I buy chocolate from a vendor in Istanbul. That vendor has to source ingredients like cocoa beans from suppliers outside Turkey in, say, Ghana. The Ghanaians in turn must buy fertilizer from, say, Korea and at every step a different currency is involved. The inefficiencies are obvious and why, in 2021, are we still trading (in some respects) like its 1799?
Professor Ross P. Buckley from the University of New South Wales Faculty of Law (et al.) writing in the Journal of Payments Strategy and Systems sums up the current state of progress as governments around the world now wrestle with the whole concept of ‘new-money’.
The imperative to step up this wrestling has been accelerated not by Bitcoin or its imitators, which Central Banks have felt could in general be ignored, but by something altogether more scary.
In June 2019 Facebook unveiled plans for the world’s first truly universal digital currency, Libra. This was a real threat because “Libra is the first digital currency with the potential to become systemic — a characteristic Bitcoin and its progeny lacked. This potential scale led regulators to respond vigorously and central banks to rethink their approach to sovereign digital currencies (SDCs).”
Plans for Libra were shelved in response to Central Bank opposition but a Libra 2.0 is in the works and it’s clear the world’s Central Banks have to do a lot better. Or the private sector will solve the problems for them.
So far only the Bahamas has officially issued a fully fledged SDC. Sweden and Canada have advanced plans but as all these locales lack financial heft they’re only curiosities. Hong Kong, Singapore and the U.K. present more interesting potential adopters but it’s the 500-lb gorilla in the room that will really make the difference.
“The expected eventual launch of China’s SDC is having a similar catalytic effect as Libra, with COVID-19 putting further pressure on central banks around the world to increase their own developmental efforts.”
The paper concludes that an eventual solution to a fully fledged and seamless international payments system involving SDCs will almost certainly have to be some form of interlocking public/partnerships [Clearly implicit: with China not the U.S. leading the change-charge].
Surely, we live in interesting times!
You can access the paper in full at Sovereign Digital Currencies and if you just want to skip to the conclusion that begins on P.18.
Happy Sunday.