- Published: 15 April 2018 15 April 2018
As Sweden and a number of G20 countries are moving towards tokenising their fiat currencies, could we be on the cusp of a huge transformation of the global financial system?
Forecasts of just about every kind, from climate change to economic prosperity, have been looking gloomy for as long as I can remember now. There is an assumed feeling that when one system ceases to function properly, it crashes and then has to be rebuilt.
When we are talking about systems as large as the global financial system and that kind of thinking keeps many people wide awake at night. In terms of blockchain and cryptocurrency, there has been an endless circulating ideology that Bitcoin or a similar decentralised technology is going to come along and replace the old fiat system.
This is a myth for one reason alone: bitcoin cannot by a long-shot handle the transaction load. Even with Lightning network fully implemented, it is highly unlikely that Bitcoin will prove a worthy contender for a global currency. Its energy footprint alone is not worth the bother.
On the other hand, blockchain technology could very well create a mechanism by which the global financial system can evolve to meet the needs of our civilisation going forward. By tokenising fiat currency, using the central bank institutions, while keeping the wide diversity of crypto coins in operation, we allow ourselves an enormous amount of flexibility in developing solutions to complex problems.
Innovation is already filtering down to consumers with app based banking, smartphone payments and much more. Moving money around is now cheaper and more of a real-time experience. But how much do we want to rely on these private corporations as the main gatekeepers to the sovereign currencies we rely on for everyday value transfer?
The Swedish Central Bank, The Riksbank, has published its plans for an e-krona digital currency citing the decline in the use of cash as the main reason. In addition to this, the Riksbank states:
"Private agents may determine the access to central bank money and payment methods. In addition to the Riksbank’s obligation to supply cash, the starting point for this project is the Riksbank’s task of maintaining price stability and promoting a safe and efficient payment system in a new digital environment.”
One of the major roles of central banks and regulators is to make sure consumers and retail investors are well looked after. If the means by which they create and circulate money is outmoded by innovative entrepreneurs then the system becomes vulnerable and subject to being gamed. The counter-factual is that we are being gamed by the central bankers who manipulate currency in the favour of banking elites. Even so, we need stability and innovation. The two together, from the public and private, allow for humanity to move forward in a managed way.
Head of Blockchain solutions for IBM, Jesse Lund, has recently claimed to have met with 20 central banks that include Europe, China, Russia and the US, who are looking at tokenising their currencies. Lund is confident we’ll see at least one make a move this year, and with Stellar being the current IBM partner that is way ahead in low cost, high-speed, cross-border transactions, it seems that these kinds of “leaks” hint at something exciting behind the scenes at work. Especially if you are Jed McCaleb, founder of Stellar blockchain (and Ripple) who I quoted in the title of this post.
The Stellar system needs to attract investors who can put up money for anchors that provide liquidity for cross-border transfers. If your anchor is a central bank, well... you have pretty much made it, haven't you?
All of this gives us a glimpse of a post-bitcoin, post crypto-mining centric model that large public and private organisations are developing. It also shows us that we are at the beginning of a new game-changing fin-tech landscape where innovators will be at the helm of designing a much needed brave new world!
Swedish Riksbank whitepaper: https://www.riksbank.se/globalassets/media/rapporter/e-krona/2017/handlingsplan_ekrona_171221_eng.pdf
IBM is finally getting serious about cryptocurrency: https://www.coindesk.com/ibm-evolution-big-blue-finally-getting-serious-cryptocurrency/