Digital Transformation in the Financial Industry: Implications for Financial Inclusion, Stability and Supervision
Thursday, Dec 02, 2021

Digital Transformation in the Financial Industry: Implications for Financial Inclusion, Stability and Supervision

In this podcast and webcast, the speakers discussed the implications of digital money, including central bank digital currencies and how these developments in digital payments can facilitate financial inclusion, especially in emerging markets and developing economies.


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Speaker 1: You're listening to a Toronto Center podcast. Welcome. The goal of TC Podcasts is to spread the knowledge and accumulated experience of global leaders, experts, and world-renowned specialists in financial supervision and regulation. In each episode, we'll delve into some of today's most pressing issues as it relates to financial supervision and regulation, the financial crisis, climate change, financial inclusion, FinTech, and much more. Enjoy this episode.

Babak Abbaszade...: Hello, welcome everyone. It's always a pleasure for me to do these events, especially when we have such wonderful speakers. I am Babak Abbaszadeh, CEO of Toronto Center and your moderator. Welcome to this timely session on Digital Transformation in the Financial Industry: Implications for Financial Stability in Inclusion and Supervision.

Since our inception in 1998, Toronto Center has trained more than 15,000 central bankers and supervisors from 190 jurisdictions to build more stable, resilient, and inclusive financial system. This in turn supports sustainable economic development, helps to reduce poverty, and enhance gender equality. All citizens need access to safe and secure financial systems in order to save, make payments, borrow, and take out insurance, especially in times of crisis and hardship. The pandemic has already widened the gap in access to financial services, especially for women. On the positive side, the pandemic has accelerated digitization of financial sector. The panel will discuss the challenges and benefits of digital money innovations and central bank digital currencies, as well as the development of electronic payments to serve the unbanked populations. Our distinguished panelists will also explore the impact of these developments on financial inclusion, stability, cross border payment systems, especially in developing countries.

Toronto Center's mission is generously supported by global affairs, Canada, Swedish International Development Cooperation Agency, the IMF Jersey Overseas Aid, Comic Relief, and the SAID. And at the outset, we have to acknowledge that we're holding this webinar still while the pandemic, we are in the grips of it. And there's such a unequalness about it around the world. And I think the international community really must do more to provide more vaccines for everybody. I mean, we just need to move on and get this thing over.

Before we start the panel, I would like to introduce our special guest to set this stage. It is my privilege and honor to introduce the honorable Carolyn [Libby 00:02:55]. She's an elected official from the states of Jersey. Madam Libby was appointed as Jersey's first ever Minister for International Development and Chair of the Jersey Oversees Aid Commission in May 2018. She was also appointed as assistant chief minister, international, and chair of executive committee of the Jersey Branch of the Commonwealth Parliamentary Association. In addition, she has been very active on the education, sport, culture, citizenship, environment, and economic portfolio. So,, Carolyn, what else is left?

She has also been Jersey's representative on the British Islands and the Mediterranean Regions Steering Committee for Commonwealths Women Parliamentary Association. She has a very, very big active portfolio. Before joining the Parliament, she also worked in the finance industry before entering politics. I had the pleasure of meeting Carolyn in Jersey in 2019 before travel restrictions were introduced. And I was very impressed with her passion for international development and sorry, promoting stable and inclusive financial systems. It is really my pleasure to welcome you, Carolyn. Please go ahead.

Carolyn Labey: Thank you so, much, Babak. It gives me a great pleasure to open this meeting today. And I'd like to take this opportunity to thank the Toronto Center for bringing us all together. We are here because we believe that use of, and access to, financial services is crucial in driving global development. The benefits of financial inclusion are hard to overstate.

As we all know, there are roughly 1.7 billion people around the world who are unbanked and do not have access to financial services. This means that they cannot easily save for their children's education, take out a loan to buy seeds and fertilizers, or buy insurance to protect them medical or natural disasters. Microfinance plays a key role in international economic development. It is a powerful instrument, and empowers those that are traditionally marginalized, and is still reliant on and daily strengthened by digital innovation. The rapid growth in adoption of digital services poses challenges to financial stability, which we will discuss later today.

The COVID-19 pandemic touched our lives in many different ways, and adopting new technology became vital in order to maintain social connections, provide educational needs, and sustain economies worldwide. The crisis also served to highlight and heighten existing financial, digital, and social divides across all jurisdictions. The need for dependable access to financial services, and how this access aids the management of financial emergencies, has never been clearer. In common with most forms of adversity, it has been in poor nations, without the healthcare access to financial support and social safety nets that many of us rely on, that the impact has been most severe. In 2020, the number of people living in absolute poverty rose for the first time since 1997. And as you will note, the World Bank estimates that in 2021, an additional 150 million people will live below the poverty line because of COVID-19.

Jersey looks to add value to the field of financial inclusion, through our significant access to knowledge and capital, in addition to our ODA. And as one of the best regulated financial centers in the world, we particularly appreciate the importance of high quality, financial supervision. Jersey oversees aid to financial inclusion program targets poor and marginalized groups, with a particular focus on empowering women and on improving the efficiency and profitability of agricultural value chains. We are delighted to support the work of the Toronto center, which has widened financial inclusion and improved regulatory oversight globally with its reach, having trained 15,000 regulators and supervisors from over 190 countries since its first program, including many from Jersey. It recognizes that equitable access to financial services is important for the world over. Events such as this provide an important platform for sharing knowledge and forming creative partnerships. Organizations on all sides benefit from this dialogue. The shared experience of recent years has highlighted, at once, the need for fur other technological advancement in public, private, philanthropic, and development finance centers. And that universal access is within reach.

Once more. I'd like to thank you for the opportunity to speak today, and Toronto Center for facilitating this discussion. I am truly honored to introduce the distinguished panel, and I look forward to witnessing developments this forum brings.

Babak Abbaszade...: Thank you very much, Carolyn. Those are very insightful remarks. I think they set the stage very well for this discussion. And thank you so, much to you and the Jersey Overseas Aid for championing international development and the nice plugs about Toronto Center. Very much appreciate it.

Now it is my pleasure to welcome our distinguished panelists who are notable international authorities on this topic, as well as being international influencers. They are no strangers to this community. I'm not going to be reading their bios. You have seen their bios. We've distributed them to you. But I will draw on their experiences as I ask some questions.

It's my honor to introduce you to Dr. Patrick Njoroge, a good friend, and Governor of Central Bank of Kenya. And Patrick, congratulations on the 50th anniversary of the Central Bank of Kenya and the launch of your book, which is very important. I had the pleasure of attending the video ceremony yesterday, the virtual ceremony.

