The future of money isn’t what you thought it’d be
2021 was the year the world learned the acronym CBDC — central bank digital currency. It seems like a logical next step in the history of money. Digitize the currency we have and call it the digital dollar, euro, krona, neira, peso, won, dirham, yuan or yen, rand or rubel.
There is only one problem with it: central banks don’t want CBDCs.
It is one of my jobs to advise central banks on the adoption of crypto currencies and electronic payment systems. Every single meeting I’ve joined in the last three months of 2021 ended with the same conclusion.
„We are a central bank. We are the arbiter of the national fiat currency. We control the banking system. We must stay in control. And, most importantly, we don’t want to deal with retail.“
The mindset, structures, tools and the sheer will to deal with the general public are absent. Therefore, if we intruduce a digital version of our currency we no longer need banks to control checking and savings accounts, the distribution of fiat currencies through retail banks and ATMs, the administration of loan schemes and government bonds, or even the transfer of money from one account to another. All that can be done cheaper and faster with the digital form of currency. At the end of the day, digital money, they fear, will make them obsolete.
China was the first country to realize that the only real use of digital currency for the government was to spy on citizens. It’s eCNY is used to track spending patterns, identify illegal money flows and support the social credit score system of a totalitarian regime.
If a digital version of the currency would take hold, dominated and administered by a central bank, it would have to come with the same guarantees as fiat currencies. Its supply would have to be pegged to the fiat version as well as its value. It would, except for its electronic properties, be the exact same as the fiat version, without the need for banks to administer it. It would, over a relatively short period of time, destroy the banking system. Decentralized finance solutions would take over the savings, yield or interest bearing properties; DeFi investment consulting operators would create funds and administer payments, from social security, insurance, pensions to … you name it. The banking system as we know it would collapse.
We can’t have that, government say. There are too many jobs at stake for one, too many vested interests. Older and more tech averse generations would balk at the idea of having no more cash at hand (cf Sweden). Anonymous cash drives not just church collections in the pew, but is the underpinning of corruption and the entire grey economy. Political parties would lose voters, as all payments become traceable and thus taxable. No central bank wants to takes responsibility for that.
Why not, central banks say, let crypto be crypto issue a stable coin instead. Leave the responsibility to the issuers, let them bear the cost of introduction, and see how the electorate responds. If things go awry and wallets get hacked, the government can be swiftly absolved from all responsibility.
There will be many different stablecoins, some issued by companies like large retailers, think Walmart or Apple, some by DAOs, one to run on every blockchain, pegged or algorithmically rebased, audited or not. Let banks, insurers and credit card firms figure out how to deal with it. If you want to see the future of money, look at VISA and Mastercard with their vast payment networks. No government will bat an eyelid if Ripple fails. If it all goes well, banks will pat themselves on the shoulder and say: you see, we gave you this magical Internet money. If it all goes pear-shaped, they cry “We told you so” and will step in to save the day.
If 2021 was the year of the CBDC, 2022 is the year of the stablecoin. Safe , sound and predictable, they won’t rock the boat and make for easy accounting and taxation.
Stablecoin will remove the need for exchanges, centralized or decentralized, and other fiat-crypto bridges. They will be traced and tracked even better than fiat transactions. They are the antithesis to bitcoin, they are pro-establishment and anti-freedom. They are the last-ditch effort to save a broken system.
The one thing they will enable is DeFi. They even reduce the need to regulate DeFi operators. As long as governments can control in the (electronic) money supply they won’t have to care too much about what companies do with it. Certain products like securities and loans backed or issued in stablecoin will fall under existing laws, many others will be allowed to operate freely under the motto caveat emptor without threatening the status quo.
Here’s to the future of money. It’s not quite what you expected.