What are the hot topics?
Libra represents the challenge of a “private currency” to the global monetary system. Facebook has approximately 2.6 billion active monthly users worldwide, many of whom would probably be quite happy to use a new, convenient payments mechanism. This poses a huge threat to national sovereignty. There would be potential for such massive movements of the underlying currency components of Libra that it could shift entire currencies, creating risks around monetary policy and sovereign control of national currencies, and central banks would see their influence over monetary policy and sovereign control of national currencies at risk.It could be a currency composed of an underlying basket of bonds, equities, commodities, property and other assets, in a way that could be less susceptible to manipulation and independent of exposure to any one currency or asset class. Such a coin has the potential to be fairly stable, and more representative of the real global needs around payments of global society as a whole.
Will China Rule the World?
China is powering ahead with its CBDC project aiming to create network effects, something large US companies like Google, Facebook, Apple and Amazon successfully did.It will likely use its CBDC first internally and then through the Belt and Road program across 60 countries and the more successful they are at driving those network effects, the more likely it is that the Chinese renminbi will become an additional global reserve currency, or even the replacement global reserve currency. A Chinese advantage lies in its market of a billion people, who are typically early adopters of technology – as evidenced by the success of WeChat and AliPay. Whilst China may suffer from some of the same reputational issues and mistrust that Facebook does, at least in the West, its CBDC will benefit from being fully backed by a central bank unlike private stable coins.
But Who will Regulate?
Central banks of any jurisdiction would be extremely reticent to cede regulatory and supervisory oversight of private stablecoins, such as Libra, to anyone corporate entity. The roles of post-Bretton Woods international institutions are going to change and become fundamentally different, in a world in which global private stablecoins, cryptocurrencies and CBDCs co-exist. This could be an opportunity for central banks to play a leading role in a more robust, interoperable and sustainable financial infrastructure, and maintaining influence.
We Will Redefine Value
Value is not only the cash in your pocket or the funds in your bank account – it’s airline and frequent flier miles, loyalty points at supermarkets, points from credit cards and many others. Capturing and recognising the value of unpaid work such as care, volunteering, learning enables society to function, without it people can’t work, pay taxes or contribute towards GDP. The inequality and fragmentation that characterises Covid-19 cries out for a new value system – one that values people, society and our environment, and preserves the planet for future generations.
Digital Ecosystems Will Redefine the Role of the State
Digital ecosystems include social media platforms, trading platforms, and other commercial platforms and marketplaces in which we participate . Each of those digital ecosystems could function on the basis of a cryptocurrency, stablecoin or its own corporate currency, or it could function on the basis of a CBDC, or a combination of these. Will the rise of cryptocurrencies and private stablecoins replace the role of the sovereign state and central banks in money creation? How will CBDCs fit in with those digital ecosystems? Can CBDC or indeed Libra’s application to the welfare system increase transparency and equality in payment deployment as well as tax collection across the broader economy? These are the key questions.
We Have Already Ceded Privacy and Identity
There are often privacy concerns around a retail CBDC and the potential opportunities for mass surveillance that are afforded to those governments that are not concerned with the privacy rights of their citizens. The opportunities to build in greater anti-money laundering and counter-terrorist financing protections to any CBDC infrastructure are undeniably appealing from a national security perspective. However, there is a balance that must be considered, between the drivers around detection and prevention of unlawful activity, and the rights of individuals to actually have some control over their privacy and their spending habits. This balance is not only theoretically important from an ethical and human rights standpoint – it is also going to be a fundamental driver when it comes to adoption of a retail CBDC by the general public. Wide and intrusive surveillance powers may well see greater take-up of private stablecoins and other digital means of payment, to the detriment of retail CBDC. Those who build our future CBDC infrastructure carry the responsibility to ensure that these rights are protected.
There Will Be a New World Order – But How Will It Be Defined?
Many of the post-Bretton Woods Institutions and global governance mechanisms have struggled to provide any level of effective leadership during the Covid-19 pandemic. Individual governments have focussed on managing their internal, domestic needs, and competition, isolationism and protectionism have become predominant themes over this time. The voices of the #Blacklivesmatter movement shout of the inequality that has been amplified by the pandemic. The mere fact that we have a pandemic has sharpened the focus for many of us on the management of global commons issues. Sovereign states, reserve currencies and digital ecosystems have the potential to be used in the creation of a new value system – one that values people, society and our environment, and preserves the planet.
Future Unknown …. but digital ecosystems will create it.
With a breathtaking jolt, the world has changed, and we have been thrust into a brave new digital world. For those not on the front lines, lockdown has given us some time for reflection, and the chance to envision what a future world might be. We are connected, we have voices, we can influence and we can mobilise. We’re at a turning point in history where we need more options for financial services and more options for money and transfer of value – ones that increase financial inclusion, promote diverse participation in markets and provide greater social benefit – and we are seeing them emerge. Blockchain, STOs and digital programmable currencies used in the micropayment economy could unlock inclusive business and equity models that we haven’t considered yet. Bitcoin and other crypto currencies, blockchain based economies, CBDCs and corporate coins are in their early stages and are increasingly empowering a technology driven shift. Designing the rules and regulating for inclusive business and equity models is up to us.
FINTECH.TV ACTIONABLE INSIGHTS FROM GLOBAL TECHNOLOGY THOUGHT LEADERS
Contributors: Vince Molinari: Founder & CEO at FINTECH.TV; Lee Schneider: General Counsel Block One; Emily Landis-Walker: Senior Financial Services Executive; Jonny Fry: Team Blockchain; Jannah Patchy: Financial Markets Consultant; Thessy Mehrain: Co-Founder of Liquality; Jane Thomason: Chief Inspiration Office at FINTECH.TV