John Rolle is the governor Central Bank of Bahamas. And we have a lot of interest to hear from you about your e-money experience. Socorro Heysen is a member of Toronto Center's Board of Directors. And when she's not our board member, she also acts as the superintendent of banks, insurance, Pension Fund Administrators of Peru. So,, Socorro, you are very busy. Eswar Prasad, we're very honored to have him as our first-time guest, is a Nandlal P. Tolani Senior Professor of Trade Policy at the prestigious Cornell University and senior Fellow of Brookings Institution, and author of a noted book, which I will reference during this discussion.

So,, there'll be two rounds. I'll try to stop depending on the number of questions I receive. And I encourage you to please submit your questions. Don't be shy. Let's work this panel. And I will take a break so, that we can answer your questions, then we move to the round two, and we go from here. So,, without further ado, let's start.

Eswar, I was wondering if I can pose my very first question to you. You're the only non regulator on this panel. Don't worry, we won't hold it against you. And as a noted academic, you have had the chance to reflect on these issues from a broader perspective. Most of us are just in the thick of the battle. In your latest book titled The Future of Money: How Digital Revolution is Transforming Currencies and Finance, you detail how accelerating financial change, such as the rise of cryptocurrencies, will transform economies for better or for worse. I'm really interested to learn more, but I will ask you to please keep your comment about four to five minutes so, we can circulate the panel. Thank you. Go ahead please.

Eswar Prasad: Thanks to you Babak and your colleagues for organizing this panel and for having me along with such distinguished colleagues to talk about these important issues. Financial innovation, of course, is nothing new, but I think we are at the threshold of a really dramatic transformation in the nature of financial markets and institutions, and in the very nature of financial intermediation. And this is going to have a lot of benefits, as our lead speaker already pointed out. The new technologies provide avenues for financial inclusion that is going to bring a lot of benefits, especially to low-income households, to small-scale entrepreneurs, with these effects being particularly important for low income and developing economies. But even in an advanced economy, such as the United States, where about 5% of the adult population is still unbanked or underbanked, there are many benefits to be had.

I think access to low-cost digital payments is going to be a boon for consumers and businesses and the new technologies, I think, are going to also make it more easy to get over the many frictions and impediments that now bedevil international payments in particular. And as we all know, international trade plus the remittances that economic migrants send back to the home countries are quite important in terms of international capital flows, again, especially for low income and developing countries. Now, of course, a lot of this revolution was underway even before Bitcoin emerged on the stage, but the emergence of cryptocurrencies has certainly given a boost to these developments that I think are going to lead to more direct forms of financial intermediation, that connect savers and borrowers, that provide easy access to financial instruments, make it much easier for new entrants to join the financial system. So,, all of this is a positive.

Now, of course, there is a great deal of discussion about whether Bitcoin and other decentralized cryptocurrencies are in themselves going to be transformative. My own view is that Bitcoin, of course, as a medium of exchange is not going to work very well. It has fundamental flaws, including its unstable value, the fact that it has a very low transaction volume that can be processed on the network, and a variety of other flaws. Certainly, other cryptocurrencies are coming along that try to fix these flaws, stable coins, for instance, that try to provide stable value and thereby provide more efficient digital payments by essentially being backed up by stores of fiat currencies. And there's an interesting irony there because cryptocurrencies, after all, were supposed to get us away from government-managed payment systems. But in fact, they seem to be getting their legitimacy from the backing by fiat currencies.

My view, however, is that the real legacy of Bitcoin and other cryptocurrencies is going to be the blockchain technology, which, by providing the building blocks for decentralized finance, I think will make a much broader range of products and services, in addition to low-cost digital payments, widely available. But there are risks as well.

I think there are fundamental divides in our societies, especially unequal digital access to lack of financial literacy that could lead to existing problems being exacerbated by these new technologies. In addition, I think the new technologies are going to lead to substantial changes in financial intermediation, including possibly challenging the structure of traditional commercial banks. And of course, commercial banks are crucial in terms of the creation of money in modern economies. They're very important in terms of the transmission of monetary policy. So,, if you look around to the challenges that central banks face, both the implementation or transmission and monetary policy are going to face very significant challenges.

In addition, I think there is going to be an aspect of low-income developing countries and small open economies being challenged. This is an existentially challenging moment for some of these economies where I well can see of digital versions of major currencies, such as the dollar or the Chinese renminbi, or perhaps even stable coins backed up by corporations, such as Facebook, that really challenge these currencies. So,, I think we are at a stage where there are many benefits to be had at the country level, at the level of individual households and businesses. But I think we have to be very cognizant of the risks this poses in terms of monetary policy and individual economies, in terms of the monetary sovereignty, indeed, of certain economies, and the possibility that these technologies might, rather than bridging, might end up exacerbating the existing divides in our societies.

Babak Abbaszade...: Thank you, Dr. Prasad. That's actually really good because one of the things that you highlighted or a sub text that I'm hearing from you is it's not an easy transition. It's not an easy thing to talk about. We're going to deal with it today. And there's regulatory issues. There are all kinds of various issues to grapple with. But the elephant in the room is the consumer. The consumer is not happy with their big, traditional financial institution and there's a chipping away happening. And now we're finding this and FinTech and everything else. And what is this central banker to do? So, those are really at the nub of these things.

So,, let's just move on to governor role. It's a pleasure to have you, sir. And I noticed you went to University of Western Ontario. That's where my niece and nephew are studying right now. So, good for that for you. You're the champion of e-currency race. Bahamas became a global leader in e-money last year when it launched one of the world's first central bank digital currencies, the Sand Dollar. You have been working on central bank digital currencies since at least 2016. What have you learned so, far from your pioneering role and what have been the biggest obstacles to your efforts? Thank you.

John A. Rolle: Oh, thank you very much Babak. And let me also thank the Toronto Center for hosting this event. I will clarify that we conceived of a central bank digital currency probably around about 2018. But it encapsulated into a longer process of payment system modernization, where the push towards recognizing the kinds of system we needed for electronic payments materialized around about 2012. And in the space between then and the present, we also anticipated that there would need to be new players in the space to get the electronic money use started.

And so,, we focused in that period on addressing consumer protection issues, how to have regulations for these providers, and recognizing very early in that process that these new providers would still need to confront interoperability issues. And hence, we thought and are advanced to the stage of recognizing there's a value that a central bank digital currency could have in providing the interoperability for the space. So, it's in a case were coming later to the game in terms of mobile money and electronic payment, you were able to immediately the leapfrog and use the developing ideas around CBDC to make certain that the new players in the space could be fully interoperable.

What is important to recognize though is that in many senses, The Bahamas is still at an infancy stage in terms of its population using mobile money. Digital finances, but not so, much mobile money. And that helps to define some of the lessons and challenges we've had in getting to this point, because it's still a project. One of the important lessons when you're looking at a country where you don't have that depth yet of experience in using the mobile products, with the smartphone being the delivery channel, is that this is not an organic process for us at the beginning. We have to put the effort into pushing this forward.

