John Khoo reflects on Future of Finance 2021 Conference's Finance Panel.
Hosted by 6 of the LARGEST careers societies from leading global universities, Future of Finance 2021 was organised by UCL FinTech Society, LSE SU FinTech Society, LSE PRIS, Imperial Finance Society, Warwick Entrepreneurs Society & King's Business Club.
The speaker
David G.W Burch, Financial Services Consultant, Advisor, and Commentator
David G.W Birch is an author, advisor and commentator on digital financial services. He leads 15Mb Ltd (his advisory practice), is Global Ambassador for Consult Hyperion (the secure electronic transactions consultancy that he helped to found), Non-Executive Chairman of Digiseq Ltd, Ambassador for Jersey for Fintech, a member of the Governing Council of the Centre for the Study of Financial Innovation (the London-based think tank) and holds number of board-level advistory roles. Before helping to found Consult Hyperion in 1986, he spent several years working as a consultant in Europe, the Far East and North America.
The panel
A race to the moon or a bitter cold war? David Burch, an author of numerous books on digital currency, set the tone for the Finance segment by stressing the significance of future digital currency trends. Leading Economists for decades from John Maynard Keynes to Mark Carney have suggested that a form of global digital currency could be “the answer to the destabilising dominance of the US dollar in today’s global monetary system”. Digital currency will become an integral part of our society, leading to the question of who will control it, and whether political imbalances may be caused by this.
Digital cash is separate from the digital money we understand from generic online banking websites. It is direct from one consumer to another consumer, without the need of going through the intermediary of the banking system. Initially, digital currencies were viewed with speculation as being unsafe. This all changed when Satoshi Nakamoto launched Bitcoin powered by blockchain, eliminating the risk of double spending (sending a copy of your payment to somebody else). Its unique distributed-ledger technology allows transactions to have numerous “witnesses” thereby preventing fraud. Cryptocurrencies have taken off in popularity since then, with 4000 of such in existence currently. Meanwhile, governments have been clamouring for control over money in the digital space, launching Central Bank Digital Currencies (CBDC) such as the digital euro or the digital Renminbi in China. They differ from generic cryptocurrencies by being issued centrally and backed by legal entities. Big tech firms like Facebook are similarly getting their hands on digital currency, releasing Diem which will be widely available later on in 2021. Burch specifically notes that these Big Tech firms are “not so much interested in taking cash than your digital wallet”.
This brings us to Burch’s proposed model of digital currencies being split into private money (big firms), public money (central banks), and new money (generic cryptocurrencies). We should see digital currencies being increasingly divided into geographic areas, such as a digital USD for the US economy. But what are the implications of central banks issuing digital currencies that people can store in digital wallets all over the same? Burch argues that not all currencies are the same, with a currency pyramid being formed ranked on importance and distribution. Therefore, more serious transactions will be carried in “prime currencies” such as the digital Pound. Interestingly, digital currencies issued by different central banks will have different characteristics attractive to investors, such as the digital Canadian dollar which should specialise in privacy. People may therefore hold currencies based on their personal values and how safe they believe their money to be. In the scenario of synthetic hegemonic currency blocks looking to take over, a portion of global financial transactions would no longer be dollar-denominated, leading to a fall of demand for dollars.
This proposed digital Cold War is a sobering thought for the future of payments. Indeed it does seem like public money controlled by central banks will become the predominant option for digital currencies; with cryptocurrency prices being driven by pure supply and demand, society would not want a stock market traded on cryptocurrency being brought to its knees by manipulation. Nonetheless, no one form of digital currency should fully dominate the financial landscape for years to come.
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