When Machines Make Money

Central banks in countries like Sweden, China, the UK, Uruguay, West Africa, Japan, Singapore, and France are piloting or experimenting with digital currencies.

Despite all the talk of ‘digitzation’, if you were expecting any significant announcements at Sibos this year around Central Bank Digital Currencies, then you’re likely to be disappointed. Most panellists on Tuesday’s Central bank digital currencies: Ready for global take-off? virtual panel agreed that we’re unlikely to see CBDCs taking off in a significant way any time soon.

Changes from the legal and policy side are needed before CBDCs can fly, said Scott Hendry senior director, Financial Technology, Bank of Canada.

“CBDCs are like a [slow moving] train leaving a station,” said Frantz Teissèdre, head of Interbank Relations at Société Générale. “We don’t know where it’s heading, but we want to be on board.”

Central banks in countries like Sweden, China, the UK, Uruguay, West Africa, Japan, Singapore, and France, to name but a few, are piloting or experimenting with CBDCs. China’s Digital Yuan could be the first to leave the station, with a separate session at Sibos on the future of money mentioning that it could be used as early as next year at the Winter Olympics in China. 

While the Digital Yuan, is just for retail payments, other CBDCs could potentially be used in wholesale payments between companies. The latter does have its challenges, however, as commercial payments are usually the domain of private banks and not the public sector. Hendry says central banks could partner with the private sector, but it is unclear what that partnership will look like in practice?

Teissèdre at Société Générale said CBDCs could help accelerate the transformation of wholesale interbank payment processes, but they are not a cure for the cross-border frictions that already exist in payments due to unharmonized regulations.

Central banks also have different reasons for issuing digital currencies. Although the Bank of Canada has no need for a CBDC right now, Hendry said it could at some point in the future to promote greater financial inclusion as cash usage declined.

China, on the other hand, sees its Digital Yuan, as a largely defensive play. “Bitcoin, Ethereum and global stablecoins, have already threatened the monetary sovereignty of China,” said Changchun Mu, director of the Digital Currency Institute at the People’s Bank of China. “To safeguard our monetary sovereignty we have to issue our own digital currency.” Given that more than 90% of retail payments in China are made using one of only two providers—WeChat Pay and Alipay—Mu said a CBDC could also act as a contingency, in case anything happened to these organizations.

Sticking with the train analogy, while CBDCs may still be stuck on the platform, Wednesday’s virtual session on the future of money catapulted us three years out to 2023 where, according to commentator and Global Ambassador for Consult Hyperion David Birch, it will be time to look at what’s coming next as networks like SWIFT and Visa will be considered “middle aged.”

“We’re moving into a world where it’s my mobile phone (my AI supercomputer) discussing with another AI supercomputer what basket of assets they need to exchange,” he explains. “It isn’t people doing these transactions. It’s AI and bots and the Internet of Things.”

In this futuristic world of money run by machines, Lana Swartz, assistant professor of media studies at the University of Virginia said access won’t be a problem. It is more about how the terms of access are defined. “Machine learning will decide if identities in many forms are transactable,” she said. For example, can my fridge order my milk, and what basket of currencies will it use? “Machines [not humans] will be making most of those decisions,” says Swartz. But technologists will need to think about the impact false positives thrown up by these machines could have on certain segments of society. “If vulnerable people are unable to transact that is as bad as not having any money at all,” said Swartz. “The critical challenge is to ensure that vulnerable populations are accounted for.”