We recognize, for example, that this fits into our push for a more resilient country, from an archipelago standpoint, how we address financial inclusion. And so, pushing for CBDC adoption in a scattered archipelago, it's very important to address under banked and unbanked parts of our community. One of the things that our adoption process, that we recognize and learn is important, is that public education is necessary, not specifically on central bank digital currencies, but in getting the public to become more confident and skilled around using digital payment tools in a secure fashion. And so,, there's a lot of education around the technology, the security of the technology, and how individuals can operate in a secure fashion.

We also have to focus at this early stage on building up the critical mass of merchants. People need outlets to spend mobile money. And in many cases, we are looking at extending the reach, from a financial inclusion point to micro and small businesses that may not yet be as active with the smart cards and other uses that allow for electronic payments.

Now, as a payment instrument in an otherwise mature financial system, we also recognize that those who are potential users of a CBDC do not view it as a substitute for banking system and products. So, we've learned very early in this process that we must have the integration with the traditional banking system. And so, one of the current focuses of our work is completing that connection with the automated clearinghouse so, that users can have that connectivity, particularly where they are already nestled in the banking system. The public sector is incredibly important, and they have to be visible in this process. And one of the visibilities for the government is just getting us through the establishment of the legal framework. But the government is also, in the case of The Bahamas, in the very early stages of shifting to digital platform for its services delivery.

PART 1 OF 4 ENDS [00:23:04]

John A. Rolle: Shifting to digital platform for services delivery, and because they're integrating the sand dollar into their payment’s options, that's going to be a very important push, and a show of leadership in terms of how we get the country moving along in adopting digital. And it also speaks to the financial inclusion aspect, because government services need to be accessible, even at the payments level, to all strata’s of society.

In the adoption process, we also have to focus and appreciate the importance of the coordination with the financial institutions, because the model is not one where the central bank is on the front line, distributing a CBDC. We have to rely on those institutions. And so, there's an element of patience and allowing them to get up to speed, developing their product platforms, et cetera.

If you were to talk about obstacles, in a project mode, yes. There will always be project related issue you that you have to deal with. But I would say that the greatest obstacle in introducing such a revolutionary change has been in the pandemic. Because even though this is taking the country more in a digital direction, you're dealing also with segments of the population, to which digital payments will be something that they have to get more accustomed to. And so,, there is an element of in person interaction that we've been missing up until this point, and we are now in a better position to push ahead with those kinds of interaction. And, and that is really going to help us in terms of the way we move forward with the adoption process. I'll stop there and I'll wait for the next round if anything else comes up.

Babak Abbaszade...: Thank you, Governor. I just want to connect something I heard, a theme or a connective tissue between your comment and [Ishwar's 00:25:00], in a sense that he at some point mentioned that it's ironic that cryptocurrency and these things were developed to decentralize, and now the governments are stepping in. But in a way, as I'm listening to you, I think there might be some wisdom to government stepping in. Not a wholehearted endorsement of that, but the fact that if nothing else, you're introducing some degree of competition. We've seen it elsewhere as well, as disruptive technologies have come to deal with ride sharing or whatever, the traditional players in that sector, taxis or whatever. They up their game. So, that might be a very elementary type of an example to try to connect to, but it talks about the complexity of this. Again, going back to the consumer.

So, now, want to turn my attention to Africa and Dr. [Njoroge 00:25:48] Patrick. Again, congratulations on your book. And it's interesting as you listen to this, I think you probably find it a bit ironic as well. Because Kenya is a success story by almost any metric in digital finance journey. And I think it's an honor well deserved. I'm sure it wasn't easy. And goes way back, which probably helps some of the battles that you experienced with the pandemic. So, as you reflect on that and this conversation, in your view, what were the pillars that have anchored your financial transformation journey, and are there any lessons for us? Thank you.

Patrick Njoroge: Thank you very much, [Babak 00:26:28] and good morning, good afternoon to all of you. And thank you Babak for joining us yesterday for the book launch. That was good. But in terms of your question, and I think ... Oh, I should also say that I really appreciated what Ishwar and my brother John explained just now about their respective journeys that they described. From our perspective, looking back, obviously the whole process of payments, of transforming payments, is to be seen in the context of the history of the country, but obviously the milestone, the real milestone, or the significant milestone was in 2007. And this is when [inaudible 00:27:19] was put in place in effect being the start of digital money revolution. But I think there are several elements that, at that point, we should say, the level of financial inclusion was 26%. Today ... Well, actually two ago in 2019, it was already at 83% and we are doing a survey now it's about to be completed, and I'm pretty sure it'll be north of 90%. But now I'm not so, sure. Maybe I'm not as positive as I was a little earlier, because of the impact of the pandemic. It could have gone either way because of that.

But nevertheless, it has really transformed the landscape. And I think there's specific elements that led to that. First is that there was a clarity about the problem. And I think this is something which anyone, even in the discussions just now John was talking about, he's clear about what problem they're trying to solve. For us, the problem was sending money from the urban areas, meaning the workers that are in the urban areas, to their rural homes. And that is really what drove this transformation in terms of digital money. And of course, there has been other technologies before that, but they never really worked as much as this one. So, I think that is important.

Of course, underlying it there was the penetration of the digital technologies, meaning the forms. And therefore, the technology was accessible. It wasn't like you needed to go to some shop or office, or whatever else it is that is 20 kilometers away, et cetera. That I think is one. So, it is important to emphasize that it was people-centric, and everything we've done since then, we have come back to this point. What problem are you solving, and are you really dealing with people?

I say that because there's also a problem nowadays, as we have been in the midst of all this, and there's more excitement about technology. But our question is always, okay, what problem are you solving? And how are you going to help the people move forward in terms of bringing them ... Life their livelihood, et cetera, as the minister mentioned a moment ago. That's one element.

The second one was the regulatory principle that we had. Our view here is we have an objective to minimize the risks that are there. And as regulators, we are always concerned about financial stability. So, even though the solution that has been brought to us looks really nice in terms of technology, or it has a wiz bang front end, whatever, we go back to the first question, which is, "Okay, tell us about financial stability." What are the risks that you're bringing in? How are you mitigating them, et cetera? And there's a whole host of issues that one could discuss. Now we talk a lot more about cyber security, et cetera. But I think all that has to be seen in terms of mitigating the risk.

And so, from our perspective, therefore, we did not wait until we had a perfect solution. And there was a test and land approach that we adopted as regulators. I think nowadays they call it a sandbox kind of thing. So, we were doing sandboxing before the term sandboxing was invented. And I think this really helped. Of course, the understanding was if the risks became too much, we just pulled the thing from the wall. Just turn it off, kind of thing. So, then finally, I think it is important to appreciate that there was potential of improving, let's say lift, going beyond just the payments. And I'm talking ... Maybe I put it out as an example. The digital money, let's say, experience and all that, what it also did is to actually improve the welfare of people. In fact, there has been studies done about the impact on growth, et cetera. And impact on health of families and women, et cetera.

