The future of money: cryptocurrencies, CBDC and 21st century cash
We live in the digital age. Our communication, our health care, the way we order food or entertain ourselves, all look different than 20 years ago. Banking and finance are also changing, followed by money. Therefore, today we will discuss the report “Future of money” from Citi GPS.
Can we say that we are about to cross the threshold into a new world of digital money? Not the account-based e-money that has been around for the past several decades, but a new type of token-based digital money. Tokenization, often through the blockchain, is the backbone of cryptocurrencies, stablecoins, and many offered central bank digital currencies (CBDCs). Central banks around the world are enthusiastic about bigtech-initiated CBDCs and ambitions to create alternative payment systems for existing money cards and bank payment systems with tokenized money, as in the case with Diem, which is supported by Facebook.
China is currently well ahead of major competitors in CBDC development and is already in the stage of extensive pilot testing. Mariam Matiashvili, CBDO of the company LeoGaming, wrote about this not so long ago. Given the country’s rapid growth in cashless payments, DCEP (Digital Currency Electronic Payment) is expected to be rapidly adopted over the next five years. Meanwhile, work is under way on a digital euro, and U.S. politicians are also fueled by the idea of a digital dollar.
The increased interest in cryptocurrencies such as Bitcoin and Ethereum is also driving the development of digital money. The market value has risen recently, with the total value of the cryptocurrency being around $2 trillion.
Consumers have greatly influenced the adoption of cryptocurrency, with the recent wave being called broader than 2017–18, with interest from both institutional investors and corporations, as well as retail investors. Despite the popularity of cryptocurrency, today in most countries of the world it serves more as a digital asset than as a transaction currency.
All changes have intentional and unintended consequences. Tokenized money can free existing financial institutions from intermediaries, increase the volatility and cost of bank deposits, and replace existing payment form factors such as checks and cards. Or new payment solutions could disrupt an already crowded payment area. But trading and holding cryptocurrencies could be a new source of income for financial institutions, and CBDCs could lead to more efficient and targeted implementation of monetary and fiscal policies.
The race to the next generation of money can be conceptualized as a Cold War for digital currency. After all, it is relevant, and the public interest in it is high again. Google searches for digital currency are on the rise, the aggregate value of the cryptocurrency hit an all-time high in early 2021, and CBDC performances by central banks have also returned to their historical levels. Changes are not always easy and harmonious, but always inevitable.
