having spoken of that, obviously the next topic will be the role of the public sector, and we will end with a brief discussion of regulation, and if we have time we’ll get into cross border pins.

So to kick it off, Kwee Juan, can you tell us a little bit about what is particular about blockchain and what is programmability of smart contracts? We hear that all the time. Can you give us a concrete example of how that might be deployed in finance?

Kwee Juan:

Right. Good morning everybody and thank you Tommaso. Great to see everybody on the panel. I think in the earlier session, MD Ravi did touch a little bit about crypto. I think I just broadened it out into the whole Web3 movement. I think the whole Web3 movement is the way we would see it is. It is about decentralization and democratization of data, economic benefits, and as well as economic rights. And all this is actually powered by automation. At the heart and core of this whole blockchain or DLT revolution is that it is a software revolution where the blockchains inherent properties together with smart contract, organizations or tokens. And as well as non-custodial wallets actually provides quite a revolutional leeway of providing instant value transfer, verifiable scarcity of the tokens, and as well as a clear identification of user ownership. I just want to touch a little bit about smart contract and what it is. I think smart contract as you would look at it or how you would look at a smart contract is it allows for conditions to be actually written into it as programmable codes.

And once these conditions are met, then the smart contracts were mainly allowed for transactions to take place. And you have a whole bunch of people who validate that information and the record becomes immutable on the blockchain. So it’s interesting that Tommaso, you mentioned a little bit about cross border payment and actually I’m going to use a cross border payment example, when we talk about programmability. And I’ll take the example of the joint venture that we started with JP Morgan and as well as with Temasek, where we create a company, technology company called Partior that essentially looks to provide the underlying technology to base on blockchain to enable instantaneous cross border settlement.

So how does it all work? So it is actually last year working on the back of a smart contract orchestration. So as we all know today, when you make cross-border payment, it involves four parties, which is the remitting bank, the corresponding bank of the remitting bank, the corresponding bank of the receiving bank, and the receiving bank.

And in today’s environment, in order for a transaction to take place, everyone one of them needs to check on that particular transaction for AML, for sanctions, so on and so forth. But they are done sequentially. So in the case of a blockchain based solution using smart contract, the smart contract will be programmed with logic that will prompt the banks involved in the transactions to come in and complete these pre-checks simultaneously. And once the checks are done and all of them says it is okay to go, transaction takes place, value transfer happens.

If one of them says nope, doesn’t meet the requirement that I have, then the transaction falls away. So that allows for a very fast orchestration of a transaction without having to wait sequentially as what we will see today where we just hop from one to another while we are waiting. And if there’s a problem then you get a whole dispute management process kicking in, reversing of transaction and the cost that incur both ways.

And I think that is how through blockchain the smart contract technology can really cut down the costs of processing and just have it done pre evaluated and checked upfront. So I’ll pause there, Tommaso.

Tommaso Mancini:

Thank you very much. That gives us a much more concrete image of what these smart contracts, what programmability is really about. And that’s a very good segue actually to a question that I wanted to ask Sopnendu, following MD Menon’s emphasis on tokenized assets. Sopnendu, can you help us unpack that? What are tokenized assets and will they really be transferred at much lower cost relative to today’s world? And will all assets become tokenized or only those that are difficult to transport like gold, or difficult to fractionalize like bonds or difficult to trade, illiquid currencies for instance. So give us a sense of what will become tokenized and the real advantages to this.

Sopnendu Mohanty:

Thank you, Tommaso, and good morning and good evening. So I think that Kwee Juan kind of answered part of the question, but let me do it in my way. This is nothing but a piece of software and that software program defines an ownership rights on a particular asset under which underlying asset. And that is a token and the token is called tokenized asset because that represents the ownership right over that particular asset it represents. So that’s essentially a tokenized asset means, but let me expand that into two buckets so it’s clear what we’re talking here.

There’s a bucket of tokenized assets which we call as non-fungible assets because they’re directly linked, the contract ownership is directly linked with the underlying asset. So they have asset ownership over gold or equity or bond, real estate and they are not fungible, and those tokens are direct representation of the asset which it is programmed for.

And there’s a second bucket of asset which you call as a fungible assets, non-fungible tokens. And this represent the currency which will be used to trade this assets. And in that bucket there are four key categories. First one, popularly known as private cryptocurrencies. They are a form of fungible asset which represents money and they can be used to trade the stock in the non-fungible side. The other three in that same bucket, which is a stablecoin, a central bank issued digital currency, or a bank-backed deposit, tokenized deposit. So we have the new three form of fungible asset which has come in play after the whole creation of the private currencies. And they represent the second bucket called fungible tokens because they can be fungible across multiple asset like cash.

Now the second part of the question is will this help to remove some of the friction or of transferring this asset, remove the cost of trading this asset over the network? And to answer that question, there are two parts. First thing, you can take this tokenized asset and still run it on a centralized structure as it stands today, but that’s not what changed much in terms of making the trade simpler or cost of the trade lower. What you need to do is to think about a decentralized structure where you can remove all the existing intermediaries which governs this trading of this asset. And that can be only done in a decentralized construct which involves three pieces of technology. You need a ledger, you need a protocol, and you need a smart contract. And Kwee Juan explained the whole construct on smart contract. When you get this three set of program, a three set of technology, it allows the trading of these assets in a much more atomic way. It is instant, it is simpler, it is cheaper. Of course, it’s more complex from a technology standpoint, from a business point of view is much more simpler.

Now to do that trading you need a new form of money, and that new form of money is what you call as the fungible asset or the currencies or the digital currencies. That’s the reason why in the future world of where 3.0, when hypothetically all of us are going to trade on a decentralized structure, you need that new form of money, and it can be very well somewhere between a stablecoin or a central bank issued currency or a bank-backed, deposit-backed issue of digital currency. And when you bring this two into play on this decentralized network, you achieve that efficiency you just asked for.

Tommaso Mancini:

Excellent, thank you very much. So of course this will work as long as these forms of money are stable relative to their denomination. But Sopnendu, can you just very, very briefly for our audience explain what is decentralized versus centralized? Are we just talking about a world without intermediaries?

