However, according to Economist, the least noticeable boom is happening at the border separating the two fields of technology and finance will eventually become the biggest revolution. That is the birth of digital currencies issued by governments, allowing people to directly transact with the central bank, bypassing the network of traditional commercial banks.
So called "govcoins" - a new form of currency. They promise not only to help the financial system operate more smoothly and efficiently, but also to turn power from individuals into the hands of government. They will therefore change the way capital is distributed and have significant geopolitical implications.
More than a decade ago, in the chaos caused by the collapse of Lehman Brothers, Paul Volcker - former chairman of the US Federal Reserve (Fed) - complained that the most useful invention of the financial industry. is an ATM machine, a product that is too old. Since then, the industry has "upgraded". Banks continuously modernize their IT systems.
Meanwhile, on the outside, young entrepreneurs have built a whole world of decentralized financial (DeFi) apps testing, of which Bitcoin is the most famous part. The DeFi world includes a multitude of digital currencies, databases, and "pipes". These factors interact in completely different ways than traditional finance.
In addition, fintech applications currently have a total of more than 3 billion customers using e-wallets and payment applications. Besides PayPal is the emergence of super apps like Ant Group, Grab and Mercado Pago. There are also long-standing companies like Visa, and Facebook also ambition to enter this field.
Money issued by governments or central banks of countries is the next step. Govcoins will concentrate power in the hands of the state instead of distributing power across networks or giving power to private monopolies.
The idea behind govcoins is very simple. Instead of owning an account at a retail bank, you will open an account directly at the Central Bank without using similar applications like Alipay or Venmo. Instead of writing a check or paying online with a card, you can use the central bank's low-cost network. And your money will be guaranteed by the state itself, not a bank that can collapse.
Do you want to buy a pizza or help a relative default? No need to call Citigroup hotline or pay the fee for Mastercard, UK Central Bank and Fed will serve you.
One impetus for governments and central banks to issue digital currencies is the fear of losing control. Today central banks rely on the banking system to amplify the impact of monetary policy. If payment, lending, and mobilization are all digitized, central banks will find it difficult to manage the economic cycle and pump money into the system when there is a crisis. Out-of-control private networks have become "the Wild West" filled with phishing and privacy attacks.
The next driver is the prospect of improving the financial system. Under ideal conditions, money is a reliable store of value and an efficient means of payment. However, the reality is not so. Uninsured depositors run the risk of losing money if the bank goes bankrupt. Bitcoin is not widely accepted and credit card fees are quite expensive. Government-issued digital currencies are better off, as they are state-guaranteed and use a low-cost payment network.
As a result, govcoins could help reduce the cost of the global financial industry, which is estimated to be an average of $ 350 per person. Cryptocurrencies also help 1.7 billion people who currently do not have a bank account to access financial services. Govcoins also helps to expand the toolkit of central banks by making it easier for them to send relief money to people as well as lower interest rates below zero. For ordinary users, the appeal of a free payment means. Charge, safe, fast and synchronous is too obvious.
But it's not without risks. Govcoin can quickly dominate the financial system, especially if the network is attractive enough that users cannot give up. This will make commercial banks wobble, because if all the people and businesses leave money in the central bank, they will have to struggle to find another source of capital.
If retail banks run out of capital, someone will have to lend money to businesses. This leads to the risk of returning to the credit distribution system under the bureaucratic mechanism.
Govcoins can also become a tool for the state to control citizens more closely. They can also cause geopolitical upheaval by providing cross-border payment networks and a US dollar alternative, threatening US influence. Part of the greenback's strength comes from a very open US capital market that China cannot match. However, that power is also based on a pretty old payment system. Small countries are concerned that instead of using local currencies, people will turn to foreign cryptocurrencies and cause trouble.
Governments and financial institutions need to prepare for a major shift in the way monetary systems work, similar to a jump on coins or payment cards. That means strengthening privacy laws, reforming the way central banks and retail banks need to prepare for a more opaque role in the future.
Govcoins are the next great experiment in the world of finance, and they will bring much greater changes than the ATM machine.
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