Central Bank Digital Currencies – The Future Shape of the Financial Sector 

What would happen if the U.S. introduced a digital dollar? SEBA Bank’s head of research Yves Longchamp explores ways in which central bank digital currencies (CBDCs) could transform the U.S. and global financial landscape, including a deep discussion about privacy, security, employment, competition with decentralized cryptocurrencies, and overall trust in fiat money.  

Summary – Traders’ Insight Radio Ep. 19: Central Bank Digital Currencies – The Future Shape of the Financial Sector 

The following is a summary of a live audio recording and may contain errors in spelling or grammar.  Although IBKR has edited for clarity no material changes have been made.

Steven Levine

Hello and welcome to IBKR Traders’ Insight Radio podcast. I’m Steven Levine, senior market analyst at Interactive Brokers, and today on this program, Yves Longchamp, head of research at SEBA Bank in Switzerland, has been kind enough to join us again – this time to talk about Central Bank Digital Currencies, or CBDC’s.

Welcome back, Yves! It’s great to have you here with us again.

Yves Longchamp

Thank you very much, pleasure, thank you.

Steven Levine

When you were last on our podcast, we had a terrific discussion about cryptocurrencies – their growing allure as an asset class, and the benefits and risks of adding them to your portfolio for diversification purposes – and listeners can also tune into that program on our channel. I found that talk very insightful. But it seems the rise in popularity of Bitcoin, Ether … other coins and tokens as we talked about … these have somewhat shaken sovereign nations into forming plans to safeguard and, perhaps, altogether transform the traditional shape and architecture of their own fiat currencies and payments systems.

I’d like to start off with your insights into these CBDCs. Now, I understand there are at least two approaches central banks have been taking to develop them:  There’s a retail version. There’s a wholesale version. What can you tell us about these? What are the differences? And are there more benefits or risks weighted towards one or the other?

Yves Longchamp

Yeah, I mean it’s a very good idea to start with this difference between retail and wholesale CBDC, because I think it has the key implications.

Retail CBDC is actually the type of currency you and me can use, so it’s really targeted to … let’s say, ‘the normal citizen’. Wholesale CBDCs are completely different. They are only for banks, and actually the idea is very close to what the current situation is.

For example, if you own U.S. dollars in your pocket with these kinds of banknotes, this is, let’s say retail central bank digital currencies, because it belongs to the Fed. It belongs to the central bank, but you have it. You own it, so it’s for you.

But most of the central bank money is actually just in an account that big commercial banks have access to, and this is called ‘wholesale CBDC’. So, really retail CBDC is for you. You can use it to buy your … I don’t know … your coffee or whatever, and wholesale CBDCs are more for the financial system, per se, and they are indeed two ways of creating a CBDC: One would be retail, one would be a wholesale CBDC.

Steven Levine

I see. So, my bank account then would not be with, say, Chase or Bank of America in the U.S., or Citigroup, or any other retail type of commercial bank. It would be at the central bank. I would have my account there.

Yves Longchamp

Yes, if the CBDC is retail CBDC, then, in a way, you will have a sort of wallet to own your CBDC, which would be … instead of having one U.S. dollar, you will have one, let’s say, CBDC U.S. dollar, which is completely equivalent.

So, one CBDC U.S. dollar would be equivalent to one U.S. dollar, and actually your wallet … or your account … will be at the central bank, so that will be the key difference. And this is only for retail. That’s right. And obviously the risk is: What does it mean for commercial banks?

Steven Levine

It’s a huge change, I would say. I mean, it’s a massive transformation. It seems that there is a long list of changes … a huge list of changes and risks … that seem to come from centralizing all bank accounts at the central bank. But we’ll touch on that a bit later.

I’m understanding that some reasons for countries to seek out launching these is out of fear that Bitcoin, Ether, or other decentralized cryptocurrencies … they may somehow undermine their existing forms of fiat money, but how do they do that? How would they undermine their existing forms of fiat currency?

