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January 7, 2020

Anticipating digital currency disruption

Whilst sovereign fiat currency in the form of physical cash remains the only universally acceptable form of public money, innovations in cryptocurrencies and stablecoins can offer more effective forms of transactions and will continue to disrupt the finance industry.

stock market

Internet of money

Markets are evolving for Bitcoin (‘BTC’) and a wide variety of other specialised cryptocurrencies as well as stablecoins including central bank digital currencies (‘CBDC’).

Decentralised cryptocurrencies are enabling the ‘internet of money’ using blockchains to bring trusted transactions in otherwise trustless environments, and can also offer:

Digital transactions can enhance growth and financial inclusion, whilst reducing poverty and physical crime. Digital wallets (including mobile wallets) are widely predicted to become the leading payment method, whilst cash transactions will continue to decline. In China, an estimated 85% of payments are made via mobile devices and 97% in a digital form.

Digital currencies, including cryptocurrencies and stablecoins, can disintermediate traditional banks and now pose a disruptive threat to central banks’ monetary policy effectiveness and governments’ monopolies on seigniorage.

Many Central Banks are responding with their own innovation in the form of a CBDC, as the European Parliament study, The Future of Money recommends. CBDCs and related projects are listed in the Appendix.

It seems ironic that whilst many traditional banks have objected to cryptocurrencies, the real threat to their existence comes from CBDCs that will have rapid and widespread adoption. The number of traditional banks will decline as economies of scale become more essential to compete in the digital payment market.

BigTech’s leading social messaging platforms look poised to include banking and payment solutions, which will cause further disintermediation of traditional banks that Bill Gates famously called dinosaurs back in 1994. Such platforms can provide a one stop shop with more global reach and scalability, along with a wide variety of other financial and non-financial services that enhance user experience with more convenience, accessibility, favourable terms and a degree of interoperability – all at a low marginal cost. The “killer app” element is potentially offering CBDCs to the public too.

As examples:

Other reasons for CBDCs could be to mitigate the risks of:

CBDCs are an antithesis for privacy advocates that fear a rise of state surveillance, and for the 2.8 billion people that currently endure state dictatorships, the future could be increasingly dystopian.

It seems an obvious conclusion that to achieve a balance of accessibility with the rewards and risks of new innovations in digital currencies, CBDCs, cryptocurrencies and other stablecoins (in both decentralised and centralised forms) should be permitted to coexist using technology agnostic regulation to maximise freedoms of choice and innovation, whilst minimising incentives for (i) corruption by any centralised authorities and (ii) monetary policy manipulation.

The Moore Global Network, including our global leaders, David Walker and Andries Verschelden from Moore Cayman and Armanino LLP respectively, can serve a wide variety of client in the digital asset space. We have specialist industry knowledge and experience as auditor to approximately 30 cryptocurrency investment funds and some industry leading companies. You are welcome to join our LinkedIn group and please contact us for more information.

APPENDIX – Central Bank Digital Currency projects

Central Banks Digital Currency Announced Status Distributed Ledger
Bahamas, Central Bank of Sand Dollar 2018 Pilot NZIA
British Virgin Islands BVI~LIFE™ 2019 Pilot LIFEBaaS
Cambodia, National Bank of N/A 2017 Development Hyperledger Iroha
China, People’s Bank of DCEP 2016 Launching 2020
Curacao & Sint Maarten, Central Bank of 2018 Pilot Bitt
Eastern Caribbean Central Bank DXCD 2019 Pilot Bitt
Estonia Estcoin 2017 – Launch prohibited by ECB –
European Central Bank (18 central banks) EUROchain 2019 Development Corda
France Digital Euro 2019 Pilot Q1 2020
Ghana, Central Bank of e-cedi 2019 Development
Iran, Central Bank of PayMon 2019 Pilot Phoenix Network
Marshall Islands, Bank of the Sovereign (SOV) 2018 Launching SOV Trust Network
Norway, Central Bank of 2019 Pilot
Saudi Arabia Monetary Authority Aber 2019 Pilot
SenegalCentral Bank of W. African States eCFA 2016 Launched
Singapore, Monetary Authority of Ubin 2016 Development Corda
Sweden, Central Bank of e-Krona 2017 Development
Thailand, Bank of Inthanon 2018 Development Corda
Tunisia, Central Bank of e-Dinar 2015 Development
Turkey, Central Bank of the Republic of Turkcoin 2018 Development
UAE Central Bank Aber 2019 Pilot
Uruguay, Central Bank of e-Peso 2017 Launched
Venezuela, Central Bank of Petro 2017 Launched NEM
Adapted from: THE BLOCK

Author: David Walker

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