So, there was that other end. So, you could say that those were by-products. Now as economies, actually, that is why we do business. So, they're not by-products really. That is really what we do. But I think what then also happened is we've got an ecosystem that actually grew around it, around this platform, that I think in a sense, the sky was the limit. So, there are many other elements that for instance micro loans, micro insurance, nano insurance, health apps, et cetera, farming apps. All of which have kind of grown around this ecosystem. So, to me, those are the elements that I would probably flag as critical in our success.

You had also asked something about the pandemic, or did I mishear you?

Babak Abbaszade...: I think you answered it very well. I was just thinking, what were the pillars that have anchored your financial transformation journey? And I think you expressed that really well.

Patrick Njoroge: Okay.

Babak Abbaszade...: And Patrick, I want to thank you because I remember back in 2016, we had a panel in Washington and you attended, and you were trying to provide the ... Because back then these ideas were fairly new. We were trying to provide a real-life answer, and you gave a very interesting example. I'm just going to take 10 seconds to talk about it, which was you said, "Conceive of this woman who has two kids, lives in a hut, lives by a coastal area, and gets up three in the morning and orders the fish from the fishermen who are out there in the water at 3:00 AM, and then puts their kids ... Wakes up a little bit later, takes her kids to school and all that, goes back to the market at around 6:00 AM and picks up the fish." And right there, all of that happen through that electronic form. But then where do the regulars come in? I think that was a very interesting picture that helped organize a lot of our thinking. Because really brought it down to the ground. So, thank you for that. I wanted to thank you after five years, seven years about that. Okay. So, [Coro 00:34:31]-

Patrick Njoroge: That's good.

Babak Abbaszade...: Let's come to you now.

Patrick Njoroge: You tell it Well, Babak. I like that. You tell it in 10 seconds. I would have taken three hours. So, good for that. Thank you.

Babak Abbaszade...: I missed a lot though in that 10 second. So, Carolyn, over to you. Peru is a very important emerging economy in Latin America, and you really are dealing with all these issues from supervisory perspective. So, your co-panelists offered their interesting insights as the lead banking insurance and patient sector supervisor, you have a unique perspective on the challenges of emerging economies. We're interested to know about how digital transformation is affecting Peru's financial sector, what has gone well and what not so, well. Thank you.

Carolyn Labey: Thank you, Babak. As usual, it is a pleasure to me to be part of this interesting discussions and with such an outstanding group of experts. As in many countries, Peru had a process of digital transformation that was accelerated with COVID 19, and many institutions that had well planned efforts just follow them faster, and institutions that were lagging behind were forced to follow that path also. So, the circumstances of the pandemic demanded more digital services, more digital products, more digital channels of communication, and I think financial institutions in Peru have responded well to this demand. And I can give you a few examples to illustrate this.

We at the SPS regularly collect information of the new products that are being developed by financial institutions, and the important changes that are taking place. So, when we have a statistic, a monthly statistic of these new products and important changes, and this number of new products and important changes has been growing regularly over the years. But what strikes me as noticeable is that during the pandemic, if we compare for instance, 2018 figures with 2020 figures, in 2018 in the whole financial services industry, we had 121 new products and significant changes. Whereas in 2020, we had 315 of those.

And most of these initiatives have a technology or a digital element to it. And they are associated with issues as broad as digital onboarding in banking and insurance, or online credit from start to finish, or digital foreign exchange transactions.

Or for instance, one of the important changes has been intra-day, 24 hours, mobile transfers among clients of different financial institutions have increased 13 fold from 2019 to 2021. So, before, most of these transactions were delayed 24 hours, delayed transactions. Now they are intra-day transactions, and that is the most dominant way of transferring money in Peru. So, that is a very, very interesting developing.

So, the trend towards utilization of the financial system has grown and has taken over as the main way or the main channel of transactions for people. And many of these initiatives are individual efforts of individual financial entities, but some of these are noticeably collaborations and alliances among financial entities, and also between financial entities and start-ups. And for instance, I want to mention that we have three key digital payment alliances going on in Peru. That has nine entities, that has five entities, and Beam that has 26 entities. So, all these alliances are allowing people from far away rural areas, poor neighborhoods to have access to transfers through their mobile phones.

So, all these are good news. It means that our legal framework, our regulatory framework has been flexible enough to allow this massive innovation surge. But as you know, all this did not come free of effort. We, as in SVF, have enough regulatory powers to regulate most of these issues. And we have been continuously working on updating our regulation, and we have issued new regulation, or updated regulation on information security, business continuities, cyber security, cloud computing, risk related to outsources and servers’ providers, sandboxes, guidelines for exchanging information through application programming and interfaces, and market conduct.

So, all these new regulations are creating a framework for digital transformation to take place in an efficient and safe way. Because as you know, as financial regulator, our main concern is that digital transformation process is carried out safely. And by safely, I mean safely in three different senses. Safely in terms of financial stability, safely for the consumer to ensure that entities take adequate precautions to mitigate the risks for the consumers, and safely in terms of the integrity of the financial system, in terms of preventing money laundering and other crimes. So, many of the regulations that I have mentioned are to be implemented gradually, as they require significant adjustments from the part of the industry, and others require that the industry understand them and rely on them to use them in their own projects like sandboxes, for instance. But overall, I think this regulatory framework provides a good balance to allow innovation with the safety considerations for stability, market conduct, and integrity.

So, these are our main drivers of our regulation, but as you know, all this poses huge, huge challenges for us regulators, and the industry, and the country.

Because this is not the effort of one entity or one government authority. It's a common effort. And keeping up with innovation is a huge, huge challenge for any government. And in that sense, human capital is a scarce resource, because we are all competing with the same specialized resource that is knowledgeable about all these new technological issues. And we are not competing locally. We are not competing only with the financial industry; we're completing globally now that remote work has made labor markets global. So, that is a big challenge for us.

A second challenge is that our financial industry is heterogeneous, and this creates digital transformation to be also uneven among different industries. And so, there are laggards, and there are leaders. And in this context, large incumbents have a lot of advantages in terms of scale, of scope, of network information effects that may lead us to aggravate a problem of concentration in an already highly concentrated financial services industry. And although as a financial regulator we do not have a mandate for competition, we as SVS, do share the concerns of other authorities about the increase in concentration that is also a by-product of digital transformation.

That's another thing. Other, we have Peruvian ... Peru has challenges in terms of geography, financial literacy, infrastructure as many emerging countries, and all these require a huge strategy that I'm going to talk about that probably later in a different question. And in SVS, we already have our own challenge because we are dealing with our own digital transformation, in terms of applying technology to supervisory processes for market conduct, for anti-money laundering and for other things. So, all these makes it a very, very interesting time to be working at a financial regulator. And I am not mentioning the international challenges, because that is a huge thing. There are many other issues we are dealing with that are in unchartered territory, not only for an emerging market like Peru, but for all authorities. We don't know how to deal with big techs, we don't know what the scope for open banking is. There is a number of things that unresolved at an international level. So, it is very interesting.