Yves Longchamp

I think there are two ways. The first thing … the … let’s say, you know, the technology – central banks need to go to the next level. And I think this is what people are attracted to with cryptocurrencies, because it’s 24/7, it’s working fine, there’s no downtime. You make a payment. You receive the money. It’s done in a few seconds, not that you have to wait for your bank to send the message that your money is transferred to someone and then you receive it. So, I think it’s something that is really attractive for the financial system.

Steven Levine

I see.

Yves Longchamp

But then, in a way, for the central bank, they’re saying, I mean, more linked to the idea of monetary policy … you know, the money we use daily is the fiat currency of your own country, which is under the reach of your government and of your central banks. Then, suddenly you have a new sort of money that just pops-up from nowhere, literally, and is accessible to everyone. You have a lot of freedom, and it has value, because people accept it, and it goes in direct competition to a central bank.

And it’s about trust and, you know. In a way, central banks have the monopoly on trust, because you have to accept this central bank money. You have to accept, let’s say, the U.S. dollar if you are in the United States, and you have no other way to do it. And now it exists – a new way, a new digital currency like Bitcoin – it can be Ethereum or any other one that works very well. And everyone can accept, and so, you know, it enters directly into competition versus fiat currency, and it asks the question about the future of fiat currency issued by central banks.

Steven Levine

I’m seeing that there’s maybe a two-pronged dynamic going on. There’s that trust factor. And, so, there is that spotlight that’s placed on the ability of the country to honor its debt obligations – the trustworthiness of the government’s fiscal management, as well as central bank monetary policy. Butthere’s also utility.

What can I do with my digital currency when I have it? I can only really transact maybe with a vendor that accepts them, but it would have to become more broadly or widely accepted.

Yves Longchamp

Yeah, but I mean yes. But imagine that the value of your own currency is just, you know, kind of disappearing or fading away slowly, and actually, at some point in time you won’t be able to…. I’m just thinking about Argentina, for example. In Argentina, you have your own currency, but everyone is holding a U.S. dollar because it’s a way to store value. And more and more people are accepting U.S. dollars, even though it’s not allowed – just because it’s a good alternative. So, you can create…. You can create a sort of an alternative payment system, and prices will be more in U.S. dollars than in their own currency.

If you have broad adoption, you will be able to use Bitcoin, Litecoin, or Polkadot, or Ethereum, or I don’t know what, but just alternative to that. And especially an alternative when you have a simpler way to transfer money, because what prevents you to pay your coffee with gold that it’s painful to have your kilo of gold just to take a piece of it … just to pay your coffee. But with Bitcoin you can do that.

And I think if this negative spiral enters the minds of the citizens of a country that do not trust – because we are back to trust – the future value of something, so they will dump it and find something else. And because everyone will do that, you will have adoption, let’s say overnight, and then suddenly you have a new financial system. And I think this is with a blockchain, which is a fabric of trust, where you have a settlement system, a messaging system, an accounting system, which records value transparently and so on. So really create trust, and this is really available here, now. Easy, in a way, and I think that’s really something …  I don’t know if it’s a threat. But it should be a sort of something that should create discipline to central banks, and I think ….

No one complained about the Fed to print money to save the financial system [i.e., in response to the Financial Crisis of 2007-08]. That was a good idea, but you need to have discipline. You need to understand that at some point you cannot have too much.

And I think people tend to say, ‘Yeah, now, it’s too much’.

Steven Levine

Apart from the cryptocurrencies posing a threat, I’ve heard other rationales for CBDCs, and they seem to be centered on combating the potential for illicit activities.

China, for example, started a pilot program to introduce a digital yuan. They recently placed a blanket ban on all cryptocurrency transactions and mining. They view the technology, in part, as a vehicle for conducting criminal activity like money laundering. And even more recently, the U.S., I think in this executive order that President Biden had signed in early March, I believe March 9th. They also cited the potential for illicit activities on decentralized exchanges – terrorist financing, for example, or skirting foreign financial sanctions regimes – these are reasons why the U.S., or at least in part, said they should examine how they can best produce a CBDC.

