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Programmable money will redraw the map of international trade

12 Nov 2019
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Article by Centrality FinTech CEO Dave Corbett

Recently, China did a complete U-turn on its stance on programmable money.

The latest news that China has changed its attitude to cryptocurrencies should raise alarm bells with the New Zealand banking and trade sectors.

China has also passed a new law, which will come into effect on January 1, 2020, aimed at “facilitating the development of the cryptography business and ensuring the security of cyberspace and information”.

This represents a massive about-face for China.

At the start of this year, cryptocurrencies were illegal in China.

Now, President Xi Jinping has said that China should accelerate the development of blockchain and Chinese central bank officials are telling commercial banks to embrace digital finance and currencies.

China has been quietly building a programmable money supply since 2014.

When it is released, likely in 2020, China will be the first significant economy to upgrade its money supply, a change widely expected to kickstart a new era of FinTech innovation.

Cryptocurrencies, like Bitcoin, are one type of programmable money, but it is the new wave of programmable monies, called central bank digital currencies (CBDCs), that are expected to have an oversized impact on the economy.

China’s digital renminbi (aka digital yuan) is on track to be the first major CBDC released.

We know from our current paradigm that those who control the most widely used currencies also control a great deal of the global economy.

There is an American/Sino dynamic being played out here in a race to control the next generation of money.

The programmable money most likely to compete for US dollar dominance may be Facebook’s Libra coalition if, as Mark Zuckerberg recently testified, it is mostly backed by US dollar deposits.

Having said that, the emergence of Libra as a national champion is being hindered by political scrutiny, general concerns about the ethics of Facebook’s business model, and the recent abandonment of high profile initial backers like Visa, Mastercard, PayPal and others is slowing down the American contender.

The head of the Bank of England and the new head of the European Central Bank have expressed a view that there is a place for CBDCs.

So, the emergence of programmable money from Europe is a real possibility in 2020.

New Zealand currently benefits from its currency being in the top ten traded currencies globally.

New Zealand needs to think about how it can protect or enhance that position in a world where China, Facebook’s Libra and others are competing to become the dominant programmable money supplies.

There is a risk that Kiwi inaction could mean that other countries’ monetary policies will have a disproportionate influence on New Zealand.

Imagine a scenario where more than 10% of our GDP was transacted in currencies other than NZD.

If the new wave of programmable money supplies delivers on the promises of enhanced functionality to users, this is a very real possibility.

As a trade-based economy, New Zealand needs to show leadership on upgrading our money supply to ensure that our Reserve Bank, Treasury and the FMA can retain effective stewardship over the New Zealand economy.

Looked at more positively, New Zealand’s high-trust financial reputation and early adoption of new economic models and technology means we are well placed to ensure that the digital currencies we adopt reflect our values.

We also have the local technical expertise to deliver a programmable NZ dollar.

Early movement on programmable money is potentially another EFTPOS moment for New Zealand.

It is likely to help New Zealand incubate and grow a new wave of financial innovation that delivers winning local user experiences and weightless exports.

About Centrality FinTech

Centrality FinTech is a New Zealand-owned and operated global company that is passionate about the business of market innovation. It is actively involved in working with the financial services sector to build the technology of programmable money and the financial service experiences that are enabled by it.