Babak Abbaszade...: It is interesting. Yeah, you don't want to scare us too much with all the challenges right away. Still a little bit early in some jurisdictions, but as a supervisor, you have a very tough job. I always think about that, because you don't get to set those policies. You don't get to set the decisions, but you have to enforce them. When things go wrong, it is your role. And you said something very interesting at the very end. You were mentioning how you have your own digital transformation challenge at the supervisory institution. So, it kind of reminds me, doesn't it remind you a little bit of the airlines, they say, "In case of emergency, put your own mask on first, and then the person next to you."

So, you kind of have to do that. So, we have a couple of good questions from the audience. Let me see if we can answer them, and then go to the next round. Governor [Role 00:45:45], I'm going to come to you for the first part of this question, and Governor Anjaroga for the last part of the question from [Lungele 00:45:52]. So, we have a massive number of different cryptocurrencies, Governor Role. Tokens, e-currencies, et cetera. How do we create a synergy between different consumers.

PART 2 OF 4 ENDS [00:46:04]

Babak Abbaszade...: ... we create a synergy between different consumers, if there is such an immense complexity and availability of digital currencies? Thank you.

John A. Rolle: That's an excellent question. And it gets at the issue of regulation as well as it gets, I think, at how we distinguish in how these various cryptocurrencies are being used. In the center of buying digital currency space, our emphasis is on payments. And so, making sure that we have something that's reliable for payments as opposed to an instrument that is serving both payments need as well as speculative uses, which complicates some of the concerns that consumers might have. But at the same time, I think this question is bringing out that if we are using these instruments for payments, just like Fiat currencies, there has to be a market for the exchange and in the digital space. I think it, again, highlights that the issue of interoperability goes beyond just the domestic financial systems. And we will have to look at how, in a regulated fashion, you can determine the standards by which instruments can tap into an interoperable network.

That is one of the ways that one has to deal with this. Security is an issue, and there are two elements to security. But the one I think that we have to focus on, aside from just the infrastructure and hardware, is really the end users. And that is a big part of the emphasis in The Bahamas, as I'm sure it is in other countries where you're trying to get the population to migrate to greater use of digital technology. So, focusing on the user as one of the first lines of defense around security is important. Because the first issue, as I said, we have to look at how we regulate the access, because in our space, is really on the consumer protection issues. And that has to be addressed as well in the critical asset space.

Babak Abbaszade...: Thank you. And Governor Njoroge, Governor Rolle addressed some of those securities issues, but do you also have any views on how do we ensure the security of this digital financial world, given that you had a bit of an really mover lead in this, in your own country? What do you think about this question?

John A. Rolle: Thank you, Babak. I think, first, I would say there are several levels that one can look at, or several ways of looking at the question or the answer to the question. And I think first is you do need to have what I'll call basic, let's say, principles or rules about how data is transmitted, how data is saved, and who has what access. And I think now, when we started off, we didn't have GDPR. Nowadays, I'm talking of those rules that explain how we should keep data in particular ways. So, I think there's a underlying set of questions that need to be dealt with that is one. Secondly, I think as you move into the various products, they begin to have their own, let's say specific questions. And I think the issues that Eswar just now earlier talked about the Bitcoins, et cetera, we know that at the beginning, these were being used to support illicit transactions, illicit payments and things like that.

And I think as regulators, we were very clear that we cannot support that in any way. It goes, again, it's the principles of proper, properly functioning economies, et cetera. So, I think the point I'm making here is that you do need to look at the specifics that are there as well. I'm sure on the things like AML, CFT, anti-money laundering rules, those need to be crafted to be improved as to keep up with the technology that are there. But I think on the whole, let's say it's a moving target. We need to be ahead of those that are working against us, but it's a moving target.

Babak Abbaszade...: Yeah. So, in other words, take the war to those cyber criminals, right? Okay.

John A. Rolle: Yep.

Babak Abbaszade...: So, Eswar, I was wondering if I can ask you a question. I mean, I noticed your role at the IMF and other stuff that you have thought about is one of the main advantages of Fiat currency is that the supply can be increased at any point to meet the demand of the economy. Height will be the case of digital currency. I mean, we all read about how Bitcoin has a limited number, this and that. Most of us are not that sophisticated. How would you answer this question?

Eswar Prasad: So, one of the fundamental articles of faith among Bitcoin adherence seems to me that it is the limited supply of that currency that maintains its value. And this is a curious proposition for an economist, because if you think about what gives a currency value, it has to have some intrinsic use, and Bitcoin was supposed to be an effective medium of exchange, a decentralized one that you could use with just your digital identities. It's not served very well in that function. So, it doesn't have intrinsic value, but the notion that ultimately, there can be only 21 million Bitcoins, about 18.5 million have been mined so, far, relative to a Fiat currency that can be supplied at will by the central bank seems to be the key determinate of Bitcoin's value.

To me, that is a dubious proposition, and it seems to me that it's built on a very fragile foundation of faith. The reality that we face, although it is a somewhat ironic one, again, is it is the ability of Fiat currencies to be produced in quantities that can support financial markets when there are times when liquidity infusions are needed is what gives them value. Because we know that in a time of crunch, the central bank can provide that money, which is what gives that money value.

But that, too, is a slightly shaky foundation if central banks misuse that power. So, I think the importance of central bankers, such as Governor Njoroge and Governor Rolle, maintaining their roles as the guardians of that faith is really important. But ultimately, I don't see Bitcoin and other decentralized cryptocurrencies as seriously challenging central bank issue currencies as stores of value. And even as mediums of exchange, once you have CBDCs proliferate, and if they are provided in an efficient, low-cost manner, and in a manner that reaches a lot of people, I think the user case for a lot of cryptocurrencies, including stable coins, will disappear as well.

Babak Abbaszade...: Thank you. And governor Rolle, do you have any views on this question yourself? I mean, I just wanted to give you, maybe a central banker, has to comment on this. You probably built with this yourself, right? In your thinking? Yeah.

John A. Rolle: Well, very simple. We should not use the invention of CBDCs to redefine the role of Fiat money. And I think if we stick to that, these issues should not present any new questions beyond the way we handle expansion or slow down in monetary aggregate evolutions. That, I think, is the most important thing. Because if this is just a substitute for the paper cash or the format in which banks hold reserves, we have to be careful in terms of how we try to assign other uses, because then it will add complexity beyond the way we perceive Fiat currency.

Babak Abbaszade...: Good. So, keep it simple, stay to the basics, keep the fiduciary responsibility in mind. Thank you. So, the last round, we talked about digital revolution opportunities and challenges ahead. Now, let's go to the next round and talk about what's next. I'm going to start with you again, Governor Rolle. What is next for the Central Bank of Bahamas strategy regarding digital platforms, payment systems, and the new payments services providers? Thank you.

