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Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.

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Make sure you're subscribed to stay up to date with new episodes.

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Thanks for listening, and now on to today's show.

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Hello.

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Welcome to HSBC Global Viewpoint.

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It's a pleasure for me to have Thierry Chilosi with me.

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Thierry is the Chief Business Officer and the Strategy Officer for SWIFT.

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And I'm Manish Kohli.

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I have the privilege of leading HSBC's Global Payment Solutions business.

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We're here at Cyboss in Miami, and there are a lot of things we're talking about.

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The theme of the session is around digital finance for the AI economy.

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And there are a million things, Teary, you and I can talk about, but I'm going to zero in on one thing that is close to your heart, my heart, and the heart of the community.

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And that is about the Swift Ledger.

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It's been delivered.

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We've had the privilege of, again, working with some banks and having live transactions go on.

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So I'm going to focus on this as the primary topic of our discussion today.

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So first, welcome.

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Thank you.

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Thank you, Manish.

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It's a pleasure to be with you and thanks for the invitation.

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So I'm sure people would like to know what happens next.

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And so the journey has been really fantastic.

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We announced at that time, if I remember well, you and I, how tokenization was transforming the industry.

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And what were the financial institutions doing about it?

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And that's when we announced together with, it was 40 institutions at the time, the blockchain ledger.

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And here we are in Miami.

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So that time we were in Frankfurt.

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And we just announced that more than 19 banks are actually participating in this initiative and brought it life.

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And it's a pleasure to work with you because you've been a pioneer with the HSBC teams and many to help us design that journey.

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to actually help us materialize it into a concrete platform.

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And we're having live transactions on it.

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So it's going to be great to say, why did we do this?

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Let's take a step back and reflect on not just the journey, but also what's going to be next.

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So before we move to the what's going to be next, what are the type of expectation you had at that time?

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And how do you think it went?

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Yeah.

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Well, we had an expectation that we will all as a community move swiftly.

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So that is one thing, thanks to you folks, we've definitely done.

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And, you know, there were a few things that were hypotheses that we had.

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One is that as a community, we could really work together and help move towards a digital world.

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We were looking towards moving towards building.

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not just the next stablecoin or the next tokenized deposits, but we were taking really all the benefits that come with our conventional way of looking at commercial deposits, looking at the advantages blockchain technology builds in, putting it together, and not just for our own users, but also making sure that they would work across banks.

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And that was a real value that we thought the SWIFT ledger would bring in.

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And I could say very confidently, Thierry, that reality has become true.

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Yes, I remember.

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If I may interject, Manish, one of the problems we were facing, it was about not the problem of having tokenized forms of value, but how do we make sure they were exchangeable?

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Because your customers were already benefiting from the capabilities you were able to offer them across your entire network.

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And we were saying, how do we take it further?

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Do you think we've done a step there?

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Well, I absolutely think so.

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Like, you know, if I just reflect on some of the announcements we've made about the Swift Ledger, we recently made one with one of our peer banks, you know, a bank that we admire quite a bit, for a mutual customer called Siemens.

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And we took nice deposits and we used that to kind of interchange and allow our customers to be able to transfer money 24 by 7 real time across geographies.

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And I thought that was a fantastic use case about not just this being a concept, but this being absolute reality.

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And, you know, again, if I reflect back, we put some very ambitious timelines.

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As you said, as a community, we work together.

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We work with many of our peer banks together in helping work with Swift in designing what the solution would look like.

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And, you know, we had some guiding principles.

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We wanted to make sure it was next generation, it was future-proof, it took the best forms of technology that we had, but most importantly was safe, secure, resilient.

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And I thought that was a very important principle that we had.

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I want to say a few words on that, and that word is very important, the safe, secure, and resilient.

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Because as we know, you know, blockchain ledgers, you can build them pretty fast.

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I mean, there's many initiatives over there in the ecosystem.

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So a lot of what we've, if we get a bit more down to the technicality, but I think it is important to underline to everybody that what we wanted to do is give a bank-grade infrastructure.

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And that's where the majority of the time and the few months that we spent together with your team on designing and architecting it is a piece is an invisible layer that nobody should see.

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But that needs to give you the guarantee of the safety, the resiliency.

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And with everything that has happened in the past 12 months, Manish, I mean, when we were sitting there, everything that happened on Frontier High hadn't fully unlocked itself.

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And so I think we did the right thing to make sure that we rolled out this infrastructure with the right sequence, with the right controls.

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And that's going to be key.

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But now on top of that, if you will, more technical layer, that interoperability, I think, is really what is unique about the way that we're going to collaborate in the next steps of the lecture.

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So now that we have the infrastructure set, what do you think is our next mission?

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Well, you know, I think, Thierry, two things for sure.

