Digitization of Financial Institutions

Megan - 00:00:18: Today, my guest is Emmanuel Daniel. Emmanuel is an author, entrepreneur, and corporate strategist. He is a global thought leader in the future of finance and its impact on business and society. He was listed as a top 10 global influencer in the FinTech Power 50 list for 2021 and 2022. He is also a model train enthusiast. Emmanuel founded the research publication and consulting house, TAB Global, in 1996. Through its platforms such as The Asian Banker, Wealth & Society, the Banking Academy, and TabInsights, Emmanuel has extensive contact with leaders in banking and finance around the world. He has served or is serving in advisory or consulting roles for various public or private sector institutions at any time and is a well-regarded mentor and confidant in leadership circles. Emmanuel won the Citibank Excellence in Business Journalism for Asia in 1999 for his work on the internet and banking. The Asian Banker Summit won the Best Finance Conference from the Asian Conference and Summit Awards in 2012. He is sometimes interviewed on BBC, CNBC, and Bloomberg. In his first book, The Great Transition: The Personalization of Finance is Here, published in September of 2022, Emmanuel outlines the banking industry will evolve from being focused on platform technologies to a level of personalization never seen before. He describes the roles of cryptocurrencies, blockchain, gaming, and other technologies in this transition. The book was written to help disruptor technologies and finance chart their course. The book features four words written by former Congressman Barney Frank, the co-author of the Dodd-Frank Act legislations that regulates the financial industry in the US today, and Richard Sander, an innovator widely regarded, as the Father of Financial Futures. His writings are also based on his extensive travel to more than 110 countries and counting. He posts regularly on his blog and is working towards his second book, which is tentatively entitled The Winning Civilization, and due for publication in 2024. As an entrepreneur, he was previously a member of the Entrepreneurs' Organization, a prestigious grouping of young business owners worldwide. Emmanuel was trained as a lawyer, has degrees from the National University of Singapore and the University of London, and attended a course on economics at Columbia University in New York. He travels widely and divides his time between Singapore, Beijing, and New York. Emmanuel, thank you very much for being my guest on today's episode of CFO Weekly.

Emmanuel - 00:03:27: Hey, Megan. I'm very happy to be on your show. Very excited so much for us to talk about. And greetings from Bogota in Colombia.

Megan - 00:03:34: And you foresee that 2024 will be the year when financial institutions will digitize their deposit business, provide custodial services for digital assets, and add digital assets into their books. And that these changes will make their balance sheets look very different. I'm excited to learn about you and your thoughts and experiences with this topic. So let's get started.

Emmanuel - 00:03:55 Let's get right into it.

Megan - 00:03:56: First and foremost, let's start with you and just a little bit about your background and how it is that you ended up where you are professionally today.

Emmanuel - 00:04:04: Well, very short description. I graduated as a lawyer and then did a lot of corporate work instead, management consulting. Then in 1996, I started a business called The Asian Banker as a publication first, but then, , rounded it off more into consulting, research and training and all of that. And it is a business that I expanded from Singapore into all of Asia. So I had the opportunity to interact with leaders in banking and finance in countries from Korea to Australia, from Philippines, and then into the Middle East and eventually into Africa. So for more than 20 years, I've been building an understanding of the banking industry as it was evolving in emerging markets. Interestingly enough, some of the top US banks took in our liking and interest in what we do. And then from there, my relationship with some of the leading US chairman of banks like Dick Kovacevich of Wells Fargo. And so I can just do a name drops, as much as I want. But and in fact, the first book that I published. The foreword was written by Barney Frank, who co-authored the Dodd-Frank Act. So I've essentially created a franchise, which gives me an insight into the development of the banking and financial services industry worldwide. And I'm now at the point of taking the business even more global. And that's part of the reason why I travel to as many different parts of the world to understand what the developments are taking place. And as I travel, I make sure I visit with central bank governors privately in order to understand the issues. That they're facing and the decisions that they're making , based on what we read in the newspapers. So having a feel of the story behind the story is something that I'm very pleased about myself personally and the business that I've built over these many years.

Megan - 00:05:43: And as you mentioned, you're a prolific traveler. So where have you been traveling to recently and what motivates your travel and how you choose where you're going to go next?

