Digital Currencies - What Treasurers need to Know Now

What is digital currency? Why should treasurers care about it? There is a lot of hype, but not much action. The little action there is can be easily handled via a PSP (Payment Services Provider).

Simon Jones, is a leading expert on payment systems and electronic banking. For him, digital currencies will arrive soon, probably via intelligent contracts and conditional payments. Treasurers may not decide to adopt digital currencies – but Procurement, or another function outside Finance, may take the decision for them. 

The key things treasurers need to know:

• The ideal solution is Central Bank Digital Currencies – but these are unlikely to happen soon
• The more practical solution is stablecoin – but these present a series of risks.

A big thank you to Simon for laying out what treasurers need to know to be prepared.

Listen on Spotify, or view video below.

Central Bank Digital Currencies (CBDCs)

Today’s legacy fiat currencies are not natively digital. They interact with digital systems via a series of expensive and inefficient interfaces, including credit cards. We will probably end up with digital national currencies – but not any time soon.

• Central banks are not able to keep up with the pace of innovation. This is not new news
• CBDCs mean a profound change in how central banks work and how commercial banks are funded. 

This section brings a lot of clarity to these key questions.

Stablecoins

Stablecoins provide the benefits of digital currencies, without the volatility and risk which comes with crypto. But, the main tool for eliminating risk is to back stablecoins with fiat currencies. There are two main – private – stablecoins, but many others are springing up.

So, the risks are whether these currencies really comply with the rules, and potential technical incompatibilities between the various currencies. Also, the main stablecoins are in US dollars, and even the euro stablecoins are US owned. In today’s geopolitical environment, this is unlikely to be acceptable outside the US.

Regulated banks are beginning to issue stablecoins – but treasurers are well advised to understand these risks.

How will this end?

The chances are that CBDCs will end up prevailing – but not in the near future. In the meantime, we are seeing stablecoin based systems being set up between financial institutions. Stablecoins may well enter the enterprise via smart contracts – these bring many benefits, and will not wait for CBDCs. 

Treasurers need to understand and be prepared.