But even with the possible advent of, say, a digital dollar, how could the U.S. work to prevent this type of activity … this illicit activity … from taking place on a decentralized exchange? Do they have any jurisdiction over the decentralized exchange? Or how does that work?

Yves Longchamp

Yeah, actually there are many points you are mentioning here.

I would say that, you know, cash … if we go back to the cash we have in our pockets…. There is no anti-money laundering check. You know, everyone can have the currency in your pocket, and the value is linked to the money, it doesn’t…. I don’t care who gives me the U.S. dollar. One U.S. dollar is one U.S. dollar. So, anyway, there is no KYC – no ‘Know Your Clients’, no AML – anti-money laundering – check.

Usually, central banks have delegated these tasks to the commercial bank, because if you want to open an account and use electronic form of money, then you need to show your identity. You need to explain where your source of income is coming. So, you need to check.

And with retail CBDC, actually you will have an account directly at, let’s say, your central bank, and then the question is: Will the central bank perform this kind of check? And to be honest, I’m very unsure about that. I think this is not what they want to do. I think that what will happen — maybe they will restrict the size of, I don’t know, maybe a few $1000 you can own in CBDC in your wallet.

So, in a way, if you use it for some … you don’t really need to check carefully what you do, because it’s just a few $1000 … it doesn’t…. You will not make huge illicit activities with that. So, I think this is probably a way … a kind of a cost-effective way … for central banks to provide that.

But I think one of the key reasons … and because, actually, you mentioned also this idea of about the yuan … about the People’s Bank of China is issuing this kind of CBDC … and, obviously, they own the information as well. Because if they provide it, because it’s a central bank, so it’s a central … not a decentralized type of cryptocurrency. So, there is kind of a paradox as well. So, technology is the same, but if you have only one computer checking everything – this is centralized — and then you get all the information, and then you can create a social score on that. So, actually, your freedom is at risk.

So, something, which is key, is also if you have retail CBDC, then you need to have a privacy layer on the top of that. And think about cash… Cash – you have a privacy layer if you pay with cash, no one knows where this money comes from … so, retail CBDC is fine in my opinion, as long as you have a privacy layer on that.

Maybe just here as an example … because SEBA participated with Banque de France to do sort of a CBDC experiment, which was done on the Ethereum network, and actually we used Ethereum to settle transactions, but on the top of that there was a privacy layer. So, that’s from the outside world, and even, let’s say, from the inside, no one knows, you know, who did what. So, there was also some kind of privacy, and I think this is very important, as well, to have that.

Steven Levine

With all digital technologies, there is the ability – one way or the other – for somebody to game that technology … to hack into it. If all developed countries’ central banks created digital currencies, wouldn’t they all be very vulnerable to an attack? And then what happens to the entire global financial system in that sense? I mean, that’s a very scary prospect.

Yves Longchamp

Absolutely, I think that’s a central point. Bitcoin has never been hacked, so the Bitcoin blockchain has never, ever been hacked.

However, if you have your Bitcoin, let’s say, not on the blockchain, but let’s say on the decentralized exchange, then the exchange can be hacked.

So, I mean there is a difference between the security of the blockchain, and, let’s say, well-established blockchain, let’s say, Ethereum and Bitcoin have never been hacked.

Okay, a long time ago Ethereum has been hacked. There was a there was a fault with Ethereum Classic, but that’s, I would say, a long time ago, and I think it won’t happen again, because it’s too expensive to hack it. It’s almost impossible to hack it. So, I think if you use this well-established, high-valuable cryptocurrency, then the risk is extremely limited.

Obviously, you know, I should never say never, but, I mean, it’s extremely low. And this is not by chance that, for example, Banque de France chose Ethereum to make this transaction and not a smaller crypto … smaller blockchain … and so, I mean, from that point of view, I think the risk is extremely limited.

