Blockchain Webinar Series | On stable ground? Exploring the latest trends and legal issues Stablecoins and Central Bank Digital Currencies (CBDCs)

Usman: Okay, so why don't we get started and as it happens people will trickle in when they trickle in. I wanted to thank all of you for joining our webinar here today. On behalf of Gowlings let me welcome you to this session which is called 'On Stable Ground: Exploring the Latest Trends and Legal Issues on Stablecoins and CBDCs', or Central Bank Digital Currencies. My name is Usman Sheikh. I'm the head of our Blockchain and Smart Contract group at Gowlings. By way of a little bit of background about our group, our group frankly has been immersed in the Blockchain space for, I'd say at least 4 or 5 years now. We have around 30 to 40 professionals who practice in this space from all different sectors. We're going to hear from some of our tax colleagues, banking and securities here today. We represent some of the co-founders of Ethereum. We represent banks, stock exchanges, QuickBook platforms, also known as QuickBill exchanges, pioneers, start-ups in the area. We also do quite a bit of speaking around the world to try to educate regulators or governments, whether domestic or foreign, so we address the Member States of the IMF, the monetary authority in Singapore and many others, and we're actually writing a book on the topic on 'The Law of Blockchain Technologies'. So look out for that. So if you'd like to find out a little bit more about our group feel free to click on the link in the invitation that you received, which will take you to our Blockchain website, or feel free to just to even ping any of us here on this webinar here today. So before diving into the substance of the topic as well I wanted to just let you know that this session is actually one webinar of a 6-part webinar series that we've been having on hot topics in the Blockchain space. So our first was on crypto asset trading platforms and then we had another session just a few weeks ago on NFTs, or non-fungible tokens, and this panel is on Stablecoins and CBDCs. We're having another panel, another session on July 15, on the wonderful world of DeFi, or decentralized finance. There's another session September 16 on intellectual property, an open source, and then we also have a session, last but not least, on Blockchain litigation. So you should have received an invite to any of those webinars and all of those webinars in the invite that brought you to this session here today, but if you did not receive a link and if you'd like one feel free to, again, just ping us through our email on our Blockchain and Smart Contract website. Just a few other very quick things. The first is for those of you who are lawyers, this program is eligible for up to one hour of substantive CPD credits, in your jurisdiction. Information is within the invite and then I'll also, as a lawyer does, give you a disclaimer which is that the presentation today is really not intended as legal advice. For specific legal advice on matters to be discussed please contact your legal counsel to get specific advice for the questions that you may have.

Okay, so with that out of the way, let me maybe make a few introductions. I'm really honoured to be joined here today for today's session on CBDCs and Stablecoins with our panelists. We have, first and foremost I guess, who I see on my screen right now is Michael Garellek. He is a partner in our Montreal office. He serves as the co-leader of our financial services regulatory group and he's a really critical member of our Blockchain and Smart Contract group. We also have Laura Gheorghiu. She's a partner in our Montreal office. She's a key member of our National Tax Practice group and to Laura's credit she actually makes tax sound fun. Then we have Laurent Feral-Pierssens. He is the Chief Operating Officer of a global FinTech company called Bitt, which is a leading technology provider to central banks and financial institutions for CBDC and Stablecoins. He's also a founding partner of Block 0, a boutique consulting firm specializing in the evolution of the financial infrastructure. Then last, but certainly not least, is Simon Chentry. He's a co-founder of Bitt and Simon is a board member of the OECDs Blockchain Expert Policy Advisory Board and he's also a member of the World Economic Forums, Digital Currency Governance Consortium.

What we thought we would do, if we may, is just perhaps set the scene a little bit by starting off with a few introductory slides to give you a little bit of background on the industry and some definitions. So let's start off with that, if I can. Let's start of with a few definitions. There are fortunately, or unfortunately, not much standardization in terms of definitions in this area but we've tried to provide a few helpful ones which are up on your screen. So a Stablecoin is generally considered to be a type of crypto asset whose value is tied to is pegged to an outside asset, such as the US dollar or gold, to help stabilize the price. So you should think of projects like Libra's Diem, or Facebook's Diem project, or also Tether's USDT. These are often, as the Bank of England would say in one of their recent reports, private sector based projects and the digital asset itself can be collateralized by a whole host of different types of assets, whether it's Shib or whether it's crypto assets or it could even be short term government securities or bank deposits like Diem's project, and we'll talk about Diem in a moment. We also have Central Bank Digital Currency. This is a term that's used to refer to various proposals involving digital currency issued by central banks. As the BIS noted, "CBDC is not a well defined term" but what I've done is just put a quite helpful definition recently issued by the Federal Reserve. They said, "CBDC is a generic term for a third version of currency that could use an electronic record or digital token to represent the digital form of a nation's currency. It is used and managed directly by the central bank and can be used for a variety of purposes by individuals, businesses and financial institutions." So really these tokens, and we'll get to it in a moment with some of our guests, are meant to really assist with payments, and could have many other uses as well, but largely they assist with payments and Stablecoins, in particular, are quite helpful for many to reduce and eliminate that quite significant volatility that we see with other crypto assets in the market. So they're said to be, these particular products, faster, cheaper, more transparent, borderless and also we may have created programmable money.

