Are corporate digital currencies on their way?

It is often forgotten that from 1837 to 1862, the creating of bank notes was typically unregulated in America which led to over 7,000 different varieties, many of which were easy to replicate by the counterfeiters. This chaotic state of affairs incited a loss of confidence in US paper money. The first US $1 bank note was released in 1862, along with the other denominations of $2, $5 and $10 featuring Lincoln, $20 featuring Lady Liberty and $50 with a bald eagle – $100, $500 and $1,000 banknotes were also issued. This was followed by the National Bank Act of 1863 which led to establishing a series of national banks.

Remarkably, the world of finance and payments would now appear to be at the point of inflection as we see the emergence of new digital currencies ‘going mainstream’ as the second largest economy in the world. Notably, China (with a population of over 1.4 billion) has just launched its own Digital Currency. Meanwhile, there are increasing calls for a US Digital Dollar and, indeed, ‘The Digital Dollar Project’ was launched this year as Congress reviewed different actions it ought to take in the face of the Covid-19 pandemic. It also considered a digital dollar as part of the economic stimulus for the USA.

However, how long will it be before people begin to question the soundness of nations’ finances as governments in such countries as the USA, France and Germany continue to print cash and inject billions into their struggling economies? To date, these economies have infused the equivalent of 10% of their GDPs into their economies in order to tackle the impact of Covid-19 and help soften the hardship felt by millions of citizens who have been, in effect, ‘locked’ in their homes unable to work or earn money. Indeed, the LA Times in California has reported that 20% of Americans nationally will not be able to pay their rent in June!

A further challenge faced by some governments is the accusation of potentially operating illegally as they print cash to buy back bonds and hence crush interest rates. Lower interest rates are a double-edged sword: welcome relief for those who have debt (including the governments which typically have the most) but disastrous for the citizens who have savings and, historically, have relied on bank deposits to supplement their retirement income.

Germany’s constitutional court is calling on the the European Central Bank (ECB) to justify the legality of it actions as it claims that quantitative easing (i.e. the printing of cash and buying bank bonds) is illegal. The state of flux and change is also ‘alive and kicking’ in the corporate world, especially among the global technology giants. The S&P500 index, which represents the 500 largest capitalised firms in the USA, is increasingly being dominated by barely a handful of technical goliaths as Microsoft, Apple, Amazon and Google alone now make up 20%+ of the entire S&P 500 index.

Equally, there has been considerable discussion about Facebook and its Libra-sponsored initiative, with the announcement last June of the wish to offer a Digital Currency to its 2.6 billion monthly users. Mark Zuckerberg, Facebook’s CEO, recently quoted that 90%+ of its revenue is derived from adverts and that it would be faster, more efficient and more profitable for Facebook were these adverts to be paid for using Libra. No doubt, the recently launched ‘Facebook Shops’ (targeting small businesses) will also be users of the Libra currency. Facebook claims it already has over 160 million businesses using Facebook’s apps every month. Zuckerberg added to this, “We are seeing a lot of small businesses that never had an on-line presence get on-line for the first time…. for lots of businesses it is the difference between staying afloat and going under”.

Of note, Google is rumoured to be working on a debit card to rival Apple’s card, and how long before Canada’s fast growing online e-tailer, Shopify, mimics the Amazon Coin?

However, it is not only US firms that are moving into this space. Samsung, which made over $2 billion in profit in 2019, is to expand its foray into financial services and also offer a debit card –  a Mastercard issued by the Bancorp Bank. The card, similar to Apple’s, will not be engraved with an account number, expiration date or have a security CVC on it, but this information will be accessible using Samsung’s Pay app which requires the holder’s biometric or PIN authentication.

Ultimately, will these corporations follow the lead of the new Chinese Digital Currency, building on the infrastructure they have created and, coupled with their cash mountains, finally challenge not just the financial services sector but international currencies? While there has been substantial press coverage about the decline in the importance of the US$, will we begin to see a world of corporate currencies becoming the new ‘norm’ and, resultant from this, potentially return to the 19^th Century where there were multiple forms of payments, just as there were in the USA?

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