Imagine a world where you could transfer money to friends or family anywhere in the world, in a matter of seconds. Current systems can take up to 10 days to transfer money from one country to another. The money moves through a correspondent banking system where banks interact though a trusted intermediary. All of this takes time and requires banks to maintain reserves, in effect absorbing critical liquidity and increasing the costs for banks to enter this market. But we see new technologies introducing new opportunities to achieve instant transfers, with considerable benefits forecast for our economies.
A 2017 study from Goldman Sachs found that if money could be transferred instantly – and with transfers accompanied by an invoice or smart contract – we could increase GDP by 1-2 per cent in highly developed countries and as much as 6-7 per cent in developing countries. Interoperability would enable money transfers around the world, instantly, seamlessly and with technology playing the role of trusted intermediary.
That is how we think about digital currency at Stanford’s Future of Digital Currency Program. We are looking at how digital currency could provide a universal basis for the seamless exchange of money worldwide.
A unifying force
Our lab conducts fundamental research into two areas of digital currency, interoperability and zero- knowledge proofs within the boundaries of blockchain modeling. Zero-knowledge proof is the concept of proving a fact without conveying any information unnecessary to the proof of that fact. Research around zero-knowledge proof has accelerated dramatically. The concept is not new to discussions around preserving privacy, but it does look to address a range of the policy issues relevant to the privacy and confidentiality of Central Bank Digital Currency (CBDC).
Blockchain is a record-keeping system at its core, and its reliability and accuracy can be trusted. A series of computers can form a trusted intermediary. Blockchain is based on mathematics, on proven truths, contributing to a system that we can rely on heavily as a trusted source of information.
When speaking of interoperability, we are speaking of the ability of different blockchain systems, distributed ledgers and other technologies to talk to one another seamlessly and efficiently. Achieving interoperability will mean that money can be transferred around the world very quickly.
Digital currency – but, more specifically, the interoperability of supporting systems – has the potential to form a major unifying force for the financial lives of people all around the world. There are many dimensions to digital currency, with innovation in the field giving rise to significant implications for macroeconomic stability, payment ecosystems, and information and communication technology (ICT) infrastructure.
The advances in ICT are at the heart of this discussion. The development of banking regulations has always faced a key challenge in the lack of a unifying principle for these regulations. We now have a unifying principle in ICT. ICTs can enable the transfer of money around the world, they can enable payments, they can enable identification – they can simplify banking. ICTs will be the core foundational principle for the evolution of banking systems and the next generation of banking regulations.
The financial-services and ICT sectors are converging. ICTs are the unifying force driving this convergence. This unifying force is not only bringing Central Banks together, it is also creating a basis for a new set of banking regulations. That is why Stanford University has partnered with ITU to launch the Digital Currency Global Initiative. We aim to maintain the momentum established by the preceding ITU Focus Group. We see growing demand for standards around digital currency and other digital assets. These standards will give further strength to the unifying force provided by ICT.
These standards will continue to evolve, and this evolution will be supported by the diverse community hosted by the new Digital Currency Global Initiative. Part of the support offered by Stanford will be our validation of CBDCs and other models of digital currency. The best practices identified in these models will be shared with ITU to drive continuous iterative improvements to the standards.
We welcome your participation
We have seen an encouraging response to the launch of the initiative from technology communities. The launch has also motivated numerous Central Banks to seek out the initiative’s support. Our partnership with ITU provides an open, neutral platform to bring cohesion to digital currency investigations. The convergence of ICTs and financial services shows great potential to enable the development of a highly efficient, seamless global structure for financial services.
But for ICTs to succeed as the force to unite all the elements of this global structure, we will need to unify the communities involved in this evolution. We will only achieve that with the help of the international cooperation stimulated by ITU.