I wanted to just touch upon a few recent developments involving Stablecoins. The first point to note is that in terms of Stablecoin projects, and I have mentioned a few of them, the total market cap according to CoinMarketCap.com currently now exceeds over a 110 billion dollars. So you can see on the top of the screen there just that number set out specifically. A really interesting project that we've been following closely is Diem, which is formerly Libra, and so they launched this project back in June of 2019. The mission was really to bring a digital token, the Libra coin, and help empower billions of people around the world including those who are currently in many jurisdictions, unbanked. So that project would include a coin, a Libra Blockchain, a Libra reserve, a Libra association and a related digital wallet called Calibra. This whole project prompted a fascination and a lot of discussion and debate about such coins. We've given you a few examples. The G7 Working Group on Stablecoins issued a report on this topic in October of 2019. I also did as well which is the International Regulator. Effectively think of it like the United Nations of securities regulators. The Financial Stability board. Many, many other organizations have produced reports. In terms of where Diem is currently at, they made a number of adjustments after a lot of discussion with regulators and others, and they issued those revisions in April and just recently in May they announced that they have entered into a partnership with Silvergate to become the exclusive issuer of Diem USD Stablecoin and that they are moving their location from Switzerland to the United States. So in terms of just some developments on the CBDC front, we thought we would just bring you up to speed on what's happening here in Canada. In March of 2016 a Canadian project was launched called Project Jasper, with the aim of really understanding of how Blockchain, or distributed ledger technology, could transform payments in Canada and it was a collaborative effort by Payments Canada, the Bank of Canada, certain financial institutions and others. There were four phases, and I won't take you through the ins and outs of each of them, but what the Jasper Project really was doing was trying to test out how distributed ledger technology could be used in things like high value inter-bank payments. Or in phase 3 they looked at how they can transform payments and security settlement for TSX listed equities. In project number 4 they sort of combined their project with Singapore's project, Ubin, to look at how they can use DLT to make cross-border payments faster and less expensive. Since that time there's been a few announcements by our Bank of Canada and others in terms of developments in this area. One was the creation of the group in January of 2020, consisting of the Bank of Canada, Bank of England and many other banks and other authorities like BIS, to agree to share information and to assess potential CBD use cases together. Consider things like functional and technical design choices. A very critical question of cross-border interoperability between these different types of CBDCs and just in October they issued a report, the name is up on the screen there, 'Central Bank Digital Currencies: Foundational Principles and Core Features', noting that there are certain key principles for a CBDC that they're aspiring to achieve. Namely that CBDC, or central bank digital currency, really needs to co-exist with cash and other types of money. That there should be some recognition and support for wider policy objectives and they should not be harming monetary and financial stability. There are a number of core features that they were looking to achieve with CBDC including a resilient and secure operational framework and structure, and that there should be a clear legal frame work as well, and that it should have an appropriate role for the private sector as well as promoting competition and innovation. So this is currently the Bank of Canada's position, as we understand it, which is that they announced in February of last year that they bank currently has no plans to launch a CBDC. Rather what they said is that we're going to vote. We're going to be ready. We're going to try to prepare ahead of time and preparing advance is critical. So the bank said we will consider launching though a CBDC if certain scenarios materialize and they set out a few which are up on your screen. The first is the use of bank notes if they were to continue to decline to a point where Canadians no longer have the option of using them for a wide range of transactions. Or number two, one or more alternative digital currencies, likely issued by a private sector entity, for it to become widely used as an alternative to the Canadian dollar as a method of payment, store of value and unit of account.

