In the first part of this article we traced the development of the ‘Utility Settlement Coin‘ – a project that began in 2015 and which has now evolved through the inception of a consortium called Fnality International. Fnality are comprised of a number of the world’s biggest banks including Barclays and UBS, all of whom are shareholders in the scheme. Their objective as stated on the company’s website reads:
Fnality International has been founded to create a network of decentralised Financial Market Infrastructures (dFMIs) to deliver the means of payment-on-chain in tomorrow’s wholesale banking markets.
In practice, what Fnality are seeking to deliver is the construction of a distributed ledger technology based global payment system, one that can ‘facilitate tokenised, peer-to-peer markets‘.
Before we look into this more, let’s examine some of the key figureheads behind the project. First there is the CEO Rhomaios Ram, who for the best part of two decades worked for Deutsche Bank in roles that included European Head of Currencies & Commodities and Head of Transaction Banking in the UK and Ireland. The Chairman of Fnality, Jim Turley, has also worked at Deutsche Bank in various different positions. Outside of commercial banking, Turley once served on the board of the New York Fed Foreign Exchange Committee.
But perhaps the standout name on Fnality’s management team is Daniel Heller, the firm’s advisor on regulatory affairs. Described as an expert in financial sector regulation and financial stability, Heller has a track record of having served at both the Bank for International Settlements and the International Monetary Fund. At the BIS he was head of the Secretariat of the Committee on Payment and Settlement Systems, whilst at the IMF he was the executive director for Switzerland, Poland, Serbia, Azerbaijan, and four Central Asian republics. According to the Peterson Institute, for which Heller is a visiting fellow, Heller’s present research ‘focuses on the impact of emerging digital technologies such as blockchain on the financial sector, financial stability, and central banking.’
Back in September last year, the BIS held a ‘Conference on global stablecoins‘ in which one of the participants was Fnality International who gave a presentation on the day (along with JP Morgan and the Libra Association behind Facebook’s planned digital currency). High on the agenda of this conference was the legal uncertainties around stablecoins as well as how they could be regulated in the name of promoting financial and monetary policy stability.
In conjunction with a DLT based global payment system, a leading focus of Fnality is to devise and implement solutions to the legal, regulatory, operational and technical aspects. If they were successful, the end result would be a regulated network of distributed, or decentralised, financial market infrastructures. That is the theory at least.
As evidenced by the coverage on the Libra Association, the regulatory environment is one of the main issues around the future implementation of a digital currency network, so it will no doubt benefit Fnality to have Daniel Heller amongst their management, given his speciality in regulatory affairs and his former role at the BIS. After all, it was they who in 2019 introduced the Innovation BIS 2025 project which is centred around the technology that would underpin CBDC’s.
It is worthwhile at this point to remind ourselves of what the Utility Settlement Coin project was set up to achieve. Five years ago we were told that USC would be implemented on DLT, and have the potential to transform clearing and settlement processes. One practical example of this is that cross border transactions that might normally take days to clear would be instantaneous thanks to both DLT and the blockchain technology at the heart of the infrastructure.
USC was described from the outset as an ‘enabler‘ of tokenised markets. For clarity, an asset such as money can be converted into a token and then be stored on a digital blockchain. JP Morgan’s JPM Coin follows this principle. One JPM Coin holds the equivalent value of $1 dollar, which JP Morgan will guarantee. These type of tokenised assets are widely being referred to by central bankers as stablecoins. The argument they use is that stablecoins pegged to stable (fiat) currencies work to minimise fluctuations in value. But whilst one token may hold the value of one corresponding dollar, it does not guarantee the purchasing power of that dollar. And as proven in the UK throughout the Brexit process, fiat currencies are not the panacea for exchange rate instability.
The vision for USC, which has carried through to Fnality International, was for it to be 100% backed by fiat currency held at the central bank level. Initially five currencies would be focused on: the dollar, the euro, the pound, the Japanese yen and Canadian dollar. According to the IMF, these five make up over 90% of global foreign exchange reserves. Aside from the Canadian dollar, all of them are part of the IMF’s Special Drawing Rights. The SDR is considered by some to be the foundations for a future global currency framework. Since the onset of renewed political nationalism and populism, a reformed SDR has been touted as a possible method to re-embolden multilateralism (another term for globalism).
The crux of USC is that it has been sold to people as a model for a decentralised digital future. We are told that JPM Coin and other stablecoins will offer an alternative method for transacting through distributed ledger technology, one that moves away from the centralised ground of today – ground that is monopolised by central banks.
In 2016, outgoing governor of the Bank of England Mark Carney commented that distributing the ledger ‘means multiple copies of the system. It can continue to operate if parts get knocked out. That removes the single point of failure risk inherent in a centralised system.‘
On the face of it that sounds promising. That is until you examine what Carney said next:
We need to be certain that the privacy of the data in those distributed copies cannot be compromised by cyber attack. One way this might be achieved is to limit the distribution of the ledger to existing trusted parties, such as other public sector entities.
