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Startuprad.io - The Authority on GSA Startups

Episode 316 · 6 months ago

The Digital Euro and Why Stable Coins Matter

ABOUT THIS EPISODE

Nobody knows what a digital euro will look like. ECB is in the process of exploring the possibility. Philipp Sandner, Blockchain Expert

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China is with its digital Yuan ahead of Europe or the US. The ECB is investigating the possibility, with the aim of having a digital Euro 2025. We will see China launching the digital Yuan this year. That is almost 5 years ahead.Philipp Sandner, Blockchain Expert

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CBDC is a variant how the Euro will run on a modern infrastructure.Philipp Sandner, Blockchain Expert

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The Expert

This interview is part of our series with subject matter experts. Our guest today is Philipp Sandner (https://www.linkedin.com/in/philippsandner/), Professor at Frankfurt School of Management and Finance. There he is head of the Blockchain Center. He is also a member of the fintech advisory council to the German federal government (FinTechRat), Chairman of the International Toke Association, as well as a contributor to Forbes (https://www.forbes.com/sites/philippsandner/).  According to one of Germany’s largest newspapers Frankfurt Allgemeine Zeitung (FAZ), Philipp is also one of the 30 most influential economists in the German-speaking area in their ranking for 2018 and 2019. He is also co-founder of the German Blockchain Association.

The situation of the Federal Reserve in developing a digital central bank Dollar is like the ECB. Both are early in exploring the topic. Philipp Sandner, Blockchain Expert

The Digital Euro

Central banks take inspiration from cryptocurrencies and are actively thinking about introducing their own cryptos, called central bank digital currency (CBDC). There are many podcasts out there talking about CBDC, especially US$, but Startuprad.io is headquartered in the city of the Euro, Frankfurt. So, we thought we shed some light on the perspective from Europe. The European Central Bank and the Federal Reserve are both in the first steps of exploring the possibilities and implications of CBDCs for the Euro and the US Dollar. But there is already a growing market in US$ stable coins, where stable coins in Euro have to stomach losses, due to the negative interest rates in the European Monetary Union (EMU). Tune in to learn more...

The difference in the US is that there is already a working alternative, the US$ stable coins. Philipp Sandner, Blockchain Expert

Further Readings / Additional Resources

DEFI is dominated by US$ since many people active in crypto calculate their net worth in US$. Philipp Sandner, Blockchain Expert

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The Interviewer

This interview was conducted by Jörn “Joe” Menninger, startup scout, founder, and host of Startuprad.io. Reach out to him:LinkedInTwitterEmail

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MM whine. Now that I have your attention, I want to welcome you to our podcast and introduce you this episode of sponsor, Thenner Vest. You may know that I grew up on a Vinde yard, so I was very happy when when a West approached us with the corporation. They enable you to invest in fine. Why? You can do this to diversify your portfolio or simply to get to know great wines, since you can get your wine also delivered home to enjoy it, or you can do both. who learn more, use to link in the description below. Welcome to start up bread, that I own, your podcast and Youtube blog covering the German startup scene with News, interviews and live events. Hello and welcome everybody. This is still from start up rate that I owe your start up podcast and you to block from Germany, as well as the founder of Startup Dot Radio, the worlds first Internet radio station dedicated to tech startups and take entrepreneurship topics. Today I do have a repeating guest, so to say, Philip here with me. Hey, Philip Hidin fine, thanksful. Thanks for inviting me, and I'm very curious which questions you have prepared for me. Yeah, as he should be. We should tell our audience a little bit about you. You have been a guest as a subject matter expert before on digital assets, on digital securities, which already came into law here in Germany. But you're also professor at Frankfort School of Management, at finance, you're the head of the blockchain center and you are, of course, as a professor and a PhD in author is. Well, our audience may know the publication called Forbes, for which you are contributor. Plus you're also an advisor at Finn Take that, which is the Fintech Council, and an advisory board to the German federal government. And, according to fat set newspaper, one of Germany's largest newspaper, you are one of the thirty most influential economists in the German speaking area. And I have to tell my audit you're very first guest I ever have who has his own wikipia article. I'm so honored to have you here. Thanks, so very nice. But you know this Wikipedia, I think, article. You know I didn't do this. You know somebody, I don't know who, but somebody copy pasted my CV and now it's there. I I try to change in a minute, a little bit, but other people's than have undown it right, so it's not s that's very strange what happens on Wikipedia, but it's it's a nice anecdote to be there and yeah, thanks for these nice words. Indeed, working at the Frankfort School, you know, which is a nice small a child university, is fun because we also are able to educate digital stuff, you know, real digital stuff, towards our students, for example, talking about blockchain, data science and so on. In Germany there are not many universities at this point of time who are educating blockchain stuff to their students, even though it's getting more and more important. And I'm also getting more and more shop off us from consulting companies and others whill ask me to forward their job of us to students. You know, it's really, really increasing. I get three to four per week. You know, that's massive and but you know, these people are not being educated yet. So therefore I'm happy to work at the university which is really trying to deliver digital stuff to young people. And young people should should learn things which they need in the future, otherwise they will be unemployed. Right. So I think, I think it's it's a good it's a good university to work there us. You're also very good salesman. Everybody who'd like to...