So this is just a map showing, and you should look it up, it's on Google, Atlantic Council, that could give you the real time sort of status update on where different jurisdictions around the world are in terms of their CBDC projects. I would just highlight a few. One is China which has made significant efforts towards their national digital currency project which was initiated in 2014. The official name is Digital Currency Electronic Payment, or DCEP, more commonly it's known as a digital yuan. They now have millions of dollars worth of digital currency in real time trials in cities such as Shenzhen, and many others, and the PRC has announced that they intend to use CBDC for foreign athletes and visitors at the Beijing Winter Olympics in 2022. The Venezuelan government also, as you may have heard, deployed their own currency called Petro which is a CBDC. England also announced just a few months ago that the Bank of England, together with Her Majesty's Treasury, jointly announced the creation of a Central Bank Digital Currency Taskforce to coordinate and really explore the use case of a UK CBDC. They noted that it should be used by households, if it were to be launched, and businesses. It should be used alongside cash and bank deposits. Not as  replacement. They stated the government and the Bank of England have not yet made a decision on whether to introduce a CBDC in the UK and will engage widely with stakeholders on the benefits, risks and practicalities of doing so.

I'll just end with a note about the United States. What we saw, quite interestingly actually, was a number of actually legislative developments involving the creation of a US digital dollar. So here are just three pieces of legislative movements that we have seen particularly prompted by the COVID pandemic. In March of 2020 there was the Take Responsibility for Workers and Families Act that was introduced and it contained for, I believe one of the first times, a term digital dollar. It was really introduced and it was meant to be introduced as a way to deliver economic stimulus payments to citizens but that language was subsequently removed from the proposed bill and there have been a few others. I will end just with this, noting the position of the US Federal Reserve, a quite critical development I would say that was announced just, I guess a month ago, by Federal Reserve Chair Jerome Powell who indicated that the Federal Reserve plans to publish a discussion paper in the summer of this year that will explore the implications of faster evolving technology for digital payments, with a particular focus on the possibility of issuing a US Central Bank Digital Currency and the paper will compliment Federal Reserve System research that is already underway.

What I thought I would do is maybe just ask a question of one or two of our panelists and I'll start with you, Laurent. So, Laurent, what are your thoughts and reactions on this and how CBDC Stablecoins different than what we currently have on offer in our system, and really, what's Bitt's role in this well? Maybe if you can fill in the audience on that front. I think you're on mute.

Laurent: Thank you, Usman, and good introduction to the lay of land here and abroad. The first element that we can address is why are we pushing the CBDC and Stablecoin? Why are we seeing this traction for CBDC and Stablecoin as an industry? What we're realizing is, first and foremost, the industry is self-transitioning from traditional infrastructure to a fully digital infrastructure. You mentioned the third form of money and hinted at programmatic currency earlier. So we live in a world where the whole system, the box is programmable but not the currency, currently. That's traditional. We're moving away from an analog proxy to a digital form. When we talk about currency as being programmable, what we need to realize is that in order to fuel the innovation and the technology transformation that is happening, it's important to be able to control those monetary elements. Those financial elements. So why be limited when you create a new business, 9 to 5 model, Monday to Friday, when you have the ability to interact with your bank as business, as a resident or as interacting with your government. Those elements are really important and as we see also other parts of the innovation world, technology world, having self-driving cars and the increase in the number of devices that are connected, the ability to transact monetary value is extremely important. So I think what we have to realize is this is a transition. Everything is converging towards that digital financial infrastructure and Stablecoin and CBDC are part of that journey. We align one with the other regularly because CBDC is encapsulated by the fiat world with the monetary and financial stability world. Stablecoin is more this approximation that is done to capture the benefits of a programmatic currency while everything else starts to define around it. If we want to move into understand this convergence we have to think that there's not only Stablecoin and CBDC but there's also crypto as a large environment, Bitcoin, Stablecoin. In order to experiment and unlock the value and the benefits and most importantly the new business models. Maybe one point of why you ask what is Bitt doing, and I think that might be interesting, to realize that, and we can flip to the next page, basically Bitt is a global financial technology provider that is enabling countries and financial institutions to interact with digital currency. But the most important of what we've done over the last 6 years now, it culminated in March when we released a collaboration and partnership with Eastern Caribbean Central Bank, the de-cash digital currency. What's really important here is that we issue and operate the world first CBDC in the monetary union across 8 countries. So the point today is that transition is well underway. We often talk about the theoretical element of CBDC and Stablecoin but this is being used today in market. What we realize is that 80%25, a bit more than 80, 86%25 of central banks are exploring CBDCs. 30%25 are technically exploring CBDCs but everyone in the community around, and the ecosystem around like financial institutions, banks, credit unions and telecom organizations, they want to be ready to talk and to transact. They want to capture those benefits. So basically they get ready using Stablecoin while CBDC gets ready. Short version of that. Maybe, Simon?

