We need digital money for the global economy to thrive

Here’s why a payments innovator who has worked for a major global bank for almost 20 years believes in stablecoins.

Photo courtesy of Ivan Samkov via Pexels

For a long time, the best way to improve payments for businesses and consumers was to build on the existing financial infrastructure. But what is clear is that we now need some real form of digital money: Stable coins backed by carefully constructed and appropriately regulated fiat currencies. Just as a range of previously physical things have gone digital in our lives to provide better experiences and instant gratification, so must money.

It’s easy to see why the current payment infrastructure has endured. Billions of dollars in payments are processed reliably and securely every day around the world. Cross-border and domestic payments around the world have become cheaper, faster and easier for many people over the past five to ten years. This has happened due to the arrival of fintech, technological advancements, regulatory support to increase competition, the launch of domestic instant payments programs in markets around the world, and the fact that banks have invested in improved payment capabilities. But these improvements haven’t got us where we need to be. The digital form factors of money that exist, such as credit cards, are insufficient to support the direction of global economic activity.

So that we can finally crack the code of today’s unresolved payment challenges in terms of cost, time and access, and for the new digital economy to thrive, the money that consumers and businesses use every day in the world needs to go fully digital. The incremental adjustments and improvements to today’s analog silver will not get us there.

Trusted stablecoins like USDC are digital versions of the money you use every day. Unlike other cryptocurrencies, stablecoins have the price stability and benchmarking of the value of commonly used and held fiat currency, such as the US dollar, to make them relevant to consumers and businesses in day-to-day business transactions. . And because stablecoins are completely digital, they can do things that your current money cannot do today.

Stablecoins are mobile around the world across economic ecosystems, enabling instant settlements, micropayments, and are always activated, 24/7, 365 days a year. This means that the digital properties of stablecoins will solve today’s problems with cross-border remittances and payments, for example, by enabling inexpensive instant settlement across borders. That alone will provide tremendous value to a large number of people around the world.

However, not all stablecoins are the same. I am a special advisor to Center, founded by Circle and Coinbase. It is a stablecoin standards organization providing a reliable and repeatable framework for the issuance of stablecoin based on the principles of transparency and integrity, starting with the USDC.

Digital money is essentially code, allowing programmability, so transactions can be transparent to users – if I receive the asset, you will receive the funds without anyone having to issue manual instructions or an institution does not intervene.

The benefits will be numerous. Stablecoins will ensure, for another example, that content creators will for the first time be able to enforce their intellectual property reliably, as the assets they create are shared, trade hands, and potentially increase in value. Stablecoins will fuel micro-entrepreneurs who sell products online via videos and enable advertisers to efficiently make instant micropayments to influencers. Real-time global digital commerce, in which people around the world are increasingly participating, requires real-time digital settlement across borders. Access to money will be democratized: if you have a telephone, you will be able to have an operating account to receive payments and send money. You can also participate in decentralized finance (called DeFi) to access credit and develop your wealth.

While most national governments are currently evaluating the issuance of digital currency (known as central bank digital currency or CDBC), there are many deep design considerations. For example, to what extent will citizens want or need the CBD to be private? What will the role of the commercial bank be if you leave your deposits with the central bank, and who will provide the loans? Thus, it will take a long time for many countries to issue CDBCs, and it will likely be largely focused on use cases and national priorities. Meanwhile, we need digital money that will work globally today, and the private sector is moving forward with solutions.

Compare the opportunities offered by digital currency and the emerging digital economy with the payment systems we have today. They are fragmented, with very limited interoperability and restricted access. Payments generally work well when you’re in a specific ecosystem, but they stop working well when you leave it. It is expensive, time consuming, painful and sometimes technically impossible to move money through ecosystems. Thus, for consumers and businesses alike, sending electronic payments from country A to country B is too expensive and difficult. For people who send hard-earned money back to their families, it costs too much and takes too much time. It is still expensive for a merchant to accept digital payments from their customers. And there is an urgent issue of fairness: Access to financial services is still largely limited to consumers and businesses that can afford it. This is incompatible with the democratization of access that the Internet otherwise allows.

The world is rushing into a new phase of the digital economy, far beyond the traditional e-commerce business of simply buying physical goods online. We are entering a new critical chapter in the evolution of the Internet, sometimes referred to as Web3. This movement means that we are moving from access to a world of information (“reading”) and publication of all kinds of content (“writing”), to an Internet that will allow true ownership. Read write and own.

This next-generation global digital economy means that the awesome and wonderful creativity of humans can be appropriately and fairly rewarded. For the first time ever, unique digital assets will be created, bought and enjoyed by anyone else in the world. It also means that most people will be spending even more time online. We are increasingly living digital lives, in digital worlds. The Metaverse is a real thing, and you might want to own a digital land and a digital wardrobe, maybe even more than you would want a lot of physical goods. Going forward, you will likely spend more of your discretionary income on digital assets that reflect your passions and hobbies, which may allow you to experiment and enjoy those interests more dynamically than you do. by owning static physical goods.

The digital economy, digital assets and the metaverse are by definition global, transcending our physical locations. While we are still in the very early days of this future world, the implications for the future of money are profound. Reliable, well-designed and well-implemented stable parts will be an important part of the answer.

Morgan McKenney has held various global leadership roles in payments innovation for businesses and consumers at Citi for the past nearly 20 years. She is currently a special advisor to Center, established by Circle and Coinbase to support the development of trusted stablecoins around the world, starting with USDC. Morgan is also a Sponsorship Advisor at Nyca partners, a leading venture capital firm focused on connecting innovative companies to the global financial system, an executive in residence for the Global Blockchain Business Council (GBBC) and an expert advisor to Bain.