Sopnendu Mohanty:

Yes. Assume a decentralized construct, two parties can trade a particular asset in an instant way. In fact, the way I would normally explain that, when you trade in a decentralized world, two things become a single transaction. Today, when I buy an asset and I pay for the asset, that is two different transactions and they happen in two different times, that’s the reason you have T+3, T+2 for every asset you change ownership. Now in this new world of decentralized construct, you can actually have a single transaction which will do a transfer of ownership and also transfer value. And that all happens at an automatic construct where between two endpoint, where two nodes operating and there are two parties in this two different node and able to exchange this asset.

That’s essentially the decentralized design as against when you transfer the asset, there are a bunch of people in between institution, in between who has to do a lot of processing so that the asset gets to the right owner and also the whole payment process goes through a series of institutions before it reaches the right person in terms of the beneficiary of the transaction. So in a decentralized world, it becomes instant, atomic and it is settled at the point of transaction.

Tommaso Mancini:

Very good, thank you very much for that. That’s extremely clear and very compelling. But let’s ask Sheila if she really agrees. This sounds great, but is this hype? Sheila, I mean companies products come and go but do you think blockchain and digital assets are here to stay and will they really have long-standing impacts?

Sheila Warren:

Tommaso, I’m going to over-lawyer this a bit because there’s so much wrapped up in your question. I think first of all, I think we need to think about the staying power. And so I think it’s just fair to say that the fossil record indicates Bitcoin’s been around 13 years. Ethereum, we’re talking 2015 going on seven years. CBDC’s have been experimented with for quite some time and we’re seeing differential traction depending on where you are in the world. So I think it’s very safe to say based on what we’ve seen that yes I do think the digital assets are going to stick around. Whether they have impact I think is a separate question. And the answer to that depends on your point of view. Now I personally feel that these assets are already having impact in certain, admittedly relatively, not necessarily at scale, but they’re having meaningful impact in a variety of different contexts.

Now primarily still we’re seeing in hyperinflation area, authoritarian environments, we’re seeing a lot of desire for this kind of currency that is not necessarily tied to a particular centralized actor. Is that going to scale? I think that’s a function of a number of things. It’s a function of what is actually being built. And to your point, companies protocols I do think are going to come and go and it’s going to be a question of are they meeting actual user need, actual market demand as that is created, or is the market demand going to be driven more by this speculative opportunity, which has happened. I think I personally, I’m not always sad when things in the market tend to turn a bit, I feel horrible for people who lose money, but I also think it’s a time for the industry to take stock and to kind of close down and focus with laser focus and precision on what is it we are building and what is actually useful, because that is ultimately what is going to have the impact. So I think we have to kind of tease that a part of it.

And then separately, I think that we tend to focus particularly in context like this and even in the regulatory environment on financial services. And we look at the asset and we look at the opportunities there. However, there is a lot of opportunity in the data space in the what is called Web3, this idea of moving to a more decentralized internet and what that might generate. There may be aspects of that that have liquidity, that parallels financial kinds of opportunities. There may be some that is less about that and is really more about infrastructure. And I do think that our focus on the original use case—which is kind of the Bitcoin use case or even payments or cross-border remittances, anything like that—doesn’t actually look holistically at what else does technology can do and is really starting to do in other environments.

So my answer to the, “will the blockchain digital assets stick around” is a very unequivocal yes because I think we’re seeing that. Whether it has impact, I think I believe it is already having very meaningful impact. Whether that impact moves out of environments that are sort ideal for this kind of opportunity into environments where maybe there’s a little bit more fitness or purpose that has to be adjusted, is a matter of time and remains to be seen what will happen there. But I’m certainly optimistic that’s the direction of travel.

Tommaso Mancini:

Interesting. And in fact, I mean you said many things that are very interesting in your answer. One of them is to suggest that actually this recent crash in the stablecoin world is probably a good thing. You’re saying investors paid more attention, are starting to differentiate better between the business models that work and those that don’t. This is probably good for the industry. Has this injected a new sense of energy, of optimism in those that have stayed, that have survived?

Sheila Warren:

Oh this certainly isn’t the first kind of bear market that we’ve seen. So I personally have lived through two, this is the second one and it’s really kind of the third, if you look at the evolution of this particular innovation. I wouldn’t say that there’s optimism. Again, I think we should take note that real people lost real money in some cases and that is obviously never something to celebrate. Nevertheless, I do think a lot of scammers frankly left. I think a lot of tourists left. A lot of people who weren’t in this to build something exciting aren’t really around anymore. Because I think when you think about decentralized systems, building something like that and all the headwinds you’re going to have because of the way that our society has predicated and assumed a centralized actor takes a lot of stamina, takes a lot of stamina.

And so people that have stuck through this I think are truly interested in the opportunity beyond just the chance to strike it rich or gold rush kind of mentality. And I find that very healthy for any ecosystem. I find it healthy when those who are sticking around are aware of the challenge and have basically decided to put their shoulder to the grindstone as we say and really try to get the work done. So from that standpoint I do think that this is a net positive. On the other hand, I don’t know that the feeling is one of joy and cheer and optimism because this has hurt some people as well, which is always something to keep in mind.

Tommaso Mancini:

Yeah, thanks very much. And you know, you were starting to look ahead and President Daly earlier was speaking about the iPhone and said, well when the iPhone came out we all kind of thought, pretty good phone, we can make phone calls with this, but none of us really had a clear vision of exactly all the additional services that we could be provided on the iPhone. But we had a sense that there was a revolution that was about to begin, that the impact would be profound. So let’s turn to Sunayna and ask you Sunayna a little bit about the impact on financial institutions. Are we going to see the same services by the same firms at lower cost because of these new technology or are we really going to see a revolution, a change in the structure of the industry, new players, new ways of doing things all together? Do you have a sense?

