Banking in 2030 Some considerations Farzam Ehsani @farzamehsani - - PowerPoint PPT Presentation

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Banking in 2030 Some considerations Farzam Ehsani @farzamehsani - - PowerPoint PPT Presentation

Dec 27, 2023 651 likes •934 views

Banking in 2030 Some considerations Farzam Ehsani @farzamehsani How do we agree on who has monetary value in society? Bear Bearer ins nstruments Reg Registered instruments $ Physical form Physical or digital form Holder is

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Banking in 2030

Some considerations

Farzam Ehsani @farzamehsani

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SLIDE 2

Reg Registered instruments Bear Bearer ins nstruments

  • Physical form
  • Holder is presumed to be owner
  • No records are kept
  • Physical or digital form
  • Record of ownership determines owner
  • Trusted party manages ledger

$

How do we agree on who has monetary value in society?

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SLIDE 3

Today ay Past Future ure

$ Humanity’s abridged money timeline

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Ph Physical Di Digital FORM Bear Bearer Reg egistered TYP YPE Physical Bearer Physical Registered Digital Registered

$

Digital Bearer

In 2009 the digital bearer instrument was born

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SARB Ban Bank 1: 1: Ban Bank 2: 2: Ban Bank n: n: Ban Bank 1 Ban Bank 2 Ban Bank n PS PSOs R R R R R R R R R R R R R R R R R

Physi sical cash Ce Central bank money Commercial bank money

Central banks are testing settlement on DLT

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SLIDE 6

R R

Physi sical cash Ce Central bank money Commercial bank money

SARB Ban Bank 1: 1: Ban Bank 2: 2: Ban Bank n: n: Ban Bank 1 Ban Bank 2 Ban Bank n PS PSOs R R R R R R R R R R R R R R R

Central banks are testing settlement on DLT

Settlement in digital cash

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R R

Physi sical cash Ce Central bank money Commercial bank money

SARB Ban Bank 1: 1: Ban Bank 2: 2: Ban Bank n: n: Ban Bank 1 Ban Bank 2 Ban Bank n PS PSOs R R R R R R R R R R R R R R R

Central banks are testing settlement on DLT

Settlement in physical cash

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R R

Physi sical cash Ce Central bank money Commercial bank money

SARB Ban Bank 1: 1: Ban Bank 2: 2: Ban Bank n: n: Ban Bank 1 Ban Bank 2 Ban Bank n PS PSOs R R R R R R R R R R R R R R R

Central banks are testing settlement on DLT

Digital to physical change

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R R

Physi sical cash Ce Central bank money Commercial bank money

C

Crypto cas ash

SARB Ban Bank 1: 1: Ban Bank 2: 2: Ban Bank n: n: Ban Bank 1 Ban Bank 2 Ban Bank n SARB Ban Bank 2 Ban Bank n Ban Bank 1 PS PSOs R

DLT

R R R R R R R R R R R R R R C

Central banks are testing settlement on DLT

Introducing crypto cash

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R R

Physi sical cash Ce Central bank money Commercial bank money

C

Crypto cas ash

SARB Ban Bank 1: 1: Ban Bank 2: 2: Ban Bank n: n: Ban Bank 1 Ban Bank 2 Ban Bank n SARB Ban Bank 2 Ban Bank n Ban Bank 1 PS PSOs R

DL DLT

R R R R R R R R R R R R R C

Central banks are testing settlement on DLT

Settlement in crypto cash: 3rd type

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R R

Physi sical cash Ce Central bank money Commercial bank money

C

Crypto cas ash

SARB Ban Bank 1: 1: Ban Bank 2: 2: Ban Bank n: n: Ban Bank 1 Ban Bank 2 Ban Bank n SARB Ban Bank 2 Ban Bank n Ban Bank 1 PS PSOs R

DL DLT

R R R R R R R R R R R R R C CC CCC CCC

Central banks are testing settlement on DLT

Conversion to cryptosettlement

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SLIDE 12

Notes & coins FX Capital & reserves Equity

Cen Central l ba bank Balance sheet

Ass Assets Lia Liabilities Ass Assets Lia Liabilities Notes & coins Commercial bank reserves Capital Bonds/NCDs Notes & coins Loans Ass Assets Lia Liabilities Deposit

NOTE: Stylised balance sheets

Com Commercial ba banks Cumulative balance sheet Dep Depositor Balance sheet

Deposits Reserves

A potential paradigm shift: Crypto-banking (deposit-less banking)

  • Gov. bonds

Gold

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Bonds/NCDs Notes & coins FX Capital & reserves Equity Ass Assets Lia Liabilities Ass Assets Lia Liabilities Notes & coins Capital Notes & coins Loans Ass Assets Lia Liabilities Deposit

*Central Bank Cryptocurrency NOTE: Stylised balance sheets

Reserve Deposit Reserve CBCC* CBCC* Deposits Reserves Commercial bank reserves

Cen Central l ba bank Balance sheet Com Commercial ba banks Cumulative balance sheet Dep Depositor Balance sheet

  • Gov. bonds

Gold

A potential paradigm shift: Crypto-banking (deposit-less banking)

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Bonds/NCDs Notes & coins FX Capital & reserves Equity Ass Assets Lia Liabilities Ass Assets Lia Liabilities Notes & coins Capital Notes & coins Loans Ass Assets Lia Liabilities