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You know, the advantage and power of blockchain comes in when, A, the whole world starts using it.

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So there's a big step in terms of, like, if there are only three banks using it, it's only impactful for three banks to be able to sell payments to each other.

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So, you know, we really want more and more banks to come on to the network.

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And clearly, we are, you know, speaking to many of our clients, our counterparties, and encouraging them to do that.

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And I know you folks are also doing the same.

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So, again, I'd love to kind of hear what the reception in a minute or so, our reception from clients has been.

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And the second thing we want to do is, you know, blockchain becomes, you know, comes really on its own, but it starts becoming multi-asset.

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So it's about like, you know, moving bonds to, you know, currencies or, you know, currencies into tokenized money market funds.

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You know, these are initiatives we are well in flight.

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So to me, the next phase is going to be how do we build that and scale that up even more.

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But before I go to that, let's talk a little bit about the rest of the community.

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So what are you hitting for the rest of the community?

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Yeah.

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So, first of all, as we sit here, quite a lot of excitement.

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We've been engaging with many of the actors of the community.

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Having that capability there is really drawing and bringing, if you will, the financial institutions together to solve global scale problems.

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One thing I want to make sure we do, both of our institutions are very much anchored in a global world.

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And as the different parts of the world of looking at forms of value that are being more and more tokenized, we sit at the complexity of making sure that what is happening locally can actually transact globally.

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So this is what I think is unique with the initiative.

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What I do here is definitely how do we connect this blockchain ledger, which is what is happening in my geography or in my region.

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So I'm sure we'll touch on the interoperability point, but that is not the concept of one ledger to rule them all.

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We don't see the world like that.

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We see the world will have many forms of exchanges and we have to make sure that they remain in sync.

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The other point that I hear, so one is a global aspect of it.

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The second point I do here has to do with your clients, actually, because it's how do we expose the value to the treasurers?

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Because in this working group that we set together with the banks that rolled out the ledger,

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The primary audience is about treasury.

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It's first about wholesale payments.

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How do we make sure cash can arrive in the destinations?

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Because today there is friction in that chain that has to do with cutoff times.

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It has to do with having liquidity perhaps trapped in different aspects.

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And so there is quite a strong level alignment that probably the first use case we're going to be rolling out and scaling is going to be in helping institutions, whether they are more on the wholesale side or also corporate treasurers, to really get the money when they need it, essentially.

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And without having to fragment liquidity and having to worry about too many forms of tokens and fiat currencies and so on.

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So this is where I think we also have a strong alignment.

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Without breaking it up, because you're already fast forwarding us to the next frontier, Manish.

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What's next?

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What you mentioned about PVP, DVP is definitely going to be the places that we're going to be working next.

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But I'd take it first.

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Let's unlock real value right now for this group on the treasury side of things.

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And then in parallel, I think when we're going to meet next month, 12 months from now, hopefully we'll be able to talk about the extra use cases.

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Yeah, of course.

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And Terry, I think, you know, you really hit home on the point about, you know, what clients are talking about.

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And, you know, we often, like I say it trivially, but it's actually a deep meaning statement, which is, you know, our clients have so much that they have to worry about.

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Banking shouldn't be one of them.

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And that's just, this is really the essence behind everything that I believe we are trying to do.

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And we're working with you and we're working the rest of the community with us.

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So in HSP Cedar, you know, we have 1.4 million wholesale clients.

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I haven't met all of them, but I've met at least a couple of thousand.

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And I'll surprise you by saying that not one of them has ever said, hey, I want to do a DLT payment or a blockchain payment.

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You know, what they've said is, I want insights before I make the payment.

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I want transparency during the payment.

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And I want certainty after the payment.

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Okay, so if you just boil this down, that's what clients want.

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It's so simple.

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It's just like it is for us to then make sure that we as a financial community are working in a way that we're delivering this.

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And this is what I feel that through the SWIFT ledger and our own proprietary investments and tokenized deposits, we are actually achieving that.

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And to me, like success here would be if after, you know, three years, four years, this becomes mainstream.

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This becomes the only way payments happen cross-border.

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And our clients turn around and say, we've only noticed an improvement.

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We haven't noticed what you've done behind this.

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We haven't understood what the secret sauce behind this.

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That is actually the North Star.

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That is the victory we should be aiming for.

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It resonates very well with us because we are about the back end of the financial industry.

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So we want to make sure that that back end can support all the different forms of value that we'll have to exchange with that security, that resilience.

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So this is where your institutions come in, Manish.

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You shield that complexity of the different forms of value and how money moves.

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So very much aligned with your vision.

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We will continue to use fiat rails on the back end.

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We will continue to use tokenized rails.

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And hopefully all of our customers that in the end are transacting will know nothing about that.

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What they care, I think, is about moving the value in the place they need it and making sure they can use their liquidity efficiently.