Sunayna Tuteja:

Thank you Tommaso. I think my fellow panelists did a good job of illustrating some of those pragmatic and impactful use cases as they were talking about the potential of this technology and its ability to make a meaningful dent. However, will that value manifest? I think that’s a big TBD and that’s okay, right? I think if you look at where we are in the escrow of this new technology, to piggyback on your iPhone example, if you had told any of us in the late nineties that one day we would be carrying around a rectangular piece of glass which will rule our life and have more computing power than the first space shuttle we sent out. And you’d be FaceTiming with your mom who’s 4,000 miles away and can still find a way to dunk on you or you’re sharing pictures, you’re banking, you’re trading and all kinds of things that we do on the iPhone. I think that the least used app on our phones is likely the phone app these days, you would’ve been like, Tommaso, what are you talking about? My dial-up can’t even stay on for 10 minutes. All of this stuff seems unfathomable.

So I apply that mental model to where we are with this technology and would submit that we will likely see the spectrum of use cases that range from incremental innovation to kind of the exponential innovation. Now how they will play out, a lot of that we’re seeing. People are trying a variety of things, some are working, some are not.

And I want to double click on what Sheila said. This is probably the first crypto winter in the last decade or so where I’m purely an observer given my new role at the central bank, and it is bringing a whole different perspective to me. And I would attest that if you think about some of the most important building that got done with this technology over the last decade, it was actually mostly in the depths of despair when all the charlatans went away, the tourists went away, and the true builders stuck around to do the hard work, to do the unsexy work, which then helped become the tailwind for kind of the next cycle.

And I think some of the hype is okay. One of my favorite reads is Carlota Perez’s book around technological revolution and capital markets. And she kind of tracks the rise and fall of every transformational technology that has completely changed our lives in society. And the hype cycles are always there. So what’s playing out with this technology? As much as we’re like, oh this is all different and this time is different. I hate to quote my dad, I guess I’m officially old, “there’s nothing new under the sun.” It’s just a different iteration of it. Because with the hype cycle you get an injection of capital and talent which is necessary for the building, for the experimenting, for the failures, which then breeds the next era of transformation. So I would maybe submit that hype is not all bad. What’s important is what we do with that hype.

And I think with this crypto winter, I suppose, I don’t know if we’re in it. I’m not good at projecting these things, but I think this is when we will know if the builders are focused on the right problem statements. And I think how much this technology ends up transforming financial services industry as you reference, we’ll actually come back to the first principles of, what is the problem we’re trying to solve? For whom are we solving this problem for? Why is this problem worth solving? And I think that methodical interrogation and then the application of the technology is what’s really going to bear the dividends that we’re discussing.

I have this thesis. In order to accrue compounding winds from evergreen innovation, it’s this eclectic combo of doing the bold with the boring. And what I mean by that is in order for us to do bold things with this new technology and perhaps shape shift the industry, we actually have to do a lot of boring, unsexy behind the scenes things. So I think that output is very much predicated on some of those aspects. And some of the things we’re seeing play out. Other things you can look at and say, “That’s just speculation. There’s nothing new there.” So that’s why I kind of say it’s TBD, but all the right ingredients are lined up. So it’ll be interesting to see the level of change that it accrues.

Tommaso Mancini:

Very interesting perspective on the cycles of innovation and what drives them, Sunayna. It looks like you’re in San Francisco, I see the Bay Bridge behind you. Let’s jump way over the Pacific Ocean and come back to Asia into APAC. Kwee Juan, you know banks well. Sunayna seemed very optimistic, but are you also optimistic? There are people who say that the value will really shift from banks to wallet providers to platforms because they are the ones who are going to be in charge of the customer relationship. They are the ones that are going to be aggregating financial services, they are the ones that are going to have access to customer data. And banks will kind of be relegated to a function of treasury and liquidity provision, et cetera, more commoditized. Do you share that view or do you think banks will actually evolve and fight back and do pretty well?

Kwee Juan:

Great question. I assume that everybody on the panel as well as those who are participating would remember the time when the creation of the mutual fund industry was meant to be the demise of banks. Because banks traditionally just intermediate between deposits and loans. And then when you get this creation of the whole capital markets evolution, coupled with fund management, they will be like, oh, “money’s going to flow out from the banks and you don’t need banks in between for all of these activities,” and how wrong that was. That led to evolution around the whole innovation on the investment banking products and services and as well as this huge industry that we now know and call it as wealth management. So I think if you take that leaf and look at that from a historical perspective, we see the same in terms of how this current evolution would lead to a need for the different players, especially the financial intermediaries and corporates who would like to participate and leverage off this technology and getting into the space.

So I’ll give you the example. As you know, banks traditionally has and always will be the owner of relationship and as well as the whole experience of how people participate in the financial markets and in the whole financial infrastructure. So take for example, in DBS we started the whole digital exchange with tokenization capability has changed the traits just for currency, for fiat, so 16 pass. And as well as providing the digital custody or custody of digital assets for the players in the ecosystem. And when we spoke to some of the institutional fund managers and they would like to participate in it. The number one thing that they all ask was do you have the international standards on assurance engagement? Which is short form, I-S-A-E 3402 certification. I know it sounds geeky and very, very technical, but what they’re looking for, is I want assurance that what you do meets the standards that I require a provider to have.

And that’s something that a bank can do. And that’s what banks have traditionally done. And so I think that’s one example.

But the other areas that include technology provision, as we know this technology’s new, we also know that a lot of banks have traditional tech stack that are not ready for this new role. You’ll take a lot of money to invest in that, to get into this new world. And so there is a role for banks that are advanced to be able to help them breach into the whole blockchain technology. And we are seeing those conversation as we speak to regional banks, onboard them onto a Partior technology. And many of them are saying, “Love what you tell me about the value proposition of instant atomic settlement. But frankly, we don’t have the tech capabilities, if we can bridge that quickly for us, that will be wonderful.” So that’s one area that is very clear to us.

And the second one is really in the area of risk management. As you know that underlying instruments themselves, if people are trading in some of these cryptocurrency, would require different kind of risk tools. And even as we tokenize the non-fungible assets as the way Sopnendu has described it, I believe they will trade different velocity and therefore there will be new risk management tools that are needed.