*Central Bank Cryptocurrency NOTE: Stylised balance sheets

CBCC* CBCC* Commercial bank reserves Reserves

Cen Central l ba bank Balance sheet Com Commercial ba banks Cumulative balance sheet Dep Depositor Balance sheet

Deposits

  • Gov. bonds

Gold

A potential paradigm shift: Crypto-banking (deposit-less banking)

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Notes & coins FX Capital & reserves Equity Ass Assets Lia Liabilities Ass Assets Lia Liabilities Notes & coins Capital Notes & coins Loans Ass Assets Lia Liabilities

*Central Bank Cryptocurrency NOTE: Stylised balance sheets

CBCC* CBCC* Deposits Commercial bank reserves Reserves Balance sheet reduction

Cen Central l ba bank Balance sheet Com Commercial ba banks Cumulative balance sheet Dep Depositor Balance sheet

Bonds/NCDs

  • Gov. bonds

Gold Problem for: 1) Credit creation 2) Liquidity for commercial banks

A potential paradigm shift: Crypto-banking (deposit-less banking)

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Bonds/NCDs Notes & coins FX Capital & reserves Equity Ass Assets Lia Liabilities Ass Assets Lia Liabilities Notes & coins Capital Notes & coins Loans Ass Assets Lia Liabilities

*Central Bank Cryptocurrency NOTE: Stylised balance sheets

CBCC* CBCC* Deposits Commercial bank reserves Reserves CBCC* CBCC* Unsecured Loan Unsecured Loan

Cen Central l ba bank Balance sheet Com Commercial ba banks Cumulative balance sheet Dep Depositor Balance sheet

  • Gov. bonds

Gold

A potential paradigm shift: Crypto-banking (deposit-less banking)

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Central l Ban ank Go Government Treasu sury

GO GOV IOU IOU

Unsecured central bank lending is essentially unheard of…

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Central l Ban ank Go Government Treasu sury

GO GOV IOU IOU

Unsecured central bank lending is essentially unheard of…

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Central l Ban ank Go Government Treasu sury

GO GOV IOU IOU

Commercial l Ban ank

GO GOV IOU IOU

Central banks therefore do accept un unse secure red as asse sets Relaxing the assumption that central banks only lend on a secured basis opens possibilities1

1: Once upon a time the thought of relaxing the assumption that paper money could be unbacked (by gold) was unthinkable!

…but the net effect is the same is you put a bank in the middle

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Notes & coins FX Capital & reserves Equity

Cen Central l ba bank Balance sheet

Ass Assets Lia Liabilities Ass Assets Lia Liabilities Notes & coins Commercial bank reserves

  • Gov. bonds

Gold Capital Notes & coins Loans Ass Assets Lia Liabilities Deposit

NOTE: Stylised balance sheets

Com Commercial ba banks Cumulative balance sheet Retail de depositor Balance sheet

Reserves Bonds/NCDs Deposits

So balance sheets that originally looked like this…

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Notes & coins FX Capital & reserves Equity

Cen Central l ba bank Balance sheet

Ass Assets Lia Liabilities Ass Assets Lia Liabilities Notes & coins

  • Gov. bonds

Gold Capital Notes & coins Loans Ass Assets Lia Liabilities

Com Commercial ba banks Cumulative balance sheet Retail de depositor Balance sheet

Unsecured loans from central bank CBCC*

*Central Bank Cryptocurrency NOTE: Stylised balance sheets

CBCC* Unsecured loans to commercial banks CBCC* Bonds/NCDs

…could look like this, with banks not being depositary institutions

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Why would we even consider a crypto-banking world?

  • Real-time transparency of financial system (critical

for policy making)

  • Reduction of credit risk (and more importantly

elimination of bank runs)

  • Reduction of settlement risk (atomic swaps as other

assets are issued onto a “sovereign blockchain”)

  • Increased stability of banking system (less reliance
  • n TBTF institutions)
  • AML improved
  • Codification of money
  • Financial inclusion due to lower cost base

Ben Benefit its of

  • f cr

crypto-bankin ing Ris Risks

  • Increased reliance on prudent central bank policies

(creation of money would vest purely with the central bank – no fractional reserve system – narrow banking system) – a central bank funding curve could emerge

  • Risks of unknown technology and systems
  • Large transformation from credit risk to security risk

(as with physical cash)

? ? ?

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Means of exchange

IIII

Unit of account Store of value Functions Forms Physical Digital

÷

Divisible Durable

=

Fungible Portable Scarce Accepted Features

A word on what we call money

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÷ ÷

= = =

$

=

÷

Divisible Durable

=

Fungible Portable Accepted

Feat atures s of f money

Scarce

÷

Decentralized cryptocurrencies: The most frictionless assets today

Better money

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Ba Bankin ing St Store re

(deposits)

Pro rotect

(risk-off / risk-on)

Tr Transfer

(payments)

Pro rovi vide

(lending/investing)

What does all this mean for Banking in 2030?

Banks need to find ways to meet their governance process but not stifle their agility to adapt to an increasingly fast-changing world

  • “Currency under

management” – anticipate and provide storage services for new asset classes

  • Decoupled from storage
  • f value
  • Increased data (private

and public) for quicker/ more informed decisions (credit committees take too long)

  • Improved access to

derivatives and insurance in a form palatable to clients

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Past Future ure

Family Tribe City-state Nation state

Today ay

Global federation of nations

We are inevitably moving towards a more unified world that is changing the conception of money

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Thank you

@farzamehsani