Privately Issued Digital Currencies

With the advent of the Satoshi Nakamoto whitepaper first released on 31 October 2008, the call for an “internet-based, decentralized payment system”, has spurred nothing short of a wave of innovation in the future of money and, critically, the movement of value (Nakamoto, Satoshi (pseudonymous), Bitcoin: A Peer-to-Peer Electronic Cash System, October 31, 2008). Some will argue the future of money is a revolution. What is becoming increasingly clear of virtual assets and the attendant technologies such as blockchain and distributed ledger technologies (DLT) that power them, is that this may be more of an evolutionary step, rather than a revolutionary one. The progress and maturation of digital currencies should be welcomed by a wide range of stakeholders. Over a maiden decade, the world observed the wave of cryptocurrencies, greed-fueled or shoddy initial coin offerings (ICOs) and basic risk management failures, give way to credible opportunities to add optionality and competition in payments and banking through sound privately issued digital currencies. This chapter will argue that privately issued digital currencies or so-called stablecoins (guarding against the fact that not all stablecoins are created equal), can play an important role in improving financial services and modernizing the underlying infrastructure that conveys valueThis infrastructure is vulnerable due to single point of failure designs, promotes financial exclusion and is not interoperable at population scale. From enhancing consumer choice to spurring responsible financial services innovation and operating within the realm of regulatory and prudential oversight, rather than undermining or circumventing it, an industry is coming of age. After all, the vast amount of money in circulation in the global economy is privately issued via the two-tier banking system, credit card issuers and payment services firms, which are now turning to cryptocurrencies as a part of their own digital transformation efforts. This much holds true for the advent and likelihood of widespread public sector issuance of digital versions of fiat money in the form of central bank digital currencies (CBDCs). Arguably, the so-called CBDCs are already in circulation today and a breakthrough class of privately issued digital currencies represents their growing circulation. For these innovations to thrive, irrespective of how or by whom a trusted digital currency is minted, broadly available, open, secure and interoperable payment rails are an important void in the digital commons that must be filled.