Emmanuel - 00:05:53: I Supercharged my travel after COVID. Before COVID, I had been to, , a good number of countries. Now I've been to like 117, 118, I think. And I said to myself that, since I've been to so many countries, why don't I just round it up and do all the 995 countries in the world? But take your time. I mean, , it's not its goal in itself. And yes, you're absolutely right. There are themes that I work on, which is currently the biggest theme developments taking place in South America, especially in digital banking and in Africa. Africa is just amazing. They start with a white slate, an empty slate, a white piece of paper on which they can write the future of finance. A lot of the innovations that are being introduced in payments, for example, are taking life in Africa before they become endemic enough for other countries to consider. Just think about this. If you take M-Pesa, for example, which everyone knows, it's simply a message between two cell phones, the SIM cards of two cell phones. And when you think of what payments is today, that's exactly what payments is. If we can transect messages for free, we should be able to transect payments for free because payments at the end of the day is a form of messaging. And when these countries start to embrace innovations in finance, they release a lot of capital that in the past was either non-existent or handed over to the global players like Visa or MasterCard and siphoned out of the economic system. , like there have been new payment companies in Africa that tell me that they generate $50 million in profit after two years of operation, and that profit goes back into the local economy. And in the past, , there was no such profit. And they do that while they reduce the cost of transactions. So that's what technology is doing to very specific countries, and they're taking advantage of the capital that's being released back into the economy. , so that's what I'm learning that I'm seeing. I'm excited about these regions. When I go to the US, and I spend time with payment system players and fintech innovators, they have a very hard time because the incumbency of the existing traditional banking system, very difficult to break, basically. Whether, , it is payments or peer-to-peer platforms, the new players tend to take the bottom of the barrel. , they are part players, they are sideline players, while the banking system with its multi-layered payments infrastructure, if you just take cross-border payment coming out of the US, and look at the number of institutions involved in making that payment complete, , you'll be surprised that the gravy trail of players is long. And it's very difficult to break that because all of the players are happy with the existing status quo, and they're not allowed new players to come in and ace the system. So when the Fed introduced FedNow, for example, they took many years in planning to get there. And essentially, it's consumer-friendly in that it's instant pay, peer-to-peer payment that uses the existing banking infrastructure, and the banks looked at it, and at first, they were not cooperative because the check clearing system, the credit card systems, they generate a lot of revenue for the existing banking system. And here's a system that is reducing the cost and also reducing the processes involved and the number of players involved in processing each transaction. And it's instant, which also then affects the deposit base of the bank, which is, , it makes the current account more vulnerable as a result. And when Instant Pay was introduced in many different countries in the world, in the UK, in Australia, in Singapore, the banks started by resisting the regulators' efforts in instant payment. And the regulators had to move this way because the alternatives were already coming on stream at that point in time. So these are some of the things that I see, , I have a global canvas where I see how the developments are different in different markets, and what are the underlining themes that every market goes through anyway.

Megan - 00:09:39: So do you think it's possible to break through the barriers that are set up here in the United States?