And last but not least, you need to enable trust in this decentralized world. As we know, the irony of it is it says it’s supposed to be a trustless network, but in order for everybody to get onto it, you need to make sure that you know who you’re dealing with. So the whole idea of screening and verifying the different parties who are going to play in that ecosystem becomes immensely important. And I believe banks have a role to play in these instances. So yes, we’ll play a different role, they’ll be new services, some old services will go away, but new ones will come to play.

Tommaso Mancini:

That’s fascinating because I think in your answer you just provided a very clear, you identified very clearly what the value added is of banks and that is compliance with standard knowledge and compliance with standards, risk management and of course trust, which is something that is hard to build and that is still needed in your view in this decentralized world without intermediaries, that Sopnendu was talking about. Sopnendu, did you actually want to weigh in on this? I mean you are the Chief FinTech officer. You see FinTechs all the time. You see how the space is evolving. How is the private sector changing and the role of banks may be changing?

Sopnendu Mohanty:

Well, I personally believe that the push for this shift will not come from the banks or the regulators who are discussing this topic with a lot of intensity. The real change will come from the marketplace. If truly the design of internet is going to shift from today to the future, which will be largely decentralized construct, the Web 3.0, the goods and services in that internet will be decentralized by design. And to trade in that internet you need a new form of money, which is called digital currencies. And you need a new form of regulations and governance process and marketplace activity which Kwee Juan articulated, for you to participate in facilitating that trade for the customers of banks who bank support. So I think that’s the instant where the marketplace will drive the outcome. In the meantime, somehow the currencies have taken precedence over the asset itself and that has led to speculation and all kind of bad actors coming in.

But in an ideal world, what should have happened is that the first block of tokenization should have happened on the noncurrency assets, where you change the form factor or the new way of ownership definition on this contract. Once you do it right, once people understand that, once you have network which operates this new ownership structures, then we should have talked about the kind of currency you need to use for this kind of transaction. Somehow it has flipped and because it has flipped and the whole discussion has gone the wrong track, from to speculating currencies with no underlying asset. So I hope the private players are now understanding this challenge. They have recognized this problem, they’re pivoting to an asset backed, tokenizing of assets or an asset which is tokenizing real economy assets. Once that comes to the marketplace, there’ll be a natural progression to get the right digital currency to trade this assets.

I think then where I think the competition will come. My bet is that private currencies will struggle, but what will really happen is that between that other three bucket, between the stablecoins, hope that structure gets more stable because central banks still call it so-called stablecoins. And then we have this whole digital currencies by the central bank and the bank themselves can issue digital currencies on back of their deposits. And when that piece of currency types get strengthened, this will stick a real shift of the future marketplace we are talking about.

Tommaso Mancini:

When will the so-called stablecoins be dropped from the name? And this is the point I often make as well is that so far it’s been a little bit the tail wagging the dog with our emphasis on tokenizing currencies as opposed to tokenizing financial assets. Now you are even talking about tokenizing real assets. I do hope that on the Web 3.0 when I buy a bike online, I’ll get a bike that I can ride instead of a token of a bike. But we’ll see. Sopnendu, do you want to spend another 30 seconds telling the audience what you mean by goods and services being traded decentralized?

Sopnendu Mohanty:

So in a 3.0 construct today when you are growing this asset, because the buyer and seller are talking to each other directly and when this assets are put in on this network, essentially you’re talking about ownership transfer. As it goes today, you have to go and select a good, then you do a payment processing, then good takes times to come, it takes a few days to come to you. I think that underlying transportation of goods will still remain the way it is today. Your bike will still come from wherever it is coming to be delivered to you. But now the process becomes far more efficient because the ownership of that bike and that transfer of value from you to the seller becomes far more efficient and far more instant than it is today. And I think that changes the way you think about goods and services being traded on this network.

Now Kwee Juan talked about the trust factor getting changed in this new architecture because today we trust on the institution which manages this transfer from the buyer and seller. There are a lot of institution between who does this checks, the makers and checkers in all this intermediaries which goes through this whole transaction process. Those will get automated, get coded in a smart contract or a automated contract and hopefully that changes the way processes are run. To me it is more about automating the process of exchanging goods and services, and the ownership transfer, and the value which goes with it. So if you get it all together in a piece of code and that’s a ultimate end state of a true tokenized world. But still Tommaso, your bike, wherever it comes from, will still go through a transatlantic shipping lines to get the bike to you in the industry.

Tommaso Mancini:

As long as I can still ride my bike, I’ll be happy.

Sopnendu Mohanty:


Tommaso Mancini:

We’ve spoken a lot about the private sector and banks and startup companies. Why don’t we switch and speak a little bit about the public sector. And of course we have Sunayna, who’s with us today from the Federal Reserve System and we’ve heard a lot of talk about central bank digital currencies. Sunayna, what do you think is the role of central banks in this new tokenized world, in this digital money revolution? Is there a role to issue money, digital money, central bank digital currencies? Is there role to issue some sort of a basic platform on which the private sector can innovate or is their role simply to regulate? I mean they would regulate in any case, but would they limit their role to that? What do you say?

Sunayna Tuteja:

Yeah, CBDCs, everyones favorite letters are not so favorite letters depending on your stance. One of the questions I often ask myself, again as somebody very new to the public sector, I spent a decade in the private sector usually battling with the public sector. And now, in these shoes, looking at things in a different way is, I think a question that’s important to address is, why should central banks even lean into this? I think there’s a predicate that, oh, it’s a shiny new object, FOMO, fear of missing out. And we should be cautious of that because oftentimes this momentum that, “Oh my God, a central bank has to do something if it is, because we’re trying to chase a shiny object syndrome or because we’re doing it based on a thesis of FOMO,” that never takes off. And it doesn’t take off in the private sector and that translates even in a central banking ecosystem.

So then I ask myself, what should be our heuristic when we think about why and how a central bank should be leading into this ecosystem? And I really look at it from a threefold perspective. One is, what is a gnarly problem we’re looking to solve and why are we uniquely qualified to solve that problem? So Tommaso, to your point, maybe we look at problem statements where it’s like, “You know what? There are certain problem statements that maybe there is no incentive or mechanism for the private sector to solve. And that’s where it’s a unique position and a unique role that only a central bank could play and we absolutely should be leaning into it.” The other component of solving a problem statement could be, “Hey, let’s acknowledge that when it comes to scale and speed, the private sector usually have a higher metabolism than a central bank would for all kinds of good reasons.”