...get into the program that you for what the job offers to they go go down here. In the show notes we will have a link to the Frankfort School of Management and finance. Today we are talking about Central Bank digital currency, SEBDC, to make it pretty easy, especially the digital years, since we are in the city of the year in Frankfort. First I was wondering what is actually different here. If I now open my banking APP, I already have digital currency there. What is the big difference between now and, let's say, when we have a digital Arr yeah, so that's a very, very good question, because nobody knows. And you know why? Because the ECB is, at this point of time, still in the process of doing that. The concept how a digital euro in Europe could look like like the the European Central Bank, the ECB, is currently exploring what's basically potentially the best solution for a digital euro. So, therefore we have some assumption what's going on in in the ECB, but it's not absolutely sure how the ECB will design the digital euro. And if I may add some words here, I think the the CBDC topic is a very complex topic. It also feels a little bit, yeah, difficult to explain, and therefore I like it better to frame it as the discussion around the digital euro, the digital dollar and the digital run coming from China. Right. And and why is this? Because you know, the CPDC topic, as you have framed it, is a specific design variant how a euro might run on a modern infrastructure. Right. Is that? Because what you're suggesting in terms of talking about a CBDC means that you're suggesting that the central bank is operating the system and delivering the money. Right, but actually this is just half of the truth, because in case we are today, is spending our money, which is sitting on a papal account, which is sitting on a credit card, which is sitting on a normal bank account, and so on. Then it's this is not central bank money. Right. This is called Commercial Bank money, which means that this money is being supplied to you, to me, to all of the listeners out there, by a normal bank. Right, the bank is delivering the money. It's just the central bank on the back end. Right, it's basically a multi tiered system. On the very back end you have the central bank. In the middle you have the Commercial Bank, could be wells fargo, could be Deutsche Bank or whoever, and then we as customers are connected to the Commercial Bank, not to the Central Bank, and therefore, if we talk about cbdcs, then this automatically suggests that we are potentially something like customers to the European Central Bank, and this, in my mind, is the wrong framing, because in the future we will still have commercial banks such as, as I said, you know, Doutge Bank, Wells Fargo and so on, but the infrastructure will be different, and therefore I would always prefer to call this discussion the digital euro, the digital dollar, the digital run and so on, and not not just call it CBDC, because this is just half of the truth and, speaking for Europe, it's the worse half of the truth, so to say, because the ECB is doing basically a good job. Yes, it starts to explore the digital euro, but we also have to see here that, for example, China is years ahead and the ECB is basically working in a quiet slow mode, and this then leads to the situation that, for example, in China, we will have their lounge of the digital one, that's the Chinese currency. Will see their lounge this year and the ECB might lounge their solution in twenty twenty six, and that's basically five years from now. That's the time when easy, when the ECB might lounge their digital euro solution, whereas in...