Emmanuel - 00:09:45: It will happen. In my book, my first book, The Great Transition: The Personalization of Finance is Here. I make it a point that innovation in finance has never taken place solely out of purpose or design. When you look at the inflection points at which innovations actually take place in countries like the US, which has a very developed system, it always takes place in points of crisis and in points of desperation. Take the Federal Reserve Banking System in 1907. And why? Because there was a banking crisis at that time. And when you look at the literature for the 100 years before 1907, the thinking in the US policy was essentially that they would resist having a Central Bank just like the UK had the Bank of England. There should be a bank of last resort. And eventually, the US did create its own version of a bank of last resort, which is a Federal Reserve Banking System, which is unlike any other banking system in the world, because circumstances forced the idea that the banks will collapse if there wasn't a backstop on the bank runs at that time, , and then you take the gold standard. And when the US went off the gold standard in 1971, they were going back on what? 50 years since World War II, since Bretton Woods in 1945. Every economist in the US subscribe, both the Keynesians and Mises economists subscribe to the idea of a gold standard. And then it just every literature you read points up that the US should maintain the gold standard. And as trade was increasing in the world, the gold standard was even more important. And then one fine day in September 1971, President Nixon goes on television and say, guys, we're not going to hold on to the gold standard, we're getting off it will be just for three months, and we'll be back on it, they never went back. And today, the whole world subscribes to the idea of a floating rate regime, , so other stories just like that, where the game changes in the US very important inflection point. So right now, what I'm looking at, is that yes, there is a decline or an interest in a decline in the use of the US dollar in global trade. Why is that important? Because as the anchor currency in global trade, the US dollar is also the global Reserve currency. And what do countries need to do? They need to stock up their own treasuries with assets, which doll lower back and the most important and trusted asset in the whole world is US Treasury bonds. And right now, as countries look for alternatives. And even this, , was precipitated by a crisis, which was the Russian-Ukraine war. It had the unintended consequence of making all countries become afraid of the fact that because trade and investments are conducted in dollars, every payment that is transacted through the US Banking System is subject to US law. And it's the same with Russia, with Ukraine and Israel and anybody else. , even arms dealers have to think about this. And made countries that had nothing to do with the war, Saudi Arabia, Argentina, South Africa, to start thinking about bilateral financial arrangements with most important trading partners. And in many cases, the most important trading partner was China. Now, I'm not saying that these countries have found an alternative. They are exploring an alternative. Still early days, the alternative arrangements, like using the renminbi, for example, , when you read the newspapers, it seems that the renminbi is becoming an international currency. But the actual transaction itself, the renminbi never leaves China. , what these countries do is to incur a liability in renminbi, which they have to fund by providing foreign exchange into China. , so it isn't end. China itself is at a risk when it provides credit relationships with some of these countries, including the deal and swap arrangements, for example. So the state of play is dynamic at the moment, and there are no answers. But there's going to come a point where the US is going to get desperate and say that, what, we need to ace this system. And I'll tell you this, that the way that the US is going to ace global payments, investments and trade transactions is to digitize the dollar. And then we need to look back into the US political system and the way in which legislation is made to figure out that it will take the most expedient route to creating a digital infrastructure, which then takes us into will the US introduce a CBDC, . And of course, the man on the ground in the US is entirely opposed to the idea that the state should have that level of control over personal payments. But there are alternative models of CBDCs where a country can issue wholesale CBDC instead, then allow the banking system to tokenize their deposit business in order to digitize their payment infrastructure. So I see all of these potentially coming up and I look not for design or purpose, or the discussions in the Senate or in Congress. I look for inflection points, the trigger points that will cause a country or an economy to take drastic decisions in the areas of payments and global reserve currencies.

Megan - 00:14:38: And you mentioned your first book, which was published in October of 2022. So is there anything that we can expect from you in the near future in terms of long-form writing?

Emmanuel - 00:14:49: Oh, yeah. I'm rigorously working on my second book. And, , my first book took 15 years to write. And part of the reason is because it was a journey for myself in, because I had become an incumbent in the banking system by that time, I understood it in the way that all bankers understand what they do. I had to step out of it to make sense of, , decentralized finance, for example. you ask any banker up to recently, they'll tell you that, , it will never take off because regulators will not allow it and so on. And then you need to step out of it and see what the dynamics are that creates the momentum for decentralized finance to grow. And then you realize where it's coming from and they will start to converge with traditional banking. Now, my next book is to take it one more level, take the idea of predicting the future to another level at a social level, at a country level, rather than at a banking and economic level. So it's the book that I'm working on is called The Winning Civilization: The World After China. And here I look at some of the defining civilizations of our world today, you have the American way of looking at the world, you have the Chinese way of looking at the world, the Indian way of looking at the world, you have the Arabs, the Europeans, and the average corporate executive or individual is thinking, what about my country? When will my country be able to embrace all of the innovations taking place in the world and become a leading country, a leading economy in itself. And so I'm traveling around the world, looking at the way in which different countries cope with realities. And I've come to a few, just few important structures in my thinking. Number one is we cannot be ideological anymore. We cannot look at this as East versus West or liberal versus conservative, Judeo-Christian, liberal economy, capitalist economy versus a socialist system. If we look at it that way, we will miss the reasons why the countries that have progressed admirably in the last 10 years have done so. They each have their own time line. Some of it has to do with the way in which a revolutionary guard generation needs to face out before the technocratic crowd comes in and so on. So there's a timeline in which a country evolves. You take a country like Indonesia, for example. I mean, it was treated as a basket case a long time ago. And today we don't even remember the last seven presidents of Indonesia. And that's because it's had a stable democracy. And out there in the corner, in the Southeast Asian corner of the world, it's a trillion dollar economy. And not many people talk about Indonesia. And how did that happen? , and then I look at countries like Rwanda in Africa, which is an amazing country. Ideologically, you would pigeonhole it into a more dictatorial system. But economically, it is putting in place the infrastructure that will keep evolving that way. So that's my next book, okay? Now, the thing about writing books is that, we need to think about writing it either way too academically, and therefore it's philosophical and reflective. But I try to make my books as practical as possible for the practitioner.