So as a central bank, again, what is our X factor? Stability? Scale? So might we lean into really focusing on building the substrate and then really collaborating and co-creating with the industry to tap into what they’re best at is, speed, the ability to fail and experiment and try things, be bold. So I think it’s kind of looking at that in that equilibrium. So I think that’s why interrogating this from the mindset of, what is the problem. As I like to say, the gnarlier the problem, the more there’s room for disruption.

Then the second piece and Sopnendu touched on it a little bit and I think it’s worth underscoring is, are we interrogating these problem statements and the potential solution with an obsession for that end customer, that end user? And I know you may be like, well central bankers don’t think about customers, but it’s important we think about customers.

Are we falling in love with our own solutions or are we really holding ourselves accountable that by leaning into this or the construct of a CBDC or some other manifestation of it, that we’re really breaking down barriers and taking away the complexity or capacity that that end customer might be facing. And I think it’s also important for us to approach this with a sense of humility because we often give technology a lot of credit for a lot of the transformation that we have absorbed as individuals in a society.

But when you really think of it, the customer is the ultimate boss. The consumer will dictate the amount of transformation, because they will keep pushing for simpler, faster, easier, better, cheaper, you name it. So I think we sometimes give the credit to, oh, the technology transformed this ecosystem, but it was that customer that kept saying, no, there’s a better way, there’s a more frictionless way.

I know Kwee said he was going to come back and talk about cross-border so I won’t steal his thunder. But you think about the predicate for why cross-border requires and is getting so much attention because there’s a lot of friction. And consumers are making it known that they don’t want to live with that friction or that inconvenience or that cost anymore. So I think that obsession with the customer and as you can tell, I’m just a wee bit obsessed with the customer, I think that’s an important key part of the heuristic.

And I think the third thing that’s also important as we lean into this technology and into this conversation around CBDC is how do we ensure that we’re doing it in a way that levels up the value proposition that we render. Just because we’ve been relevant for the last hundred years does not guarantee anybody the relevance for the next hundred years, and you have to earn your keep.

So I think part of that is ignited by leveling up your relevancy. So when I take that threefold heuristic and the conversation and, hey listen, I am no smarty pants policy maker, I’m a humble product owner who’s spent all her career building and shipping products. So when I think about something like a CBDC, I use a very simple framework. In a way, you could argue that money is the ultimate consumer facing product. All seven plus billion people in this world have a relationship with money, analog, digital, DeFi, you name it. But there’s a relationship with that product. I would submit that the US dollar has a pretty awesome product market fit today. But as a product owner of something that has a good product market fit doesn’t mean you get to rest on your laurels. In fact, it’s incumbent on you to be operating with a healthy sense of paranoia and hustle that are you leveling up the feature and functionality of your product so it is still what the consumers want.

So if nothing else, that’s an important predicate as we think about why we should be leaning into research and experimentation and flexing our muscle and understanding this technology and trying out different use cases, whether we ship one or not is not my decision. So I’ll leave that to other people, but it does behoove us as innovators to be building that muscle memory and really experimenting the value of this technology in the future state of these products. Again, from the lens of how will it make the and customers life, that end consumers life simpler, faster and easier.

Tommaso Mancini:

That’s great. It’s very refreshing, Sunayna, to hear about CBDC from the standpoint of a product manager. A product person as opposed to economists of course to whom I speak most of the day. But Sunayna, very briefly because we do want to move on to other questions, but you mentioned that, well, you mentioned many things. One of the things you mentioned is that CBDC may be offered to solve a problem that where there’s no real incentive for the private sector to step in. Do you have a sense, concretely, of what that problem may be? It’s a hard question. Do you have a sense?

Sunayna Tuteja:

I think it’s very much in the research and interrogation phase. As you know, the Fed released their discussion document earlier this year and that’s part of the exploration and interrogation that we’re going through. And a big part of it is engaging with industry, engaging with the private sector and really understand what is the private sector focused on, what are they best positioned and uniquely qualified to solve for? And then what are some of those areas that whether because of regulatory perimeters at the private sector just can’t come near those problems or maybe from an incentive structure perspective it doesn’t make sense for them.

I know we talk a lot around inclusion and I think in the last fireside chat Ravi mentioned it as well is, if you think about a startup, what is their incentive to take on a gnarly problem of leveling the playing field and driving more inclusion through financial products. So might that be an arena that a central bank can play a key role, solo or in collaboration with the private sector? So I think still to be formed, but those are some of the things that I think are worth studying and experimenting.

Tommaso Mancini:

Absolutely, Absolutely. That’s a great framework to think about the issues. So we started to speak about the public sector and one of the things that the public sector does is to regulate an industry. And we often hear actually that regulation is actually very welcomed by the innovators. Tell us what the regulation is, we’ll figure out the products. But at least having certainty about regulation seems to be a very important driver of investment and innovation at the end of the day. But Sheila, you’ve been thinking about this quite a bit. What are the gaps that exist today in regulation for tokenized assets and cryptocurrencies? What are the big gaps that need to be filled urgently by regulators in your view?

Sheila Warren:

Well, it’s a great question and I think the answer is what are not the gaps, kind of almost the way to think about it. So all jokes aside, I’ll start by saying I do think in the G20 we have seen tremendous activity in paying attention to this space and understanding that, I think the ostrich saying of hoping this might all go away, I think we’re beyond that and I think there is an understanding that this does need to be wrestled with by the appropriate regulators. But that’s where the question begins. Who is the appropriate regulator, set of regulators? So here in the United States we have just about the opposite you could have to Singapore, where you certainly have a more unified regulatory regime. But in the United States, here you have any number of regulatory agencies that either very much want to claim jurisdictional domain over this technology innovation space or very much do not seem to want to engage with it. And it’s quite dramatic.

