What is digital money and who trusts it?

Cut through the hype to explore trust, programmability and the forces shaping the future of finance.

Join host Ron van Kemenade as he sits down with industry experts to unpack the rise of digital money - from stablecoins and CBDCs to tokenised deposits - and what it could mean for customers, businesses and banks.

Featuring Peter Left, Head of Digital Assets at Lloyds Banking Group, Tony McLaughlin, CEO & Founder of Ubyx, and Chris Skinner, author and technologist.

Brought to you by Lloyds Banking Group. Visit https://www.lloydsbankinggroup.com/who-we-are/group-overview/tech-and-transformation.html to learn more.

Transcript

Hello, dear listeners, and welcome back to a new miniseries of the No Ordinary Tech podcast. This miniseries will actually go and talk about one of the most innovative and exciting things happening in the financial services industry, digital money and digital assets. We're going to explore things like stablecoins, tokenised deposits, digital deeds, all kinds of things that to some may be entirely familiar, but to a lot of us are actually quite new things. And you will learn a lot. Why it's relevant even for us.

And the first episode is all about digital money. So let me introduce my guests for today's episode. We have Tony McLaughlin from Ubyx. Hi, Tony.

Hi.

And then we have Peter Left, the digital assets expert in Lloyds Banking Group. Hi, Ron.

Hi.

And then Chris Skinner. Chris, you're a well-known publicist on everything about economy, banks, the future. And then you have a blog, thefinanser.com.

Thank you.

Yeah. Hi. I'm always looking to the future and we are doing that today. So let's immediately go right in and maybe start with you, Peter. What about digital money? If you ask people in the street, and I did, then people would say, well, my money is already in my mobile app. So it is kind of digital. So why is it also relevant?

Well, I think everyone's experience is digital. The interface to the consumer is very digital now, but perhaps the work that we've done in the backend, in the banks and the rest of the financial services industry isn't quite as integrated and seamless as it could be. And one of the things that excites me and us at Lloyds is the opportunity to have a system for recording on Lloyds balance sheet and other financial institutions' balance sheet in a way where those records can all communicate in a common language and in a common ecosystem. So that digital money, represented as tokens on a blockchain, can work in partnership with digital assets like bonds, like equities, but also with contracts, like in the retail space might be wills or other agreements that our customers have. And if we can all start working together in a common language, then we can offer much, much better customer experiences.

Is it just adding value then to the banks themselves? Like it takes out a lot of friction of the markets, or is it as relevant for ordinary people and companies?

Well, I hope it's as relevant for ordinary people and companies. Yes, it can create efficiencies, but it helps us build new, better journeys. Now, right now in the retail space, we can't offer a conditional payment flow. We've worked very hard in the wholesale space to create small, ring-fenced communities where we can do an element of this payment only happens on delivery of this security. But it's not something that can scale to our retail customers. And imagine if we could allow a retail customer to have a much more flexible version of a direct debit. Maybe they only pay for the electricity that they use. They pay at a higher frequency, maybe weekly. And that opens up the potential for people who can't get a direct debit set up and they're on a meter. If we could have weekly payments that were linked to their actual smart meter at home.

Could you build, potentially even connect the actual payments to the outcome of the meter reading?

Exactly.

Yeah. Yeah, that makes sense.

The jargon or the buzzword for what Peter is talking about is composability. At the moment these assets, the money, the deed for your house, the government bonds, they all live on different systems. So you can't bring them to the same dance. Blockchain, if you represent these different assets on a common infrastructure, you can bring them together in novel ways. And what that really does is it increases the design space. It just means that creative people will find much better ways to build customer journeys.

So that's probably what Peter said as well, isn't it, that building an ecosystem or an even richer ecosystem, like you said, Tony, bringing together things that today don't easily come together.

Hey, Chris. People have heard about stablecoins. People have heard about digital euro, CBDCs, tokenised deposits, all kinds of new terms. Could you educate us and our listeners a bit on all these different types of digital money and why, in different geographies, they have made different choices?

Sure. I think there's a number of things going on here, and Peter and Tony have just touched on them, but in particular we are creating a digital monetary system. And we don't know where it started and where it's going. There's lots of things happening, but specifically I think that money is now becoming programmable, which is fantastic for instant settlement globally if you do it right. And the question is, how do we do it right?

And so we have four different developments, in my view, from the cryptocurrencies, which are decentralised like Bitcoin, through to the central bank digital currencies, which as soon as you say central bank, then they're centralised. And there's a range in between, which are tokenised deposits and stablecoins. And the difference between tokenised deposits and stablecoins is that stablecoins are typically pegged to a central bank fiat currency like the US dollar. And so you see companies like Tether and USDC and others that are in that space and that's developed very quickly.