Megan - 00:17:44: Thank you for that. So as we go through this period of digitization that feels exponential, what do you think the dangers are for traditional financial institutions as they digitize their deposit business?

Emmanuel - 00:17:57: Something that traditional banks don't realize, even as they criticize or look down on decentralized finance, is that it's going to be a case of the tail wagging the dog. The best practices that are being developed in decentralized finance, and what are they? They are 24-7 trading. So much of banking is batch processing. It's only office hours, only there's downtime for processing. , it's totally unacceptable today. And banks are struggling to upgrade their core banking systems to be as 24-7 as possible. And crypto is 24-7. And crypto is self-funding. It's not leveraged. Every dollar transacted in crypto is fully funded. And yet, it has its own source of liquidity. And here you have a potential financial system that is taking a life of its own and is being rejected by traditional bankers. Very soon, the treasurer in an average bank will need to start thinking how he's going to cope with 24-7 and instant pricing of products, of assets and liabilities, and dealing with instant bank runs. And we saw that in the Silicon Valley bank incident, which is that because the deposit business is highly-digitized already, it takes nothing more than a second for depositors to do a bank run on the back of a text message, of a tweet. , so the world that we've come into and treasurers, especially bank treasurers, asset liability managers will now need to look at the balance sheet in a much, much more competitive and dynamic manner and take into consideration, , these changes that technology is bringing onto them. And even if banking does not want to change, , even if they're still struggling with the existing technology infrastructure, the rules will be changed on them by peer-to-peer and decentralized finance infrastructures. So there are lots happening in decentralized finance in itself, and there's a lot to criticize. If you take NFTs, for example, non-fungible tokens, and the way in which it had evolved when it first started, it was all the rage, , there was trading community, creating assets of value. When you take ICOs, coin offerings, it was ridiculed by regulators, but it still goes on. If you take each cryptocurrency, initial coin offering of its own, in other words, it's a capital market of its own, being able to generate or capture $40 billion worth of capital by just coming into the market. While capital markets and stock exchanges around the world are struggling to keep up with the trends as they evolve. So there's a lot going on in that phase. But the simple assessment that I have at this point is that the case of the tail wagging the dog, decentralized finance infrastructure are setting in place new best practices that will find its way back into traditional banking.

Megan - 00:20:42: And we'll get into balance sheets in just a second. But first, can you explain the role of Blockchain technology in the digitization of deposits?