China their solution will then be already alive for five years. Right. It's five years of time differential here and therefore, to be honest, I think the ECB is they is doing an okay shop working on this, but in my mind they should really speed up this entire topic, because China will be live this year and if you wish, we can also directly talk about the situation in the US. Yes, that would be great. I actually also had China a little bit down my preparations. There is actually a central bank digital currency tracker that it'll that I'll link down here in the show notes. I think they're twenty to fifty central banks currently working on Digital Central Bank digital currency, and you refer to China. Last data I've found they already processed more than four million transactions in CBDC or digital UN worth more than two hundred milling U as dollars. So they're quite ahead of the ECB doing some research. Yes, let us talk a little bit about the ass and then we may go back and go a little bit from the APP back to the Center Bank and how this may change. Yeah, makes sense. So you know, as I said, the China is basically life and, as you have said, you know, the numbers are also the numbers. I know they have done their experiments with on the Digital Hue, with one hundred fourteen million people. You know, that's what they call experiments in terms of prototypes. Right in Germany we have eighty two million inhabitants, so twice the size approximately, is basically the size of a prototype in China. You know, imagine this, and this is absolutely fascinating, because China is basically where your head and we can also criticize China. You know, the system is in transparent. We do not know much about the technology and who knows whether the data will be used for analyzing people. They are at who knows the right but still, we have to see here. China is doing an amazing role here in terms of geopolitics, in terms of digitally transforming their currency and equipping their currency with a digital functions. Let's talk about this later. Then in Europe we have the ECB, which is basically, as I set, a little bit slower, six years of time. The venture and the situation in the US is is basically quite similar to the ECB and to Europe here, because the the fat in the US is also is basically doing some very, very early experiments. They are doing a lot of writing of reports, a lot of authoring, they are analyzing this. So the ECB and the fat is basically in a in a quiet joint stage here, right. So, and therefore, of course China is also ahead of the US, but there is a huge difference here. For the US dollar, we already have a solution, and the solution is called US dollar stable coins. We have, coming from the CRYPTO WORLD, a couple of stable coins where you have blockchain infrastructures, such as etherium and some others, and there people have issued the US dollar in terms of stable as a stable coin. Right, it's something like a token running on a blockchain system and it's referenced to the US dollar price that's basically one point zero zero, and this way you have a blockchain US dollar already running and the daily volume of the US dollar stable coins are partly exceeding one hundred billion per day. If you sum this up on a month sea level, this is trillions per months. You know this is massive. But people in the US are skeptical towards these US dollar stable coins because some of them have not been regulated perfectly. The these companies are called tether, USDC, coming from circle or puss ends on and especially tether has been a critical company in the past which has also been sued by a couple of US...

...states. I think so because the apparently, the question was always in case Tessa is saying we are having five billions of yours dollars as tokens, then the question is, do they really have five billions of yours donor on their bank account right? Is it really fully back? That was the question with regard to tether. Therefore, the regulation was improved a little bit, but people in the US and also in Europe are still very skeptical about the the US dollar stable cards. But you know, in case you're simply talk about the numbers. The US dollar is having a digital solution. There is a digital dollar already out there, but it's not coming from the fat at this point of time to coming from the central bank, but rather it operates as a stable coin. And in case you are now improving the regulatory situation around you as to lar stable coins, then you could argue that the US stolar has become digital, coming from the crazy crypto world, and at some point of time Lens building over to two more legacy industries and so on. So, to summarize here, in terms of geopolitics, and I think this is very, very exciting, we have China with an government initiated solution coming from the Central Bank. We have both the fat and the European Central Bank be a little bit all the significant, significantly slower here, and this opens up a gap between China and the US, and this gap could potentially being filled by the US dollar stable coins such as U S DC, coming from third circle and some others, one and even paypal have has now announced that they might investigate such you as dollar stable coins. So this gap between you, es dollar and China might be filled by the US dollar stable coins in case the regulatory improvements are happening. But, and this is the key point I would like to make, the gap between the euro and the Chinese currency is still there because there are no that's basically close to zero eurostable coins. Yeah, so the US gap can be filled, but the gap for Europe towards China cannot be filled because we do not have euro stable coins out there. This would be my expectation of what's going on this year in the world of digital currencies, digital euro, digit dollar and so on. My feet are actually tingling when you say, Oh, there's close to zero euro stable coins. That would mean there is a big market opportunity there as well. And when we've been talking about the digital you as dollars basically filled by private companies and there is some regulation to stabilize that. I had in mind a few fed, very season fat bankers who were close to stroke when they realize, Oh, that's your as dollar, that's money and we don't control it. We so that's a very, very good point, Joe. But the interesting point is here. You know, in case you're having a bank issuing the money, I'm having them on my smartphone. It is exactly the same like paypal issuing the US dollar for my APP on the smartphone. You know the paper APP right, and you know, going on step further, what is exactly the difference between a stable coin issuer. In case it's regulated appropriately, then it's simply something like paypal, but running on blockchain. Right, the regulation is there. It's not affecting money supply because such stable coins are basically issued as tokens running on blockchain systems. But on the back end they are fully backed by the US dollar, because this is regulatory requirements which have to be fulfilled. Right. So think of a US dollar stable coins as something like paper, but only at this point of time when they are regulated in exactly the same way. Right, then this becomes very clear. And concerning...