John A. Rolle: Unfortunately, we are very small economy, 400,000 people. So, it's a difficult market to operate in efficiently. So, I do not see a future where there is a large proliferation of payment providers. I anticipate that our commercial banks and others who are not yet as far along in the CBDC participation, that they will become fully integrated. And we're going to purposely push that. What I think is going to be important is an instrument such as a CBDC interoperability and how it extends to reach or the channels to which services can be provided or intermediated, that if it works successfully, it fades into the background. We do not think about it, but financial intermediation on the whole is able to improve because of the inefficiencies in which transactions are able to settle. That, I think, is very important in terms of how we vision the future.

And also, we want to allow the services providers the space to innovate and think about how they refine the customer experience when we move beyond the basic level of sending and receiving monies. Because now, the creativity will come in around how people manage an account for their transactions, which is no different from the experiences that we might have with credit cards and other instruments that are already quite proliferate. So, that's important.

In addition to that, it's already been touched upon. We are going to have to put a lot of attention in the near term on the consumer protection issues around data and privacy. And interestingly, if this is just the other version of cash, then it has to function like cash in the sense that all persons have access to it, including children and minors. And therefore, from that point of view, those data protection issues become very critical. And we've already flagged that as an area where, in the case of The Bahamas, we're going to be very attentive as we focus on bringing the financial inclusion reach, particularly to the younger persons in the society.

Babak Abbaszade...: Thank you very much. Let's carry on with Socorro here. Digital transformation is bringing benefits, including for financial inclusion, the government touched on some of that, through digital payments and deposit accounts. How is this making a difference in improving access to financial services, especially for the poor and rural and remote area us in Peru? How about others in Latin America? And really, the question, I know it is a little bit rhetorical, but this is there's a truth in that too, in a sense that this was the promise of these digital finance, to get to the remote and rural areas. So, is it working? I guess that's one way of looking at it.

Carolyn Labey: I think it is working, but it is not going to work on its own. It needs a comprehensive strategy. And let me give you a few examples. We have seen in one year in Peru, the percentage of population used in deposit accounts has increased from 43% in the middle of 2020 to 52% in the middle of 2021. So, nine points in one year is a huge, huge improvement in terms of deposit use. But our numbers are clearly not as impressive as those in Kenya, and they underline that we have a lot of work to do. At the same time, for instance, as I mentioned earlier, we have a several digital wallets and payment platforms that are being used a lot.

And out of the 12 and a half million people in Peru, adult people in Peru, 7 million of those are using Yape, which is one of the digital wallets. 4 million are using PLIN, and one and a half million are using BIM. Of course, many of them are using two or three of these platforms at the same times, because they're not entirely opera interoperable yet. But that is a huge improvement. There is another development that has potential, and it is part of the government strategy, financial inclusion strategy. And it's the initiative of the government of creating deposit account in Banco de la Nacion associated to the national identity document of each adult individual in Peru. This is just starting. And if the initiative came as a result of the difficulties, huge difficulties that the government had during the pandemic to distribute the subsidies and bonuses that they wanted to distribute to alleviate the impact of the pandemic in far away places, in people who were unbanked and not included in the financial system.

This initiative of the deposit accounts that will be linked to electronic payment systems or wallets, I think it is a huge initiative. It is going to be in place gradually. It's starting right now in October. It is programmed to have 2 million users by December or 2 million accounts by December. But again, the national inclusion strategy has to be working with efforts that work in all different areas, infrastructure, telecommunications, financial educations, all of these, to allow people to have confidence in the financial system, to feel safe in the finance system. So, it is a huge challenge for an emerging country like us. And I am sure that other Latin American countries are facing similar problems in terms of devising financial inclusion strategies that address all these issues, because many of these issues are to the whole region.

Babak Abbaszade...: Thank you. That was very good. Yeah. Complicated. Governor Njoroge, I'm going to go to you. I'm not going to get you away without talking about the pandemic. You thought this was a pandemic-free session, but sorry about that. The pandemic has accelerated the digital transformation in the financial sector. So, that's a truism. You all become digital experts in some ways. You are plugged in many international conversations in Africa and beyond with your peers. So, learning from successes and failures, when you reflect on that, what needs to be done by policymakers, supervisors in developing countries, to harness the promise of sorry, digitization to achieve better and inclusive recovery now and post-pandemic? Thank you.

Patrick Njoroge: Babak, that's quite a question and I presume you have three hours to answer it but compressing it to four minutes. I think you are right. During the pandemic, as our other analysts mentioned, there has been significant transformations. Not all of them the right ones, but I think there has been. And I think the benefits from the digital transformation have really been the silver lining in this otherwise dark cloud. But in terms of moving ahead, I think first and foremost, which is an element we need to remember. I mean, maybe to say something about Kenya, during the pandemic, we cut back quite a bit on transactions that were cash-based, et cetera. And indeed, not just the cash-based, but also the brick-and-mortar transactions. And now actually, 96% of the transactions that banks are having, they're taking place on the digital platforms.

So, that is quite a change. And sure, that means a contraction in the demand for brick and mortar, but it is actually a challenge to banks to change their model. Let's be clear. It doesn't mean it's the end of brick and mortar. When ATMs were invented and put all over, people thought that that would be the end of bank tellers. Actually, didn't happen that way. The banks transformed themselves into something else and really became closer, et cetera. So, that is one point I wanted to make. But in terms of the things that we need to take care of, outset or the lessons from this, I think the first is to remind ourselves, as was mentioned a moment ago, there's still a lot of people that are unbanked, that are in the fringes, that are financially excluded. 1.7 billion worldwide. And I think from our perspective, we need to watch that gap.

I think we can get very excited about the top end of people, the elite people that are going for the interesting fancy products, but we need to watch that. And I think that's an obligation we as policy makers have to deal with or keep in mind all the time. A second element, which I think is important and related to this, is actually a lot of these people are not included because they lack formal identifications. So, formal IDs. And that is something I think Socorro doubled into that. But I think the point here is yes, that is not something we, as bankers, will do. But we have to push the relevant arms of government to deal with those things, meaning formal identification. Of course, then of course, the issue of connectivity, having connectivity in the various places, pushing the communication channels out there.

The second item that I would insist on. And this has been a lesson for us during... Well, it was a lesson before, but it was on this call during the pandemic, is the issue of protecting data. I mentioned it as we were before, but I think the point here is that it is important that the companies that are responsible for the data are actually responsible in that way. So,, they do not misuse the data. We have had, for instance, some of problems with the digital lenders. And they're misusing data. For instance, data that is on your phone, your contacts, and using that to in effect have rather aggressive debt collection mechanisms, which obviously are, in our view, unethical. But the issue of protecting data is essential. Consumers cannot, or citizens, they should not feel, they should not have to worry about their data beings stolen, or being misused, et cetera.