Emmanuel - 00:20:50: Blockchain today, difficult to describe and pin down because it's itself going through a lot of transformations. But very simply, the idea that the audit trail of a transaction can be kept forever is great for certain assets, not great for others. So it'll be great for assets, , such as land registries, tokenized non-fungible assets, , like a painting or an alternative asset of some kind, stuff like that. But payments has a problem in that on the one level, blockchain enables you to put in place, what Ethereum people would call a DAO, a decentralized autonomous organization, put in place rules and regulations for that transaction. But the problem with that is that it slows down the transaction and you need bandwidth and you need infrastructure to create an ecosystem for that transaction. So there are several things happening in blockchain, not all of which are going to be winners. So it's not a panacea for banking in itself. In fact, my organization, what we do for three years, I think, was to collect every blockchain initiative of banks around the world. And I'll tell you now with authority that almost all of them came to naught, which is that, , they were just a waste of time. Many banks just wasted time having this Blockchain experiments going on. But where they seem to be succeeding are in supply chains, where there needs to be integrity of transaction. There needs to be intensity, authentication and the ability to move assets through various players in the network. So from origination, and the origination point can be a coffee plant in Kenya and consumption point can be a coffee shop in Japan or in Australia. And I'm actually talking about real instances where coffee hubs in Japan actually originating their seeds from very specific farmers in Kenya. So in those very structured instances, there are ecosystems that can succeed with the advent of Blockchain. Banking in itself, it's still up in the air. And I haven't made up my mind exactly where the tokenized blockchain infrastructure is going. NFTs, for example, going through another phase of change at the moment. But what I do see is this the big problem with blockchain and with finance and decentralized finance as they are evolving right now. And if I were to put my finger on one aspect that we need to figure out how it's going to play out is the tendency towards centralization. The tendency towards the need for a venture capitalist to fund a project. And once you have a venture capitalist in the process, he would want to be rewarded or compensated for funding a project. And so we wants to make sure that profit pool accrues back to them. And so they build infrastructure where the provider of an infrastructure will then also profit from it, which then makes them the provider or tempts the provider to create closed infrastructures. Now, the promise of blockchain and the promise of crypto, is that it will become incredibly interoperable going into the future. But the huge struggle, there's a huge battle going on in that front, which is that technology itself is allowing interoperability. But the economics of it and corporate structure of blockchain technology still keeps defecting back into centralization. And so that's where we are at the moment and how that's going to play out? I'm developing my view of how the world will evolve in a fully decentralized world. Will we ever be able to do that? And if we don't, , how will we be able to incorporate decentralization into operability, and yet allow corporations to profit from infrastructure that they build? And we also see this, by the way, in AI. When you take the views of all the players in AI right now, you think about what they're struggling with most of all is to make AI universal and interoperable worldwide. And for that, you still need AI players to build infrastructure like server farms in every country and in every corporation and all that, who's going to fund that? So those are some of the issues that many different industries in the frontiers of technology are facing.

Megan - 00:24:53: Yeah, it comes down to greed versus greater good. How do you combat something like that?

Emmanuel - 00:24:59: Let's just assume that greed will always be there. And anyone who funds an infrastructure would want to dominate it, would want to own the community that's created around it. So that's not going away, the human tendency towards greed. But however, when we think about how crypto first came into being, and of all the cryptos in the world, Bitcoin hasn't lost its original mandate or its original purpose of being, which is that it is owned by nobody and it's validated by the network that it creates. In other words, the more networked it is, the safer it becomes. And even AI and quantum computing will have a hard time trying to break a Bitcoin network when it becomes prevalent. And that sort of unites everybody in the world without giving preponderance to any one of the players who are in the Bitcoin network. So the technology exists, the concept exists, except that everything else that has been created around it is being funded by capital markets. And that in itself is a story in itself. So there's a lot to think about on that front. And I don't assume to provide an answer, but we need to be asking the right questions at this point, and not just be carried away with black and white ideas of what decentralized or centralized finance is about.

Megan - 00:26:07: And let's talk about balance sheets. So as these processes continue to evolve, how is that going to change the way that balance sheets look?

