Our Chief Product Officer, Martin Hargreaves, took part in a webinar recently, co-hosted by the Digital Euro Association and Digital Pound Foundation, on the fungibility and interoperability of new forms of money.
With the rise of stablecoins and CBDCs, fungibility became a term closely associated with digital money. It refers to a digital asset’s ability to be interchanged with others of the same type (in contrast to non-fungible tokens which are linked to unique items such as artwork). Similarly, the term interoperability relates to how digital currency can move from one protocol and execute any pre-programmed functions.
Discussing this earlier this month, Martin Hargreaves joined Jonas Gross from the Digital Pound Foundation, Diego Ballon-Ossio from Clifford Chance, Ousmene Mandeng from Accenture in a webinar moderated by Jannah Patchay from the Digital Pound Foundation.
They covered a range of topics:
- Fungibility and why it matters
- Specific considerations for a digital euro and digital pound
- The implications of fungibility in emerging regulatory frameworks
- How interoperability can support fungibility to create a healthy and diverse digital money ecosystem
Watch the webinar
Read selected excerpts from Martin Hargreaves
On stablecoins maintaining their value
“We’ve seen stablecoins de-pegging themselves and cease to maintain their value. To prevent this, legal and regulatory frameworks and who issues them will become important.
The whole point of having a programmable currency is that you can potentially create a [payments] rail with automation that removes many of the manual processes used today.”
“A lot of [interoperability] comes down to user experience. For example, today, if you need to make a transfer with your crypto account, you can use a debit card. The exchange then performs a spot transfer and charges a transaction fee. It’s expensive, but it works. You can see the same scenario for stablecoins and CBDCs, where you have improved payment instruments, but these need to be frictionless for people.
If we’ve learned anything from the last few years of payments, it’s that using CBDCs and stablecoins will need to be seamless for people in order for them to gain traction.”
On convertibility and fungibility
“The following scenario illustrates a good example of convertibility versus fungibility. Take the old 10-pound paper note; what if you can’t spend it or take it to a commercial bank. It’s still worth £10, but you must take it to the Bank of England to convert it. Does it still have the same value as a £10 note you can spend? Probably not. If someone were to give you £8 for it, you might take that lesser amount. It loses its value, even though it’s from the same issuer. The amount of friction involved impacts its fungibility.
With CBDCs, cash and central bank reserves, it will be similar. The more seamless and trusted it is, the more fungible it becomes. If it becomes difficult or usable only in specific venues, then its value will be impacted.”