Cryptos, Central Bank Digital Currencies And the Future Of Finance
Our head of content and communications is publishing a series of articles on the future of finance and the massive impact of the digital world in Byline Times.
Rethinking the nature of money is serious stuff: it is in effect the re-examination of a concept of value exchange that’s been central to society, certainly every mercantile culture for thousands of years – from Pacific conch shells, to gold, to promissory notes and credit cards. A key to unpicking this foundation-stone concept involves delving into some deepish background.
This is the first of a series of articles that will touch on financial populism and its exponents, be they users or abusers, the extraordinarily eclectic nature of the major actors in cryptoland – ranging from arch conservatives to anarcho-syndicalists to hedge fund managers backing far-right politicians. Living in the same tent here are arch-conservative Ron Paul, 85, retired Republican senator and author of End The Fed – and the younger end of attendees at “unconferences” on cryptos (think purple hair and a lot of metal embedded in the face). The financial Goths love Ron Paul…
It’s my contention that, for good or ill, there is a clear and present threat to the established system, specifically the way the nation state with its centrally controlled fiat currencies is organised. My argument is that the modern state has three major levers of control to maintain political stability and the security of power: the first is physical coercion (the military and [more contentiously] the machinery of justice and the penal system; the second is propaganda – media control conveniently outsourced to notionally independent news organisations and their appropriately sympathetic owners; the third is the financial system – a fiat currency administered by a central bank, with attendant reporting restrictions and regulations allows the government to take a look at our assets and income and, whether we like it or not, demand its share.
I further contend that the latest resurgence of Bitcoin has provoked a re-think – be it a lofty re-examination of value-exchange systems, or the coarser feeling that there’s gold in them there digital hills. This is prompting a massive shakeout among existing financial systems and a power struggle amongst corporates as they compete to issue their own digital tokens (you might think the coming avalanche of tokens is akin to an old-fashioned corporate bond – but in the new world of independently distributed digital scarcity, tokens are set to become much more powerful).
There is evidence to show that this process has already begun. The scrambles include a full-scale battle between the corporate world and the governmental. I’ll be examining how a dream team of corporate suppliers and payment specialists jumped ship ahead of Facebook’s proposed launch of its Libra token last year. The precise reason as to why they withdrew, and how the token launch was aborted and subsequently re-packaged and renamed Diem is fertile territory for conspiracy theorists. Nevertheless, the fact is that the token, with its potentially vast monetary value and opportunity for cheap puns – yes, folks, we’re dealing with “Facebucks” – was scuppered. Is it too much to suggest that international governments acted in concert, as they could not allow a transnational value token to take root and depriving them of oversight – and tax income?
There is a major change in sentiment amongst politicians and financial institutions about money in a digital form. After years of resistance, comes reluctant acceptance from the establishment. In the interim, the old and the new systems co-exist. The essence of the difference between the two is not the form of value transmission – gold and specie money is long dead, and cash transactions are a minute proportion of the conventional financial system – but the way the system is managed and controlled. The key difference is the contradistinction between the centrally controlled fiat currencies of today’s mainstream, and independently generated shared-ledger value-exchange systems. The world’s governments are trying hard to maintain the systems of centralised regulation and this manifests itself in numerous attempts to introduce Central Bank Digital Currencies (CBDCs). The UK government, for example, has had Britcoin (no joke) ready to launch for several years. These CBDCs may or may not hang around for the long term – but centrally monitored systems are cryptocurrencies in name only. The Swiss and the French are further down this road – and the European Union is playing catch-up.
A further halfway house will see a surge in the launch of digital tokens linked to some kind of asset. Just as an investment in the dollar is a statement of belief in the strength of the US economy and the worth of the dollar as a store of value and a unit of exchange, so a “stablecoin” linked to a corporate asset – a property portfolio, a new product, etc – any come to be accepted as a new form security, or even as a disintermediated alternative to investment, a kind of investment trust.
Finally, I’ll be taking a look at the future of finance as I see it. Money and the transmission of value will take on fluid forms, but with the stability of key conceptual components. The IOU of the 21st Century’s digital world will be based on established forms of trust and protocols of verification, with the identity of the person or company – or government – issuing the value note at heart of a notionally independent system of trust. That poses the question of what constitutes an “independent system of trust” – another subterranean battle fought right now.