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So.

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But it does trigger a question I have for you because I like the way you expose the simplicity of it.

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How do you see AI overlay on top of this tokenization?

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I mean, I see this actually playing in and fitting in nicely.

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So the way I kind of think of it is our transactions on the Swift ledger will bring speed into the overall transaction.

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And AI will give you the insights to be able to ensure that those transactions are happening correctly and they're happening securely.

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So that's how I see them coming together in a very complementary way.

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Well, I'd love to hear if you have a different take on it.

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We're asking ourselves similar questions on how do we leverage AI for the benefit of the global ecosystem.

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So clearly one is about the cyber defenses.

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I mean, those are all what our institutions are all about.

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Making sure that our end customers know that the ecosystem is well protected.

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So it's about that defense.

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But I do think it's also about the insights you were talking about, the capability not just to work with yesterday.

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I mean, I remember in the messaging world, you used to have your statements for the day, you know, the next day.

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The world has gained velocity, and the blockchain technology will bring more velocity to that.

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The capability of instant payments that you have developed as well is going to be more.

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So now it's a bit more about being predictive on where we need the cash.

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So this is what we hear a lot, the benefit of using the data to make sure our end customers can take better decisions.

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We are, both of our institutions, a very regulated ecosystem, right?

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So whatever we're doing, we've got to get it right.

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Thierry, you touched a little on interoperability.

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And what did you have in mind when you said that?

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I have in mind a few things.

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I have in mind on the way we're going to scale.

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So the next phase of our blockchain ledger is definitely going to be how do we interconnect with the clearing system, the settlement system in different geographies so that we can take a transaction cross-border and be able to reach any endpoint in any destination country.

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That's one part of interoperability is how do you make, if you will, commercial bank money, also interoperate with other forms of monies, whether they will be settled in central bank or in any other mechanism.

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So there is an interoperability, the word is quite difficult to say, that is actually about making the chain a lot more complete, giving reach to what we're doing.

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There is the other type of interoperability.

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As you said, the clients don't really want to have to know.

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Where do I store my value in which currency?

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This is our job to make sure that the liquidity is moved to the place that needs to be.

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So if you want interoperability across the different forms of assets, it's going to be also increasingly important.

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So in the end, it's going to be how do we extend the reach and how do we extend the use cases?

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If we are managed to do these two things, I think this difficult world, interoperability, we would have solved that.

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It's a difficult word, but it's actually just like so necessary in our world.

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Like if you didn't have interoperability, what you would have is you would have innovations happening in various pockets, whether it's in stable coins, whether it's in tokenized deposits or in central bank digital currencies or the next form of fiat currency movements in terms of real-time payments, etc.

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But without interoperability, none of these innovations would talk to each other.

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And that's one risk.

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Well, the other risk is you suddenly have geographies, economies, segments of people which become financially excluded because they don't have the ability to, like, interact with the rest of the world.

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So which is why I believe that, you know, as the world continues to evolve in TradFi, in DeFi, and both of them will continue to have their own uses, right?

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The biggest focus that institutions like us, and I think SWIFT has a very large role to play over here, is to make sure that the focus on interoperability never gets compromised or become something less important.

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Yes, you made me reflect on two points I would add.

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We are probably a good actor to talk about that.

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We are the cooperative of the financial industry.

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So what better place than to have that collaboration?

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Because interoperability without collaboration won't happen.

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And also the other point we mentioned, the importance of having a global scale, right?

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We want to make sure we're inclusive in the way that we move value because it's to the benefit of no one if value is restricted by borders, right?

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We need to have the ability to bring cash, liquidity in any points of the world so that we can serve our end clients jointly.

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That's great.

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Thierry, I'm going to let you have the last word.

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But before I do that, I want to just thank you and SWIFT for something which is absolutely remarkable.

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And that maybe is kind of in all the talk about SWIFT Ledger and some of the other initiatives got lost out.

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And that is, as a community, as banks...

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We have a tremendous ability to innovate rapidly and at scale and by using new technology.

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And I think the big initiative around Search Ledger ensures that whichever way the world and digital currencies and the future of finance evolves, banks will continue to have a very central role to play it.

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So I want to thank you folks for that because, you know, it's kind of in a way an implied outcome, but sometimes it's worthy just stepping back and calling it out as it is.

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Thank you, Manish.

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I mean, my last word is going to be very simple.

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It's going to be we cannot do this alone.

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Right.

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So the fact that we can work together and I haven't it's rare to see the financial industry really come together.

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And I think we have a very exciting next few months ahead of us.

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Wonderful.

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Thank you, Terry, for joining us today and enjoy the rest of Cyboss.

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Thank you.

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Thank you for joining us at HSBC Global Viewpoint.

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We hope you enjoyed the discussion.

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