The problem would be more about the wallets, because to own your crypto coins … because you cannot have it in your hands … so, you need to have a sort of interface. And certain types of interfaces … if I want to pay for your coffee or something like that, I would have to transfer this money. And if I do it via sort of a different interface, then that could be the risk.

So, really, I think it’s very important to mention that big, well-established cryptocurrency and blockchain are not hacked. Obviously, you can always find examples of small ones that you can hack, because the security is low. But most of the time, hackers attack exchanges, because this is the weakest link in this event. Because you bring your current your crypto out of the blockchain … try to make something to exchange it, and then put it back to the blockchain, and when it’s out… It’s like … most of the time a bank is not hacked. You get your money stolen when you have your money outside the bank, in your pocket, and you are taking the metro in New York, for example. But this is not the fault of the bank. This is not the fault of blockchain. This is you having your money not in a safe environment. And I think that’s a key element.

Steven Levine

You know, you bring up digital wallet, so let’s talk a bit about this digital wallet, because another reason for the U.S. exploring a CBDC appears to be focused on financial inclusion, and this is interesting to me, because according to a fairly recent FDIC [Federal Deposit Insurance Corporation] survey, around 5.5% of U.S. households – just north of 7 million people – were ‘unbanked’ in 2019, and this means that no one in the household had a checking or savings account at a bank or credit union. But around the same time, the U.S. Census reported that 8% of U.S. households didn’t own at least one type of computer – so, no desktop system, no laptop, no tablet, no smartphone. Right, so, it’s a lot more people that, according to the Census, didn’t have a means to any kind of computer.

So, I suppose the first question is: A household without a bank account may prefer not to have a bank account … so, would they be forced into having this digital wallet, if a digital dollar was introduced? Would they be forced to bank now?

Yves Longchamp

That’s an excellent question. I suppose there’s a good correlation between the people who are unbanked and the people who don’t have a computer at home. I don’t know why people don’t have a computer, and I don’t know why people don’t have a bank account. Maybe they don’t need it, but I think maybe you can solve these both of these issues, because I strongly believe that to have a decent financial infrastructure with financial services is a big plus. You know, very often you need to have, at least once in your life, credit … to do many things: to build a house, to get education, and so on.

So, financial primitives are key, and for that you need to find a way to enter into it. And the question is why people don’t have it – because they don’t trust the bank? Or they don’t have enough money to have a bank account?

I think that CBDCs could be way to access the DeFi – decentralized finance – space. And decentralized finance, to be honest, does very much the same as what a bank is doing – do credit – so, lending / borrowing. You can also, you know, do also some kind of asset management, or managing your money. And you can do it directly 24/7 from your sofa, so you don’t need you know to go to the next city. And maybe if you have that, and you can get credit, then maybe it also encourages people to get the, let’s say, IT infrastructure needed to do that because it really offers new services, and I think this is what digital money should do is really to allow more people to have access to simple financial services, which I believe are part of the modern society and that we build our growth on these financial services.

Steven Levine

Yeah, you would hope that those without a bank account, and without any kind of computer access, that the digital dollar doesn’t get introduced before they have IT access. Otherwise, it would seem that they would have a challenge in buying that IT access.

Yves Longchamp

Sure, sure. That’s right. Yeah, but I think, again, to have a CBDC doesn’t mean you won’t have fiat [physical cash] anymore. For example, we have e-banking solutions for a long time. And actually, most of us … I mean, I don’t have any real [i.e., physical] money in my pocket for ages. And most of the time I use my … We have different solutions, just pay with [my] mobile phone. And so, I’m pretty happy with that. But still, I think it’s key to have fiat money, and I can well-imagine that for a long time … you know … digital money didn’t kill fiat money … I mean the physical cash … and I think CBDCs, for me, there is no reason for CBDCs to kill fiat. I would need to have that. And I think my mum, for example, would certainly not have a CBDC wallet, and I think she will still be very happy to use banknotes and I hope she will live long. So, I hope that we still have some cash in the next, let’s say, 25 years at least.

