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

SPEAKER_01 0:02

Hello, dear listeners, and welcome back to a new miniseries of the Northern 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, tokenized 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 Ubix. Hi Tony. Hi. And then we have Peter Left, the digital assets expert in Lloyd's Banking Group. Hi Ron. Hi. And then uh Chris Skinner. Chris, you're a well-known publicist on everything about economy, banks, the future. And then you have a blog, thefinancer.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, uh, and I did, um, then people would say, Well, my money is already in my mobile app, so it is kind of digital. So, why is it all so relevant?

SPEAKER_03 1:41

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 back end in the banks and the rest of the financial services industry isn't quite as integrated and seamless as it could be. Um, and one of the things that excites uh me and us at Lloyd's is the opportunity to have uh a system for recording on Lloyd's balance sheet and other financial institutions' balance sheet in a way where those records can all communicate um 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, um, but also with contracts like in the retail space, might be wills or other agreements that uh customers have. And if we can all start working together in a common language, then we can offer much, much better customer experiences.

SPEAKER_01 2:45

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

SPEAKER_03 2:57

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 um people who can't get a direct debit set up and they're on a meter. If we could have weekly payments that would link to their actual smart meter at home, you could potentially even connect the actual payments to the outcome of the of the meter reading.

SPEAKER_01 3:58

Exactly. Yeah, yeah, that makes sense.

SPEAKER_00 4:01

The jargon or the buzzword for what Peter is talking about is composability. Um at the moment, the these assets, the the money, the the deed for your house, the government bonds, they all live on different systems. So you can't bring them to the same dance. Uh 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.

SPEAKER_01 4:41

So that's probably what Peter said as well, isn't it? That building an ecosystem or an even richer ecosystem, like you said, to only bringing together things that today don't easily come together. Hey Chris, people have heard about uh stable coins, people have heard about digital Euros, CBDCs, tokenized deposits, all kind of new terms. Could you educate us and our listeners a bit on all these different types of digital money and and why in different geographies they have made different choices?

SPEAKER_02 5:15

Sure. I think there's a number of things going on here, and uh Peter and Tony have just touched on them, but in particular, um we are creating a digital monetary system. Um and we don't know where it started and where it's going. Um 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, uh from the cryptocurrencies which are decentralized, like Bitcoin, through to the central bank digital current currencies, which as soon as you say central bank, then they're centralized. And there's a range in between, um, which are tokenized deposits and stable coins. And the difference between tokenized deposits and stable coins is that stable coins are typically um pegged to a central bank fiat currency like the US dollar, and so you see companies like Tether and USDC and others um 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 tokenized deposits is actually something really interesting because that's where a bank like Lloyd's can take any um 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 go is behind it, uh, rather than the central bank digital currency, which has is related to government and central banks. So it's all it's all about which do you feel the most comfortable with and uh which one works best, and for many banks having to deal with all of them.

SPEAKER_01 7:36

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 stable coins. Europe in particular has decided to do a central bank uh digital euro, and then in the UK, of course we support stable coins, but we are working very hard on um uh tokenized deposits issued by commercial banks. And I'm sure in Asia you will see examples of all three. So w why are different governments, different geographies making different choices?

SPEAKER_02 8:13

Yeah, um 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. Um there are many countries that are trying to lead the market space here um and become the go-to country for everything. A good example is United Arab Emirates, um, because they've really uh tried to make a regulatory system that embraces and supports cryptocurrencies through 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 m very, very slow, um, although they have had a couple of uh actions in this space, um like the MCIA, which is uh you know the cryptocurrency regulation in Europe. Um the Genius Act in America was really interesting because what America is trying to do is make sure that they are the stable coins 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 um and Africa and other nations, there's lots of different approaches. I mean, we've actually seen um El Salvador and um a couple of other countries make Bitcoin their preferred currency to use in their country. So, you know, everyone has a different view, but the main thing is that uh 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.

SPEAKER_01 10:22

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

SPEAKER_00 10:41

So singleness of money is um something that the central bankers care a lot about, and essentially it means a pound is a pound. So I have a pound in is a deposit in Lloyd's, I have a pound is a deposit in in Barclays. Um 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 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 stable coins are new forms of pounds and new forms of dollars, and and one of their key features is that they are traded. So my my deposits in Lloyd's are not traded on an exchange. So actually, there's no possibility that they deviate from par value. But a stable coin 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 stable coins.

SPEAKER_01 12:11

And and to bring that alight for again, and the average person in the street, Peter. So stable coins, they are denominated in dollars, pounds sterling, euros, or do they have their own.

SPEAKER_03 12:25

Oh, they're the they're the same denomination. That's 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 volatile. Yeah, exactly. So they needed to find something um 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 you know required in those jurisdictions. Um, and they're backed by short-term government bonds. And hopefully that's well run and that the entity running the stablecoin, uh, if the price action starts deviating on the exchange, you can arbitrage that back to a one-for-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, you know, and that 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 Lloyd's to Barclays, uh Lloyd's must deliver £100 of central bank money so that Barclays will take on that liability and there's that arrangement. That's like the the redemption process for a stable coin we've automated for decades in banking, and that's the challenge that all of us need to work through as we build tokenized deposits through to interoperability with stable coins is how do we maintain that spare that singleness of money across that whole spectrum?

SPEAKER_01 13:56

Because I I think people and companies are used to fluctuations between currencies, and that's why we have XFX markets. But the point you guys are making is if it is denominated in pound sterling, it should be a single value. Right. 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 GPTD or stable coins or C B D C's, uh, whatever acronym applies. Where where is now trust? Is it in central banks? Is it with the commercial banks? Is it in the software? Where where do where can people find trust?