And you have all the way up to executive order from the president, President Biden from the White House, you’ve got congressional activity, you’ve got so much happening here. So I would say the only area that seems relatively clear is taxation and taxation often goes first because there’s only X number of models and it kind of fits into one and you kind of figure out which one it is. And depending on where you are, there’s at least some understanding of how do you tax the thing. And so that is largely a settled question and where it isn’t, there are only a finite number of models from which to choose and I don’t think we’re going to see anything that is tremendously, dramatically different from what we already have. But let’s talk for a second just about, what are the areas that you really need to have some sense of what is the regulatory perimeter or what is within the jurisdictional authority?

And so banking regulators kind of obvious, right? Securities, commodities, et cetera. Again, pretty obvious. Taxation, I already mentioned. AML and KYC regulation, certainly we’ve seen a lot of activity in those spaces. I wouldn’t necessarily say clarity, but those rules are relatively straightforward as it turns out when it comes to certain kinds of activity. When it comes to others, absolutely no idea what it means. Are we going to see encroachment, like we’ve seen in some actions where you’re actually seeing enforcement against code, against technology? Are you going to see enforcement against activity or against actors? Which is what we historically have seen in the AML/CFT kind of space. That’s an interesting question and it’s not an obvious question because of the way that we are recasting what it means to be part of infrastructure or part of application in this new space. Because those are not clear distinctions the way they are or commonly understood.

But I think you’ve got consumer protection authorities, there’s a data question that is not really getting, again, I already noted, I think financial services is one particularly large and weighty and meaty application and use case, but there’s a whole field of data engagement that is not necessarily getting the same attention that is also relevant. And then I think you also have to think about energy and kind of a basic infrastructure question. As we see the advent of ESG metrics coming up in different parts of the world with different weight to them, with different heft to them, with different requirements to them, there’s not really any consistency that’s becoming part of a regulatory regime, depending on the agency, depending on the priorities of consumers and others. How does that fit into all of this? Does your energy authority have to have some jurisdictional reach into this so they have to have some input into what disclosure might be acquired?

All of this is very, very, very complicated. It’s not easy. And so the reason I think that the industry calls so often for regulatory clarity is because in the absence of regulatory clarity, people are often left going to, maybe they’re forced to ship business offshore, which doesn’t really make a lot of sense in some cases. This is a global technology, it’s a global opportunity. The customer base is universal in theory. So how do you think about location? And all of that, of course intersects with things like worker immigration, all this kind of stuff is also relevant as it is in any industry. But I think that in my opinion, I think the asset classification is critical. I think that is a question that is going to be wrestled with by jurisdiction, by jurisdiction, but we don’t even have clarity, really kind of anywhere. If MICA puts down some framework but it’s still hasn’t been implemented, so we don’t exactly know what that’s going to look like and when it comes down to it.

That is one that I think is key because it’s going to affect the type of product and service offered. It’s going to affect the way coders think about how they’re coding and affect the way you even set up your workforce around some of this innovation, around a company that might build in this space. So that’s a critical one. And then I also think as a general matter, this question around the intersection of ESG with requirements and disclosure is one that’s going to also be key. And that’s beyond just kind of gap and kind of reporting. It’s also just, how are we weighting that concept and how are we seeing it bleed into congressional activity or legislative activity in various countries?

It’s very unsettled but it’s proving to be crypto and digital assets are proving to kind of be the forefront, I think a bit of that conversation. Because of course of the energy usage that’s talked about all the time, whether or not that’s accurate is a question for a different panel, but I think we’re going to see a lot of that have to be wrestled with before we can actually get to clarity around what the perimeters are going to be and where they might differ, especially when it comes to thinking about this global technology in a global way.

Tommaso Mancini:

Thanks very much, Sheila, for laying this out so clearly. You spoke about the importance of clearly classifying assets. Are they commodities, are they securities, what models should be used to think about these assets? Sopnendu at the very beginning offered his own classification, at least a very broad one between the fungible and the non-fungible. The non-fungible being money-like… Sorry, fungible being money-like and the non-fungible being a representation of more traditional assets. But even that distinction to me could be blended, could be hazy in the world of tokenized assets. Because some assets while looking like investment instruments because they have upside and downside risk can also be traded in a very liquid fashion, just like good old fashioned money. So are they a payment instrument or are they an investment instrument? Sometimes I get lost.

So Kwee Juan, can I turn to you and ask you what you think about this? Is it so difficult to classify assets? Is this what is holding back regulation globally? How would you classify them? Do you have a solution for us?

Kwee Juan:

I don’t have a solution. I think Sheila has put it very well in terms of the complication that goes into trying to provide a consistent law and regulation around this. And she was just speaking from a US perspective. There are 193 countries in a world and multiply that by 193 times and you can get the sense of the complexity on how you’re going to get something that is consistent across the world. But I do think first principles is important. And we go back to first principles of definition and perhaps taxonomy of digital assets. What are these things? Are they just simply utility tokens? Are they tokenized form of an underlying asset X, whether they’re fungible or non-fungible? And are they stablecoins or Bitcoin, which is by itself out there. So I think having an understanding of that is very important because I’ll just give you a simple example.

If we can make a statement and say that when I tokenize X, it is actually X and should be treated as X. So in the instance of a bond, if I tokenize a bond, then that token that I hold should be the same as me holding onto the bond, a piece of paper. But today is not all that clear because when you fractionalize it, it no longer becomes one unit, it becomes a fraction, a decimal place. And when you have a decimal place, the current laws just don’t recognize that. And I think Wyoming state is the first to come up with a definition around the property rights for token owners. But I think that’s really important because you help insolvency and possibility and even when you think about law, what kind of licensing regime are you going to put behind crypto assets? In a case of Singapore we have the Payment Services Act. But in the case of Germany, they said you need banking license to use some of these products. So you can see the spectrum in terms of how they’re thinking. And in the US it’s either SEC or CFTC, both very different. So I think that’s where the complication comes because you can’t define the underlying well and then the thing that follows thereafter becomes really complicated.