So, I think it’s different. But we see it anyway, [this] kind of transition. We are getting more used [to it] … We’re getting used to the facility, the simplicity of e-money, or digital cash, and I think for most of our payment we are very happy with that.

But, again, I think we need to have privacy. We need to have a form of money that offers privacy. So, either that would be retail CBDC with a privacy layer or, and I would say, even better, would be to have cash, because cash is the only ‘coins’ that offers you full privacy and freedom as well.

And it’s not about doing, you know, Illicit activities. You may have good reason to use both, because this is your choice, and this is our freedom.

Steven Levine

And digital fiat currencies …  I’ll call them, right … digital currencies for sovereign nations, central bank digital currencies…. these aren’t without precedent. I mean, they are now in existence. They’ve been launched, they’ve been rolled out by central banks – not in developed nations, I understand, but in countries like Nigeria, The Bahamas, there’s been adoption of central bank digital currencies in countries in the Eastern Caribbean Currency Union (ECCU).

I suppose any adoption of the CBDC would rely on differences, right, across geographies or regions, but would you say that there are any takeaways from the rollout of these central bank digital currencies in these countries for developed countries?  Like central banks … like the Fed (U.S. Federal Reserve System) or the Bank of England, the ECB (European Central Bank), the Bank of Canada….?

Yves Longchamp

So, I haven’t talked to them, so I don’t know exactly what they what they learned from this experience, but I think … when you mention that, I’m just thinking about mobile telephone, for example, you know, in a developed country we have this kind of a landline infrastructure, which is legacy. And very often you have a new emerging market that comes with a new solution, because they have no … there was no way to contact anyone. So, you come with the newest technology. And the countries you mentioned don’t have a strong financial sector … a big legacy system … financial system. So, they need to come with it. So, they are very open to a new solution that was probably less expensive to implement and provide a lot of benefits to the users. Because, you know, if you have no phone and suddenly you have one, you are happy, and actually, you don’t have any … you know, ‘we should stay with the with the old technology’.

I think for the developed world with a well-established central bank and well-developed financial system, you need to update a big, big, big system, and you need to offer…. You know, as a user of the financial system – I’m Swiss, so I have a bank account of the Swiss financial system – now, I will use it [i.e., an updated system] if and only if the user experience is as good as what I have. Because why should I use something, which is not good? And I think that this is something that needs to be … that needs to be created. So, I think that, in my view, CBDCs have to develop in two ways:

First, they should create a sort of user interface that allows you to do exactly what you have done so far – even cheaper, or even better, or even seamless, so you don’t realize….

And the second thing is, in my opinion, that central banks realize that blockchain and cryptocurrencies are there, and it’s not just hype. They will stay. There’s a lot of, you know, Bitcoin, as you mentioned…. You know, legend[ary], hedge fund managers say, ‘I bought Bitcoin’. Everyone is kind of talking about that. You know, it’s really everywhere. Bitcoin is in the mind of everyone. And everyone wants to have it.

And now, on top of that, they should create DeFi – decentralized finance – with new service offerings to everyone, even the unbanked, that’s right.

But the new financial sector, which is developing on blockchain is not better, or not more stable, than the old traditional system we have. So, there will be probably a crisis at some point in time. There will be a sort of crypto Lehman moment as we had, you know, 15 years ago. And in that case, you need to have the central banks to provide liquidity to the financial system, and the main difference is… you can say the traditional system is closed Saturday and Sunday, and we open again on Monday. But not cryptocurrency. They work 24/7. So, if you have a crisis happening on Sunday morning, and then you cannot say, ‘No. You have to wait an additional 24 hours until the Fed opens the doors….’ No, no, no. So, I mean, you know, we need also to link these two systems. One, it’s a real time, instantaneous settlement system, and the other one, which is working on, let’s say, with much more time to process the information with a clear time from 8:00 to 5:00. And I think we need also to make that.  

So, I think CBDC is also here to link this new world and to create a world with some kind of a lender of last resort … with some kind of financial stability at the end.

