Embrace the digital currency revolution

  To what extent will digital currencies change the way we trade and think about currencies? With the rush of digital payment innovation, these issues are now causing concern.
  Whether Facebook ’s own digital currency grand plan (Libra, Libra) ultimately succeeds or not, it has sounded alarm bells for businesses and policymakers around the world.
  Bismarck of the German Empire once said: “If a revolution is bound to happen, then we would rather lead it than encounter it.” The problem facing policymakers is not whether to try to shape the digital currency revolution. It’s how to shape it.
  Digital currency has long been a key battlefield in the financial field, and technology companies, payment processing companies and banks are all eager to make themselves a gateway to the emerging platform economy. The winner may end up with extremely large profits.
  In China, Alipay and WeChat Pay already account for more than 90% of all mobile payments. Over the past 3 years, the four largest listed payment companies, Visa, Mastercard, Amex, and PayPal, have increased their value more than the five major technology giants (Facebook, Apple, Amazon, Netflix, and Google ). In a sense, Libra is actually a long time coming.
  The opportunities presented by digital currencies are obvious. In various Western countries, the cost of transferring funds is too high and inefficient, but those who pay the most often tend to be those with the lowest ability to pay, and improvements to related processes will produce considerable returns and social benefits.
  In addition, especially when it comes to cross-border payments, the needs and potential returns of many emerging markets are even greater. According to data from the World Bank, the average cost of sending international peer-to-peer remittances is about 7% of the total amount, and work to improve major payment channels is also being promoted. For example, international remittance transfer platform TransferWise claims that it has averaged its customers’ cross-border transfer Cost reduced to 0.74%.
  Some central banks have begun exploring options for issuing their own digital tokens, while others are studying the difficult legal and regulatory challenges posed by digital currencies to maintain their own monetary and financial stability. Fed Governor Lael Brainard recently noted that the risks of cryptocurrencies outweigh the benefits. In contrast, the People’s Bank of China is moving forward–though its development direction is not the decentralized or “license-free” blockchain model envisioned by crypto enthusiasts.
  If the European Central Bank or other central banks want to be the first central bank to issue digital currencies, the opportunity is here. For policymakers who are thinking about the options offered by digital currencies, I offer five suggestions in the Bank of England report.
  First, monetary authorities should create infrastructure to enable other payment methods to be interconnected. Once the central bank plays the role of an innovation platform, the private sector will flourish. But success will depend on how easy it is for new service providers to access central bank infrastructure, which requires well-designed application programming interfaces to receive and share information.
  second. Policy makers should introduce next-generation payment regulation. Rules need to be updated to address the increasing complexity and changing risks of current systems. As payment costs fall, the value of data will grow, but most of the existing rules about data sharing, security, and responsibility are still in their original state.
  Third, the government needs to advocate for a more comprehensive digital identity system, which is critical to improving financial inclusion, curbing online fraud and reducing costs. Some countries have made remarkable progress in this regard. For example, India has largely solved the identification problem through its Aadhaar National Biometrics program, which has greatly simplified the process for the network to understand its customers.
  Fourth, all countries need to support stronger messaging standards to improve cross-border payments, reduce costs and prevent fraud. Just as postal codes can help mail get to the right place, doing so also better marks payers and payees.
  Fifth, and crucially, policymakers need to develop a roadmap to reduce cash use. As payment habits change, each country will need a strategy to improve its payment infrastructure to prevent anyone from being left behind.
  Payment innovation is evolving at a dizzying rate. Some ideas may not be implemented, while others may need to be transformed for commercial viability. Other issues such as market dominance or cybersecurity risks will undoubtedly become more prominent in policy debates. All in all, the economic and social benefits of a barrier-free, fraud-free and trusted global payment system are likely to outweigh its risks.