The rapid pace and sheer scale of innovation in digital currencies and mobile payments indicates that a monetary revolution is forthcoming. The choice for governments and central banks is whether to stand in front of a train that is gaining steam, or get on board and reap the benefits.
Regardless of how Facebook’s own digital-currency moonshot, Libra, fares, it has already provided a wake-up call for firms and policymakers around the world. “If revolution there is to be, let us rather undertake it than undergo it,” Otto von Bismarck once said. The question for policymakers is not whether to try to shape the digital-money revolution, but how.
Digital money is already a key battleground in finance, with technology firms, payment processing companies, and banks all vying to become the gateway into the burgeoning platform-based economy. The prizes that await the winners could be huge. In China, Alipay and WeChat Pay already control more than 90% of all mobile payments. And in the last three years, the four largest listed payment firms – Visa, Mastercard, Amex, and PayPal – have increased in value by more than the FAANGs (Facebook, Apple, Amazon, Netflix, and Google). In a way, Libra is actually crashing the party late.
Given the concerns that Libra has raised, some central banks have begun to explore the option of issuing their own digital tokens. Others are studying the thorny legal and regulatory challenges posed by digital money, so that they can safeguard monetary and financial stability. For her part, Lael Brainard, a governor on the US Federal Reserve Board, recently suggested that the risks of cryptocurrencies outweigh the benefits. By contrast, the People’s Bank of China is forging ahead – though not toward the decentralized or “permissionless” blockchain model envisioned by crypto enthusiasts. The PBOC wants to use cryptography to issue tokens to mainstream banks, which will then be passed on to customers within the existing two-tiered banking system.
Hence, if the European Central Bank (or others) wanted to be the first central bank to issue digital money, the opportunity is there for the taking.
Full article on Project Syndicate
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