Usman: Yeah, I was curious to hear Simon's views on this as well. So, Simon, what are your thoughts?

Simon: Yeah, thanks, Usman and thanks, Laurent, for seeing us through to this point. I think it's important to recognize, and I do believe you pointed it out, Usman, earlier in the presentation the growth in Stablecoin, so crossing that 100 billion dollar market cap. Substantial growth in 2021. So what does this indicate sort of from a first principle's perspective? It means that people are opting to store value, to store their currency holdings, in a Stablecoin versus deposits or versus other traditional mechanisms. Now, yes, a large part of the usage of Stablecoins is in and out of digital assets, cryptocurrencies, etcetera, but increasingly they're also being used for payments. I would get into here what I've termed as internet native payment networks. That's really the transition that we are undergoing right now. So if we think of the dot.com boom as sort of the inception point for the human species to start conducting more of its life on an online manner, that brought about the digitization of so many different aspects of our lives, and yet from a financial perspective it was really just new applications, internet native applications, that still required traditional financial infrastructure to settle transactions at the end of the day. So what we're seeing now with the advent of cryptocurrency, and then through to CBDCs and Stablecoins, it's the next transition from legacy financial infrastructure to internet native payment networks where the transaction and settlement all takes place in a purely online environment. Now, we know that Stablecoins, by definition have a reserve, and whether it's backed by commercial paper or a reserve account or a number of other instruments, I'm sure those of you who pay close attention to Tether probably noticed the shift in their stance from 2019 to today, which I found fascinating. Obviously that's a whole rabbit hole to go into but, nonetheless, the credible operators of Stablecoins clearly tout that's a 1 to 1 reserve backing and that's what Diem is after as well. However, from a user experience perspective, it seems most users treat them as though they are digital bearer assets. Meaning that they're not looking to settle out of the Stablecoin. Typically the majority of the Stablecoin users are willing to transact in a purely online manner and hold that Stablecoin as though it was a digital bearer asset. Now CBDCs, as Laurent mentioned, are sort of the next step where they are true digital bearer assets because they constitute central bank money in and of themselves. If I were to capture the trend it's a transition to internet native payment networks where the transaction and settlement takes place in a purely online manner. Again, Bitt is a company that sort of catalyzes that transformation for both monetary authorities, central banks and financial institutions who are looking to either create a new digital monetary instrument, in the form of a CBDC or a Stablecoin, or integrate into these new internet native payment networks.

Usman: Okay. That's really interesting. I want to come back to you later on about some policy implications that sort of come with that but maybe, if you don't mind, if we can just dive into a little bit of the legal issues surrounding this. Maybe if I could start off with perhaps securities and banking law issues that may arise with these products. I don't know, Michael, if you maybe want to address that point.

Michael: Yes, certainly. Thanks, Usman.

Usman: Shannon, we can also just remove this slide so we can all be fully loaded up on the screen. Thanks a lot. Go ahead, Michael. Sorry about that, Michael.

Michael: Yeah, no worries. There's still some uncertainty over characterization. So that's both on the banking side and the securities side. But as you heard from Laurent and Simon, Stablecoins and CBDCs will be, if not already are, a significant part of the global financial architecture that we all have. Whether it's Stablecoins or CBDCs it's still valid to ask the question, are these digital or virtual assets securities? Second, is their distribution or trading subject AML laws, including KYC type requirements. In answering that first question on securities at least, we tend to look at what the definition is of a security in our Security Act in Canada, and if the specific type or form is listed in the Act then it's a security. Or if that specific type of form does not appear to be listed, and if there is not a particular exception that applies, we still need to assess whether the asset may be an investment contract which is another item that's defined in our list of a security, that test is applied by the courts known as the Howey Test in the US, or in Canada the specific coin test as applied by our Supreme Court. I won't get into the prongs of the test but even though we are dealing with perhaps something that's considered less volatile than the other types of digital assets that make the news much more often, like Bitcoin or Ethereum and some of the other coins out there, it's still important to consider the legal characterization. Just jumping to banking, and I'll talk about one of the main issues, in addition financial institutions need to make a shift in their technology going from their legacy systems, as Simon mentioned, to a more modernization digitization in order to adopt the digital forms. The question of how these assets are treated for prudential regulatory purposes is very important and that's still under discussion. Just recently, actually June 10, the Basel Committee on Banking Supervision published a consultation document. So it's a prudential treatment of crypto asset exposures and that basically looks at the prudential or suggests a possible way of treating digital assets and makes a distinction between Stablecoins and other types of digital assets. So it classifies digital assets in two groups. The paper doesn't deal with CBDCs but in those two groups, first, coins that are backed by stabilization mechanisms. So meaning that if the asset or if there's a commitment to exchange the digital asset for an underlying traditional asset, or an equal value in cash, then it is considered in the first group. That group gets a more favourable capital treatment whereas a second group of assets do not qualify and would be subject to a very conservative capital treatment, which is likely seen as punitive from the bank's capital, or a bank or financial institution's capital perspective. That distinction between those two types is really critical for banks and for other financial institutions. In Canada OSFI has mentioned that it will soon be issuing a letter in respect of this issue and it will be seeking consultation from other participants in the industry.

