Technological change is turning finance on its head, from fintech to a decentralized economy to critical currencies
The Financial turmoil The ones that received the least attention may be the most revolutionary: Digital currenciesIssued by central banks or governments. these “Goblins“They are the new embodiment of money. They promise to make finance work better but also to redirect people’s power to the state, change geopolitics and change the way capital is allocated.
These currencies would enjoy the peculiarity of centralizing power in the country rather than spreading them over networks or handing them over to private monopolies. The idea is simple: instead of having an account at a bank, an individual will get the account directly with a central bank via an app-like interface. Instead of writing a check or paying online with a card, one can use the inexpensive network of central bank channels. The money will be guaranteed by the state.
This shift from aristocrats to financial workers seems far-fetched, but it has already begun. More than 50 monetary authorities, which account for the bulk of global GDP, are exploring this issue. For example, China has implemented Electronic yuan A pilot with more than 500,000 people, wants the European Union Default euro By 2025, the United States will develop a hypothetical model E-dollar.
One of the motives of governments and central banks is that they fear losing control. Currently, central banks are using the banking system to inflate monetary policy. If payments, deposits, and loans move from banks to the privately managed digital zone, central banks will have serious problems managing the business cycle and pumping money into the system in the event of a crisis. Unsupervised private networks will become the Wild West for fraud and privacy abuse.
Another motive is the promise of a better financial system. Ideally, the money provides a reliable store of value, a stable unit of account, and an efficient method of payment. But today it is not well seen. Uninsured depositors could suffer if banks fail, bitcoins are not widely accepted, and credit cards are very expensive. E-currencies will get more public approval because they are guaranteed by the state and use a cheap payment center.
As a result, gobcoins can reduce operating expenses for the global financial sector, which exceed $ 350 for the entire population of the planet. This could put financial resources within reach of the 1.7 billion people without an account. They can also expand the payment instruments used by governments and reduce interest rates to less than 0%. For the average user, the appeal of a free, secure and instant global payment method is clear.
However, this appeal creates risks. Without restrictions, it can quickly become a dominant force, especially if the network’s effects make it difficult for people to want to stop using it. It can destabilize banks, because if most people and companies keep their money in central banks, banks will have to look to other sources of financing to support their loans. And if the financing runs out, someone will have to take over the credit that pays off setting up the business. This raises the ugly prospect of bureaucrats influencing credit allocation.
The digital euro can see the light in 2025
Once gobcoins become dominant, they can become government prisons to control citizens – for example, by imposing digital fines. They could also change the geopolitics by providing a channel for cross-border payments and alternatives to the dollar, the world’s reserve currency, and the backbone of America’s influence. Small countries fear that their residents will choose foreign digital currencies rather than using local currency, which could cause chaos in their home markets.
This range of opportunities and risks is daunting. It is worth noting that autocrats in China, who value control above everything else, limit the size of the electronic yuan and hinder the expansion of private platforms. Open companies should also proceed with caution, for example limiting accounts with gobcoins.
Governments and financial companies must prepare for a long-term shift in how money works. This means strengthening privacy laws, reforming central bank management, and preparing banks to play a secondary role. Cryptocurrencies are the next great financial experience and they promise to be more important than the humble ATMs.
Source: The Economist