...your first point, where you would expect like huge market opportunities in Europe actually show, I thought exactly the same, but the situation here is a little bit different, and you know why? Because we have negative interest rates. This means, in case you have an euro stable coin where the price is one point zero zero per token, one point zero zero euro her token. That's the price. Then this token is created such that it's not interest bearing. But on the back end you have the issuer who has to store euro on its bank account, and this bank account is basically, yeah, exposed to negative interest rates, which have to been paid to the ECB. So so. So that means that you issue digital ar you have the real euro on your bank account and actually the bank is slowly chipping away on those years. You actually in curing a loss just with that. Tis For the simple reason that we have negative interest rate. Rate. Yes, exactly right. So, therefore, you know, it's a very bad combination having the the the regulatory requirements for stable coins combined with negative interest rates. You know, it's it's just an it's an artifact, right. You know, nobody wanted to have it like this way, but this is now now, how it came and given the situation, it just doesn't make sense for an stable coin issuer to issue a large scale eurostable coin, because this project will be profit unprofitable as of day one. Right, we do have some eurostable coin. I have to mention Salo and a couple of others. You know, they are really doing an amazing job, but they also say that it's difficult for them to operate because they are operating, by definition, at a loss, you know, and a company which needs to operate at a loss and in cap you know, show we meagine this company is growing, it get successful, then the loss is getting bigger and become bigger. You notice. This cannot be sustainable, right. So there off. This is one reason why there are no large scale you row stable coins. But there are also other reasons. Why? Why? The why the stable coins are primarily yours dollar referenced, and actually the US dollar market shares of the you of the stable coins is basically ninety nine percent. You know, there is basically no other currency in the stable coin domain at this point of time except to yours dollar, and reason for this is rooted in how, in the in the way crypto markets are existing. For example, decentralized finance is basically a smart contract based financial market for the future. And defy would not work without the US dollar because everybody who is doing the stuff in defy, at least to some degree, is computing his wealth in US dollar. Right. So defy, the trypt ecosystem, is basically an international market and to some degree people also computing bitcoin there or in in either. But many, many people are also computing their wealth in this kind of international, transnational market in yours dollar. And this, then has led to the one hundred percent or ninety nine percent US dollarization of this tryp to do main right. This is very, very interesting and this is basically the second reason why we have large scale US tollar stable coins, but we do not have any other stable coins at this point of time. We may add what we talking about here about the central bank row. We won't get into, like, all the details monetary operation, money supplyings on ands of for with, but basically the central banks, like talk about all the central banks in the world here, they have to regulate money supply in order either to keep the interest to keep the inflation low or to generate jobs or in in in the case of the feed both, or in the case of the year, which is officially just targeting an inflation rate on the ear, but actually they're also acting as if job supply, job generation, would be one of the targets, and there is a lot of...

...signs. There is a lot of research around this and I do believe with everything I just touched here, you could fill whole libraries out there. So we won't get into that, but basically one of the main things the central banks are doing is regulating the money supply and one and two and three, and basically they do it differently in Europe with the REPO business. They do it differently in the US with the Fed trading desk in New York. I link a hell lot of articles down here, but don't ask me for all the details because we don't have years of time here. And but basically, when I was going at is that the central banks are actually having a very important role that we had to learn over time, especially during time of hyper inflation, especially regarding the S S. Here in Germany, the bank collapses in the s lender of last resort and so on and so forth. So they are fulfilling a very important function right now, and so I do believe that also has to be translated into digital currencies, because when I thought about it, mm, you have token ize this. So basically, what is the difference? Now I could have an APP and I have the Central Bank and basically the center back, theoretically speaking, could just deal with all the retail customers directly via APP in terms of a real digital euro. Don't get me wrong, I don't think this will necessarily ever happen, but it's a theoretical model. But then you would need to change all we just touched, like bank regulation, money supply, economic growth, drop generation, all those duties would have to regulate to be regulated completely differently, which is very interesting topic, but also nothing we go into right now. But Let us first try to touch a little bit how everything looks different right now. My understanding is that there's somebody in front of sap working at the European Central Bank, and their chuffle shuffling around buildings and buildings and buildings and buildings between the accounts of the banks at the Central Bank, because all the banks regulated in the your area have to have an account at the European Center bank and that's basically how transfers between them usually works. And then you have to retail client use actually working with the bank right that is how it works right now. So what will be changing with the digital R yeah, exactly. So. The question is, you know, why do we talk about the digital euro? Exactly so, and there are many, many, many reasons. So let me mention two three reasons why it does make sense. So imagine you have a US dollar stable coin, you have the digital you as tollar, digital euro or whatever, and I would like to transfer money from here in Germany to you in South Korea. Then you know you're going say, Oh, the money international money transfers are very, very complex. You know, names are not really matching perfectly. Then addresses of banks have to be transferred. Oh, to paint may a chip in here, just for example, my name. I'm not officially Joe, I'm yearned, that is Jay, oh with the two dots, and it our n but many computer systems outside of the German speaking area cannot even do this letter. Oh. So basically there's there's already a problem here, and it doesn't get any better if you go further and further out in the world. Yeah, exactly. And you know, imagine you're called a Muhammad, for example. You know that. I think there are forty variants of how Muhammad is being spelled, you know, with one end, with double M, with WHO, with a, with Oh, and so on, you know, and these it systems, they...