Usman: That's just something that we found out yesterday, wasn't it? It was some remark that was made. I don't know if you want to fill in the audience on that.

Michael: Yeah, right. So yesterday we had held, at the FinTech Connect Conference, a round table discussion about digital assets and some of the issues that arise there. So we had participants from different fields, academic as well as financial institutions, and that issue was brought up about characterization being a main question still on these digital assets. So that's really interesting. Then yesterday OSFI had their legislative update conference that they hold every year and this was brought up as well as something that has to be determine and settled upon for financial institutions to adopt these assets and be comfortable holding them on their balance sheets. It's really an important aspect for them. How much capital do they have to hold in order to deal in them.

Usman: I actually have the SEC FinHubs guidance on this so there is a document they issued called 'SEC FinHub Staff Statement on OCC Interpretation' where they say, "Whether particular digital assets, including one labeled as Stablecoin, is a security under the Federal Securities Law is inherently a fact in circumstance determination. This determination requires a careful analysis of the nature of the instrument including the rights it purports to convey and how it is offered and sold." so they sort of welcomed parties to come in and dialogue with them on that front. Why don't we move from securities and banking and other issues to the wonderful world of tax, Laura, and I was wondering if you can fill us in on some of your tax considerations with respect to these types of quite novel products.

Laura: Thanks, Usman. Tax is always the last to be invited to the game, if I can say, in terms of these new developments. We're still in the view from the tax authorities, at least here in Canada but also in a lot of jurisdictions, that the crypto world is one of products or goods that are being sold in and out, fiat, and every transaction is taxable and sales tax might apply to the sales and to the services by these exchanges and other intermediaries. So it's really a good question now to see whether Stablecoins and, of course, even more so the government issued coins could be finally out of this treatment. Because really right now when you look at Stablecoins, even those backed by fiat, the USDs, you have always this issue about gain and losses every time you transact in and out of them. Even, for example as a Canadian holder, if you're buying a Stablecoin that's backed by USD it may itself be stable, vis a vis the US dollar even though there could be slight fluctuations, but because you're reporting in Canadian dollars, when you buy it you record the purchase in equivalent Canadian dollars and when you sell you record the sale in equivalent Canadian dollars. So now the Canada/US currency fluctuation will trigger a gain or loss for you. You can't use the same rules that apply to actual currencies, unless the Stablecoin were viewed as an actual foreign currency, which it is not. So there's a lot of rules that get dragged into that. Same thing for sales tax. If it could be a currency, a foreign currency, the sale of a foreign currency isn't subject to sales tax, neither are many services related to that like lending, but if it's a good then you are potentially subject to sales tax. In Canada it could be in other jurisdictions. So these are still really key questions to ask and surprising because you think well it's stable, I don't have fluctuations, but you do. It gets even more interesting when you look at the lending of Stablecoin which is something that's quite often done. Right now there's not a lot of guidance on it. There is some commentary that I think is really far out there from one of the foreign tax authorities that's a little bit more of enguard on sort of coming out with some positions on it. But lending itself could trigger three different taxable amounts for a lender. One would be when the loan is made there would be a sale or a disposition of the coin that's being lent, which could trigger a gain as I explained on the foreign exchange, gain or loss. When the loan is repaid the capital itself could trigger a gain, which is very surprising because technically I lend you $100.00, you give me back $100.00 and there's no gain there, but because it's seen as a right to receive something back with a cost equal to the loan amount, so in that example $100.00 Canadian, if what I get back is worth more than 100 Canadian, it's worth $120.00 Canadian, all of a sudden I've made an extra gain there. Then of course the reward itself would be some sort of return, but not necessarily interest, because it's not a return on the lending of money. So for the borrower can that be an interest deduction? It get's even more interesting when you look at flash loans because flash loans are settled in the same block. So there's not really a time when the loan is technically outstanding so it doesn't really fit the definition of what interest would be. So you'd almost need special rules to really help the taxpayers deal with these kinds of loans. So they're kind of a grey area. Looking at CBDCs, obviously there is a much better argument that this is a fiat currency. So we hope that that would be the case but it might be the case in one jurisdiction but not in another. Just because your country treats it that way doesn't mean that you don't have issues with other tax authorities. Just one last thought because we're sort of going into the policy behind this. Of course tax authorities, their main issue has been compliance and getting access to information. So when a CBDC is on a Blockchain you do wonder whether they wouldn't have an easier time of auditing and even collection than in the past. So that's just a thought to leave you with on the tax side.