You need to offer something, which is good, so people use it, but there’s also a good reason for a central bank to be interested in it, not because they really want to, but just because they realize that, you know, there is innovation, and innovation will not wait for central banks. So, the central banks need to catch up to make our financial system as stable as possible.

I think it goes both ways.

Steven Levine

What’s at risk if we have, say, retail CBDCs? Let’s say all of our customer accounts are with the Fed, which means that I’m not banking – and we touched upon this earlier – with JP Morgan or Bank of America or Citigroup or otherwise – any other commercial bank in the U.S., and I’m, you know, we can name them off and, you know, around the world if this happens … but in the U.S., my account is insured by the FDIC up to a certain amount.

Yves Longchamp

Right. Right.

Steven Levine

Does that continue anymore? Will the central bank assume all the roles of commercial banking, you know, including lines of credit? Would my checking account go away?

And so, again, all of these transactions that you and I would make through a central bank digital currency would be instantaneous, as we talked about, so there would be no more delay in terms of waiting for checks to cash, or to go through or to clear, right?

What happens to the bank’s operations if they no longer have access to their customers’ deposits? That’s one big question, and the other is—what happens to bank stocks?

Yves Longchamp

Yeah, let’s say in terms of deposits … and I think this is why retail CBDC will not be, let’s say, the type of CBDC we will see, because if this is the case, why would you hold your money at a commercial bank – that may be, you know, bankrupt tomorrow? There may be a bank run. Just choose directly for the best currency because the Fed will never be bankrupt, and no central bank can be bankrupt. They just need to print money, if needed, so actually you should go there…. And if this is the case, then obviously it’s not good for commercial banks.

This is why I believe that retail CBDC is not, let’s say, the solution that central bank will choose. They will go more for wholesale CBDC. That said, there could be some kind of a small amount you can use like cash, which is literally…. You know, when there is a bank run, the only thing you want – you want to have your money. You want to feel, to smell, your U.S. dollar banknotes, because you know they have value. So, you need to have a way to get access to it. Because in the fiat currency world, this CBDC, or the banknote are the best kind of quality you have. If you have money in your account, you know, if the bank is bankrupt, you don’t have money at all. If you have a $100 in your pocket, you have it. Nothing can happen.

Then, the next question is about the purchasing power of it. And I think that’s two different things. So, this is why I think, first, retail CBDC, in my opinion, will not be what would be proposed by main central banks, except maybe to have a few $1,000s in your pocket. That’s fine. Then, the thing is about the competition and about the trust, and this is what you mentioned, and this is what I mentioned at the beginning: There is competition.

Steven Levine

Yes.

Yves Longchamp

it’s like, you know, everything that we have in the financial sector is within the financial sectors. It can be fixed income. It can be, I don’t know, equities, and so on. It’s linked to the value of the currency.

And if you’re afraid of, let’s say, collapse of the financial system, a huge devaluation of your own currency, because quantitative easing you believe has been too, you know, too large or quantitative tightening, which is coming, you believe, will, let’s say, kill the economy, destabilize the U.S. financial system … whatever, I don’t know, you choose your scenario … but let’s say that you have a really bad scenario. In that case, you want to have something, which is outside the financial system, so most of the time you say, ‘I can buy real estate. So, if I have fresh water, and some cows, and a farm … you know, I will survive. It’s outside everything, it has value, per se’.

Most of people buy gold as the financial asset, which is the liability of no one, and then you can also imagine cryptocurrencies to be the liability of no one, because they exist. But the simple fact that they exist, and they have the value that society gives to it … but the value of Bitcoin is linked to the trust we have in this system that creates trust, per se, and so we have also an outside money.

I think this is where the competition is high. For central banks to…. You know, I think competition, or let’s say, you know, when you have an option … if you have no option, you cannot know whether it’s good or bad because you have no option. You cannot compare. If you have an option in the outside money, then people may move outside your own fiat currency towards something which you believe will survive longer. And if this is the case, then anyway, you know, you’re putting pressure on your own currency, and I think this is sort of a new thing that exists.