...are just not matching all this stuff properly. So you have manual work involved in case you're doing cross border transactions, and distant involves manual work, computer work, money can go lost and so on, and you then end up with this long sided times of transactions and high transaction cost even from me in Germany, sending money to Switzerland costs me twenty five euro, you know, and this is a neighbor country with basically the same language, twenty five euro for one money transfer. So imagine the money being sent to Thailand or to South Korea and so on. And therefore, and this is very important show in case we are talking about the European citizen, you know, somebody living in a German small town, going to work every day, having a car, and on and and don't having to do International Money Trans transferers and on. Those people will not benefit from from the digital euro. For them the current infrastructure is absolutely perfect. But in case you are involving trading of assets, consumption of assets, capital market transactions, cross border payments and so on, all these things, you know, which are very high volume transactions and or high frequency transactions, they benefit very strongly from a digital dollar to Uro and so on. So imagine you can now transfer one hundred you as dollar from here to South Korea and the money arives with within a couple of milliseconds. You know, this is the the image you could, you should have. And now typically you would ask your the come on, what's what's the benefit here? You can also had boots with paypal. Yes, you can do this with papal, but papal needs to include your country. Therefore, in case paper is not existing in your country, say a distant, remote country in Africa or South America and so on, in case this country is not covering paper, then once again you have all the all the tiring things with don't tense actions and high transaction costs over there. Right. So paper needs to operate in your country. Plus, paper is not for free. Paper has fees. For example, merchants typically pay one or two or something like this, percent of the transaction value or, in terms of pep fees. So paypal is not by far not as efficient as blockchain transaction systems could be. So you see here, cross border payments around the globe are very, very important, and I want driver via the digital dollar, the digital euro and so on, makes sense right now, we may add, because I just had an idea, and basically how is just looking it up as he spoke. For example, the little country in Bhutan in the Himalayas between India and China, they don't have paypal. So basically you would need to go back to swift, which is basically a messaging system between banks, and basically the message is okay, in a few days, two dozen years from this, person will arrive in most banks. They'll wait until the money right and then paid out to you. Yeah, exactly. This is exact the point, you know, and that that's that's also repeating what I have said. You know, in case you are a normal citizen in a normal German town and doing normal transactions, then the world is fine for you, but as soon as you are doing international trss border stuff and also involving emerging economies and so on, then the current infrastructure is inefficient. And now you would say up. But why should you care? Right? I think I think we should care because it's hundreds of millions of citizens on earth which are basically suffering from inefficient infrastructures, because this is basically how they have been built in the last decades. Right. So, therefore, here we see very nicely digital dollar and all this stuff can really benefit people over there. For example, take El Cyba door right at CIBA, for is not having an own currency anymore. They have the US dollar and now it the BITCOIN. So in case, so with this, with the US dollar, with the digital your s dollar, you could also easily transfer money in and out of elsabador in denoted in your s dollar, forth and back very efficiently. This is,...