Emmanuel - 00:26:16: Yeah, and this is the one message that I have to your audience, CFOs, which is that the balance sheet is being transformed. Balance sheets of central banks, balance sheets of commercial banks, balance sheets of corporates, right? And during COVID, US corporates started to take on cryptocurrencies into their balance sheets. They're carrying it. They're carrying them now. And as part of the securities that they carry on their balance sheet in the hope that they will not be missing out on the upside potential of this new asset class. And they see it essentially as an asset class. Banks being allowed by the Bank for International Settlements, BIS, which is like the central bank of central bankers, to start seeing digital assets on their balance sheet. And central banks themselves are being allowed, and both commercial banks and central banks will be allowed to carry digital assets on their balance sheet from 2025, next year, January 1st. Okay, so we are working towards that as the deadline. Now, once banks, and even if their balance sheet is just 2% carrying digital assets, it has a profound effect on the threats that they will be up against when markets move forward against them. And they need to start being able to prepare for what are the new rules in balance sheet management as a result of carrying these new asset class. And as I said, it's the case of the tail wagging the dog, which is that the rules that define decentralized finance, 24-7, instant liquidity, full funding, and ubiquity, okay? All of these will start to apply to traditional businesses or a traditional balance sheet as we know them to be. So I want to throw that idea out to the CFOs and say that we now need to start thinking what are the operational risks, for example, for a highly digitized balance sheet. We saw that in Silicon Valley Bank, which is that the moment you're digitized, you are open to instant gratifications, instant changes in perceptions. And you need to figure out how to deal with that and how to meet instant commitments or instant payouts and stuff like that. So these are the new rules that digital assets are bringing on to the way in which balance sheets need to be managed. Now, corporates themselves, it is still early days. But I think that during the Bitcoin winter, lots of corporates were asking themselves, , should we continue with this? And now that we're back on stream talking up cryptocurrencies or Bitcoin to a million dollars and all that. I think greed will continue to dictate corporate policy or corporate response to the opportunities being created in crypto. But we also need to look at utility, which is that the original design of these new assets, digital assets for their utility, for payments, for gaming, for non-fungible assets, stuff like that. We need to know where that's going to get a sense of the balance between utility and investments on the balance sheet.

Megan - 00:29:04: And when we talk about digital assets, is that just cryptocurrency or other digital assets?

Emmanuel - 00:29:11: We are now entering a world where many things can be digitized. And there's something that I say in my book, which is anything that can be digitized can be financialized. And anything that can be financialized can become a market of its own. So that's the interesting world that we are entering into right now. And, , like once we start digitizing property information, for example land registries, that will speed up mortgages or the mortgage business. Right now, one of the reasons why the mortgage business is seen as a long-term hold and a very stable anchor asset pool, whether it's for an individual or for a corporation, is because of the time it takes to complete a mortgage. It takes three months in some countries. It takes six months in some countries. And you don't even know where the registry is located and you need to do a lot of double checking and all of that. Now, imagine once it becomes a digital asset, the registry is verifiable and the property is tokenized into a non-fungible asset, it becomes instantly tradable. So that's the direction in which we are heading. And it will start changing our perception of mortgage as an asset in itself. So that's one example, right? And then there are other examples just coming on stream every day. In gaming, for example, the big price for new gaming providers or the creators of new games is to create digital tokens that will have value that gamers will want to buy and sell from each other. And what the banks are doing now, by the way, is to set up custodian services where they can provide clarity and custodian services for all kinds of different assets as they become detox. So that's the universe that's been created. It's still early days. I'm a critic of banks going into the digital assets custodian business because I think that that's going to be so commoditized that it'll be provided by any number of players. And the real security in custodian is not the institution, it's the network. In other words, the more networked you are and the more able to counter the veil and counter validate each other, that's the security. It's not the institution anymore. So that's the general direction in which we are heading. But we are now at a point where everybody's building digital assets infrastructure, hoping to dominate that space. But, we will get a clearer picture when we see the digital assets that become successful, that become valuable, and then overlay that kind of institutions that we need to have to succeed in that area.

Megan - 00:31:27: And as institutions add these digital assets to their books, who's going to determine that they're stable and secure investments?