But having said that, it's still, for the average person, a very small part of what we do in our day-to-day payments. And the tokenised deposits is actually something really interesting because that's where a bank like Lloyds can take any amount of money from a corporate or from a retail customer and put it onto their own chain, and therefore it now becomes something that can be traded in real time globally within the bank and backed by the bank. And it's the bank's liability that is behind it rather than the central bank digital currency, which is related to government and central banks. So it's all about which do you feel the most comfortable with and which one works best. And for many banks, having to deal with all of them.

And why is it, seems to me as a bit of a layman in this domain, that in the US it feels like they've chosen for stablecoins. Europe in particular has decided to do a central bank digital euro. And then in the UK, of course, we support stablecoins, but we are working very hard on tokenised deposits issued by commercial banks. And I'm sure in Asia you will see examples of all three. So why are different governments, different geographies making different choices?

Yeah. Well, it's always been the same way, hasn't it? In terms of every country has a different view of how systems work and what's legal and illegal. There are many countries that are trying to lead the market space here and become the go-to country for everything. A good example is United Arab Emirates because they've really tried to make a regulatory system that embraces and supports cryptocurrencies, central bank currencies, and a low-tax system, which is what makes the UAE so attractive as a growth space.

The UK is similar but is a little bit more conservative. Europe is very, very slow, although they have had a couple of actions in this space, like MiCA, which is the cryptocurrency regulation in Europe. The GENIUS Act in America was really interesting because what America is trying to do is make sure that they are the stablecoins of the world. The dollar as the reserve currency is critically important to the US economy. And so they've acted very quickly to try and make that happen.

And in Asia and Africa and other nations, there's lots of different approaches. I mean, we've actually seen El Salvador and a couple of other countries make Bitcoin their preferred currency to use in their country. So everyone has a different view. But the main thing is that a lot of countries want to be the go-to country for where fintech startups, banks and currency providers have their headquarters. And I think that between London, Dubai, Hong Kong and Singapore, they're the four main spaces where we're seeing that happen.

And maybe that's a nice segue into the topic. Building on all this diversity in digital money, Tony, there is this concept of singleness of money. First of all, what is it? And secondly, why is that relevant?

So singleness of money is something that the central bankers care a lot about. And essentially it means a pound is a pound. So I have a pound as a deposit in Lloyds. I have a pound as a deposit in Barclays. We would have a very strange system if those were worth different amounts of, let's say, central bank money. So what we have in every country, essentially, there are institutional arrangements that mean that a pound is a pound and a dollar is a dollar.

Now, the reason why this issue has come up is because stablecoins are new forms of pounds and new forms of dollars. And one of their key features is that they are traded. So my deposits in Lloyds are not traded on an exchange. So actually there's no possibility that they deviate from par value. But a stablecoin in GBP trading on an exchange might deviate from par value.

And that's something that central bankers rightly are very concerned with because trust in the pound is the responsibility of the Bank of England. So what a lot of the regulation is about is to put in place or extend the institutional arrangements that we have for bank deposits and other forms of money, and extend that across into stablecoins.

And to bring that alive for, again, the average person in the street, Peter. So stablecoins, they are denominated in dollars, pound sterling, euros, or do they have their own?

They're the same denomination. That's sort of the crypto world trying to solve that issue of they created a Bitcoin. It's very volatile in terms of local prices.

Wildly.

Yeah, exactly. So they needed to find something that wasn't wildly volatile in terms of local prices. So they are the pound. They are a euro. They are a dollar. Whatever currency is required in those jurisdictions.

And they're backed by short-term government bonds. And hopefully that's well run and that the entity running the stablecoin, if the price action starts deviating on the exchange, you can arbitrage that back to a one-to-one conversion by asking to redeem. And the issuer will go and sell the government bonds, hopefully in a good, deep, liquid market. And they'll be able to receive cash from those sales and redeem at par and maintain that one-for-one, kind of in the same way banks do today by delivering central bank money between each of us.

If Tony's moving his pounds from Lloyds to Barclays, Lloyds must deliver one hundred pounds of central bank money so that Barclays will take on that liability. And there's that arrangement that's like the redemption process for a stablecoin we've automated for decades in banking. And that's the challenge that all of us need to work through as we build tokenised deposits through to interoperability with stablecoins, is how do we maintain that singleness of money across that whole spectrum?

Because I think people and companies are used to fluctuations between currencies. And that's why we have FX markets. But the point you guys are making is if it is denominated in pound sterling, it should be a single value, right? That even if it is underlying a stablecoin or a deposit or a CBDC, if it's denominated in a pound, it's a pound, right?

Okay. Which I think brings the whole topic of trust. Can people actually trust these digital currencies, whether they're stablecoins or CBDCs or whatever acronym applies? Where is now trust? Is it in central banks? Is it with the commercial banks? Is it in the software? Where can people find trust?