I think, one of the very key aspects. Yet another key argument why we should talk about digital dollar by does make sense is the following, because, which is a little bit difficult to explain, right, because imagine you are purchasing a stock of General Electric for example, right, so you you have the payment infrastructure. In case I'm purchasing shares, then one thousand euro are going out of my bank account and for those persons who are selling to share to me, they are getting my money. So I'm sending money from me to another person and on the other hand side I get shares from another person to me. So this is basically what trading makes sense. It's basically ownership changes, right, but from an IT perspective, these are two different it systems, because it's silod right. There is the silo of money transferers, that's basically where money is is being moved forth and back, and there is the silo of securities, where shares are being moved forth and back. And these two silos, they are not perfectly nicely connected. So it's difficult to reconcile all these transactions. That's why you need to have clearing houses. So in finance you have clearing houses. They are connected to to multiple such silos, and then they help facilitate this kind of trade because they need to recordcile these multiple silos and the tracks and chat transactions which are happening in decileos. Right. So, and in case you are now deploying the US folar ordered the euro on a blockchain system, then the world changes dramatically, and the key point is here that you have one blockchain infrastructure, one infrastructure, and on this wanted the same infrastructure. You have the euro, the dollar, the General Electric Stock, the apple stock to Google stock and so on in the four so we have one joint infrastructure and many currencies, many shares, many stocks, many securities, running on one and the same infrastructure. And in case trading takes place now, then the settlement of this trading will simply being executed by smart contracts. This would mean that technology is simply doing in a very secure way this kind of trade and distance results in the very severe consequence that we can get rid of clearing houses. So you remove clearing houses, you remove their cost structure, you will remove their counter party risk, you remove their the the CIDER, time they need to process the transactions, on and on. The business model of a clearinghouse just doesn't make sense anymore in a blockchain world. Right. And this then allows you to trade more efficiently, with with less time, lower costs, and also allows you to transfer securities more easy on a cross border way end, so on and so forth. Right. And therefore, as in Germany, we typically called these discussions delivery versus payment. So I deliver shares versus I get payment from the other side. DVP. That's big. I don't know how this is called in other countries, but in here we call it DVP, and this very this shows very nicely that that real benefit of digital currencies are lying in case you are doing such capital market transactions. And then one one, one more sentence show, if I may so, this is also applicable to products and services in the future. Right. So, yes, I now explained capital market transactions, purchasing, selling shares. Yes, but you could also easily do this with space, consumer purchases, all kinds of services being offered to retail people and so on, because the the service is running on chain, the money is running on chain, and a small contract is facilitating the trade, such as you do not have to have these these these clearing houses, and then you end up with much more efficient business processes within companies, right much more efficient business processes with income countries. You know, this is the easy explanation and we could go on for hours now to will basically...

...dig into this. It's getting very complex, but in my personal opinion, these are the two main reasons why it does make sense. So bottom line is a lot of businesses will get cheaper buying and selling of product, especially internationally, or it's also including a financial assets here. Plus, there will be mirs models that go out of business, not like this, but maybe twenty, fifty years down the road, depending on the regulation, like in terms of clearing houses. I was also wondering actually you the money transfer fees will go down, which will be another blow to the banks because they actually making money out of this, and also foreign currency trading, I do believe, may also go down lot. Is Is there still a sense of foreign currency rating? Because right now, when you're like a really big guy, say, for example, Dodge Tailcom, and you need to send money over to Tmobile, you, as you basically tell your bank or Kay, I need two hundred million you as dollars sent over there. So first they change your for year as dollars and then they send it over. And this transaction, this exchange, is actually taking place on fx markets. Is there still a business for them, or will it be completely automated, hopefully on blockchains in Europe and the United States that talk to each other that are compatible? The key reasons the following. In at this point of time we talk about the easyb et as the central bank digital currency, CBDC's right. At this point of time, people very often think that the digital euro will run inside in some kind of mono. Yeah, and some kind of silo system. Right, you operate basically the the CBDC as a euro. But actually I don't think that this will be the future. I would rather think that we will have all kinds of blockchain infrastructures. You know, that's the technical infrastructure, and then you're deploying the euro on top of it. You can deploy the use the euro on etherium, you can deploy the euro on drawn or on binance marching or on any other crazy infrastructure. Right. So we will have multiple euros. They are all called the euros, but they are multiple euros running technically on different infrastructure, and the same is already true now for the US dollar. So this trading which you just mentioned will take place because the euro is sitting or the US dollar is sitting on multiple infrastructures at the same point of time. And of course, you know all these, all these these these these tokens then need to be balanced. And I would like to point to some other thing. Right, imagine the following. We have a quite strongly exporting industry in in Germany, you know, like companies doing amazing machines, and they are selling this machine to the entire world. Now imagine a machinery company in Germany selling a machine to China. China is needs to pay for this and China is developing its digital currency, a solution, right, so that the so the Chinese customer might demand from the German machinery companies to on board to the Chinese payment system, because the the Chinese customer tells to the Machinery Company in Germany that the German companies only getting the money. Why are the Chinese payment infrastructure? And this way you'll buy this by this networking thought, right, you automatically get some adoption, not just in China, but also with your trade partners who are doing important export business all over the world, right, and this comp countries like China, US and other ones. They can basically try to get other parties into their system, because basically this is the nature of important export right. And therefore we will also have some kind of demand from companies who want to have the digital dollar,...

