CAI0054

Written evidence submitted by Preyer GmbH

 

 

  1. Credentials
    1. Preyer GmbH
      1. Preyer GmbH is a German-based international consulting firm connecting banks and asset managers' businesses with their IT.
        1. We work closely with the business groups and IT areas in ensuring that systems deliver the solutions in managing, trading, storing and reporting on assets and money that perform efficiently and as expected.
    2. Justyn Trenner
      1. Justyn has more than 30 years experience working internationally and based in the UK in the financial sector advising participants, technology providers and supervisors on workflows and use of emerging technologies in financial services.

 

  1. Approach
    1. Our approach to working in this space is based on reviewing the overall business goal (such as sending a conditional trade payment to a foreign country in a foreign currency, or settling purchase of securities) and then comparing the existing workflow (human activity), systems usage and outcome in time and value to what might be achieved with an optimised setup. In other words, we look at real world needs and experiences and resolve how to deliver a better, more efficient solution.
    2. With that in mind, we see a great deal of activity and analysis on blockchain, cryptocurrencies and central bank digital currencies that is predicated on the idea this it is a good thing, will happen, and how should one respond.
    3. Money performs three functions: as a store of value, as a means of transfer of value and as a means to measure value.
    4. We start from a recognition that money is already largely digital (stored, transferred and used as a measure electronically). So our question is what are the problems that distributed ledger technology and CBDC can solve or alleviate, and how should participants and supervisors respond to this?
    5. We recognise that, while crypto currencies may or may not gain further hold to compete with Fiat (or traditional) money, they are presently used sufficiently to provide important opportunities for speculation and for service provision to those who wish to speculate in them. They are also clearly used for moving and storing value anonymously and this has the attention of regulators.
    6. In the long term, we believe that Web3 (the collect term we use in this submission to refer to distributed ledger technology, central bank digital currencies and related technology elements) has most to add as a mechanism for transfer of value. It is in that are that we will focus.

 

  1. Web3
    1. In the end, recent events have shown that crypto currencies and stable coins have uncertain value, whereas traditional fiat currency works well in electronic and physical form.
      1. While there are challenges with the use of fiat as a store of value and to transfer value, there are, nonetheless, available if imperfect solutions. Certainly solving for these seems much more appealing than tabula rasa - replacing a system that works pretty well.
    2. Where there are clear challenges is in the means of transfer of value. We would break these challenges into two areas.
      1. Open technology makes democratising of access much easier. We have already seen this with rapid startup of apps exploiting internet, mobile and open banking technologies. Web3 shows every possibility of extending this.
      2. The other challenge is securing conditionality of any transfer of value to the act of transfer. For example, passing title in goods should be intrinsically linked to the transfer of value. Smart contracts and tokenisation offers this potential. In this area, Web3 can add value.
    3. What does this mean for traditional money?
      1. Put simply, traditional money isn't broken - but the transfer of it could be done better, reducing delivery risk and credit risk.
      2. This could be achieved by enriching fiat money with Web3 (smart contract) characteristics.
      3. In fact, there are already examples of this in production, from real estate (UK) to fractional agricultural equipment rental (Austria) to trade finance (international). These are useful evolutions on existing practice, rather than revolutions.
      4. In all these cases, the transfer mechanism exploits Web3 but the vehicle of value is fiat currency.
    4. How can Britain make this evolution easier?
      1. Quite simply, facilitating transfer of traditional Bank of England pounds sterling using Web3 would, potentially, reduce costs and risks in transfer. In other words, one-for-one fungible pounds from fiat to fiat-CBDC (each pound expressed as the digital pound matched by a traditional pound at the Bank) could then be smarter and ready for innovators to add tokens or smart characteristics.
      2. By developing so-called on- and off-ramps in pounds sterling and rails that are Web3 compliant, Britain would be positioned to interoperate with other Web3 initiatives and be able to work with innovators, while developing the appropriate regulatory and supervisory frameworks.

 

 

September 2022