That's a really good question, in that trust is what you believe in. And some people believe in Bitcoin. So they trust the ability to connect and transact globally using a cryptocurrency. I think the average person on the street, or the Clapham omnibus as we used to say, believes in the state's currency, which is the fiat currency, the cash that we use, the dollars and pounds and renminbi or yuan that we transact.

And trust is a huge subject because it's really about the confidence we have in the system. And when I talk about banking, most of the time I say that banks will always exist to be the intermediary of trust. Because if you have something that's backed by the system, whichever system you're using, then you know that that has an insurance if anything goes wrong. That's why we have the financial compensation schemes in most countries to ensure that if a bank fails or if a bank doesn't deliver a transaction as it should, then you can get your money back. And that's where the trust lies.

The issue for me with a lot of the decentralised currencies is that they are difficult to trust because you have to have self-confidence in your ability to transact and manage those processes yourself. And there's nothing to fall back on as an insurance. So it's really around how can you trust a system if it has no backup and no insurance? Or do you want that? And I think for most people, they just don't care. What they want is confidence and security in the system, which is backed by government and licensed through banks to ensure that you can always get your money back.

Hey, Peter, and are regulators looking at this? I mean, with call it normal money between brackets, we have in the UK the FSCS system. In Europe, obviously, in the US you have kind of deposit guarantee systems, et cetera. How far is the regulator with digital money?

Well, they're looking at making sure that there are controls in place around the safekeeping of the backing assets and that they're sufficient. Maybe there's haircuts involved. So there's an element of over-collateralisation so that if the government bond market moves in price, then some of that can be covered and corrected for. And you can still redeem your stablecoin at par.

So there's almost the same kind of activity in the banks. We've got sufficient resilience in our balance sheet, a capital buffer, so that if there were some defaults on the loans that back the deposits that we issue. This is a very similar approach being evolved in the stablecoin ecosystem, but reflecting that the backing assets are generally sub-one-year government bonds rather than twenty-five-year mortgages. So the haircut approach is slightly different.

And making sure that the assets are held bankruptcy remote so that if the stablecoin operator fails, the assets that back the issuance are still safeguarded for the beneficial owners of the stablecoin. And that's exactly what the Bank of England, the GENIUS Act and MiCA are looking to make sure apply to the stablecoins that become regulated and material to those economies.

And before we go and explore the concepts of settlement and the role of banks, maybe Tony, interoperability is another word, right? So singleness of money, interoperability. And this, I think with your company, is in particular an interesting thing you're working on. What does interoperability mean in this case?

So interoperability means, well, let's take the historical parallel back. At the end of the nineteen sixties, credit cards were invented. And to begin with, there were only very few credit cards. Imagine we were having a podcast talking about credit cards in nineteen sixty-nine. We would say, oh my God, there's only going to ever be two credit cards, and they're all going to be dollars and they're going to sweep the world.

But fast forward to twenty twenty-six, there are sixteen thousand card issuers on the planet.

I probably know five.

And yes, but you can take your Lloyds card into a hotel in Japan or into Macy's in New York. And the merchant doesn't care about the issuer as long as it's part of the interoperable Visa or Mastercard scheme.

So these are institutional arrangements that we've put in place for every previous turn of the technological wheel. We put in place these arrangements for cheques, for faster payments, for cards. And these institutional arrangements must come into place for tokenised money. So someone Scottish needs to build a new one of these. We won't mention a new one of these sets of institutional arrangements to make tokenised money interoperable. And that might be the kind of thing that I'm working on.

I think there's an interesting question here in that when we talk about interoperability, I've recently been on a couple of panel sessions talking about ISO 20022, because there's no standard about how you say it.

And I'm just wondering in that with the decentralisation of money, which if you trust that system works, you have a global standard that's integrated and the implications of what that means to when we talk about interoperability in banking, particularly when you have quite a fragmentation of currencies between the things we've talked about, like stablecoins and CBDCs and tokenised deposits and crypto. Just wondering your feelings around are the standards actually harmonising or are we getting fragmented?

I resist the commentary about things becoming fragmented because we have always solved these things in the past. I mean, there was a time. Lloyds is an old institution. Lloyds previously ran on paper ledgers and then it ran on IBM mainframes. And if in the future it runs on blockchains, it's the same business. It's the same business model. A bank is a balance sheet and we'll always need balance sheets, in my opinion.

So the form factor is new, but the need to build institutional arrangements to achieve interoperability is old. I'm very confident we will get there.