Usman: Yeah, that's a really interesting point. It sounds like your dog wanted to join the discussion as well.

Laura: I also have some construction workers outside.

Usman: Rumour has it that such things like CBDC and Stablecoins may, as it turns out, have an effect on monetary policy and financial stability and it's an issue we see coming up time and time again. I'm not sure, Simon, if you can sort of address this. What impact do you see CBDCs and Stablecoins having on those quite critical issues?

Simon: Sure, Usman. I think the most obvious one sort of follows from a point that I made earlier in the sense that the growth and the market cap of Stablecoins indicates that individuals and firms are more and more comfortable holding value, holding currency in the form of Stablecoins, and it has to come from somewhere. One of the biggest concerns with CBDCs is how much will it steal, well not steal, but migrate from deposits? How much value will migrate from deposits into CBDCs or into Stablecoins? Then that can obviously affect bank funding. We've seen in the past regulators shift bank funding requirements in different economic conditions. So there is the ability to adjust those from a regulatory perspective. I think that's an unavoidable risk and I think it's very simply from a mathematical perspective. If you offer new options and there's forces to encourage adoption of these new options, as far as payment and value storage, you're going to see some migration from traditional mechanisms. In that sense it does introduce a level of competition at the payments layer, and we understand that central banks are looking to enable this to be a payments mechanism, and yet unless you get into some of the designs that have been considered in China where, for example, certain types of currency can actually decrease, like it'll actually, what's the word I'm looking for, units of it will actually decrease over time if it's not spent by a certain date. So there's all kinds of very progressive monetary policy that's been experimented with because of the programmatic nature of these currencies. Now, do I think Canada or the US would implement something like that? Definitely not in the near term but it's possible with these currencies. I think it's an economist's dream to try to force the increase of the velocity of money by implementing some of these features. I think that's an interesting thought experiment to consider and I think we'll see pilot projects play around with different programmatic features like that. But it's certainly that's one of the bigger risks is bank funding. As well, when it comes to AML compliance, the ability to make these systems 100%25 compliance systems by design, so if you don't meet certain AML requirements, or KYC or KYB requirements, that your wallet is limited to your account or your wallet is limited to certain transaction amounts, transaction types, and that could be daily or monthly limits. There are a number of different policy and regulatory considerations that can be programmed into these currencies but then there's also the impact on the existing system as I mentioned first.

Usman: Okay. That's helpful. I don't know, Laurent, if you had anything to add to that or I was going to put a question to you, on a different topic, but go ahead if you do.

Laurent: We have some numbers on the velocity of Stablecoin, currently, and I was attempting to look it up while we were doing this. But just the basics, from memory so don't quote us here, but the analysis we are currently seeing is about the velocity of 100 and some for Stablecoin in US dollar.  That's about, if I remember correctly, 20 times the velocity of traditional fiat.

Usman: Okay. I wanted to just pick up on something that actually Laura had mentioned in her final comment which is that the issuance really of CBDCs is you can get a lot of benefits through it, in other words you're able to file taxes a lot easier potentially, but there's also sort of the getting access to information. I know that another key issue that we see come up with Stablecoin and CBDC projects is, particularly CBDC projects, is have we effectively created a surveillance coin and is there a significant privacy issue with these types of products? So you may recall, in fact, that when Libra came out there was actually a joint statement issued by the Privacy Commissioners for Canada, the European Union and the US Commissioner of the Federal Trade Commission, there expectations with respect to Stablecoin and CBDC projects. In that case we're talking about a Stablecoin project. So they said, and I'll just quote, "In today's digital age it is critical that organizations are transparent and accountable for their personal information handling practices, good privacy governance and privacy by design are key enablers for innovation and protecting data. They are not mutually exclusive. How do we balance this, the need for privacy, but also this innovation and all these great features that you talk about? I don't know. I'll open it up to all panelists but, Laurent, I'd be curious to hear your thoughts on how to address that.