Before it was gold. Now, we may have Bitcoin. We may have another one, and I think this is really putting pressure on central banks to become more transparent, more rigorous in the way they manage their monetary policy, but obviously there was the financial crisis, and this is where we are today. And the question is…. The question is still open about, you know, the future of the dollar … the future of fiat currencies.

Steven Levine

So, this makes a lot of sense to me. The adoption of a central bank digital currency and placing a spotlight on the unregulated or decentralized nature of the cryptocurrencies, perhaps gives the central banks more of a perception of trust in that sense, when comparing.

I’ve got one last question, because this is always really exciting when an entire – or when you have the prospect of an entire system or industry changing. And like an industry changing … if cash currency transforms into all digital currency around the world.

It always seems to affect, or necessarily will affect, those in the ecosystem of what’s being changed. So, those companies that are traditionally servicing cash or fiat currency, as we know it today. They may adopt, you know, change their business models of some kind, but an entire product goes away, right?

I mean if you talk about companies like National Cash Register, NCR – they were founded, what, in Ohio in late 19th century? Also, Sharp makes cash registers, so does Casio. [*Note: Some models and products from these companies have already been discontinued.]

So, what do you think is going to be the future of these kinds of companies in terms of their stocks or related exchange-traded funds?

I mean, I can go on with other kinds of institutions that would change … like the U.S. Mint, I suppose, changes its operations completely…. And then we have an obvious fallout effect in terms of employment and a shift in the landscape….

Yves Longchamp

I agree. I think we have an innovation, which is coming, that will change the society, and we have had innovation in the past as well, and there are some jobs that existed before that do not exist anymore, and I think that will be the case.

And I mean for everything which is linked to the notion of money, of transferring money, you just don’t need them anymore. I mean, if you want to go to the current situation about SWIFT, for example, this world messaging system to transfer money. The question is also: Do we need it?

And the question is probably not, I mean from a technology point of view, you don’t need it anymore because you can live without it. For example, any blockchain allows you to own transparent records, transactions. So, it’s a settlement system at the same time messaging system, so it’s sort of a ‘SWIFT-enhanced’ or ‘plus-plus’. You don’t need it [i.e., SWIFT].

But to come back to your question, yes, I think that it will have a deep impact on all the financial services. I think that many financial services will be offered directly via applications – like what you have on your smartphone – you have a few applications; on your blockchain, you will have a few dApps – decentralized applications. One of them will be financial, let’s say, a decentralized financial application: You will be able to exchange money without talking to your bank, but doing the smart contract; you will be able to do lending / borrowing. So, some people will lose their jobs. And, also in the banking system, you have a lot of people, which are just controlling if what you’ve done is correct: checking, auditing, validating elements … and if a blockchain is, and this is actually what it is, a messaging system and a settlement system at the at the same time, there is no reconciliation needed.

You know, the transaction is the settlement – not that you transact, and then you have to check. And actually, there will be in my view also, if blockchain, let’s say, becomes mainstream and is used as an operating system for the financial industry, I think that there will be huge impacts on jobs for all, let’s say, back office jobs linked to reconciliation.

I think it has a huge, huge impact, indeed.

Steven Levine

Yves, this has been a really great discussion. Thank you again, so much for taking the time and coming back and joining us.

Yves Longchamp

My pleasure, thank you so much. Always a pleasure.

Steven Levine

And for our listeners out there, you can learn more about cryptocurrencies in SEBA Bank’s webinar presentation Digital Assets: What You Should Know for Your Portfolio Diversification at ibkrwebinars.com, and can also keep abreast of their market commentary at IBKR Traders’ Insight at tradersinsight.news, where  You can also catch our previous podcast Crypto Coin Talk – Making Heads and Tails of Digital Assets, if you haven’t already.

And until next time, I’m Steven Levine for Interactive Brokers.