And I’ll just touch on the last point around the different kind of regulatory standards that you can see across countries really boils down to their view around a level of protection that you want to put behind the consumers. So even in today’s environment, when you try to sell an investment product, different country requires different kind of seal standards. This is different kind of disclosure standards, different kind of knowledge that you want from the investors before they’re allowed to buy those instruments.

And if you bring that out into the digital assets world, you can apply the same kind of thinking and then they would also get into that kind of complication and how they would want to treat the assets for their country. That’s the reason why it’s so complicated.

But I guess that’s a gleam of hope. The gleam of hope is I think the regulators are now converging onto this whole concept of same risking rules and we’re seeing that being applied in the crypto world and I think that is enough.

Tommaso Mancini:

Thanks very much. I mean this is painting a very complex picture and one that you probably don’t like so much as an international banker wanting to be able to trade assets across borders, all this fragmentation of approaches in regulatory regimes. Sopnendu, can you help us? You are the closest here to regulation of these assets. Singapore is very much the forefront of regulating these assets. Do you have a good solution? Do you have at least a reason to be optimistic that we will converge on a consistent classification and treatment of these assets internationally?

Sopnendu Mohanty:

Well, it’s still a work in progress. But I think largely regulation has followed the market activities because this whole tokenized assets started with currency. And five years back, the regulators around the world were worried about terrorism financing, money laundering. And that was a first response to this using the payment licensing in money market to look at AML/CFT as the first regulatory expectation from this operators. Then we have lot of hacks and a lot of exchanges got hacked, lot of wallet got hacked. The second piece of regulation, which came in in terms of regulatory expectation is around managing the technology and cyber related risk. And then came the scammsters, speculators, they started creating havoc in the retail market. Then the regulators stepped in to create consumer friction in some cases the outright ban. So there’s a lot of regulatory action around retail investors accessing this market.

And now the stablecoin had a market failure. So the fourth wave of regulation, which just started coming in, is around market stability and started looking at the stablecoins underlying and whole market infrastructure behind this. On the long run, I think as it becomes systemic, as it becomes part of the mainstream activity, I’m sure the financial stability regulations will come in. So as of now, it is limited to the first three, which is retail, putting lot of frictions around retail investors, AML/CFT regulations, and tech-related risk management regulation. And I’m sure going forward, as this becomes mainstream, we’ll see much more expansive regulatory response to this.

But I’ll briefly touch on your question around the non-fungible assets because when you tokenize, you fractionalize and you remove the cost of transactions or either reduce the cost of transaction and you make it easier people to trade, it becomes a money-like instrument. But I think for now till it becomes a reality, I go back to Kwee Juan’s definition that the underlying asset, if it is a financial instrument and there’s a financial regulator which manages that instrument listing, they will follow the regulation. If things like real estate or gold ownership perhaps don’t need a regulation for now, because there’s no, it’s like any of the assets you are buying in the market. So till it reaches that level of sophistication and market volume, we can stay with the existing regulations in this market for financial assets.

Tommaso Mancini:

Sopnendu, we spoke a lot about inflation in the prior panel. Suppose you live in a country with very high inflation and you don’t really want to hold the domestic currency anymore. What you’d like to hold is some sort of index bond. The only problem with holding an index bond, it’s great store value in real terms, but currently it’s hard to exchange. It’s hard to use it as money. It’s hard to pull out the bond and pay for it at the store. What if you were to tokenize the bond? Well, suddenly you can go buy your groceries with a tokenized version of your index bond. So what is that index bond? Is it an investment instrument or a payment instrument?

Sopnendu Mohanty:

No man, I think it looks good on the paper, but I think if you want to use like a money, you need a whole set of market infrastructures changed from a point of sales to upgrade itself to a rail which will settle and reconcile this transaction. On paper it looks like can be treated like a money, but I think that’s way, way early days to think like that. But minimally, I think what technology has done, it has allowed to fractionize this bond, at least for retail investors to have access to expensive bond at length and still follows the existing guidelines. To make it like a money-like instrument is perhaps our lifetime. So we’ll see when it comes.

Tommaso Mancini:

But you could trade it peer to peer much more easily?

Sopnendu Mohanty:

Yes, indeed.

Tommaso Mancini:

I wouldn’t have to sell it, send you the money and have you rebuy it. I could sell you ownership of that fractionalized bond?

Sopnendu Mohanty:

Yes, yes, yes. I think that is possible. But will it become so much microfraction that you can buy a coffee with that and send that ownership of that bond to a coffee owner? It’s still long way to go.

Tommaso Mancini:

Still long to go. So let’s end with looking at a crystal ball. There is this vision of tokenized assets being freely traded, peer to peer from one country to the other without much friction, without much cost. Is this a reality that we are going to see in the next five to ten years? Can we briefly go around and give me a sense of what you think. Sunayna, can we start with you?

Sunayna Tuteja:

Well, I’m a sucker for optimism, so I say yes, it’s definitely worth a try. How it’ll manifest itself, we don’t know. And what I might say is, again, we’re applying what we know of today into the future context. We have no idea what… It’s like when people say, oh, we’re going to build the next current social app of today in the Metaverse. Why? Who knows what new possibilities it could bring and what new products or experiences you can render. But I think the thesis of the problem that needs to be solved in terms of making it peer easy, to transact peer to peer, cross border, I think definitely a problem worth solving. And I just say to people, follow the talent. And when I see some of the smartest people in the world dedicating all of their time and attention to it, I feel rather bullish that there will be some sort of a better solution.

Tommaso Mancini:

Thanks very much, Sunayna. Optimism from you. Sheila, what do you think?

Sheila Warren:

Also optimistic. And I would say, I certainly can imagine that world, if that’s the question. I think that the big barrier is going to be the extent, to which Sunayna’s point, we are focusing as a society on consumer and user demand. And I think that one thing I’ve talked about a lot, someone I talked about this quite a bit, the extent to which we are more concerned with protecting consumers than with empowering consumers and realizing a vision that is going to support what they actually want. Which in many cases is the ability to move assets cross-border in a more frictionless manner. That I think is going to be an impediment that we are putting in place as, I’m not a regulator, but we’re going to be putting in place because we’re kind of going to port some of the existing ways that we again, assume centralization and these kinds of models into these new systems and restrict what actually could be built.

