The European Central Bank plans to launch digital euro, “an electronic form of central bank money accessible to all citizens and firms.” The plan is to offer to the European citizens a free, safe and trusted way to make payments in an increasingly digital world, and possibly protect the supranational bank from disintermediation from cryptocurrencies like Bitcoin, and fintechs like PayPal.
China is in the final phases of taking the e-yuan mainstream. As that happens, I do expect some of the payment-focused technology companies in China to struggle as the small fees they charge go. Chinese paytech firms like Alipay have done very well when benchmarked with their Western’s counterparts. Alipay does $18 trillion while Visa and Mastercard combine for $16 trillion. And most importantly, Visa and Mastercard merchants will lose about 2-5% on fees when Alipay charges 0.6%.
The biggest threat from digital national currencies is sucking deposits from commercial banks. In other words, most customers will have to open bank accounts with a central bank, and that means moving some of their deposits from banks to the apex bank where the digital currency is domiciled.
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“A digital euro could … attract payments activity from banks and reduce their payments-related income and customer information. It could also attract deposits, especially if it were offered without limits on individual holdings and at such attractive conditions that the public moved large amounts of deposits from commercial banks to central banks. The concern is that this could lead to less stable and more costly funding, lower bank profitability and, ultimately, lower lending, constraining the financing of the real economy,” Panetta said in the same speech.
A digital euro could pose an even greater risk to banks during crises. “If not properly designed, in times of crisis a digital euro could accelerate ‘digital runs’ away from commercial banks towards the central bank. This risk could even be self-fulfilling, leading savers to reduce their bank deposits and amplifying volatility in normal times too,” Panetta said.
And US is joining the party: ‘Fed Chair Jerome Powell told Congress last month that the Fed was looking “very carefully at the question of whether we should issue a digital dollar,” calling it a “very high priority project for us,” though he said it raised significant technical and policy questions.’
Federal Reserve Chairman Jerome Powell told Congress on Tuesday that the Fed is “looking carefully” at whether it should issue a digital US dollar.
A digital currency developed by the fed is a “high priority project for us,” Powell told Congress, but he added that there are “significant technical and policy questions” related to a digital US dollar.
“We are committed to solving the technology problems, and consulting very broadly with the public and very transparently with all interested constituencies as to whether we should do this,” Powell said.
As the world’s reserve currency, Powell stressed that the US doesn’t have to be first in issuing a digital dollar, but it needs “to get it right.”
A payment system which offers a free way to make transactions sounds interesting – and will thrive. The opportunities could be for those companies which will play well at the edges of the smiling since the central bank will be the de facto operator at the center. The future of banking could possibly go to tech firms which offer banking services!
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It looks like the global economy has become one big lab, running all kinds of experiments on monetary policy, it’s still not clear where the ultimate power could reside, when push finally turns to shove.
What is apparent is that there will be many casualties and few winners, at the corporate or enterprise level, but on how it benefits regular citizens, the jury is still out there.
But being that the world is owned and rigged, few guys will always lord it against the rest, nothing like freedom or level-playing field, the world was/is not configured to work that way; there’s what they call POWER and its cousin known as DOMINANCE, always pay close attention to them.
Let the shaku shaku dance continue, we will assess the bruises in few years time.