As I have written about previously, the Bank of England are in the process of renewing their RTGS payments system to make it compatible with DLT. What this quote from Carney demonstrates is that even before distributed ledgers has been implemented through the BOE’s own systems, the bank is already exploring how to limit distribution. The rationale is not difficult to imagine – the BOE could simply say that opening the ledger out to multiple different providers could jeopardise financial stability and heighten the risk of cyber terrorism and data theft. Therefore, streamlining access would be the safer option.
Already there is a link between Fnality International and the Bank of England. Fnality’s tech partner, Clearmatics, took part in a BOE proof of concept in 2018 which was designed to understand the capability of DLT as a future component of the bank’s renewed RTGS payment system. Clearmatics reported back to the BOE that their systems were able to connect and achieve settlement in central bank money.
Where USC comes into that is potentially key. It has been suggested that it could operate as a bridge between different coins – a ‘tokenised correspondent channel‘ – to enable holders of one coin to transfer them to another provider. So rather than changing coins directly, the process would be conducted through USC. An objective of Fnality International is to connect decentralised market infrastructures to a corresponding central bank, which presumably would result in transactions being settled in central bank money through DLT ready payment systems. Hardly an example of a decentralised utopia.
Right now, the only form of central bank issued money is banknotes. With globalists intent on pushing the world towards a digital only monetary system, central banks will require an alternative form of issuing money in order to maintain control. That is where CBDC’s enter the picture.
As explained by the World Economic Forum in March 2019, distributed ledger technology is essential for the future introduction of central bank digital currencies, in short because it is DLT that would facilitate the use of CBDC’s:
If a central bank has strong motivations to employ CBDC for anti-money laundering, anti-corruption or tax evasion, or capital control and monitoring purposes, it will be less inclined to enable anonymity (at the cost of discouraging adoption). However, unless the central bank or state compels CBDC usage, those who wish to engage in illegal or illicit activity will continue to use cash and other alternatives (as well as new privacy-enabling cryptocurrencies) for these purposes.
How could a central bank ‘compel CBDC usage‘? One method could be through the rise of stablecoins and the regulatory uncertainty surrounding them.
The new head of the BIS Innovation Hub, Benoit Coeure, gave a speech back in September 2019 where he stated that price stability was a ‘precondition for a currency to gain widespread use‘, and that if stablecoins meet that precondition then they would become ‘the natural next step in the evolution of digital assets.’
The caveat is that all stablecoin initiatives ‘will have to conform to international anti-money laundering and know-your-customer regulations.’ In other words, one global regulatory standard adopted by all jurisdictions around the world. Right now stablecoin initiatives are pressing ahead with development amidst widespread regulatory uncertainty, which is allowing the narrative on CBDC’s to grow.
To quote Coeure from the same speech:
Many central banks have been working on CBDCs in recent years, though at differing speeds, depending on differences in demand for cash by citizens, among others.
Sveriges Riksbank and the Central Bank of Uruguay, for example, are among the most advanced central banks in this area. Their experiments with the “e-krona” and “e-peso” provide useful food for thought.
The ECB and the Bank of Japan have already joined forces to examine the possible use of distributed ledger technology in financial market infrastructures.
The next natural step would be for global central banks to join forces and jointly investigate the feasibility of CBDCs based on common technical standards.
Right now, in the public domain at least, stablecoins are attracting the most attention. In a separate speech, Coeure commented that given their access to ‘large networks of existing users and customers‘, stablecoins ‘could be the first to have a truly global footprint.’
But, again, ‘regulatory answers should be internationally consistent.’ With regards to Facebook’s Libra, this is the one area in which so far there is no agreement.
It is a point I have laboured before but will do so again. Global planners largely depend on either instigating or taking advantage of crisis scenarios to help further their agenda of centralising power. For several years they have warned us of the dangers that stablecoins could present, in terms of terrorist financing, money laundering and data theft. It is not beyond the bounds of possibility that they could prove a stalking horse for the implementation of a global CBDC network, under the auspices of the BIS and the IMF.
But let’s not forget what the primary objective is here. The rise of digital currency has everything to do with bringing the estimated 1.7 billion people who exist outside of payment systems online. When it comes to the future of money, central banks have never had a problem with the technology behind stablecoins or crypocurrency. But they do have a problem with the anonymity of trade through the use of cash. If digital currency initiatives were to jeopardise the monetary system, and CBDC’s were put forward as a solution, the technology underpinning them will survive. What will not survive are physical, tangible assets.
The cashless society is not just a buzz phrase. It is part of a highly choreographed agenda which has significantly advanced over the last five years. With intiatives like the BIS Innovation Hub now underway and growing in momentum, the push to completely digitise money will only grow more intense from here on in.