Move Over Fiat Currencies

The future of money is virtual, wearable and smart. Banks and regulators need to wake up to the opportunities—and risks—that implies.

At Sibos in Geneva, financial technology, or fintech (blockchain, artificial intelligence, machine learning), was present in almost every conference presentation and workshop. And even in those sessions that didn’t directly reference it, one felt a sense that banking in particular and financial services in general are on the cusp of a major change as a result of technological advances.

But for all the talk of artificial intelligence, distributed ledgers, machine learning and the Internet of Things, one thing struck me: How are they likely to impact future notions or concepts of money?

Two or three years ago at Innotribeduring Sibos, cryptocurrencies were all the rage(See related story: Blockchain – a disruptive force for good?). But what seems to have happened in the intervening years is that the banking community, not wanting to associate itself with cryptocurrencies like Bitcoin (which was tarnished in bankers’ eyes because of its association with ‘criminal’ elements), more or less dismissed them as viable alternatives to fiat currencies. They did, however, jump on the concept of blockchain, the public ledger of transactions that underpins cryptocurrencies.

One may be surprised, however, to learn that not everyone looks down on cryptocurrencies with disdain. Indeed, several central banks—including The Bank of England, the Bank of Canada and De Nederlandsche Bank—are interested in exploring the economic benefits or growing value of digital and virtual currencies. At the opening plenary at Sibos in Geneva, Thomas Jordan, chairman of the governing board of the Swiss National Bank talked about a ‘Crypto Valley‘that has sprung up in the Canton of Zug in central Switzerland. The city of Zug has a pilot project where cryptocurrencies can be used to pay for public services.

That’s a shift from just two years ago. Back in 2014, the Federal Council of the Swiss government issued a report looking at legal aspects of cryptocurrencies. The report concluded that “The economic importance of virtual currencies as a means of payment is fairly insignificant at the moment and the Federal Council believes that this will not change in the foreseeable future,” the report concluded. “Accordingly, virtual currencies have no influence on the mandate of the Swiss National Bank either.” At the same time, however, the report also held that business models based on virtual currencies were subject to financial market laws and should be subjected to financial market supervision.

Since that report, Switzerland’s Parliamentary Group for Digital Sustainability has asked for a study of the benefits of cryptocurrencies and the Swiss have proposed to treat Bitcoin like any other foreign currency. One can understand the Swiss rationale on this, given the key role the country plays as a major international financial services centre. But the wider financial services community is missing a trick here. They’ve become too focused on the negatives associated with cryptocurrencies and not seeing the opportunities, particularly when it comes to the issue of financial inclusion and promoting different means of exchanging value.

At Sibos in Geneva there was also talk about smart devices to power “wearable payments.” In a world where a number of smart electronic devices can seamlessly interconnect with one another to deliver financial services, what are the implications for how value is perceived? The suggestion is that the information or data that these interconnected devices exchange is where the real value lies in the future and that monetary value, in the traditional sense, is secondary to that. The success of mobile money providers like Kenya’s M-Pesa, which has more than 20 million subscribers who send and receive money using their mobile phones, illustrates how the device itself and the information it imparts about its owner create value—particularly for those segments of the population that cannot access conventional financial services via a bank branch or the internet.

The future of money, then, is one where a number of currencies—virtual and non-virtual—are likely to co-exist, promoting a wider sense of financial inclusion and convenience than fiat currencies offer today. The financial services community and financial regulators need to wake up to the opportunities created by this new reality.