Emmanuel - 00:31:36: That was my point, which is that they're not stable and they're volatile in a way that nothing in finance has ever been before. And so that changes what finance is in the first place. And as I said, the security and the stability is actually provided by the network, not by the institution. So when you think about this, digitizing information and putting it onto your asset book, you're actually digitizing an asset. You're actually digitizing information. And what is information? Is the only asset that grows when you give it away. When we think about physical assets, tick-tick property or gold, a bar of gold, for example, when you sell it, you have to sell it at the highest possible price. And then the buyer takes it at the price that he thinks is valuable and you lose as a result. It's the winner takes it all type of arrangement. Now, digital assets, especially when of the information, I mean, when because the underlining principle of digital assets is essentially information. Information is something which if I give it to you, I don't lose it. And if I give it to the next person, I don't lose it either. And it becomes even more valuable the more it's shared out there into the network. So we need to have that thinking at the back of our heads when we think of the value that's being created by digital assets in the future. And what will the end user use that value for? So we think of mortgage as a business, for example. It now becomes possible for young people. And then we top it up with the idea that central banks are going to be issuing a lot more of their currencies. And creating incredible amounts of inflation, which needs to be captured by these assets. Okay, and that's where their value comes from, by the way. It doesn't come from any inherent value in itself. It's money being created and needing to be captured by digital assets. And that was the birth of digital assets. It didn't have a chance of succeeding on its own. And it's going to get more complicated as different countries grow in the economy and so on. And then the question is, what are we willing to trade each other for on these assets? So if you take a mortgage, a young person who can't afford a house at a million dollars will say, what? I'll just buy a timeshare, just lease the house for three months and then give it away and then move on to the next piece of property. , something becomes more liquid even in the mortgage business. So that's the kind of lifestyle changes that we will see that will carry the utility and value of these assets, of these digital assets as they get formed.

Megan - 00:33:54: And let's talk about a piece that you recently wrote about tokenized bank liabilities being issued by the Monetary Authority of Singapore. Within this piece, you talked about how it's not inconceivable that every bank in the world is one day going to replace their deposit business and compete on issuing their own stablecoins. So why do you think at the moment that this hasn't happened? How far into the future is it away from happening?

Emmanuel - 00:34:22: The reason I'm throwing it out there is because the BIS is encouraging entire banking systems to do exactly that. The original idea of a Central Bank Digital Currency was to have the central bank issue it and roll it out domestically to the retail pool directly, which then throws into question, so you don't need a banking system after that because the payment token is issued by the central bank right down to the end user. That's the model that China is experimenting with. But this BIS seems to be changing its mind and saying, oh, we're going to backtrack on this a little bit. We're going to only issue CBDCs as wholesale or central bank digital currencies as a backstop for the payment system. And then the model the BIS is promoting to central banks around the world. And by the way, in the US, both the Treasury and the Federal Reserve Bank likes the idea that the BIS is proposing, because if they were to put out a recommendation to Congress to issue a CBDC in the US, it's going to be shot down immediately. I mean, there's no way the US is going to, a quality in the US is going to allow central banks that much power to be able to control payments right down to the end user, right? But issuing a wholesale CBDCs a different story. In other words, it's the liability only between the central bank and the commercial banks. And what the BIS is saying is let the commercial banks issue or tokenize deposit business. Now, when I first read these recommendations as they were being put out, I said, wait a minute. No, that's the same as the banks issuing their own stablecoin, because the idea of a tokenized deposit already exists. It's called stablecoins. And they're being issued by Circle and Tether and so on. And they are successful in their own right. They're stable. They have governance issues which are being ironed out and it's ready for use. Now, when banks tokenize their deposits, they're doing exactly that. They are making their deposits into a stablecoin. The only difference being that the bank deposit is always dollar for dollar, whereas stablecoins has always got arbitrage between buyer and seller from which you can do trades. So edge of moving into that direction. And as I said, the reason I mention Singapore is only because Singapore is a country that doesn't subscribe to or doesn't communicate an idea unless it's ready to go to market with it. And I know this about Singapore, because I'm from there. And I know how the system works, the regulators will not start talking about something until they're ready to go to market. But the country to look at is the US, because as I said, it's so much easier route for the Federal Reserve Bank to allow every bank to tokenize their deposits, then to go to Congress to ask for permission to issue their own CBDCs. And so that's how I think it will evolve. Now, what the banking system is thinking that it's going to be able to do when it allows banks to tokenize their deposits is that it will take the shine out of cryptocurrencies. Cryptocurrencies are bad, they are used for evil purposes, for money laundering and all that, all of which are not true, by the way. And because you do the same with cash, and guess what, with crypto, you can actually track the transactions. So they still don't seem to admit to the idea that a lot of crypto that are stolen are actually recoverable, precisely because they are traceable much more than any other forms of payments. But there will come a point where the US will find this an attractive proposition, which is, what, let's digitize the US dollar by allowing every commercial bank in the US to digitize or to tokenize their deposit base. So that's where I think it's going.