And then finally, the business of, and again, I go back to a point I made earlier, this thing of being people centric. Instead of being technocentric, we should really be more people centric. I was part, Babak, of task force of the United Nations Secretary General on digital finance and what to do in the context of the SDGs, accelerating achievement of the SDGs. And in the end, the report we wrote had this title, People's Money, meaning we have to come back to people. What is it that they need? And we deliver that. I mean, at the end of the day, money is a medium of exchange and also other things to hold value. But there's something else. It's not the money that really matters to us. There's something else that is more important. So, those are the points I want to put to you. Again, finishing with this item that people are the center.

Babak Abbaszade...: Thank you very much, Patrick. We couldn't agree more with you. People are at the center and that's why the SDGs matter in everything that we do while we keep our eyes vigilantly on the levers of the financial activity/ you talked about couple of key infrastructural issues, I'd like to talk about them now. Lack of formal IDs, connectivity, but also you talked about important values, protecting data and people putting people first. So,, thanks for that perspective. I'd like to turn to Eswar. You've had a chance to think and reflect about what they have said. From your vantage point, does this digital transformation mean that we are seeing the end of cash? Are there any blind spot implications?

PART 3 OF 4 ENDS [01:09:04]

Babak Abbaszade...: ... cash. Are there any blind spot implications that we may be missing? Thank you.

Eswar Prasad: So,, thank you, Mark. Virtually every central bank that is conducting trials with or has issued CBDC seems to view CBDC as coexisting with cash, which is physical currency. But I think the reality is that businesses and consumers get used to the benefits of low-cost digital payments. And as these become widely available and accessible, I think cash will organically wither away. I still love cash. The tactile element of cash is certainly wonderful. It creates a personal connection in transactions, but I think the reality is that it is not as convenient a medium of exchange as digital money.

One point that Governor [Roll 01:09:49] made which is actually very important to keep in mind here, digital money does have many possibilities that cash does not have. One can think about, and these have been discussed, even in the US, the notion of having certain units of digital money with expiry dates. The fact that central bank digital currency accounts can make it possible to have negative interest rates. And certainly, it's good to have all of these in the monetary policy toolkit during particularly desperate economic circumstances. And we've certainly lived through some of those the last decade and a half.

But each of these possibilities opens up questions about whether the faith in central bank issued currencies is going to be maintained at the same level. And that I think is something that needs to be thought through very carefully, in addition to privacy considerations, before we dispensed with cash altogether.

Now, one of the things that Governor Njoroge, Governor Roll, and Ms. Heysen all touched upon is really about the correct public role of the government in all of this. Governments can and should do a lot to ensure financial stability, to ensure the welfare of the people, as Patrick correctly said. Ultimately, this is about the man on the street and his or her welfare.

But of course, the governments cannot do all the innovation that is necessary. What is essential is to provide enough space for the private sector to conduct and undertake this innovation in a safe way. And certainly, many of the dramatic changes we are seeing are coming thanks to private sector innovation.

So,, I draw your attention to how some of these issues have come up and are being resolved in the context of two major economies, China and India. In both of these digital payments are very fast displacing cash, but these two countries have taken a very different approach.

In China there was a regulatory void that was filled in by private payment providers who provide excellent low-cost digital payment services. But now you have two companies, Alipay and WeChat Pay, that dominate the digital payment space. And this has created a lot of concerns about the lack of entry by new payment providers.

And as Governor Njoroge pointed out, concerns about how these companies might be using the data that they collect from their massive customer base and massive user base for commercial purposes. And this is one of the reasons why the Chinese central bank is thinking of issuing the digital version of the yuan, largely so, that you have central bank money being relevant to the retail level. 

But also, so, that one can ensure some degree of competition in the payment space.

India has taken an approach that I think is going to be a template for many other countries to follow. And there are three rails to what is called the India stack. The first is the biometric identification scheme that provides a form of electronic identity to all of the population, including people in rural areas, people who are illiterate, and so, on. So,, it provides a mechanism for bringing people into the financial net.

And then the government provides the infrastructure for the payment trail. That is to say, it provided the unified payment interface, which essentially is a platform that private payment providers have access to with no party being privileged here, but you have the interoperability issues that Governor Roll talked about being dealt with. But you have relatively easy entry of new payment providers. And they can build innovations on top of this infrastructure. So,, the government does not provide the actual payment services, but sets up the infrastructure.

And the third issue is the data rail. Picking up on what Governor Njoroge said. This is a crucial element of the overall financial ecosystem that is developing in India. And the government is setting up a process whereby it will introduce legislation that makes people who provide the data and whose data is being used on the data and decide how it can be used. Because data is power at some level, and you want people to be able to use the data. So,, there are going to be account aggregators who will build up a database. But it is ultimately users, consumers who own the data and decide how it can be used.

So,, I think the government can play a very constructive role in making sure that some of these safeguards in terms of financial stability, data protection, investor protection, can all be managed without necessarily stifling payment innovation, or other types of innovation in the emerging financial system.

So,, there is a middle ground, and I hope that we will see this developing, because ultimately, I think that is the way we can both ensure financial benefits to large parts of the population, but also ensure that we don't create new and unknown risks.

Babak Abbaszade...: Eswar, that was actually very interesting. Thank you so, much. I was not aware of the India stack, but it sounds like they were trying to address some of the very same issues and barriers that Governor Njoroge outlined in terms of the infrastructure and integrity of data.

And as we were all talking about, it brings an interesting example to my mind. In the early stages of the pandemic every country was trying to figure out how to provide some financial support to their citizens, to the extent that they could afford. And there's a case of one country I'm not going to name, but you probably know that because their digital infrastructure was so, undeveloped, they actually had to send the military to take cash, stacks of cash to people in various areas, rural areas, in the suburbs, in the barrios, in the ghettos. Wherever it was that they were taking the money. And you can just see the mess that that can create. The scope for corruption, the scope for all kinds of abuse, and the desperation of the decision makers. So,, in a sense, the challenges that we're all talking about are very appropriate in the time and age that we are in. So, thank you.

I want to ask a question. I think Governor Njoroge, maybe I'll pose this to you. And Socorro, you can also reflect on it. This is from our courageous anonymous questionnaire. The crypto world is beginning to connect to the traditional financial system fast, and players are largely in the unregulated space. How can supervisors and regulators address this question? It's actually a very good question. I'm surprised the person didn't want to reveal their identity. We would've given him a gold star.

Patrick Njoroge: Thank you. I'll be quick and leave the hard parts to Socorro, I think. But the way we see it is as follows. It's true the crypto products, let's just call them that, currencies, and other products, they are growing in a rather unregulated fashion. And I think we in the regulated world, there is a perimeter that we understand and know. And you can say all that is happening pretty much outside that perimeter.

