Digital currencies are ‘a key area of interest for the Forum,’ said WEF Founder and Chairman Klaus Schwab. The area ‘requires input across sectors, functions and geographies.’
On one side of the debate on the future of payments are fintech companies looking to capitalise on the digital trend by issuing private currencies, some of which may have the potential to gain worldwide reach. On the other side are central banks and issuing authorities of traditional fiat currencies, at a risk of being left behind in the looming overhaul of the global financial system. Some of the world’s central banks are teaming up to assess the potential developments of their own digital currencies, a tacit acknowledgment that their roles are being challenged by new technologies and private sector initiatives.
There were three related themes that dominated WEF discussions, according to the reports by Coindesk: 1) a debate around blockchain technology as a useful tool vs potential risks of private cryptocurrencies; 2) a growing consensus that physical cash has a limited or no place in the future; and 3) the rise of Central Bank Digital Currencies (CBDC).
The first topic, in essence, is a conversation about financial privacy. While most economists and politicians, with alarmingly few exceptions, say that more financial data collection and passive surveillance will benefit society, not all Davos leaders advocate government control over payments and digital assets. Traditional cryptocurrencies such as Bitcoin, developed in a spirit of freedom from authoritarianism, also received some support. Bruno Le Maire, the French Finance Minister, said that decentralised digital assets will have a role to play in the future of France, as long as organisations like the crypto custody start-up Ledger and the blockchain technology company ACINQ continue to pay taxes and uphold regular compliance standards.
Despite their widely diverging opinions on digital currencies, the role of blockchain and the appropriate level of government control, there is one item on which this year’s Davos participants appear to be in full agreement: the future of money is digital, cash is dead.
‘Physical money is out,’ said B S Kohli, an economic advisor to the head of the Indian state of Punjab. Mothanna Gharaibeh, Jordan’s Minister of Digital Economy and Entrepreneurship, agreed.
Diana Paredes, CEO of the compliance start-up Suade Labs, said the sentiment among her public- and private-sector clients is ‘cash is dead.’ However, she added, it’s the job of policymakers to protect consumer interests by regulating privacy around digital payments.
One of the sessions at WEF was dedicated to challenges created by changing geopolitical and technological environment to the US dollar dominance in the global economy. Discussion of future scenarios included the possibility of five or six ‘continental’ currencies, with the renminbi, the euro and the dollar being the main ones, and a single trans-national digital currency, based on a combination of blockchain and trust. Gita Gopinath, IMF Chief Economist, said: ‘I can see people very easily switching from paying in cash to paying using a digital payment platform, but whether they will as easily switch from the dollar to the renminbi, that is a completely different question, that I think relies on much more traditional factors.’
The conversation on the subject of digital currencies, and particularly CBDCs, was not so much about whether this is going to happen, but when and how. Benoît Coeuré, Head of the Innovation Hub, Bank for International Settlements (BIS), said that 80% of central banks are now working on digital currencies, up from 70% last year and 65% in 2017. In respect of the time estimates, 10% of central banks are going to be ready to issue a general purpose (retail) CBDC in the next three years, and 20% are going to it within six years. In three years’ time, around a fifth of the world’s population can potentially have access to a CBDC.
‘Ultimately, CBDC’s really the answer,’ said Neha Narula, Director of the Digital Currency Initiative at the Massachusetts Institute of Technology. ‘It reduces risk and it allows the central bank to provide a public option for money, which it should.’
To share the benefits of the existing research into digital currencies, WEF developed the CBDC Policy‐Maker Toolkit, a 25-page framework document for policymakers in countries considering CBDC. The WEB maintains apparent neutrality on the subject, stating that it ‘does not advocate for or against the implementation of CBDC in any country’.
The conversation on digital currencies and their governance is going to continue on a global level. WEF’s platform for this is the newly created Global Consortium for Digital Currency Governance, announced in Davos following extensive consultation with the global community. The consortium will bring together leading companies, financial institutions, government representatives, technical experts, academics, international organisations and non-government entities, with the key focus on designing a framework for the governance of digital currencies, including stablecoins.
The creation of the consortium follows on the steps of the BIS announcement of a working group made up of six central banks, including the European Central Bank (ECB), to accelerate the work on digital currency regulations and seek solutions for a fragmented regulatory system.
The next event in WEF’s calendar is the Global Technology Governance Summit which will take place in San Francisco on 21-22 April. Governance of digital currency will be a core topic.