Simon: I'm happy to take it first because that's certainly something that keeps me up at night. I picture the situation that Bitt is in as a technology service provider for central banks. We deliver the systems with gathering the requirements of the central bank, developing a technical specification, and obviously we offer a rich base feature set on our own but at the end of the day the central bank is the client, in this sense, and while perhaps the current authorities at the bank may have good intentions what future proofing mechanisms are in place that ensures that if a tyrant was in power that they didn't use this digital currency system to oppress their people? So it's really concerning. Now I'm happy to say that there are a number of groups who are picking up on just how large of a concern this is, how large of a risk this is, for democracy and freedom of speech and just human rights, I think, at the end of the day. So I'm working with a number of individuals and groups who are forming principles around, specifically, privacy and the use of data only when legal justification is there and being able to prove that there was legal justification in order to query different databases for user information, and then correlate that to transaction information. These principles are being developed and the idea is that all Central Bank Digital Currency systems should have to undergo an independent audit that show that they can match these principles and show that these principles are being upheld. It's definitely become top of mind. I think that one of the first big instances that I saw was the European Central Bank, their public consultation came back and the largest concern from the public consultation was privacy. For those of you who listened to the hearing of the House Committee Financial Services this week, that was also stated by I think both the witnesses and a number of the Senate members as well, saying that privacy is sort of a core feature of cash and if central banks are going to look to mimic cash truly, which they have stated many times that that's what they're looking to do with CBDCs, then privacy is certainly a large consideration. Fortunately, and it sort of goes back to the programmatic nature of CBDCs and Stablecoins, we're at a point in history with respect to this technology where we can program these systems to have provable privacy and temper detection and query detection capabilities so that privacy is upheld. Again, I think it's massively important and I look forward to continue to being part of the efforts to establish these principles, these design principles, that protect user privacy and ensure that these tools are used for good, in line with the democratic human rights that we would expect.

Usman: Right. I'll open it up to questions from the audience and we'll get those as people are speaking but I don't know, Laurent, if you had anything to add to that or Michael or Laura to the topic of privacy, in particular.

Laurent: Right, I can just add quickly that each digital currency is basically based on the value of its enabler and we will be in a world where there's different currencies with different values built in those models. I think this opens up a broad range of question of how do you interact? Or how can we interconnect systems with different central bank digital currencies and different currencies themselves together when the levels are not the same? Those fundamentals are not aligned.

Usman: Okay.

Laura: And if I can just go back to the tax point that I raised, I think there's

Laurent: <laughter>

Laura: I know.

Laurent: No, no, no. Great.

Laura: I even dream in taxes. No I don't. But just on the idea of tracking, of course you wouldn't want to have all of your tax data available at all times to any tax authority and any government. There are already certain programs in place around the world where the government already has instant access to certain information. I'm thinking of invoicing rules in certain Latin American countries where the invoice is going through a central system and so that as you may issue the invoice your tax authority also can look at it. So there's already certain things like that that are in place and some comfort that you are going to be audited. I think it depends on how it's done and how much control you have over what data is being shared.

Usman: Okay.

Michael: I'd add that a key component in dealing with personal data and privacy and one of those key requirements is the consent of the user. Where that user is well informed, and how the data could be used and is intended to be used and then provides their consent, that's one of the key protections in our privacy regimes. Then, of course, any system has to have robust protections and controls over possible cyber attacks or breaches that may lead to losses of data and then follow the prescribed regime for reporting those types of incidents and responding, if that should be the case.

Usman: Okay. Great. So I guess as a final-ish question, and I don't see questions from the audience just yet so I will assume everything is crystal clear, is where do you really see the future headed? So if you could exercise some prophetic vision as to where we're headed and timing wise of things, what do you see, and I'll maybe put the lawyers in the group as well, how do we get there? We've dealt with a lot of projects in the Stablecoin and other space. How do you get such innovative projects up and off the ground when there's a lot of legal uncertainty on different points? It's not like there's a hundred million precedents on the topic as well, so I think I'll start off with is where's the future headed? I'll maybe turn it you, Simon, first to start.