SPEAKER_02 14:43

That's a really good question. Um in that trust is uh what you believe in, and some people believe in Bitcoin, so they trust the bill the ability to connect and um transact globally using a cryptocurrency. Uh I think the average person on the street or the clap om om omnibus, as we used to say, believes in um the state's currency, which is the fiat currency, the cash that we use, the dollars and pounds and Remnimbi or Yuan that we transact. Um 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 um 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 um in m or 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. Um the issue for me with a lot of the decentralized 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, um, which is backed by government and licensed through banks to ensure that you can always get your money back.

SPEAKER_01 16:50

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

SPEAKER_03 17:10

Well, the looking at making sure that there are controls in place around the safekeeping of the backing assets and that um they're sufficient. Maybe there's haircuts involved, so there's an element of over-collateralization, so that if the government bond market moves in price, then some of that you know can be uh 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, there's a very similar approach being evolved in the stablecoin ecosystem, but reflecting that the backing assets are sort of generally sub-one-year government bonds rather than 25-year mortgages. So the haircut approach is slightly different. Uh, and making sure that you know the assets are hold bank held bankruptcy remote so that if the stable coin 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, uh, the Genius Act uh and umika are looking to make sure apply to the stable coins that become regulated and material to those economies.

SPEAKER_01 18:26

And before we we go and explore the the concepts of um um settlement and and and the role of banks, uh 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 what does interoperability mean in this case?

SPEAKER_00 18:53

So interoperability means, well, let's let's take the historical parallel. Back at the end of the 1960s, 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 1969. 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 2026, there are 16,000 card issuers on the planet.

SPEAKER_01 19:23

I I probably know five.

SPEAKER_00 19:25

And yes, but you can take your Lloyd's 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 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 checks, for faster payments, for cards, and these institutional arrangements must come into place for tokenized money. So someone, Scottish, needs to build a new one of these uh We don't mention a new one of these uh sets of institutional arrangements to make tokenized money interoperable, and that might be the kind of thing that I'm working on.

SPEAKER_02 20:16

I think there's an interesting question here in that um when we talk about interoperability, I've recently been on a couple of panel sessions talking about ISO 2002 or 2022, because there's no standard about how you say it. Um And I'm just wondering in that um with the decentralization 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 stable coins and CBDCs and tokenized deposits and crypto. Just wondering your feelings around are the standards actually harmonizing or are we getting fragmented?

SPEAKER_00 21:09

I resist the the commentary about things becoming fragmented because we have always solved these things in the past. I mean, there there was a time Lloyd's isn't is an old institution. You Lloyd's previously ran on paper ledgers and then it ran on IBM mainframes. And if 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 the 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.

SPEAKER_02 21:47

Yeah.

SPEAKER_01 21:48

No, and to a certain degree, I I agree with you, uh Tony, but I think in every technology wave, or in this case, at the whole concept of digital money, you always see a bit of a Diverging trend first and then a high harmonization 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 boat or an archipel of uh of islands, but at the same time, we we see that uh there is private and public initiatives to to further harmonize. But that's good. Trial and error is human progress. I still remember when Bitcoin came around, uh, and then later on uh Metal currency and then kind of proliferated into even many more stable coins. Uh there is always voices like this will finally bring down banks, right?

SPEAKER_03 22:45

Uh no, I don't believe so. I think it's an opportunity for banks. Um, I think societies still need credit creation. Uh 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. Now 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 a stable coin. Um so banks have a role to play there, but also that safekeeping. You know, there's a custody role to play in all of these um domains, whichever form of money you hold, you probably want to approach a bank with a 250-300-year history of innovating, of understanding the risks, of making sure that you can access your resources resiliently 24-7. And that's what Lloyd's 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 stable coins or whether you want to hold tokenized deposits or other digital assets and some of those other contracts we talked about earlier, you know, we we will have a role to play in keeping access to that safe so you can trust it's always there.

SPEAKER_01 23:59

When is digital money uh 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 stable coins or even bitcoins. But I mean through wider adoption.

SPEAKER_00 24:19

Slowly and then all of a sudden. Like uh when the dikes are breaking, when the dykes are taking when you peel your finger out, yeah. Slowly, then all of a sudden, because look, I the way just expanding on the role of the banks, um you know a a block, what is a blockchain? 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 Lloyd responsible for everything that happens on the internet? It is not. Does Lloyd's 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 then with 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 Lloyd's customers transacting on Ethereum, transacting on Solana, transacting on other public blockchains. They don't have access to Lloyd's services.

unknown 25:33

Yeah.

SPEAKER_03 25:34

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. Um, 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 you know, a wallet, a different asset wallet for the blockchain system, because we're already managing those risks. And and to Ron's point, that's exactly what we're doing. Um but we're starting more in the professional corporate space to begin with, learning there, uh, and eventually we'll bring that capability, you know, to all of our customers.

SPEAKER_00 26:18

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

SPEAKER_02 26:25

I actually think there's there's a number of key points uh that underpin this conversation, which is first of all, we talk about trade and economics, and tokenization is nothing new. It's been around 10,000 years. In ancient Mesopotamia, they used to tokenize assets in clay, in clay pots, and it represented that you owned an animal or you could had a piece of land. Um so this is nothing new. Secondly, um 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 digitalizing the trusted shared systems and the tokenization, 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 a artificial intelligence sedentic AI engine to transact on our behalf with tokens in 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, tokenization, and everything that goes in between.

SPEAKER_01 28:11

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 collisionslash boundaries between AI, agenic AI on the one hand, and digital assets uh on the other. Which leaves me uh with a big thank you to you, Tony, to you, Peter, and to you, Chris, and uh, 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. Um, benefit of that is you will get an alert uh to our next episode that we will publish. And speaking about that, our next episode will be on the crossroads between tokenization and AI. I'm looking forward to that one.