So,, I think there's a tension. We have to understand that. But the tension needs to be resolved by understanding maybe a couple of things. First and foremost is appreciating the issue of whatever we do we cannot compromise... There are certain things that we cannot compromise, one of which is financial stability. And indeed, also other things like, let's say price stability, which however you define that, etc. So,, I think that is important. So,, if there is any connection that takes place it has to be while respecting that particular item or that particular requirement.

Secondly, the crypto world, I think at this moment, and here I look more to Eswar, he's much more embedded in there than we are. But I think this is happening more at the higher level of what you may call the hierarchy of financial needs. There's less of the crypto lower in the financial need’s hierarchy, payments, insurance, etc. But it is when you go up to wealth management and things like that, that's where you have a lot of the crypto things. And in some sense, you could say that cryptos could very well be just like any other speculative product, asset that you invest in.

So,, I think for us, if you look at it that way, the difference is just the promoters. The promoters, of course, will say that a particular product solves all the problems. And I think this is how Bitcoins started. It was being pushed to be the next best thing in terms of payments, and so, forth. But as Eswar mentioned, that is no longer the key element. But there are many more interesting, technically interesting products that have come out, and not just the coins but even other, well, let's say crypto products.

So,, I would say that there'll always be that tension. Regulators will always know, and they will remain focused on their objectives. So,, holding the tiller really, and making sure that the steering, making sure that we don't crash. But at the same time there'll always be those pressures and they'll have to be resolved by ensuring that we understand who is the regulator.

Just to finish, it is important to note that those, let's say the wealth products, crypto or otherwise, there are regulators of that. Maybe they're not central bankers but you do have regulators, the SEC, and others, but they are not really central bank. They're not the sort of products that you could say central banks would regulate. So,, I'll leave it there.

Babak Abbaszade...: Thank you very much. Socorro.

Carolyn Labey: Well, thanks for posing this question. Well, yeah, this is one of the unsettled issues. Cryptocurrencies pose concerns from several standpoints for regulators. From the financial stability standpoint, from the consumer protection standpoint, from the anti-money laundering standpoint. And all of this have to be addressed appropriately.

And at this stage we are still in the thinking process of many of these aspects in Peru. What we have done so, far is really very little, and we are looking forward to defining policies in the next few months or year, a couple of years. I can mention two things that we have already done.

First, any lenders foreign exchange, or payments have to be registered in Peru. It doesn't matter if they deal with regular currencies, cryptocurrencies, or they deal with brick and mortar, or they're purely digital. But they all have to be registered. These are unsupervised, but they need to be registered. And the register has one single purpose at this stage, which is to have them a basic report to the financial intelligence unit in terms of suspicious transactions and things like that. That is a very, very basic level of dealing with this issue.

The other thing that we do, as in most countries, we do have informality laws, which means that to do certain things you have to be either licensed, supervised, or registered. And if you are none of those three and are carrying out activities that require either a license or a registry, what we do as a regulator is to issue press releases to alert people that these people are operating in this particular business without following the proper channels. I know it's very little, but this is what we have done so, far.

There are several, several issues that need to be considered looking forward. How to deal with cross jurisdictional issues. As of today, it is not an important issue in Peru locally. Cryptocurrencies are not yet important, but they may become important, and they are growing so, we do have a concern. We do have something to talk about with central bank, Minister of Finance, and other authorities in this regard. I'm sorry I don't have too many answers at this stage, but it's one of the unsettled ones.

Babak Abbaszade...: Those are always the most interesting ones. Thank you so, much, Socorro. Governor Roll, as I'm reflecting on these issues, I want to come back to one of the things that you said earlier on that struck me as a very important, I guess, north star, if you will. Which is, on the one hand as a responsible central banker, you are trying to create a space for these innovations and you're taking the lead, making it possible, making it legitimate. On the other hand, you don't want it to get out of control. You want there to be your control there.

In some countries, Canada, Australia, I guess being two examples, I can think of, financial stability, they really take it to the extreme, to the point that in terms of consumer choice we don't have as much or not as much as other countries have, and we're always late and laggard. How do you balance these things yourself, as you were thinking about this? You talked about the [inaudible 01:24:40] and all that, but have you struck that balance already?

John A. Rolle: Well, on the financial stability issues and monetary policy, we know that some of the pressures are probably, if they insert themselves, they're more medium range. But we've initially established limits or parameters around how much CBDC individuals can hold. We've also made it very clear as we've done for payment products on the whole, that it's a fiduciary relationship between the provider and the wallet holder. And so,, they are not to be treated as deposits, which means that there's no intention that those who receive those types of funds can use interest rates or other promises of return to attract funds. And they also cannot deploy them in means that would put them at risk so, that when individuals decide to make spending, they're illiquid.

So,, we focus on ensuring that the providers always satisfy the full liquidity that's necessary viz a payment, and that they are not a deposit, their interest-bearing deposit type of instrument. Because it also removes the central bank away from being potentially in the position of having to decide what to do from an intermediation point of view if you start to get an accumulation of financial resources in mobile wallet.

The other thing I know that has come out around financial stability is how fast money can move in this space. And I think technology is likely to provide advantages to regulators if ever there is a need to intervene if money starts to quickly withdraw from one part of the system to the other. But it is important to recognize that it's not necessarily a mobile money issue or a central bank digital currency issue, but more a product of the fact that payments are moving faster and settling instantly more so, in today's financial sector setting. And that is really the focus that all of those who are charged with financial stability will still have to reckon with.

Babak Abbaszade...: Thank you. And Eswar, I'm going to come to you as our, I guess, the very last comment here. And I see a question flashing on non-bank financial institutions. Are there any other thoughts you have for regulators and supervisors about how to get ready or how to be proactive so, that they're not losing control on the innovations that are taking place? You have literally one minute. So,, this is CNN style answer. Thank you.

Eswar Prasad: Thanks, [inaudible 01:27:47]. The title of the last chapter of my book says it all. A Glorious Future Beckons, perhaps. I think there is a lot that can be gained from the new technologies, and particularly for vulnerable people, small scale businesses, and so, on, especially in developing countries.

But I think there is a very important role that governments are going to have to play so, that the rules of the game, both at the domestic level, but also the international level, make sure that the vulnerable people, especially low-income households in developing countries, but also vulnerable countries are not disadvantaged rather than advantaged by all the changes that are coming around us.

Babak Abbaszade...: Great. Thank you very much. And I have to give this panel an A. We just finished. We gave the audience one extra minute so, they can do whatever they want with their time. You did excellent. It was a really good kick ass discussion. Thank you everybody. Have a wonderful weekend. Patrick, it's time for you to have a drink. The rest of us still load up on coffee, I think. And then let's carry on. And Socorro, I think you're still the coffee [inaudible 01:28:53]. Have a great meeting at the World Bank IMF. [inaudible 01:28:57] goodbye, everyone.

PART 4 OF 4 ENDS [01:29:09]