Megan - 00:37:46: I'm just curious, if crypto is stolen, is it kind of just tough luck? Or is it possible to get that back?

Emmanuel - 00:37:52: It's possible to track them. The only reason is lost sometimes through other means. For example, you lose your password, and you lost it forever. Because , you lose your code, you can't recover the transaction, you're no longer part of the network. So that's where the problem is. The problem is not that it's not traceable. Bitcoin is 100% trackable. I think that the criticisms against crypto, and of course, there are cryptos that try to get around these problems by operating below the radar screen in terms of being countable and hiding the identity of the transsector, where for very specific purposes, promoting themselves as tokens for whatever nefarious reasons, but also for valid reasons for wealth management, for making sure that the identity of the beneficiary is not playing to the transactors and so on. So there are cryptos which have these features. But crypto, in general, it's based on blockchain technology, which is that the audit trail of the transaction is always traceable. And that's something that just needs to be put in there to push back on the criticism of crypto being anonymous. Cash is 100% more anonymous than crypto.

Megan - 00:38:57: And as these big traditional banks get on board with digitization, do you think they're going to maintain the advantage or that newer digital only banks are going to prevail?

Emmanuel - 00:39:10: That's where what I see happening is very interesting, which is that once consumers become familiar and accustomed to and start to use digital tokens and start to program the digital tokens for specific utility. In other words, if I have $100,000 in my bank account, I can say that $50,000 is for investment purposes only. , $10,000 is for daily use. I can give it to anybody. $5,000 is for insurance, something like that. The potential for programming the utility of tokens is there. And in fact, the BIS wants to see that happening. All this being designed to take the thunder away from cryptocurrencies, which is what crypto does today. , they're programmable. Now, the strange thing that I think will happen is that as the end user becomes familiar, accustomed to the ecosystem of tokenized economy, they're going to demand for more. And they're going to erode the role of banks, traditional banks, because they're going to be open to all kinds of other players who already exist in the marketplace. Everything from custodian to utility to liquidity providers to interoperability platforms. And it's going to liberalize banking and take the business away from the banks as we know them to be today. So that's one of the unintended consequences that I see eventually taking place. In other words, people become even more familiar with decentralized finance precisely because the banks are becoming tokenizing their deposits.

Megan - 00:40:33: And last question, but as you look into the future, what keeps you up at night?

Emmanuel - 00:40:39: Very good question. I'm at the stage in my life where I really want to be most useful in my ideas and in my interaction with the community. I feel like I'm on the last run of my life. And if you ask me what keeps me awake is the fear of being irrelevant and the fear of not taking into consideration the changes that are being brought onto us just because I'm familiar with something from the past or I'm biased in my views and so on. So I practice myself in order not to be biased. I keep learning and I keep challenging even my own views on everything from religion to society to civilizations in order to make sure that the ideas that I'm publishing, defining ideas, not just useful ideas, but it will set the stage for us to know how the future will evolve.

Megan - 00:41:27: Yeah, I don't think you have to worry about being irrelevant at all.

Emmanuel - 00:41:31: Oh no, we all run into phases in our lives where we become accustomed to a certain development and then we get stuck there. And the developments that are taking place today, it's a moving target and they are being influenced by a whole range of factors that are not institution-centric. And that's something that I'm saying in my book, that the institution is weakening, and we need to see what the institution will look like in the digital space. So my big fear, the thing that keeps me awake at night, the fear of being irrelevant.

Megan - 00:41:57: Emmanuel, thank you very much for being my guest today.

Emmanuel - 00:42:00: Thank you very much, Megan. And thank you very much for your questions. You've given me the opportunity to explain ideas that probably the first time they've been ever explained, because I'm not hearing this from anyone else, but I'm piecing together the developments that are taking place around the world.

Megan - 00:42:14: Yeah, I know I've really enjoyed this conversation. And thanks for finding the time to be here with us today to share all of your experience and knowledge.

Emmanuel - 00:42:22: Thank you, Megan.

Megan - 00:42:22: I wish you all the best. And to our listeners, please tune in next week. And until then, take care.