...because they then know that they can design their business processes in a more efficient way. So, so imagine your ements, right, in case ements wants to create more efficient business processes, they somehow have to embed the digital euro dollar whatever. And in case the euro has not become digital at this point of time, because it's not running on a block and system. What. Whatever, what is he what is emans doing them? You know, they are not waiting until the EASYB has finished, right, they are simply connecting to the US dollar or to to some other currency, right, and this is exactly why the the digitization of such currencies. You know, the topic we are talking about is, in my mind, very important. It has a geopolitical aspect and it's a it's a there are some competitive pressures going on right countries and their currencies. They have to think about digitization at some point of time. If they don't, then two companies, they are simply turning away and doing their money transactions with other currencies. Right. I see, I see. I'm basically when you've been talking about this hour is I was putting myself in the shoes of financial regulators, like central banks or overside bodies, who have to guarantee that the system is stable. And then you are US employees sitting somewhere in New York, in Chicago, in Dallas, wherever the fats are, and hack you then have to make sure all the digital you as dollars, are regulated and they are stable. That would actually give me a really, really big headache, also for the European Central Bank, when when you have to make sure you have to oversee certain entities and they're actually under the jurisdiction of the US because they're there, are working with the as dollars, but they are also license in the in Europe, so you also have to oversee them. So that is a big mess and I do understand why they are moving slowly. Everybody has to short this out because otherwise there will be an entrepreneur at the end, regulated by five different bodies, and they also left right front, back up down, all at the same time. This is this is the example of papal. Right, paper is a company being regulated in Europe, in the US and in many countries, and I think the game which will go on will will be the following. The government or the regulated saying, you're welcome to start your own stable coin, but you can only use it as the dollar. In case you're applying to the regulatory requirements, then you get a license. And in case you're misbehaving, in case you're doing bad things, money launchry. In case you're not backing up the the stable coin with the required amount of yours dollar. In case you misbehaving, then we're taking away the license from you, and then you have to stop operating right the end, and this way, this way, I think you can assure that also, so many companies at the same point of time are behaving atticquatly. The same is already happening all for paper right. I trust papal because it works. In case I send money by our papal, it really arrives right, so I'm really trusting them. And the the root of this trust is basically the licenses papal is having in multiple countries. Yeah, for example, in your their license in Luxembourg, as far as I know. I also have one topic would like to touch here, especially Kay see, taxes and regulations. That will also be like very long down the road. But basically that all has to be accounted for as well, and when you have a digital your that can change. Like this. I do believe the KYC anti money laundry. Like you, you want to avoid that. Illegal money from drugs or weapons stels comes into...

...the system again, prostitution, whatever, comes back that. The money's all tax and all of them have to be a little bit regulated. So that also needs to be thrown into the digital euro. But basically, I would say at one point down the road, basically you need your APP and your cell phone and hopefully you don't lose it. Yeah, no, EF is is absolutely to nicely explained right, but I think you know you have two very diverging fews here. You know that the government and the regulator would love to identify any endpoint of any transaction for any scent being sent to other people, right, you know, any really sent being sent around the world they would like to identify to really check whether it's this is good money or bad money, right, and the customer on the other hand side, you know, these can also be African countries or people in El Salvador and somewhere on earth. What would they like to have? Exactly the opposite. They would like to be not identified at all, right, because this is bad, because then they can freely transact, you know, with all kinds of possibilities, and they do not have to to take the burden of identifying themselves. And I think, therefore, you know, we have to accept how this basically how this two possibilities are and therefore, I think, to be honest to yours dollar stable coins, they try in the future to do a good balance between these two worlds, and this balance could look like follows. You are allowing anonymous transactions for low amounts of money, say one hundred your astollar and below, you do not need to present your identification, of your passport. In case you are transferring less than one hundred your as dollar, you notice is a like a efficious number. You know, I just said now one hundred your as dollar, but I could make sense. And as soon as you're transacting more than you have one hundred your as dollar or more than one those new as as donor, then both transaction parties have to present their ID card to some kind of entity, because then they first need to get authorized to do such a large scale transactions. And, depending on the size and on the amount of the money being transferred, key YIC requirements are getting fears and Fisa, and the lower the amount is, the more software you can make this potential requirements for the transactions. I think such, such such an architecture would make sense, because then you would basically comply with the needs of the people to easily transact money, low amounts of money, and in case the the government wants to analyze huge amounts of money being moved around, then of course the government might hist the right, and it's basically good this way, to require identity card and identity management and all kinds of things for the transactions to be approved. Yeah, using it doesn't make sense. Yeah, that makes sense. And actually their two points. When you've been talking about that, and one final question that I have. One point would basically when you have a wallet on the phone. Now in Germany you can have your ID card, not the travel pass word, but the National ID cut wouldn't despress an otherwise on your APP as well. So basically you just would need to connect both and tea identification. And secondly, hours I like to do a little bit sarcastic and humorous, humorous ideas, because humor get gets to places where rationality never reaches. Basically, what you said I would translate. If you send a few years, totally fine. You can send it to your anonymous email addresses. If you're sending more than ten million, you ass dollars, which in international capital markets is a low number and in occurs every day. Basically, best you take your pride, your ID card, your travel passport and walk directly into the Office of the regulator. That,...

