by Paul Sisnett, co-founder & CEO of paywith.glass
As Prime Minister Liz Truss attempts to steady the ship in the turbulent aftermath of a mini-budget that resulted in a change of Chancellor, one of her greatest challenges, as well as opportunities, ironically resides in fulfilling a grand ambition set out by her defeated leadership rival Rishi Sunak while he was Chancellor of the Exchequer.
On April 4 this year, the Treasury set out plans to make the UK “a global crypto asset technology hub”. It is crucial that the new Prime Minister renews these ambitions. Why? Because a global race for the future of money is underway, and the UK cannot afford to be left behind.
To understand why the reinvention of money is overdue, we need look no further than the internet. With the advent of the Internet, we live in a world where it is possible to communicate and to share information instantly, over long distances, free of charge. Unfortunately, the same cannot be said of money. In the 21st century, we remain unable to easily send money to whomever we want, whenever we want.
Through Twitter or WhatsApp, I can send a message to someone else, anywhere on the globe, and it will arrive near instantly, but if I want to send money to someone in another country through Twitter, its staff will need to liaise with a myriad different authorities and regulators in different jurisdictions to make it happen. Cross-border transactions today still take several days to settle in the majority of cases and almost always incur a significant cost.
As Elon Musk has said, money is nothing more than an information system. In fact, it is the world’s most important information system. It is the means through which we denote, store and transfer value itself. So in a world with the social internet for sharing selfies and tweets, where is the internet for the world’s money?
The need for revolution
There are two key reasons why to this day, the movement of money lags behind the flow of other forms of information. The first is lack of trust and the second is lack of scalable, cost-effective, regulatory-compliant technology. The solution is therefore to build the technology capable of overcoming the lack of trust and there is luckily precedent for this in the public blockchain world.
Needless to say, money transfers need systems in place to ensure their legality, such as Know Your Customers (KYC), Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) checks. This however is a secondary issue which has notoriously complicated the primary reason why money continues to move more slowly than other forms of information.
The payments and banking services industry has been catastrophically slow to accept and adopt innovative technologies, further obstructing the evolution of mainstream money and payments. Today’s ‘instant payments’ and ‘mobile money’ apps and services still rely on slow and error-prone underlying settlement infrastructure to move funds. They employ forms of transaction pre-funding to provide the illusion of instantaneous clearing and settlement and most perform foreign exchange transactions using exploitative fee and rate practices.
Moreover, most of these payment apps remain directly incompatible with each other – leaving vast swathes of the developing world as unsupported as they were a century ago.
Revolution meets regulation
The invention of Bitcoin in 2008 represented a breakthrough in the search for a native form of money for the internet. In solving the double spend problem, Bitcoin instantiated a technological revolution. This however was only a start of the revolution, not the end! The abuse of the Bitcoin ecosystem by nefarious activities affiliated with digital black markets has created an early barrier to its adoption by the mainstream, including regulated private sector financial institutions and governments.
Moreover, and as has been argued by the Financial Times’ Martin Wolf, the state cannot and will not simply abandon its role in ensuring the safety and usability of money, and “the idea that it should” argues Wolf, “is little more than a libertarian fantasy”. Bitcoin is here to stay, but so are national currencies, other cryptocurrencies, and NFTs.
It is for this reason that the development of Central Bank Digital Currencies (CBDCs) will be one of the defining innovations of our generation. Currently, 105 countries – representing over 95 percent of global GDP – are exploring paths towards a CBDC, while 10 countries have now fully launched a sovereign digital currency.
In light of this unstoppable trend, the future of money requires technology that caters for currency-fluidity – the ability for people to transact at any time with instant real-time FX conversion, regardless of the currency being used – where the value being moved is what matters, not the currencies involved. This phenomenon will only be possible with intelligent digital financial market infrastructure (DFMI)… in other words, an internet for money. As with the internet itself, building it will require close public-private collaboration.
The future will not wait
Early adopters of CBDCs are already proactively shaping this infrastructure. China’s vastly expanding e-CNY is the most developed CBDC initiative in the world, with ~260m wallets now registered and set to transform domestic retail payments following its official launch at the Winter Olympics in 2022. Full CBDC implementations also exist in The Bahamas and Nigeria, while Russia and India have both confirmed CBDC trials in 2022.
The UK cannot be left behind and this has driven our Digital FMI Consortium to launch Project New Era, a pioneering, cross-industry initiative focused on real-world testing to evaluate a future digital currency ecosystem that includes the coexistence of existing forms of money, regulated crypto assets and stablecoins, and Central Bank Digital Currencies (CBDCs) in the UK. Our pilot, set to be launched in the coming months, will be conducted under a cautious and progressive framework that features the use of a stablecoin asset – ‘dSterling’ – for the purposes of testing, serving to provide crucial insights for stablecoin and retail CBDC development.
Within the scope of the pilot, primary objectives also include engagement with the UK House of Lords (HoL), UK House of Commons (HoC), Her Majesty’s Treasury (HMT), The Bank of England (BoE), the Financial Conduct Authority (FCA) and the Payments Systems Regulator (PSR) to inform them of progress and learnings in order for these stakeholders to incorporate into their decisions around the Stablecoin and CBDC ecosystem in the UK.
A new era for money
The United Kingdom has a proud history of invention and innovation. When Tim Berners-Lee invented the World Wide Web in 1989 to meet the demand for automated information-sharing between scientists in universities and institutes around the world, he did not anticipate that his creation would profoundly and permanently change the way we live and interact today.
The emergence of digital currencies represents the biggest technological revolution since then, and the final step in the full digital transformation of the global financial system. Today, the global race for the future of finance is well underway, and the UK holds within its grasp the opportunity to lead the world in the pursuit of the internet for money.