Expanding digital economies, cross-border transactions and rising demand for instant outcomes are creating opportunities for new forms of digital money every day.
They’re innovative and cost-effective, they offer speed, security and privacy but they’re also mired in complexity and regulatory uncertainty.
The three most common varieties are cryptocurrencies, stablecoins and CBDCs - a Central Bank Digital Coin that’s a digital version of their own fiat currency. China is the most advanced of the major economies in developing its own digital money. In Australia, the Digital Finance Cooperative Research Centre has partnered with the Reserve Bank to explore use cases for an Australian CBDC.
Of all the digital currencies jostling to serve a need and solve a problem, which one will be the future currency of choice? This was the question debated by representatives from five leading global institutions at the Sibos 2022 conference in Amsterdam in October, where delegates gathered to learn about ‘Progressive finance for a changing world’.
Instead of a single future currency of choice, panellist Ian De Bode, a Partner with McKinsey & Company in San Francisco, suggested that different digital currencies solve different issues, which means we’re likely to need a range of options in the future. He said, for example, stablecoins are currently the preferred digital currency to make inter-platform or cross-border payments, store value, or provide liquidity for margin loans or swaps in decentralized finance (DeFi). That’s because, as its name suggests, it’s less volatile than cryptocurrencies as its value is pegged to a commodity, currency or a regulating algorithm, and it can engage with smart contracts.
“In terms of global adoption in the next 10 years, I think it’s going to be [a mix of] cryptocurrencies, stablecoin and CBDCs,” De Bode predicted.
Other panellists, such as the Bank of England’s William Lovell, said they expect CBDCs to emerge as the dominant digital currency.