Simon: Sure. I actually wrote about this for the OACD sometime ago. I think it's clear that central banks are all now investigating in some form or fashion. Some are obviously more progressed than others but they're investigating CBDCs. So at the Bank of Canada they have a large working group that's developing a digital Canadian dollar. I know they call it a contingency plan but it's certainly a large contingent that they have inside the institution to experiment and test a digital Canadian dollar. But certainly most central banks around the globe are moving forward in some form or fashion with digitizing their currency. I think as we see those networks start to come online you'll see them look to interconnect with one another. One of the biggest opportunities for Central Bank Digital Currencies is decreased exchange cost and latency for foreign exchange, straight finance, etcetera and so I think that's where we'll probably see the CBDC networks evolve. I think they'll likely come into play in experimentation and then through the pilot and deployment. Then we'll see them interconnect with one another for exchange. I do think that governments are going to opt to the majority of their relief programs. So COVID relief. As you mentioned, Usman, you pick up on as I did, the first version of the CARES Act actually had provisions for digital US dollar and then scrapped, obviously because it couldn't be done in time. But interesting to see and that's what I've got from the central banks as well is that they would prefer to be using this as a sort of direct payment to citizens for different sorts of transfer payments or relief payments. I think that we'll see that evolve. I also wouldn't be surprised to see CBDCs used as sort of base trade payers for things like Bitcoin and crypto as that asset class grows. The growth instrument, it's undeniable at this point. When you have an asset class that's over a trillion dollars and sure it grows and peaks and drops and it bubbles and bursts and whatnot, but I think this is just indicative of an emerging asset class in its nascent stage. As government try and get their hands around taxing it properly and regulating it I think they'll probably implement mandates of your crypto exchange in your country. Okay, you have to use our CBDC as a base trade payer. Perhaps that's something that could happen. What I'm really interested in is to see where Stablecoins headed because the private sector, bringing these things to market, getting significant adoption, significant transaction volume, those are efforts that I think are potentially difficult to unwind and also regulators typically don't want to step on technological evolution, compliant entrepreneurialism like that. I would be really curious to see where the Stablecoin initiatives lead. I wouldn't be surprised if some of the Stablecoin networks sort of backed into a central bank and maybe they start holding their reserves at the central bank. So they become effectively a synthetic CBDC. These are some of the things, that if I'm looking into the future, some of my thoughts.

Usman: Okay. I did a doubletake as well when saw the CARES Act. With the reference to the digital dollar, I said, "Where did that come from?" Anyway, one minute each. Laurent, go ahead.

Laurent: Maybe something a bit shorter in the time frame is where it's going. This notion that Stablecoin, as Simon mentioned, the commercial banks are running pilot or ramping up to run pilot it would be great if the existing Stablecoin and issuing their own, because the benefits are attainable and they want to be ready, both for the CBDC but also for providing the additional services and products that can be built. I feel that they're aiming to be ready for when it happens. We have to think that this notion that central banks really have one shot, each one of them, at getting this right. Where commercial banks and other innovators in the ecosystem can just run and break, and I mean break technology, the other constraints in our life. Laura, tax legal constraints, and it just is a global market place so we'll see the innovation happen wherever it's possible.

Usman: Okay. Laura?

Laura: Just to tie into that I think that these developments are going to be beneficial to the overall development of the tax treatment of the crypto space. I think little bit lagging behind and in order to offer some of these services and to have certainty with banks. I think if anybody would be the first ones to push for that. We're going to need some more pressure from the industry to the tax authorities. So I think that's going to be a great development overall.

Usman: Okay. Final word to you, Michael.

Michael: Great. Final word. I guess I'll just mention, in perhaps the shorter term, that the Bank of Canada will be putting in place the framework for the regulation of payments, retail payment framework, and it's expected to be completed within the next 2 to 3 years. I think part of what we've heard today is that the role of Stablecoins and CBDCs in digital payments will see a rise of that and a greater dependence on that type of payment. It's interesting that the Canadian central bank is taking the role to regulate the retail payment side.

Usman: Okay. Well, thank you, all of you. I want to thank all of our attendees for joining. I want to thank each of our speakers, particularly our good friends and guests from Bitt. Simon and Laurent, thank you so much for joining and imparting your wealth of knowledge to us. Thanks, Michael and Laura, as well. As you can see up on the screen we're having our next session, as I'd mentioned, on July 15. This is on the Wonderful World, as I mentioned, of Decentralized Finance. What is it and what are some of the latest trends and legal considerations. Our invitations are going to be going out pretty soon so I hope you can all attend. Thank you once again and look forward to seeing you in the future.