So I’m optimistic, I’m bullish as well, but I do think that the policy environment speaking more broadly than just regulatory environment, I think the policy environment is a bit at odds with what I actually think consumers would ideally want to see if they were able to kind of imagine what is truly possible with the technology. So that is my caveat. I think on the.

Tommaso Mancini:

It’s a caveat but it’s also a very strong call for consumer centric regulation it’s called. Thanks very much, Sheila. Kwee Juan, we’re a little bit over time, but what about you? Is this a world that you foresee shortly?

Kwee Juan:

Well, let me tell you the good news that a lot of people probably already know, that world is here. But at least it’s within the crypto ecosystem. Because people are paying, using crypto currencies to each other. And I guess some of us may recall that somebody bought a piece of land with Bitcoin sometime back and that transaction was done. So I think within the crypto ecosystem, those guys were at the edge, the innovators. It’s already happening and people are willingly receiving cryptocurrencies for value. But will it get into the mainstream? The answer is not yet. And are we far away? I think we are. Simply because we need clarity on points that I mentioned earlier. When you ask about, what’s stopping the whole definition and cross border regulation and what have you. So I do think that if you’re going to make it from one country to another, the whole idea of right definition, common law, common thinking around regulation and definition of the underlying assets would be important, that alignment is necessary.

And I guess the second stage is for consumers to be comfortable. They need to know that the institutions providing these services can manage the underlying risk. And these risks are huge and we hear about hacks so people are frightened of the illicit activities behind it, the asymmetrical nature of some of these assets, and the fraud that come behind it, the technology risk that comes behind it. And obviously the last thing around how do you govern this whole thing properly. So I think that whole piece needs to be settled for people to be comfortable that you have the ability to manage those risk. And so therefore the punchline that I would give is, Sunayna would be very happy to hear, I think if the central banks are going ahead with CBDCs then I think that would probably be the instrument that will get the peer to peer transfers freely between countries. But again, that is also quite far.

Tommaso Mancini:

So all the pieces have to come together, but one catalyst could be CBDCs. Thanks very much, Kwee Juan. Sopnendu, tokenized assets, cross border, is it for tomorrow?

Sopnendu Mohanty:

Well my optimism two layer. First layer is the marketplace will drive consumer to trade more on this asset, which is real, which is going to happen whether we like it or not. The new generation are going to get into that market. That optimism will put a pressure on central bank to think about a new form of money. And that new form of money could be anything between stablecoin or a central bank issued currency or a bank backed issue currency. I think that’s the logical way to follow that path of finding a new form of money. And that’s where the second layer of optimism for me.

Tommaso Mancini:

I agree, Sopnendu, the dog will end up wagging the tail and I will continue to get my bicycle while paying with digital money by some central bank around this table. Thank you very, very much. This has been an extremely interesting, extremely insightful and deep discussion. Thanks for joining us here at this fantastic conference. Thank you for your questions. Sorry we didn’t get to them, but we had a very rich discussion going on, like this ran out of time. See you very soon and have a good evening or a good day to all of you.

Kwee Juan:

Thank you, goodbye.

Closing Remarks

Azher Abbasi:

Well, we have reached the end of the program and it is my honor to close the event. I’m so pleased to be able to be with you today and add my closing thoughts on such a great event for this SF Fed and the Monetary Authority of Singapore. This is our 15th Asia Symposium and my second as Executive Vice President of Supervision. Today’s team focuses on digitalization and innovation. With that team in mind, I want to extend my thanks to all the speakers and participants with us today. Mary Daly and Ravi Menon, thank you for your innovative leadership. To each of our panelists and moderators, your forward thinking discussion, thought leadership on these pressing topics is both eye opening and compelling. Thank you so much. And finally, I want to extend a special thank you to the MAS, who have cohosted with us since 2015. Your partnership and collaboration on this event is fantastic.

As I referenced, a focus on digitalization and innovation is a paramount. The topics discussed today are global issues for everyone, not just central bankers and regulators, but investors, consumers, and everyday citizens. The rapid pace of innovations in the digital asset technology space is what brings us together. Global issues require global conversation and the exchange of ideas and solutions is a step toward that progress. However, they cannot be solved in a bubble. 2022 has been a testing year for the digital asset industry and we as regulators need to stay on top of what’s next and adapt our strategies for the future of these technologies. What really resonated with me throughout, we talked a lot about inflation and how the central banks have come together to address and the organizational leadership and how pandemic has affect affected all of us and what we are doing about it. And trying to get Ravi and Mary discuss trying to do a soft landing. Those are very, very difficult things to do, and central banks are working on that.

The digital assets panel looked at one of the many innovative and technological tools. We talked about tokenizations, we talked about what is the future of tokenization or what will work, what doesn’t work. And I hear a lot of optimism and where does it go? The stablecoins, the Bitcoins, the tokenization. Where this will all go? And like the panelists, I’m also optimistic is the consumer demand will really drive where the policy makers will go and what innovations will bring new technologies to us. The future of supervision is here. To be honest with you, where we are going, where we are we heading, it’s here. We need to do things differently. We are in unprecedented times due to intersection of digital technology and finance. I, for one, embrace these changes with an eye on risk and the challenges it presents. Obviously, there will be risks, there will be challenges, but we need to be prepared and we need to handle it.

So as I wrap up, I’ll give my final round of thank you to my colleagues at the SF Fed, Cindy Li, Linda True, Vivian Sam, Lionel Megino, Lisa Kuehl. And at MAS, Angeline Lam, Mark Chen, Zac Su, Jonathan Chan, Glenn Teo. With that, I wanted to praise this event as an example of international community and outreach at this SF Fed and within S+C. We strive to be forward looking and be the regulators of the future. With an event like this, we can bring the best minds from around the world to tackle and discuss the most pressing issues that face us as central bankers. So I look forward to seeing everybody next year in person. So good day to everyone in Asia and goodnight to everyone in the States. Take care.