Yeah. Now, and to a certain degree, I agree with you, Tony, but I think in every technology wave or in this case the whole concept of digital money, you always see a bit of a diverging trend first and then a harmonisation trend following that, right? So that's probably what creates kind of the uncertainty in the market that Chris was alluding to. At the moment, it looks like a fleet of boats or an archipelago of islands. But at the same time, we see that there are private and public initiatives to further harmonise.

But that's good. Trial and error is human progress. I still remember when Bitcoin came around, and then later on Meta currency and then kind of proliferated into even many more stablecoins. There are always voices like this will finally bring down banks, right?

No, I don't believe so. I think it's an opportunity for banks. I think societies still need credit creation. So thinking about Chris's comparison of the spectrum of money, it's important to understand the backing assets.

I think banks have a role to play in that. And we can bring that private sector capital so that you can have the backing assets be mortgages and credit cards and car loans and business loans. That's not the case with the stablecoin.

So banks have a role to play there, but also that safekeeping. There's a custody role to play in all of these domains. Whichever form of money you hold, you probably want to approach a bank with a two hundred and fifty thousand three hundred year history of innovating, of understanding the risks, of making sure that you can access your resources resiliently twenty-four over seven. And that's what Lloyds does today. We're expert in, and we are just now going to reapply it to a new technology setup so that whether you want to hold stablecoins or whether you want to hold tokenised deposits or other digital assets, and some of those other contracts we talked about earlier, we will have a role to play in keeping access to that safe so you can trust it's always there.

When is digital money going to end up in people's pockets or digital wallets? Three years from now thing, or tomorrow? And you could argue it has already more or less done because people may hold some stablecoins or even bitcoins. But I mean true wider adoption.

Slowly and then all of a sudden. Like when the dikes are breaking, when you pull your finger out. Yeah. Slowly, then all of a sudden. Because look, the way, just expanding on the role of the banks, a blockchain is a venue for commerce in the same way that the high street is a venue for commerce.

And then along comes the internet. Is Lloyds responsible for everything that happens on the internet? It is not. Does Lloyds need to support its customers who want to transact on the internet? Of course it does.

And then along comes a blockchain. Now here's the problem. Here's the market failure. Through an abundance of caution, the banks themselves and the regulators have been, again it's from good reasons trying to protect people, they've said don't allow banks to occupy these spaces.

Unfortunately, nature abhors a vacuum. And so I guarantee you there are Lloyds customers transacting on Ethereum, transacting on Solana, transacting on other public blockchains. They don't have access to Lloyds services.

Yeah.

Now, we have to work quite hard already today about integrating to this blockchain ecosystem because our customers, from their current accounts, it's their money, it's their choice what they do with it. We're not going to stop them. So if they want to send it to a crypto exchange, we're already having to do a lot of that fraud work today to keep them safe.

So it seems a natural evolution to me that we bring our account system up to the level of a wallet, a digital asset wallet for the blockchain system, because we're already managing those risks. And to Ron's point, that's exactly what we're doing. But we're starting more in the professional corporate space to begin with, learning there. And eventually we'll bring that capability to all of our customers.

For what it's worth, I really think we're on the cusp of a change of paradigm from the bank account paradigm.

I actually think there's a number of key points that underpin this conversation, which is first of all, we talk about trade and economics, and tokenisation is nothing new. It's been around ten thousand years. In ancient Mesopotamia, they used to tokenise assets in clay, in clay pots, and it represented that you owned an animal or you had a piece of land. So this is nothing new.

Secondly, the only way in which the world works is in trusted shared systems. And the mass of the crowd will move to where the most trusted and shared systems are. And banking is at the core of this, obviously, but it goes further than that.

And I think where we're at today is because we're digitalising the trusted shared systems and tokenisation, there's one massive difference, which is historically these things have always been reactive to our instructions, whereas today they're becoming proactive. They can execute on our behalf. We can delegate authority to an artificial intelligence, agentic AI engine to transact on our behalf with tokens and their trusted shared system.

And that pretty much changes everything because now we've moved away from us managing the system to the machines managing the system on our behalf, but with our authority and our permission. And that's where we're struggling today between digital identity, trust, shared systems, tokenisation, and everything that goes in between.

And that's exactly the reason why we have this beautiful podcast, dealt with more or less all these topics. And actually, in our second episode of this series, we are going to explore a bit of the collision boundaries between AI and agentic AI on the one hand, and digital assets on the other.

Which leaves me with a big thank you to you, Tony. To you, Peter, and to you, Chris. And dear listeners, stay tuned for our next episode.

Thank you very much.

Thank you.

Thank you for listening to our first episode all about digital money. I would like to remind you, you can always subscribe to our No Ordinary Tech podcast on both Spotify and Apple. Benefit of that is you will get an alert to our next episode that we will publish.

And speaking about that, our next episode will be on the crossroads between tokenisation and AI. I'm looking forward to that one.