...yeah, not this. These thoughts, in my mind, make very much sense. And now let's come back to the European Center bank. Right the way they are designing their digital euro on behalf of the ECB, they are at this point of time, disregarding these international money flows outside the Euroregion. So they don't really care about euro flowing from an African country to an South American country. So this is basically not on their focus. So they are disregarding this kind of international aspect, which we now really discussed a lot and also found that it is important and and they also would, at this point of time at least, demand identification of the end points of transactions. Right. So you have two points here, in my mind, where the US dollar stable coins are better than what is being planned by the ECB, and that's exactly why I said there is a gap between the Fed and the ECB on one hand side, and China on the other hand side, and the US dollar has the potential to fill this gap with the with the US dollar stable coins. Yeah, because they are basically they very nicely fit into this gap, as we discussed it now for half an hour. But for Europe, we don't have a stable coin which fills this gap and we also don't have an ECB which is thinking of a solution, which is which potentially feels this gap. Right, and this is what me currently. Let me things that I could imagine that the that the European currency, the euro, is basically decreasing in importance because they are they are simply not capable of meeting the demands of a digitized world. As we have said. You know, international transferals money on blockchain systems and all kinds of things. And then also with this international aspect, people might find the euro not adequately be digitized to make it useful. Last the DIS incentive for private entrepreneurs. We discussed with the negative interest rates. At this point of time, you know, in case the interest rates are rising, then subtenly this business model would make sense. HMM. And one fine question, because we are now recording for over forty five minutes, but I really enjoyed this. We should that do this more often. And Fine, fine question would be we always talked about the infrastructure. Who Do you think will run this infrastructure? Talking explicitly here about the digital ur I know in the US the digital you as dollar, the stable coins, they're already there, their private and US dollar is regulated by the fat O key. That's fine. And in Europe, where there is no like really big alternative to to to central bank money, like a few stable coins, who will run here the infrastructure exactly? So stable coins are being made to run on existing blotching infrastructures such as Etherioium, drawn cosmos, terra and all kinds of smart contract platforms. For coming from the crypt world, you know this is basically where stable coins are running and we already see in the US dollar world that this works very nicely. We have a daily transaction volume of up to one hundred billion day by day. At this point of time, the ECB most probably, you know, as far as we know today, plans and infrastructure which is basically proprietarily being developed by them, which is not open, which is then basically under full control of the ECB. And if I as if I would, if somebody would ask me what I would suggest to the EAZYB, then I would suggest to them that they should also think of deploying the euro on smart contract platforms exactly in the similar way like the US dollar stable coins have been created. If I were a central bank, I would I would urgently think of creating central bank issued stable coins,...

...like an hybrid between the stable coins we know today, but not filled by company money's like tether and circle, but rather being filled by the central bank. You know, why not? And I think this could be a very interesting thought. You know, in case central bankers are now listening show, they would shake their heads and say so, what a catastrophe, you know, what a bad what a bad podcast. You know, this is what they would say now, but, to be honest, I could imagine that in the in the future, this could be a very interesting alternative to think about, because it could potentially be the best of both worlds. Right. Amazing closing words, Philip. As always, it was a pleasure having you a guest. Hope to have you back, let's say, latest end of the year, maybe next year, and then we can talk maybe a little about a progress in digital your or even stable coins. Thank you very much and have a great day. Yeah, thank you. That's all. Folks find more news streams events at interviews at www that startup. reread that Io. Remember, Sharon is cary. Thank you for staying with us to the end. We would like to thank the sponsor of this episode of vinovest and. They enable you, with a global network master somble ease and quantitative models, to find and invest in the best wine you can decide what you do with every single bottle, which also includes getting them delivered home to enjoy it with friends and family. To learn more, just click the link into description below.

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